A costly exercise – s 19(2) of the Patents Act

Peter Heerey AM, QC, Tom Cordiner & Alan Nash
Correspondents for South Australia, Victoria and Western Australia

Note: Where any of the barristers were involved in a case reported below and the matter is still running, or potentially so, the other correspondents have taken the role of reporting that case.

AstraZeneca AB v Alphapharm Pty Ltd [2014] FCA 419 30 April 2014

Section 19(1) of the Patents Act provides that where the validity of a patent is disputed, the court may certify that the validity of a specified claim was questioned.  Section 19(2) then provides that:

If a court issues a certificate, then, in any subsequent proceedings for infringement of the claim concerned, or for the revocation of the patent so far as it relates to that claim, the patentee, or any other person supporting the validity of the claim is, on obtaining a final order or judgment in his or her favour, entitled to full costs, charges and expenses as between solicitor and client, so far as that claim is concerned.

Section 19(3) provides that section 19(2) has effect subject to any direction by the court trying the proceedings.  The parties agreed that this gave the court discretion not to apply section 19(2).

The proceeding between AstraZeneca AB and Alphapharm settled with orders that Alphapharm be restrained from infringing certain claims of two patents.  Two matters required resolution by Jessup J.  The first was whether the applicants were entitled to a declaration to record the measure of their success.  Jessup J considered that such a declaration was neither necessary nor appropriate in the circumstances.

The second issue was as to costs.  In an unrelated proceeding Ranbaxy Laboratories Ltd v AstraZeneca AB, Middleton J had certified, pursuant to section 19(1) of the Patents Act that certain claims of the patents in issue between AstraZeneca and Alphapharm had been unsuccessfully questioned.  While an appeal from Middleton J’s decision was on foot, Alphapharm also sought revocation of the patents on the same grounds that Ranbaxy had relied upon.  Ranbaxy and AstraZeneca settled, which meant no appeal would overturn Middleton J’s decision and, subsequently, the dispute between AstraZeneca and Alphapharm was settled in favour of AstraZeneca.

Alphapharm submitted that, although AstraZeneca had succeeded, it had no need to litigate at all because Alphapharm had made it clear that it would desist from conduct of the kind that was alleged to be in infringement of patents, until such time as the result of the appeal in Ranbaxy was known.  Nevertheless AstraZeneca commenced proceedings against Alphapharm.

AstraZeneca submitted that not only  was it entitled to its costs in the normal course, but also that those costs should be taxed on the special basis for which section 19(2) of the Patents Act provides.

Jessup J found that section 19(3) goes further than merely empowering the court to negative so much of the effect of subsection (2) as entitles the successful party to have his or her costs taxed on the higher basis. His Honour held that section 19(3) also empowers the court to direct that subsection (2) have no effect at all, thereby returning the case to the realm of the general discretion under section 43 of the Federal Court Act, where, depending on the circumstances, the successful party may be denied his or her costs wholly or in part, even at the party/party level.

Jessup J also did not accept that “some very special reason” was required to depart from section 19(2).  His Honour appeared to approve of a “good reason” test instead.

Jessup J found that Alphapharm had not expressly explained to AstraZeneca that it would abide by the Ranbaxy appeal decision and provide undertakings that were tied to the result of that case.  In the circumstances, Alphapharm had not displaced the presumption that AstraZeneca was required to litigate in order to derive the practical benefit of the patents on which it sued.  That appears to be the main reason why his Honour concluded that Alphapharm had not established good reason why section 19(2) should not apply.

Peter Heerey QC – CommBar profile

Alan Nash – CommBar profile

Tom Cordiner – CommBar profile

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