Sandoz Pty Ltd v H. Lundbeck A/S

The settlement agreement 21 The proceeding commenced by Sandoz in this Court on 13 April 2006 seeking revocation of the Patent, including the cross-claim that was brought against Sandoz by the Lundbeck companies, was settled by written agreement made between the Lundbeck companies and Sandoz in late February 2007 ("the settlement agreement"). Each of the parties filed notices of discontinuance in accordance with the settlement agreement. 22 The recitals to the settlement agreement state that, without Sandoz conceding the validity of any claims in the Patent, or Lundbeck (referred to as Lundbeck Denmark) or Lundbeck Australia conceding the invalidity of any claims in the Patent, the parties agreed to settle the proceeding on the terms set out in the settlement agreement. 23 Clause 1 of the settlement agreement imposed various obligations on Sandoz. Among other things, Sandoz agreed not to provide assistance to other persons in litigation concerning the Patent or to commence any proceeding seeking revocation of any claims of the Patent. It also included various releases that were given by Sandoz to Lundbeck. By cl 2, the Lundbeck companies also gave Sandoz various releases and also agreed not to commence or maintain any claim, action or cause of action against Sandoz relating to the proceeding. 24 The critical provision of the settlement agreement is cl 3 which provides: 3. Licence to exploit the Patent (1) Lundbeck Denmark and Lundbeck Australia jointly and severally grant Sandoz an irrevocable non-exclusive licence to the Patent effective from: (a) 31 May 2009 if the Patent expires on 13 June 2009; (b) 26 November 2012 if the Patent expires on 9 December 2012; (c) 31 May 2014 if the Patent expires on 13 June 2014; or (d) 2 weeks prior to the expiry of the Patent if the Patent expires on a date other than a date described in clause 3(a) to (c). (2) In addition to the licence granted under clause 3(1), Lundbeck Denmark and Lundbeck Australia jointly and severally grant Sandoz an irrevocable non-exclusive licence to the Patent, effective from the beginning of the calendar month in which the licence granted under clause 3(1) becomes effective, for the sole purpose of manufacturing, importing, marketing and offering to sell (but not selling or supplying) pharmaceutical products containing escitalopram. (3) For the avoidance of doubt, nothing in this Agreement is to be taken as granting a licence of, or authorisation to exploit, any patent other than the Patent. The word "Patent" is defined in the settlement agreement to mean "Australian Letters Patent Number 623144". 25 Looking at the dates referred to in cl 3(1), it is clear that subpara (a) refers to the date upon which the Patent would expire in the event that the 20 year term was not extended, subpara (b) refers to the date on which the Patent would expire in the event that the term was extended based on the Cipramil registration, and subpara (c) refers to the date on which the Patent would expire if the term was extended based on the Lexapro registration. Subpara (d) reflects the further possibility that the Patent might expire on some other date.

The Primary Judge's Decision 26 Before the primary judge Sandoz's primary submission was that cl 3(1) of the settlement agreement was to be interpreted as meaning, in effect, that the licence conferred on Sandoz would commence to run from a date determined by reference to whichever of the expiry dates referred to in cl 3(1) was determined, in the proceeding between Alphapharm and Lundbeck, or any appeal, to be the date on which the Patent would expire. That construction of cl 3(1) was rejected by the primary judge and it is no longer relied upon by Sandoz. 27 Sandoz's alternative construction, which the primary judge also rejected, was that cl 3(1) should be interpreted to mean that if the Patent reached the end of its term (as it did on 13 June 2009) then it expired on that date, and thus the licence under cl 3(1) commenced to run some two weeks prior to such expiry and continued to operate indefinitely from that date forward. In its appeal, Sandoz contends that the primary judge erred in rejecting that construction of cl 3(1). 28 Lundbeck's submission at trial was that cl 3(1) should be interpreted as referring to the date on which the term of the Patent, as extended, expired. Accordingly, Lundbeck submitted to the primary judge that cl 3(1) should not be read as applying to the expiry of the Patent on 13 June 2009 if the term of the Patent was extended by order made either before or after that date. 29 On Lundbeck's construction, the licence under cl 3(1) was not triggered until 26 November 2012, ie. some two weeks prior to the term of the Patent ending on 9 December 2012. The primary judge rejected Lundbeck's construction. Her Honour observed that the expiration of the Patent was a necessary pre-condition to the operation of s 79 of the Act upon which Lundbeck relied to bring its proceeding, and that although the grant of the extension on 25 June 2014 extended the term of the Patent until 9 December 2012, s 79 did not deem the Patent not to have expired on 13 June 2009. Her Honour held that the only effect of the grant of the extension of term on 25 June 2014 was that s 79 was engaged to permit infringement proceedings to be commenced in respect of acts occurring between the date of expiry and the grant of the extension. 30 In rejecting Lundbeck's construction, her Honour also noted that while nothing in cl 3(1) or any other provision of the settlement agreement excluded the possibility that Lundbeck might make another application to the Patents Office for an extension of the term, she did not consider that this possibility should drive the construction of cl 3(1) because "[t]he clause is to be construed by reference to what it says, in context, and not by reference to what it does not say". 