Australia fine-tunes non-infringement declarations

All the way from Australia comes some news from Baker & McKenzie of the Intellectual Property Laws Amendment (Raising the Bar) Act 2011, which covers a range of IP areas. This Act, which came into force on 16 April, makes provision for a number of legislative reforms that don't take effect until 15 April 2013. One such reform will interest PatLit readers since it deals with how declarations of non-infringement are pleaded. According to our source:

"The statutory reference to a person who wishes to "exploit the invention" will be replaced with a person who "has done, is doing, or is intending to do an act". This means that a person seeking a declaration will need not have sought or been granted a patent themselves in order to make use of the provision, and clarifies that a declaration can apply to a present, current or future act. An applicant for a non-infringement declaration will also be able to challenge the validity of a patent in the same proceedings".

Making directors liable in Australia: what must be proved?

The current issue of the Allens Arthur Robinson Intellectual Property Newsletter features a good note by Trevor Davies and Rob Silberstein, "Patent infringement and company directors", on the 22 February 2010 ruling of Bennett J (Federal Court of Australia) in Inverness Medical Switzerland GmbH v MDS Diagnostics Pty Ltd and others [2010] FCA 108. Issues raised in this note include the liability of a director for an infringement performed by a company as well as liability for authorising the company's infringement.

In this case the third respondent (Dr Appanna) was recorded on the company website as being the managing director and founder of the first respondent, MDS; he also controlled the MDS companies as shareholder. but was he liable for the acts of MDS as a joint tortfeasor? Australian case law has developed three separate tests for establishing director's liability: Bennett J affirmed that, as the Full Court decided in Allen Manufacturing Co Pty Limited v McCallum & Co Pty Limited [2001] FCA 1838, it is not necessary to determine which test is the correct one, but had no doubt in concluding that Dr Appanna was liable. The following paragraph of the judgment, with key words highlighted, points to evidential targets:

"I am satisfied that Dr Appanna’s position as the Managing Director of MDS NZ and his participation in the procurement and distribution of the MDS devices in New Zealand and Australia are sufficient to establish that he deliberately, wilfully or knowingly pursued a course of conduct that resulted in MDS selling products that infringed the Inverness patents. Further, he was aware of competing products on the market and was indifferent as to whether or not those products were protected by patents. In taking part in the activities of MDS NZ and MDS Aus as a director and in the management of those companies, Dr Appanna directed or procured the obtaining of and the selling of the products that infringed Inverness ’ patents".

As to authorising infringing conduct under section 13(1) of the Patents Act 1990 (Cth), it is infringement of a patentee's exclusive rights not only to exploit an invention but also to authorise another person to exploit it. The judge agreed. Liability is established where it is shown that the alleged infringer authorised exploitation in that he sanctioned, approved or countenanced the act of infringement. Here it was shown that Dr Appanna knew that the infringing act of the sale of the products would occur, had the power to prevent those acts and was under a duty to interfere but failed to do so.

Irreparable harm and interim injunctive relief in Australia

The recent issue of the Allen Arthur Robinson Intellectual Property Bulletin contains a note on the interlocutory injunctive relief granted by Justice Sundberg (Federal Court of Australia) to pharma originator Wyeth to restrain generic house Sigma from 'marketing, taking orders for, selling, supplying, offering to supply or otherwise exploiting in Australia' its generic formulation of venlafaxine hydrochloride.

The note explains that venlafaxine hydrochloride, a serotonin-norepinephrine reuptake inhibitor, was prescribed for the treatment of major depression and anxiety disorders. Although the basic patent had expired, Wyeth's patent for its Efexor-XR extended release formulation of venlafaxine hydrochloride was in force until 20 March 2017. Sigma received Australian Register of Therapeutic Goods (ARTG) listing for its Evelexa-XR extended release formulation of venlafaxine hydrochloride on 26 February 2009, this being first publicly disclosed on the ARTG on 6 March 2009. According to Sigma, it first became aware of Wyeth's extended-release formulation patent on the same day. Sigma launched Evelexa-XR on 1 May 2009 and commenced importing the product into Australia, planning to having the product delivered to pharmacists for sale by 1 June 2009.

According to Justice Sundberg, there were serious issues to be tried both with regard to infringement and as to some of the asserted grounds of invalidity. While both parties had a prima facie case, the balance of convenience favoured the grant of an interlocutory injunction.

