In the recent decision of Sandoz Pty Ltd v H. Lundbeck A/S [2020] FCAFC 133 the Court had to consider what the parties intended when they entered into a contract.

A patent holder and a generic drug manufacturer got into a legal dispute, which was eventually settled by agreement in 2007. The agreement included a term that allowed the generic manufacturer a royalty free licence to use the patent 2 weeks before it expired. In effect this granted the manufacturer early access to the market.

On 13 June 2009 the patent expired.

In 2014 the patent was retrospectively extended from that 13 June 2009 expiry date to 9 December 2012. Pursuant to s79 of the Patents Act 1990 (Cth) if a patent-holder has a patent extended, it may sue for breach of that patent for the time period between the original expiration of the patent (in this case, 13 June 2009) and the extended expiration date (in this case, 9 December 2012).

The Court had to consider the length of the licence. Noting how s79 works, was the licence simply from 31 May 2009 until the expiry on 13 June 2009 or did it extend further?

At first instance, the Court found the licence was for two weeks only. The generic drug manufacturer appealed.

On appeal the Court had diffciulty with the idea that the parties intended the generic drug manufacturer could enter the market for two weeks only, only to have to withdraw again. The Court found that the settlement agreeement’s language was clear, granting an irrevocable licence from 31 May 2009 with no end date.

This outcome was not found to be one lacking in commercial sense. The Court found it was the natural result of the facts and assumptions in place at the time the settlement agreement was entered into. The generic manufacturer enjoyed a right to enter the market on 31 May 2009 without the need to concern itself with the (then apparently remote) possibility that an extension to the patent might reapplied for.

This decision highlights the importance of clarity when drafting agreements. While the patent-holder succeeded at first instance, the interpretation it argued for was ultimately rejected. If the “two weeks only” licence was indeed what the patent-holder wanted in 2007, a well drafted agreement would have guaranteed it.