31 Her Honour also found that an extension of time might be granted at any time after the end of the term of the Patent and that, as a result, it might not be known for years whether or not the Patent had expired within the meaning of cl 3(1) as Lundbeck would have it construed. Her Honour said that it was "… objectively unlikely that the parties intended that to be the position when the trigger for the licence was to be an event … known to be inevitable, at the apparent latest, by 13 June 2014". 32 Her Honour went on to note that there was, as at February 2007, only one way in which the Patent might expire on 13 June 2009 but still allow Lundbeck to sue Sandoz for infringement for acts after that date and that would require Lundbeck to apply for an extension of time before 13 June 2009 based on the Cipramil registration and then be granted such an extension of term sometime after 13 June 2009. Her Honour found that this possibility was "objectively remote as at February 2007". Her Honour also said that she did not consider it legitimate to test the operation of cl 3(1) against what actually occurred. This was because, as at February 2007, the parties could not have predicted what was going to occur between 2009 and 2014. 33 The primary judge found that the Patent expired on 13 June 2009 and that the licence under cl 3(1) commenced to run from 31 May 2009 in accordance with cl 3(1)(a). Her Honour said at [295]: For these reasons I consider that cl 3(1), in referring to "if the Patent expires on" means if the 144 patent reaches the end of its term and expires on one or other of the nominated dates. It does not mean if the 144 patent reaches the end of its term and expires on one or other of the nominated dates but excluding any case where, after the patent has reached the end of its term and expired, the term of the patent is extended. In the event, the 144 patent reached the end of its term and expired on 13 June 2009. The contingency in cl 3(1)(a) was satisfied and thus Sandoz had an irrevocable licence under cl 3(2) from 1 May 2009 and a licence under cl 3(1) from 31 May 2009. 34 It is at this point that Sandoz says that difficulties emerge with the primary judge's reasoning. Having concluded that the licence under cl 3(1) commenced from 31 May 2009, her Honour went on to conclude that the licence operated for a two week period only and ceased to apply once the Patent expired on 13 June 2009. Her Honour's analysis in relation to what we will refer to as the end date of the licence begins with her Honour asking at [296]: However, this is not the end of the matter. What is the "Patent" to which Sandoz had a licence? In my view, it is the 144 patent before its expiry on 13 June 2009. As I have said, one thing is clear from cl 3(1). It is that the parties agreed that the period of the licence was two weeks before its expiry. As a result, there cannot be attributed to the parties any common intention that "the Patent" to which Sandoz was granted a licence is the patent the subject of the extension of term. To so conclude would be to re-write the deal the parties did. It is not to the point that cl 3(1) does not say that the licence expires on expiry of the patent. Nor does it matter that under s 145 of the Patents Act that a licence may be terminated on notice at any time "after the patent, or all the patents, by which the invention was protected at the time the contract was made, have ceased to be in force". What the parties bargained for was for Sandoz to receive a licence "to the Patent" for the period of two weeks before the patent expired. If, as I consider, the patent expired on 13 June 2009, the licence also must have ended on 13 June 2009. As I have said, Sandoz was not granted a licence to exploit the invention the subject of the patent. No doubt the licence "to the Patent" authorised such exploitation while the patent existed. The nature of the licence indicates, however, that it is tied to the existence of the patent before expiry. 35 It is apparent that her Honour drew a distinction between the "Patent" before expiry on 13 June 2009 and the "Patent" after expiry which had its term extended on some later date. On her Honour's construction, cl 3(1) conferred a licence in respect of the first "Patent" but not the second "Patent". 36 Her Honour then referred to four considerations which she said supported her conclusion that the licence must have ended on 13 June 2009. The first of these was that it was apparent from the text and structure of cl 3(1) that the common intention of the parties was that Sandoz would have a licence for a period of two weeks before expiry of the patent. Her Honour said cl 3(1) presupposed that the "Patent" referred to in cl 3 was the Patent before it had expired. 37 The second, third and fourth considerations referred to by her Honour were all closely related to what her Honour viewed as the contractual bargain. Her Honour considered that her construction of the word "Patent" was necessary to avoid violence to the manifest common intention of the parties that Sandoz receive a royalty free licence for a period of two weeks before expiration of the Patent. She said that it would make no sense for Sandoz to obtain a royalty free licence which operated beyond expiration of the Patent during any extended term. A construction that gave to Sandoz a licence to exploit the invention beyond a period of two weeks was inconsistent with the bargain made by the parties. 38 Her Honour also said that Sandoz's construction gave the word "Patent": … a meaning it cannot bear in the context of the settlement agreement, such as "the patent before it expires on 13 June 2009 and, if Lundbeck happens to obtain an extension of term after that date, the patent as subject to that extension of term". 39 Finally, her Honour noted that Sandoz contended that her Honour's conclusion that the licence ended on 13 June 2009 was inconsistent with the reference in cl 3(1) to "an irrevocable non-exclusive licence to the Patent effective from …", but said that she did not consider that this was material. Her Honour instead found that cl 3(1), properly construed, controlled both the commencement and the term of the irrevocable licence under cl 3(1) which was limited to a two week period.

