Australia
Pharmaceutical and business method
litigation strategies
Kim O’Connell, Robert Cooper and John Swinson
Mallesons Stephen Jaques
This chapter discusses IP trends and litigation strategies in Australia in the past year.
Some trends are as follows:
• The courts are more willing to decide discrete questions in advance if doing so will resolve the whole case. Australian courts rarely grant summary judgment in IP cases and there are no Markman hearings in Australia. However, Australia is inching closer to the United States in this regard.
• Patentees are using litigation funding financiers to assist in bringing infringement cases. Despite US-style contingency fee arrangements being illegal in Australia, the courts are accepting litigation funding as legitimate. The risk to the financier is higher than in the United States, as the financier may be required to pay the defendant’s legal costs if the action is unsuccessful, and there are generally no treble or punitive damages available.
• Patent revocation actions are being initiated as a tactic to prevent the patentee from obtaining an interlocutory injunction. There is no standing requirement and no threat of infringement is required before commencing a patent revocation action.
• The grant of an interlocutory injunction to restrain listing and marketing of an unlaunched product is not inevitable.
• The Patent Office is taking a more restrictive approach to granting business method patents. Some recent decisions also suggest a high standard may be applied to the validity of business method patents. However, there is scope for argument.
• In music copyright piracy cases brought against technology providers and internet service providers for aiding infringement, the courts are focusing on policy and substance rather than form. For example, customer terms of use in which the customer agrees not to use the technology for illegal purposes are given little weight by the courts in cases where the technology provider is aware that infringement occurs regularly but never enforces its contract with the customer. The responsibility for preventing copyright infringement is moving from the copyright owner to the technology provider.
This chapter focuses on two areas of recent activity: pharmaceuticals and business method patents.
Pharmaceuticals, generics and injunctions
In the Australia chapter of IP Value 2005 it was reported that the Australian government had committed to implement the Free Trade Agreement between Australia and the United States on January 1 2005. Legislation took effect on that date.
As a result of the Free Trade Agreement, a key change in relation to patents is that the available grounds of pre-grant opposition have been expanded to include all grounds of revocation.
Changes have also been made to the process for registering generic pharmaceuticals with the Therapeutic Goods Authority, so that companies seeking to register a generic product have to provide a certificate stating that the applicant either:
• does not propose to market the product in a way that would infringe a relevant patent; or
• proposes to market the therapeutic goods before the end of the term of the relevant patent and has notified the patentee.
Unlike the US Orange Book system, the onus is on the generic manufacturer to determine all the patents that may be relevant to its application.
Commentators have expressed concern that the new regime gives patent owners an unfair advantage in being able to obtain an interlocutory injunction to restrain the listing and marketing of generic products. In particular, fears have been expressed that ‘evergreening’ of patents will lead to an unreasonable restraint on generic manufacturers, even if the validity of the patents concerned is ultimately not upheld. ‘Evergreening’ is the practice of perpetuating patent coverage for a pharmaceutical product by adding patents relating to different formulations, thus extending the term of the original product patent.
An interlocutory injunction effectively prevents the generic manufacturer from engaging in the offending conduct prior to final judgment following trial. Such injunctions can sometimes end disputes as the generic manufacturer may decide that there is no point in pursuing the matter to trial.
In patent infringement cases in Australia, patentees rarely seek an interlocutory injunction. The courts do not like to restrain respondents and prefer to order a speedy trial (usually taking place within eight to 12 months). In contrast, successful interlocutory injunction applications have been common in copyright and trademark infringements. The position in relation to interlocutory injunctions in cases of patent infringement may slowly be changing in Australia.
It is too early to say whether the new Therapeutic Goods Authority regime will have a restrictive effect on generics or whether it meets the concerns expressed by patent owners that provided the impetus for this part of the Free Trade Agreement. At the time of writing, there have been no decisions relating to an injunction application based on a notification to a patentee prior to the submission of a certificate to the Therapeutic Goods Authority.
However, the recent court decision in Hexal Australia Pty Ltd v Roche Therapeutics Inc confirms that an injunction is not inevitable simply because a product has not been launched on the market. Roche sought injunctions to restrain Hexal and Alphapharm from applying for the listing of certain products under the Pharmaceutical Benefits Scheme. These were products for the treatment of congestive heart failure, for which Therapeutic Goods Authority approval had been obtained prior to the implementation of the new certificate regime.
The court decided not to grant the injunction prior to trial for the following reasons:
• There was no evidence that either Hexal or Alphapharm planned to manufacture the compound in Australia.
• There were serious questions raised by the defendants regarding the validity of Roche’s patent.
• Roche failed to prove that it would suffer harm that could not be compensated by damages. Roche argued that if Hexal or Alphapharm launched a product, they would be taking advantage of the considerable marketing done by Roche in relation to its product and would be getting a free ride, resulting in a dilution of Roche’s investment. The court denied that this amounted to non-financial harm. Any loss of sales by Roche would be quantifiable, given that Roche had 100% of the existing market.
• Based on factors including the strength of the parties’ positions, the court found that the balance of convenience favoured the refusal of interlocutory relief.
The decision provides comfort to companies which are required to notify a patentee of their intention to list a product prior to providing a certificate to the Therapeutic Goods Authority that the grant of an interlocutory injunction to restrain listing and marketing of a generic product is not inevitable.
The decision in Hexal also confirms the importance of preparing evidence that demonstrates irreparable damage to the patentee.
Roche’s evidence regarding damages was given by its managing director. The court decided that, if the patent were found to be invalid or the infringement claim were unsuccessful, Hexal and Alphapharm would have engaged in lawful conduct and any dilution of the investment made by Roche would be irrelevant. Conversely, if Hexal and Alphapharm lost at trial then Roche would continue to have its statutory monopoly. Therefore, any potential dilution of the investment made by Roche would be essentially negligible as Roche would regain the monopoly on the market.