Sigma had offered undertakings that, until resolution at trial, it would:

* not apply to list Evelexa-XR on the Pharmaceutical Benefits Scheme;
* maintain full and complete accounts and records of its sales of Evelexa-XR and all expenses incurred;
* retain all proceeds from its sales of Evelexa-XR, without disbursement, in a separate account and
* not 'bundle' venlafaxine hydrochloride with any other product.

Even so, the court was concerned that Wyeth could expect to lose up to 50% of its market share if no relief were granted -- especially since, in the absence of any injunction, other generic pharma producers were likely to enter the market, making any quantification of damages in Wyeth's favour almost impossible to quantify. Sigma maintained that, since Evelexa-XR was the only generic on the market, any lost sales of Efexor-XR would be readily quantifiable because they could be directly translated into sales of Evelexa-XR. The court did not accept this. In its opinion, considering both the economic factor that Wyeth was the more likely to suffer from a disturbance of the status quo and the equitable factor that Sigma had entered the market 'with its eyes wide open'. There was also a safety issue for patients: if no interim relief were granted but a final injunction was granted, patients who switched to Evelexa-XR would be switched back to Efexor-XR when the generic was later taken off the market, and would suffer harm as a result.

According to the note's authors (Sarah Matheson and Suzy Muller), the grant of this injunction follows recent Federal Court decisions in Interpharma Pty Ltd v Commissioner of Patents, GenRx Pty Ltd v Sanofi Aventis and Merck & Co Inc v GenRx Pty Ltd, suggesting that the Federal Court is increasingly amenable to arguments of irreparable harm and unquantifiable loss in pharmaceutical cases.

The times are still a' changin ...

Last week, in "The times they are a'changin ...", PatLit gave a summary of recent changes to Australian patent litigation practice, which looks fairly pro-patentee in their ethos. This summary was based on an article from law firm Mallesons which has since been overtaken by events. Partner Rob Cooper has kindly sent in a link to this article which outlines the two consultation papers recently published by IP Australia detailing a whole series of reforms to the Patents Act -- including the change to the test for obviousness and the proposed introduction of an 'experimental use' defence to patent infringement. The due date for submissions of 8 May 2009 has since been extended, with proposals being widely discussed in the Australian legal and patent attorney community. Thanks, Rob!

The times they are a'changin ...

"Changing times for Australian Patent Litigation - stronger, quicker and cheaper" is the theme of a paper by Wayne McMaster and Robert Cooper of Australian law firm Mallesons. The authors write:

"A convergence of different recent developments is promising to make life easier for patentees in Australian patent litigation.

Traditionally, Australia has been a jurisdiction in which high quality patent decisions have been handed down by our Federal Court. However, these have been at a high legal cost if compared to the relatively small market size for most technologies in Australia.

Recent case law at our highest court level (High Court) is now making it much harder for Australian patents to be invalidated.

Our Federal Court has also issued patent litigation guidelines which are aimed specifically at streamlining the traditional litigation process so they (i) focus on the actual issues between the parties in the proceedings, (ii) restrict the scope and timing of discovery, (iii) require that an alleged infringer’s non infringement and validity case be explained very early on, and (iv) recast the extent of the role of experts.

It is believed that these measures if used effectively by the patent list judges will deliver more timely and cost efficient justice. ...

[After reviewing issues such as sufficiency and novelty, the authors then address innovation patents:]

* Innovation patents are 8 year patents containing up to 5 claims (all can be independent claims). They undergo a brief formalities review before being granted (usually in about 4-8 weeks). The patentee cannot sue third parties unless the innovation patent has been certified (post-grant substantive examination). That process may be completed in 2-3 months.

Typically these patents are used for inventions of lower merit or are divided out of applications for standard patents to enable quick enforcement action.

The validity requirements for an innovation patent are the same as those for a standard patent except for the obviousness requirement. The invention claimed in an innovation patent needs to only contain an "innovative step", and not the higher threshold of an "inventive step" (ie a scintilla). Our Federal Court has recently considered the phrase "innovative step" and indicated, in part, that an innovative step is one which is ‘more than insubstantial’ or ‘of substance’ but less than an inventive step. So an innovation patent is a valuable offensive enforcement right.

New patent litigation rules

The Federal Court of Australia has recently published a practice note for new patent proceedings The procedures aim to have the key issues identified very early in the proceeding, generally improve the facilitation of the trial process (speed to trial) and to reduce costs.

The practical effects of the practice note include:

* At the initial hearing, the parties are required to explain the issues, including whether infringement is disputed and why. This will put pressure on alleged infringers as they will have less time to plan their case than the patentee.