The Parties' Submissions 40 Sandoz submitted that her Honour's construction of cl 3(1) is erroneous becaue it focuses on early entry into the marketplace by Sandoz but it overlooks the impact on Sandoz of being required, in the event that the Patent might not have been validly extended before it expired, to withdraw its products from sale after Sandoz had entered the market in accordance with the licence conferred by cl 3. In particular, Sandoz submitted that her Honour's reasoning failed to acknowledge, at least not sufficiently, that under her Honour's construction of cl 3(1), Sandoz would be entitled to launch its product before the Patent expired but may then have to withdraw it from the market just two weeks later. Sandoz submitted that her Honour's construction gave insufficient weight to the structure and language of cl 3(1) which specified a series of possible commencement dates to what is described as an "irrevocable" licence but which did not specify any end date. 41 Sandoz also submitted that the construction of cl 3(1) adopted by her Honour was driven by a mischaracterisation of what her Honour referred to as "what the parties bargained for" and that this led her Honour to adopt a construction of the term "Patent" that was inconsistent with the definition of that term included in the settlement agreement in an effort to find an end date for the irrevocable licence created by cl 3(1) in circumstances where the clause itself did not specify one. 42 Lundbeck submitted that Sandoz's construction of cl 3(1) was uncommercial because it gave Sandoz an irrevocable royalty free licence for a period in excess of the two week period that it says the parties, at the time of the settlement agreement, objectively intended Sandoz would enjoy. Lundbeck submitted that Sandoz's construction of cl 3(1) should not be accepted because, when viewed in its commercial context, it is inconsistent with the commercial purpose of the transaction and lacks business common sense. According to Lundbeck, the notion that Sandoz might by the settlement agreement obtain the benefit of a licence for a much longer duration (ie. three and a half years) "for nothing" was "irrational". 43 Lundbeck submitted that the parties' "manifest common intention" may be given effect by adopting either the primary judge's interpretation of cl 3(1) or the construction relied on by Lundbeck which was rejected by her Honour. However, its primary submission, which is referred to in its notice of contention, was that the settlement agreement gave Sandoz a licence which, in the events that happened, did not commence until 26 November 2012. In his submissions in this Court, Senior Counsel for Lundbeck, Mr Bannon SC, acknowledged that the construction adopted by the primary judge was not one which Lundbeck advanced at the trial. 44 In its submissions Lundbeck emphasised that the proper approach to construction of the settlement agreement requires the Court to place itself in the position in which the parties found themselves in February 2007 for the purpose of ascertaining its commercial purpose. Lundbeck submitted that, armed with a proper understanding of the commercial purpose of the settlement agreement, it is apparent that a construction of the document that gave Sandoz anything more than a two week licence was "a commercially nonsensical outcome". 45 In support of its submissions Lundbeck referred us to various well-known authorities concerned with the construction of commercial agreements including the decision of the High Court in Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635, a case concerned with the proper construction of arbitral clauses in a number of deeds. The High Court held that the background and purposes of the deeds, as reflected in their terms, pointed to arbitral clauses of wide coverage. The plurality (Kiefel CJ, Gageler, Nettle and Gordon JJ) observed at [26]: As the Full Court concluded: "[c]ontext will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character". There may be cases which have to be resolved largely, if not entirely, by reference to the language of the arbitral clause in question. But this is not such a case. The background to and the purposes of the Deeds, as reflected in their terms, point clearly to arbitral clauses of wide coverage with respect to what was to be the subject of confidential processes of dispute resolution. (footnotes omitted) 46 The authorities cited by the plurality in that paragraph of their judgment in Rinehart include the decision of the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451. That case was concerned with the interpretation of a number of letters of indemnity provided to Pacific by BNP (by whom Ms Dhiri was employed) for its customer NEAT. The Court said at 461 [22]: What is important is not Ms Dhiri's subjective intention, or even what she might have conveyed, or attempted to convey, to NEAT about her understanding of what she was doing. The letters of indemnity were, and were intended by NEAT and BNP to be, furnished to Pacific. Pacific did not know what was going on in Ms Dhiri's mind, or what she might have communicated to NEAT as to her understanding or intention. The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. In Codelfa Constructions Pty Ltd v State Rail Authority of NSW [(1982) 149 CLR 337 at 350], Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [[1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574]: "In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating." (some citations omitted) The Court went on to determine the meaning of the document by reference to the surrounding circumstances and the purpose and object of the relevant transaction. 