In light of this decision, a party seeking an injunction should consider preparing evidence from an independent expert in relation to the likely non-monetary damage that would result if the injunction were not granted. This would be in addition to the person in charge of the relevant area, who would give evidence on issues such as the relevant patent market, including:
• how it works;
• the players in the field, including competitors;
• the alleged infringer’s reputation in and share of the relevant market;
• the distribution channels in the relevant market; and
• what would happen if the alleged infringer entered the market and the damage that this would cause to the patentee.
Evidence from an independent expert may carry more weight than that of a company witness. An independent expert would provide evidence on areas such as the type of damage likely to be suffered by the patentee due to the entry of the alleged infringer’s products into the particular market that cannot be quantified with precision as to lost revenue or profits. As Hexal highlighted, the evidence must be clear and not speculative. Difficulty or theoretical complexity in precisely calculating damages does not constitute irreparable harm, provided there is some reasonably accurate way of measuring these damages.
Business method patents
In its simplest form, a business method patent protects a business process or a product or service provided by a business. The term ‘business method’ is not defined in the Patents Act or in any Australian cases dealing with patents.
The Advisory Council on Intellectual Property published its Report on a Review of the Patenting of Business Systems (published February 25 2004, but dated September 2003) in which it chose as its definition of ‘business system’ “a method of operating any aspect of an economic enterprise”.
This definition was selected for the purpose of the report after the council received public submissions on how business methods should be defined. The report recommended that no changes be made to Australian legislation in respect of the patentable subject matter test as it applies to business systems.
A business method patent may claim as the invention either a computer-implemented business method or a pure business method that does not reference any technology. An example of a computer-implemented business method is a trading program to assist traders buy and sell stocks. A pure business method could be, for example, the rules to run an auction.
Business method patents are not limited to e-commerce, banking and finance. In Australia, patents have been granted for a range of endeavours, including psychological testing, marketing and medical procedures.
Australian law treats computer-implemented business methods in the same manner as any other inventions. They must meet the same requirements of patentability (eg, novelty, inventive step, usefulness).
There is no case law in Australia directly supporting the validity of pure business method patents and the current position in relation to the patentability of pure business methods is unclear.
In the leading Australian decision of Welcome Real-Time SA v Catuity Inc, the Federal Court commented favourably on the US position that allows the patenting of pure business methods. The court was considering a patent for a process and device for the operation of smart cards in connection with traders’ loyalty schemes. The court decided that the patent was valid and had been infringed, but did not decide whether a pure business method is patentable in Australia: “What is disclosed by the patent is not a business method, in the sense of a particular method or scheme for carrying on business – for example, a manufacturer appointing wholesalers to deal with particular categories of retailers rather than all retailers in particular geographical areas, or Henry Ford’s idea of stipulating that suppliers deliver goods in packing cases with timbers of particular dimensions which could then be used for floorboards in the Model T. Rather, the patent is for a method and a device, involving components such as smart cards and point-of-sale terminals, in a business.”
Even though the invention was not a pure business method, the court stated that the 1998 US decision in State Street Bank, which approved the patenting of pure business methods in the United States, was persuasive in Australia. It is uncertain whether other Australian judges will follow the same approach in relation to business methods.
In recent years the Patent Office has rejected pure business method patent applications on the grounds that a pure business method is not patentable subject matter if there is no technology component.
In 2005 there were two decisions involving pure business method patents in Australia, but these decisions did not clarify the law in relation to whether such business methods can be the subject of a valid patent. In both cases the inventions were found to be unpatentable subject matter.
In Innovation Patent No 2004100848 in the name of Peter Szabo and Associates Pty Ltd (May 5 2005) the deputy commissioner of patents considered an innovation patent for a reverse mortgage. The invention was characterised as “no more than a prescription of the basis of a contractual arrangement between parties, based on mathematical expressions formulated to provide a more equitable arrangement”. The deputy commissioner decided that this kind of invention did not embody any material application of science or technology, and therefore was not patentable.
In Grant v Commissioner of Patents ([2005] FCA 1100) the innovation patent considered by the Federal Court related to a method for structuring a financial transaction that purported to protect an individual’s assets in bankruptcy. The court had the opportunity to consider the law relating to the patentability of pure business methods, but, in rejecting the Patent Office’s approach to this issue as discussed in the Szabo Case, decided the case on much narrower grounds. According to the court, the patent was contrary to public policy as it assisted debtors in avoiding paying their debts as required by law. The court based its findings of invalidity on the fact that the invention was not considered to have the requisite economic utility for society as a whole, as it was only of value to those whose assets were protected by the invention.
The authors believe that the Szabo and Grant decisions do not determine the issue of the patentability of pure business methods in Australia.
A patent applicant for a business method patent which is rejected by the Patent Office should consider appealing to the Federal Court, as the court may well take a different approach.
Unlike in the United States, there has been little infringement litigation in Australia in relation to business method patents. Threats of patent infringement have been made on the basis of business method patents, and some licences have been purchased, but there is yet to be any serious litigation in this area.
In Australia, patent litigation has involved loyalty schemes on smart cards, digital rights management technology, electricity markets and gaming/gambling technology. This litigation could be considered to relate in part to computer-implemented business methods. The number of patent cases involving computer-implemented business methods is small when compared with patent litigation involving other subject matter.
More litigation in relation to business method patents is likely to occur. The most likely scenario is a US patent owner suing an Australian business for patent infringement, because most patents granted in Australia for business methods are owned by US patentees.
For example, a number of financial software patents from US financial institutions have been granted in Australia. Both Mastercard and Citibank own Australian patents relating to computer-implemented business methods.
