Maximising a patentee’s legal costs recovery in successful patent litigation
AstraZeneca AB v Alphapharm Pty Ltd  FCA 419
Section 19 of the Patents Act 1990 (Cth) arises infrequently in practice, but its provisions can be of real value to a patentee, as was shown in AstraZeneca AB v Alphapharm Pty Ltd  FCA 419.
Section 19 patent validity certificates and the cost advantages
Section 19(1) of the Patents Act 1990 (Cth) provides that:
- in any court proceedings in which the validity of a patent claim or claims is disputed, the court may certify that the validity of a specified claim was questioned and found to be valid (a s.19 patent validity certificate); and
- in any subsequent court proceedings challenging the validity of the “certified” patent claim(s), subject to the court’s discretion, the patentee is “entitled to full costs, charges and expenses as between solicitor and client, so far as that claim is concerned” if the patentee obtains a final order or judgment in its favour in those subsequent proceedings.1
Without a s.19 patent validity certificate, a patentee who successfully establishes its patent is valid and infringed might recover 50% to two-thirds of its actual legal costs.2 However, a patentee who holds a s.19 validity certificate could recover all, or nearly all, the legal costs it paid to its lawyers. Accordingly, a s.19 patent validity certificate can provide a significant cost advantage to a patentee. This cost advantage is intended to deter unnecessary and repetitious disputes about the validity of patents.
AstraZeneca had obtained a patent validity certificate before the Alphapharm litigation
In Ranbaxy Laboratories Limited v AstraZeneca AB  FCA 368 (Ranbaxy) AstraZeneca successfully enforced patent claims covering esomeprazole pharmaceutical products against Ranbaxy Laboratories and as a result, had been awarded a s.19 patent validity certificate by the trial judge. The Ranbaxy decision was appealed. Pending the outcome of the Ranbaxy appeal, AstraZeneca became aware that Alphapharm had caused its own esomeprazole products to be listed on the Australian Register of Therapeutic Goods (Alphapharm product).
AstraZeneca issued proceedings to restrain Alphapharm from infringing AstraZeneca’s patents by exploiting the Alphapharm product. Alphapharm’s defence was that AstraZeneca’s patents were invalid, on the same grounds in issue in the Ranbaxy appeal. The Ranbaxy appeal then settled. One outcome of the Ranbaxy settlement was that AstraZeneca’s patents remained in force.
The Ranbaxy settlement rendered Alphapharm’s substantive defence (that the patents were invalid) moot. The litigation between AstraZeneca and Alphapharm was promptly settled favourably to AstraZeneca, on terms including that Alphapharm would not launch its infringing Alphapharm product.
Following the settlement, AstraZeneca’s costs of the litigation against Alphapharm remained in dispute.
AstraZeneca’s costs dispute with Alphapharm – arguments and outcome: AstraZeneca AB v Alphapharm Pty Ltd  FCA 419
The Federal Court was asked for the first time in AstraZeneca AB v Alphapharm Pty Ltd  FCA 419 to use its discretion to depart from the cost advantages provided by a s.19 patent validity certificate.
Whilst the circumstances of the litigation were somewhat complicated, the Court refused to exercise its discretion, and awarded AstraZeneca (the patentee and a s.19 patent validity certificate holder) its full costs.
Alphapharm resisted paying AstraZeneca’s full costs, arguing, in summary, that:
- Alphapharm was only protecting its ability to launch the Alphapharm product if Ranbaxy succeeded in the appeal and AstraZeneca’s patents were found to be invalid;
- Alphapharm acted reasonably and co-operated with AstraZeneca to (try to) resolve the litigation; and
- AstraZeneca took unfair advantage of the costs advantages accorded to AstraZeneca as a s.19 patent validity holder, by issuing and maintaining the infringement proceedings unnecessarily against Alphapharm.
Alphapharm’s arguments were rejected. Justice Jessup found that Alphapharm did more than try to protect its position pending the outcome of the Ranbaxy appeal. In particular, Alphapharm did not offer AstraZeneca:
a form of undertaking that was linked to the determination of that [Ranbaxy] appeal; and [Alphapharm] did not make an offer that would have been the equivalent of the final injunctive relief which [AstraZeneca] will achieve in the proceeding, contingent upon the Ranbaxy appeal failing.
In the circumstances, AstraZeneca was entitled to issue the litigation against Alphapharm to protect its patent rights, and AstraZeneca was therefore entitled to the cost advantages accorded to it as a holder of a relevant s.19 patent validity certificate.
Lessons about s.19 patent validity certificates
- Patentees should request a s.19 patent validity certificate if a court upholds the validity of challenged patent claims.
- Patentees holding a s.19 patent validity certificate should draw that fact immediately to the attention of any party identified as infringing, or party seeking to revoke, the certified claims.
- Potential infringers or parties challenging the validity of a patent should check for, and understand the costs implications of, any relevant s.19 patent validity certificate held by a patentee.
- There is quite a high threshold to overcome if a court is to exercise its discretion and depart from the costs advantages accorded to a patentee holding a s.19 patent validity certificate. It will not be enough for an alleged infringer/challenger to demonstrate they were willing to co-operate with the patentee to resolve the dispute on reasonable terms.
Instead, to attract the court’s discretion, an alleged infringer/challenger will probably need to provide the court with evidence that it made a formal settlement offer the terms of which specified that it was not threatening to challenge the patent, nor encroach on any patent rights, as long as those patent rights remained in force.
- Pursuant to sections 19(2) and 19(3) of the Patents Act 1990 (Cth).
- Any costs payment is subject to many other factors, such as the operation of any offers of compromise made during the litigation. In this case, Jessup J noted that a party who commences or maintains a proceeding needlessly should not expect to have the losing party pay for the exercise.