47 Pacific Carriers was also referred to by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165. In that case the High Court said at 179 [40]: This Court, in Pacific Carriers Ltd v BNP Paribas [(2004) 218 CLR 451], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction [Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]]. 48 In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 the plurality (French CJ, Hayne, Crennan and Kiefel JJ) said at [35]: … [T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". (some citations omitted) 49 In its submissions Sandoz did not dispute the applicability of the principles of interpretation relied upon by Lundbeck or the need to construe the commercial contract "to avoid it making commercial nonsense or working commercial inconvenience": Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at [82] citing Hide & Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314 per Kirby P. Nevertheless, Sandoz contended that in the circumstances of this case, the surrounding circumstances known to the parties, and the purpose and object of the relevant transaction, involved more than Lundbeck merely allowing Sandoz a two week early entry into the market. Sandoz says that it was the common intention of the parties that in return for settling the litigation in which it was engaged with Lundbeck, and in return for various related undertakings included in the settlement agreement, Sandoz would be permitted to enter the market two weeks prior to the expiry of the Patent, which was then anticipated to occur on one of the three dates specified in cl 3(1). Sandoz submitted that it was never objectively intended or contemplated by the parties that Sandoz might thereafter be required to withdraw its generic products from the market on account of the existence of the Patent. Sandoz says that it cannot be inferred that this is something that would have been intended by the parties had they turned their minds to it: cf. Aberdeen City Council v Steward Milne Group [2011] UKSC 56 at [21]-[22] and Arnold v Britton [2015] AC 1619 at [22]. 50 In this Court Lundbeck relied upon email correspondence that was said to provide evidence of the purpose and object of the settlement agreement. The first such email was from Mr Steve Maritz of Lundbeck to Mr James Sharkey of Sandoz dated 25 January 2007. In this email Mr Maritz appears to quote from what he refers to as feedback from Lundbeck's legal department which Mr Maritz said had agreed to the following: Thus we believe that we should settle with Sandoz now. Re the Sandoz offer, we have however discussed an offer a little different to what was initially proposed. How about offering a "free exit from the case" (as in the initial proposal) and then a 2 weeks early entry in either 2012 or 2015 [sic] depending on the outcome of the case. (The reference to 2015 should be a reference to 2014 which is the year in which the Patent would expire if the extension based on the Lexapro registration was valid.) 51 Mr Sharkey responded to Mr Maritz's email on the same day stating that he believed this was a good outcome for both companies and that he would begin preparing draft documents for Mr Maritz's consideration. 52 Lundbeck also relied on an email from Mr Sharkey to Novartis (Sandoz's parent company and home of the head office) dated 26 May 2009. In this email, Mr Sharkey said this of the settlement: Briefly, the background is that Sandoz was 1 of 3 generic companies in Australia seeking revocation of Lundbeck's escitalopram patent; and reversal of the decision to extend the term of Lundbeck's patent beyond 13 June 2009. Sandoz and Lundbeck settled; and Sandoz received 14 days early entry licence from Lundbeck (but the expiry date of the patent was in dispute - so the commencement of the licence was uncertain). The other 2 generic companies continued to trial. The first instance judge decided that Lundbeck's patent was valid; but the extension of term was incorrectly granted; and therefore it should expire on 13 June 2009. 53 The first of the emails relied upon by Lundbeck does not assist the proper construction of cl 3(1). While the email refers to a two week early entry in 2012 or (what should be) 2014, depending on the outcome of the Alphapharm proceeding, it appears to assume that the question of extension had or would be resolved before expiry of the Patent on 13 June 2009. In particular, it has nothing to say as to what would happen in the event that the Patent expired before any extension of term was granted. Nor does it suggest that it was the common intention of the parties that Sandoz would not be free to enter the market two weeks before expiry of the Patent on 13 June 2009 (should expiry then occur) or that Sandoz might be required to withdraw its product from the market at some time thereafter in the event that the Patent was extended after it expired. 54 The second email relied upon by Lundbeck is written after the settlement agreement was entered into and is therefore admissible on the question of construction only in so far as it provides evidence of the surrounding circumstances known to both parties at the time the agreement was entered into: Centennial Coal Company Ltd v Xstrata Coal Pty Ltd (2009) NSWLR 129 at [48]. The email shows, as is common ground in any event, that at the date the settlement agreement was entered into the expiry date of the Patent was in dispute and the commencement date of the licence was therefore uncertain. Like the first email, it also indicates that it was the common intention of Sandoz and Lundbeck that Sandoz receive the benefit of a 14 day early entry licence from Lundbeck. However, it also has nothing to say as to what would happen in the event the Patent expired before any extension of term was granted or whether the parties contemplated that Sandoz might in those circumstances be required to withdraw its products from the market.