* A party seeking revocation must include details of its invalidity case when counter claiming, such as the specific passages of any prior publication relied upon for novelty purposes, and to give an outline of what common general knowledge is relied on for obviousness. This will mean that alleged infringers will need to specify their invalidity case much earlier than currently is the case.

* The use of experts will be more regulated. Before any directions are made for the filing of evidence, the Court needs to be told if any expert evidence will be required (and why), whether a single expert is appropriate for all or any part of the evidence, whether the experts should prepare a joint report and/or be questioned concurrently at trial.

*There will be significant limitations on discovery. The parties need to agree the scope of any discovery and whether evidence should precede discovery. Failing agreement, the court will mediate the questions or make orders. The limitations on discovery will potentially lead to significant savings in the cost of litigation.

* Before trial commences, the parties are expected to reduce to writing:
---amended pleadings containing only the matters in dispute;
---the issues still in dispute with respect to each ground of claimed invalidity; and
---a statement of non-controversial matters, such as publication dates and priority dates.

If the practice note is used within the intended spirit expressed by the judges, it should lead to patent litigation which is quicker and less expensive. Of course, an obstructive litigant will still be able to slow the process but we expect the judge to play a much more active role in preventing this.

Conclusions

From the above discussion, it is clear that:

* the current legal tests for validity and infringement are such that an infringer will find it more difficult to invalidate an Australian patent absent some knock out material;

* innovation patents provide a further mechanism to obtain a quick enforceable patent having a lower validity threshold of invention permitting earlier enforcement options; and patent litigation in Australia should be cheaper and ƒquicker under the new Federal Court guidelines".

From the foregoing it certainly appears that Australia has become a more patent enforcement-friendly forum. The question remains as to how this will affect Australia's innovation/manufacturing ecology. In gross statistical terms, even the largest patent-owning businesses own only a minor proportion of the total number of patents that are valid at any given time, so even patent owners must set the benefits of better conditions for the enforcement of patents against the risks and consequences of being at the receiving end of a patent infringement action on patent-friendly terrain. Since the patent system is there for the business sector, it will be good to see how it responds to the "stronger, quicker and cheaper" regime encapsulated by the article's title.

Meaning of "supply" in contributory patent infringement

A recent Mallesons Stephen Jaques Alert, "High Court guidance on contributory infringement by product suppliers", summarises the effect of the High Court decision in Northern Territory v Collins. In short, a supplier of a product which is put to an infringing use will be liable for contributory or indirect patent infringement. The High Court prefers a broad interpretation of “supply”. However, it also prefers a broad interpretation of “staple commercial product”, which narrows the circumstances in which suppliers will be liable for contributory infringement.

In this dispute, Northern Territory planted cypress pine on a plantation during the 1960s in an attempt to raise a commercial timber crop. Between 1993 and 2001 the Territory granted licences to Collins and later to the Australian Cypress Oil Company (ACOC) to harvest the trees in return for a commercial royalty. In 1999 Collins registered a patent for producing oil from the mixture of the bark and wood of cypress trees through steam distillation. The oil is used in aromatherapy and for making cosmetic and body care products.

After the Territory’s granted a licence to ACOC, Collins sued the Territory for contributory infringement under section 117(2)(b) of the Patents Act which provides that:

"If the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the patentee, and

A reference in subsection (1) to the use of a product by a person is a reference to: “if the product is not a staple commercial product - any use of the product, if the supplier had reason to believe that the person would put it to that use…”.

Collins alleged that the Territory supplied a staple commercial product--trees--with reason to believe that it would be used to produce oil in a way that infringed his patent. The Territory conceded that it reasonably believed that ACOC would infringe the patent, but said it was not liable under section 117, as it did not supply the timber and because the timber was a staple commercial product.

At first instance, the Federal Court ruled in the Territory’s favour on both points: the licences were not supplies as they were passive agreements to let ACOC harvest the timber itself and the timber was a staple commercial product with numerous commercial uses. Collins successfully appealed to the Full Court of the Federal Court and the Territory then appealed to the High Court.

The High Court allowed the Territory's appeal. It agreed that the grants of the licences constituted a supply, focusing on their practical effect rather than their legal nature: they were a means of allowing ACOC to remove and use the timber. This was, in practical effect, a supply. However, the High Court ruled in the Territory’s favour on the issue of whether the timber was a staple commercial product, concluding that it was.