Consideration 55 It is convenient to begin with a consideration of the primary judge's construction of cl 3. The primary judge's construction of cl 3 distinguishes between the Patent prior to expiration and the Patent after expiration. According to her Honour's construction, the licence conferred on Sandoz applies only to the Patent in the former sense, that is to say, before expiration of its term. Her Honour reasoned that, since it was not necessary for Sandoz to have a licence after the Patent had expired, it could be inferred that both parties intended that the licence under cl 3(1) would operate for a period of no more than two weeks. On the basis of this construction her Honour concluded that Sandoz enjoyed the benefit of a two week licence under cl 3(1) that ended when the Patent expired on 13 June 2009. 56 We do not think it is open to construe the word "Patent" as applying only to the Patent before expiration. The Patent that was the subject of the extension of term granted on 25 June 2014 was the same Patent that expired on 13 June 2009. Sandoz either had a licence under the Patent or it did not. If it did have such a licence in the weeks leading up to the expiry of the Patent on 13 June 2009, then we do not see any basis for concluding that the licence would not provide Sandoz with a defence to a claim for infringement of the Patent founded on s 79 of the Act. 57 The construction favoured by the primary judge could be justified, according to her Honour's reasoning, on the basis that it was the manifest intention of the parties that Sandoz would obtain a licence to enter the market two weeks prior to the expiration of the Patent. A necessary corollary of her Honour's reasoning was that it was also the manifest intention of the parties that Sandoz would not enjoy the benefit of any licence after expiry of the Patent and during any extension of its term. 58 The difficulty with this reasoning, in our view, is that it is based on an assumption that the parties intended that Sandoz would be entitled to enter the market prior to expiry of the Patent in accordance with cl 3(1) but may at some later point in time be required to withdraw from that market on account of Lundbeck having obtained an extension of the term of the Patent (perhaps years) after the Patent had expired. 59 Her Honour found that, given the terms of cl 3, the parties must be taken to have understood that they would know by 1 May 2009 when the Patent would expire. We agree with that finding which reflects the fact that the settlement agreement was entered into in February 2007, more than two years prior to the earliest date on which the Patent could expire. We think it unlikely that the parties turned their mind to the possibility that they would not know by 1 May 2009 when the Patent would expire. Had they done so, we would expect to find some express provision dealing with such an eventuality in the settlement agreement. 60 Mr Bannon SC emphasised in his submissions that it is not permissible to evaluate the commercial sense or otherwise of the settlement agreement by reference to events that occurred after it was entered into. We agree that it is appropriate to confine any consideration of the commercial purpose of the settlement agreement, and any relevant surrounding circumstances, to the position as known to both parties at the time the contract was made. We consider that the parties were at that time likely to have been operating under the common assumption that the expiry date of the Patent would have been established by 1 May 2009 and that, if the Patent was to expire on 13 June 2009, then the irrevocable licence granted to Sandoz under cl 3(1) would commence to run from 31 May 2009, or if an order was made extending the term of the Patent prior to it expiring on 13 June 2009 until 9 December 2012, or 13 June 2014, or some other date, then the licence under cl 3(1) would not commence to run until two weeks before that date. 61 Mr Bannon SC submitted that, while the parties may have expected that the expiry date of the Patent would be known by 1 May 2009, the circumstances as known to both parties at the time the settlement agreement was entered into would have also disclosed to them that this was not certain and that there was a risk, given the possibility of an appeal from the judgment of Lindgren J to the Full Court, and the further possibility of an application for special leave to appeal to the High Court, that the parties might not have a final answer to the question of when the Patent expired until sometime after 13 June 2009. He submitted that it would therefore not be appropriate to interpret cl 3 on the basis that the parties would know the expiry date by 1 May 2009. According to this submission, since the parties were aware at the time of entering into the settlement agreement that there was a possibility that the expiry date might not be known by 1 May 2009, then it was not appropriate to adopt a construction of cl 3 that assumed that the parties would by that date know when the Patent would expire. 62 We do not accept that submission. We are not persuaded that both parties entered into the settlement agreement knowing that the expiry date might not be finally determined before 1 May 2009. Nor are we persuaded that it is appropriate to construe cl 3 so that it accommodates such a possibility. The fact that it may be possible to point to a number of reasons why, as at February 2007, the expiry date might not be determined finally by 1 May 2009, should not drive the construction of cl 3 in circumstances where the parties are likely to have proceeded on the basis of a common assumption that the expiry date would be determined by that date. In our opinion the terms of cl 3 show that the parties were proceeding on that basis and that the licence granted under cl 3 to Sandoz would run from a date determined by reference to the expiry date of the Patent which, if the Patent expired on 13 June 2009, would be 31 May 2009. 63 Mr Bannon SC also submitted that it was "illogical" and "irrational" for Lundbeck to have granted a licence to Sandoz that enabled it to supply its generic products during the extended term of the Patent and that any construction of cl 3 that had that result must lack commercial sense because Sandoz gave so little in return for what he referred to as the early entry licence it received under cl 3(1). He submitted that this was why it was a mistake to give the word "expires" in cl 3 the same meaning that it bears in s 79 of the Act. He submitted that, although the Patent expired for the purposes of s 79 on 13 June 2009, the expiry date of the Patent referred to in cl 3 was the expiry date of the initial term of the Patent or, if extended, the expiry date of the extended term. 64 The difficulty with Lundbeck's construction is that cl 3, as drafted, reflected the common assumption that the parties would know by 1 May 2009 what the expiry date of the Patent was likely to be. At the time the settlement agreement was entered into, a reasonable reader would understand from cl 3 that if it was apparent on 1 May 2009 that the Patent would expire on 13 June 2009 in the absence of any decision on or before that date extending the term, then Sandoz could move forward knowing that it had the benefit of an irrevocable licence to engage in the activities specified in cl 3(2) and, from 31 May 2009, all other relevant activities that would otherwise amount to an infringement. This appears to us to be an important advantage obtained by Sandoz under the licence agreement. 65 On the other hand, if Lundbeck's construction of the settlement agreement is accepted, Sandoz was left in a position of much greater uncertainty. Even if the Patent had expired or was certain to expire on 13 June 2009, there still remained the possibility that the Patent might thereafter be extended with the consequence that Sandoz might never know whether it could rely on the licence it was granted until after any outstanding or future application to extend the term of the Patent was heard and finally determined. The measure of uncertainty that this would create for Sandoz seems to us to be inconsistent with a clause that specifies a start date for the relevant licence by reference to an event that either would or would not occur by 13 June 2009. 66 In Arnold v Britton [2015] AC 1619 Lord Neuberger referred to a number of factors relevant to the construction of written contracts. His Lordship said at [17]-[19]: [17] First, the reliance placed in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision. [18] Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve. [19] The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201 … have to be read and applied bearing that important point in mind. 67 In our opinion the language of cl 3 is relatively clear. It grants to Sandoz an irrevocable non-exclusive licence from 31 May 2009 if the Patent expires on 13 June 2009. Subject to that condition being fulfilled, the licence under cl 3(1) is effective from 31 May 2009 and is irrevocable. The licence was not contingent on there being no extension of term granted after the Patent expired. The parties' intention, objectively ascertained, was to stipulate a start date for the licence, but without any end date. 68 We do not accept the suggestion that this construction of cl 3 is irrational or lacking in commercial sense. In our view it is the natural result of a negotiation that took place in February 2007 at which time both parties assumed that by 1 May 2009 it would be apparent whether or not the Patent would expire on 13 June 2009 or at some later date. 69 On its proper construction cl 3 provided Sandoz with the opportunity to prepare to enter the market from 1 May 2009, and to commence supplying product from 31 May 2009, without risk of liability for patent infringement if the Patent expired on 13 June 2009. It conferred on Sandoz the right to enter the market on 31 May 2009 in circumstances where, provided the Patent expired on 13 June 2009, it would not need to concern itself with what was, in February 2007, the remote possibility that the term of the Patent might be extended sometime after it had expired.

Section 223(10) 70 Before the primary judge Sandoz also relied on s 223(10) of the Act which it said prevented Lundbeck from bringing proceedings for infringement of the Patent because the Patent "ceased" on 13 June 2009 and was not "restored" until 25 June 2014 when the Commissioner granted the extension of the term. Lundbeck contended that s 223(10) did not apply because the Patent did not "cease" and was not "restored" as provided for in s 223(10). It submitted that the Patent expired on 13 June 2009 but, because its term was extended to 9 December 2012 on 25 June 2014, s 79 of the Act applied to the infringement proceedings in relation to the period between 13 June 2009 and 9 December 2012. Her Honour accepted Lundbeck's submissions in relation to this issue and held that s 223(10) did not provide Sandoz with a defence to Lundbeck's claim. 71 Given our earlier conclusion in relation to cl 3 of the settlement agreement, it is not necessary for us to finally determine this point. Since the matter was fully argued, however, we will state our views in relation to this issue. 72 Section 223 of the Act provides as follows: 223 Extensions of time (1) The Commissioner must extend the time for doing a relevant act that is required to be done within a certain time if the act is not, or cannot be, done within that time because of an error or omission by: (a) the Commissioner or a Deputy Commissioner; or (b) an employee; or (c) a person providing, or proposing to provide, services for the benefit of the Patent Office; or (d) the receiving Office; or (e) the International Bureau of the World Intellectual Property Organization. (2) Where, because of: (a) an error or omission by the person concerned or by his or her agent or attorney; or (b) circumstances beyond the control of the person concerned; a relevant act that is required to be done within a certain time is not, or cannot be, done within that time, the Commissioner may, on application made by the person concerned in accordance with the regulations, extend the time for doing the act. (2A) If: (a) a relevant act that is required to be done within a certain time is not done within that time; and (b) the Commissioner is satisfied, on the balance of probabilities, that the person concerned took due care, as required in the circumstances, to ensure the doing of the act within that time; the Commissioner must, on application made by the person concerned in accordance with the regulations and within the prescribed period, extend the time for doing the act. (2B) An extension of time under subsection (2A) cannot exceed the period prescribed for the purposes of this subsection. (3) The time allowed for doing a relevant act may be extended, whether before or after that time has expired. (3A) Despite subsection (3), the time allowed for doing a relevant act may be extended under subsection (2A) only after that time has expired. (4) The Commissioner must advertise in the Official Journal: (a) an application made for an extension of time for more than 3 months; or (b) an application made for an extension of time for doing a prescribed relevant act in prescribed circumstances. (6) Subject to subsection (6A), a person may, as prescribed, oppose the granting under subsection (2) or (2A) of the application. (6A) If the Commissioner is satisfied, on the balance of probabilities, that an application under subsection (2) or (2A) would not be granted even in the absence of opposition under subsection (6): (a) the Commissioner need not advertise the application in accordance with subsection (4); and (b) the application cannot be opposed, despite subsection (6); and (c) the Commissioner must refuse to grant the application. (7) Where: (a) a patent application lapses, or a patent ceases, because of a failure to do one or more relevant acts within the time allowed; and (b) the time for doing that act or those acts is extended; the application or patent must be treated as having been restored. (8) Where: (a) a provisional patent application lapses under subsection 142(1) at the end of the period prescribed for the purposes of section 38; and (b) that period is extended; the application must be treated as if it had not lapsed. (9) Where the Commissioner grants: (a) an extension of more than 3 months for doing a relevant act; or (b) an extension of time for doing a prescribed relevant act in prescribed circumstances; the prescribed provisions have effect for the protection or compensation of persons who, before the day on which the application for extension of time is advertised under subsection (4), exploited (or took definite steps by way of contract or otherwise to exploit) the invention concerned because of the failure to do the relevant act within the time allowed, the lapsing of the patent application or the ceasing of the patent, as the case may be. (10) Infringement proceedings cannot be brought in respect of an infringement committed: (a) between the day on which the patent application lapses and the day on which it is restored; or (b) between the day on which the patent ceases and the day on which it is restored. (11) In this section: relevant act means an action (other than a prescribed action) in relation to a patent, a patent application, or any proceedings under this Act (other than court proceedings), and includes the making of a Convention application within the time allowed for making such applications. 73 Regulation 22.21 of the Patents Regulations 1991 (Cth) (the "Regulations") provided at the relevant time: 22.21 Protection or compensation of certain persons (1) The following provisions of this regulation are prescribed for subsections 41(4), 150(4) and 223(9) of the Act. (2) Persons who availed themselves of or exploited, or took definite steps by contract or otherwise to avail themselves of or exploit, inventions: (a) in the case of inventions to which subsection 41(4) of the Act applies - in the period mentioned in paragraph 41(4)(c) of the Act; and (b) in the case of inventions to which subsection 150(4) of the Act applies - after the lapse of the applications and before the day on which their restoration was notified in the Official Journal; and (c) in the case of inventions to which subsection 223(9) of the Act applies - within the period of time extended under that subsection; may apply, in the approved form, to the Commissioner for the grant of licences to exploit the inventions. (3) The Commissioner must give a copy of the application to: (a) a person whose application was restored under section 150 of the Act; or (b) a patent applicant or patentee of the application or patent for which an extension of time was granted under section 223 of the Act; or (c) the patent applicant or patentee of the application or patent to which subsection 41(4) of the Act applies; and to any other person the Commissioner believes to have an interest in the application. (4) A person mentioned in subregulation (3) may oppose the grant of the licence to which the application relates. (5) The Commissioner, if reasonably satisfied that the application should be granted, must grant a licence to the applicant on such terms as the Commissioner thinks reasonable. 74 The words "ceasing" and "ceases" appear in s 223(9) and s 223(10) respectively. The word "ceases" is also used in other provisions of the Act including, in particular, s 143 which provides: 143 Ceasing of patents A standard patent ceases if the patentee: (a) does not pay a renewal fee for the patent within the prescribed period; or (b) does not file the prescribed documents (if any) within the prescribed period. Before the primary judge Sandoz relied on some observations made by Beach J in H Lundbeck A/S v Commissioner of Patents (2017) 249 FCR 41 which concerned licence applications made by Sandoz and others for licences to exploit the invention described in the Patent pursuant to s 223(9) of the Act and reg 22.21 of the Regulations. Lundbeck opposed the grant of such licences. The proceeding before his Honour concerned an application by Lundbeck for judicial review of the Deputy Commissioner's decision to hear and determine at the same time all substantive issues relating to the licence applications, including the threshold requirements of s 223(9) of the Act, rather than separately, as Lundbeck had requested. In the course of his reasons, Beach J considered the meaning of the word "ceasing" as used in s 223(9) which refers to "the ceasing of the patent". His Honour distinguished between the regime that governs the extensions of term (ss 70-79A) and that which governs extensions of time (s 223). Turning to the meaning of the word "ceasing" as used in s 223(9), his Honour said at [130]-[131]: [130] First, the word "ceasing" is an ordinary English word. Its natural meaning encompasses "expiry". Now "ceasing" may have a narrower operation in some parts of the Act (such as s 55(2)(b)), but it is capable in other provisions of the Act of having a broader operation. Such an operation is apparent from s 145(1), which reads "the patent, or all the patents … have ceased to be in force". This has been interpreted to include expiry of the term of a patent (Regency Media Pty Ltd v MPEG LA, LLC (2014) 231 FCR 588 at [13] and [35] per Bennett and Pagone JJ); see also Alphapharm at [68] where it was noted that one could have a lapse of a patent due to the expiration of the term. [131] Second, if s 223(9) is to be construed so that a licence applicant must show that there was either a lapsing or ceasing of a patent to enliven the Commissioner's power to grant a licence (Lundbeck's construction), then the context and purpose of the provision support "ceasing" being given a wide operation, and not being necessarily confined to the meaning of "ceases" in s 143 of the Act. In the context of s 223(9) and reg 22.21, "ceasing" refers to a patent ceasing to be in force, a concept which includes both "ceasing" in a narrow sense and expiry of the term of a patent. 75 Section 223(10) can only apply in the present case if the Patent "ceases" and is "restored". The provision is complementary to s 223(7) which also refers to a patent that "ceases" and is treated as having been "restored". Section 223(7) provides that a patent which ceases because of a failure to do a relevant act within the time allowed will be treated as restored if the time for doing that act is extended. Section 223(7) does not require that there be any other act in order for restoration to be achieved. It follows that a patent that ceases because of a failure to do the relevant act within the time allowed must be treated as having been restored when the time for doing the relevant act is extended. If the relevant act is still not performed within the time as extended then the patent ceases again, and may only be further restored by operation of s 223(7) if another extension of time within which to do the relevant act is granted. 76 Even if the Patent ceased on 13 June 2009 due to the expiry of the 20 year term, we do not see how it could be in any sense "restored" by the extension of time that was granted. The extension of time did not result in the restoration of the Patent whether by force of s 223(7) or otherwise. The Patent was still an expired patent which may or may not be restored depending upon the outcome of Lundbeck's application for an extension of the term. In our view s 223(7) can only be sensibly engaged in situations where the Patent ceases because of a failure to do an act within time as would occur, for example, in circumstances referred to in s 143 of the Act. 77 In the present case, if the Patent ceased, it ceased because its initial term expired before any extension of term had been granted. It would be nonsense to treat the Patent as having been restored merely because an extension of time had been granted to enable the patentee to apply for an extension of term outside the prescribed period which application may or may not be granted. 78 The primary judge said at [151]: How is it that a patent "is restored" if, after expiry of its term, an extension of term is granted? Once a patent reaches the end of its term, the exclusive rights of the patentee under s 13 of the Patents Act come to an end. Once an extension of term is granted, the term of the patent is extended and by s 79 the patentee is vested with the same rights as if the extension had been granted at the time when the (infringing) act is done. The patent's term is extended and, as a result, s 79 creates new rights in the patentee for the intervening period. No provision of Pt 3 of Ch 6 provides for the patent to be restored either at the day of expiry or at the day of extension. To my mind, it is not a natural and ordinary reading of "is restored" in s 223(10)(b) to include within its scope a patent which expired and was later the subject of the grant of an extension of term with the consequence that s 79 applies. We respectfully agree with her Honour. 79 Sandoz submitted that the better view of s 223(7) is that it does not define a date of restoration, but provides that where an extension of time application is granted, a patent which has ceased because of the failure to do a relevant act is treated as being restored. It submitted that the date of restoration would occur once the relevant act, and any other act required to restore the Patent, had been performed. Sandoz submitted that to approach s 223(7) on the basis that the Patent is treated as having been restored when the time for doing the relevant act is extended is wrong in principle because neither s 223(7) or any other related provisions define the restoration date. It submitted that the Patent was restored on 25 June 2014 when the extension of term was granted. 80 We do not accept this submission. It is inconsistent with language of s 223(7) which requires that the Patent be treated as having been restored where the time for doing the relevant act is extended. To not treat the Patent as having been restored once the requirements of s 223(7) have been satisfied would be inconsistent with the clear direction contained in the provision. 81 We do not think it necessary for the purpose of disposing of this aspect of Sandoz's appeal to reach any conclusions in relation to s 223(9) or its width of operation. In particular, it is not necessary for us to express any view as to whether s 223(9) could be engaged in circumstances where s 223(7) was not engaged. This is because the operation of s 223(9) may not necessarily depend on the existence of a patent which has been "restored" by operation of s 223(7). 82 In our view the primary judge was correct to hold that s 223(10)(b) did not provide Sandoz with a good defence to Lundbeck's claim.

Exclusive licence 83 There were two contentions relied on before the primary judge by Sandoz that related to Lundbeck Australia's standing as exclusive licensee. 84 Sandoz's first contention was that Lundbeck Australia could not bring the proceeding heard by her Honour because the source of Lundbeck Australia's right to do so was found in s 79 of the Act which conferred a right to start proceedings on the patentee but not on an exclusive licensee. Her Honour rejected that contention. 85 The second contention relied on by Sandoz was that at no material time was Lundbeck Australia an exclusive licensee of the Patent. This contention was also rejected by the primary judge.

Relevant Legislative Provisions 86 We have already set out s 79 of the Act at para [17] above. It is also necessary to refer to s 78 of the Act to which the primary judge made extensive reference in the course of her discussion of this topic. Section 78 relevantly provides: 78 Exclusive rights of patentee are limited if extension granted If the Commissioner grants an extension of the term of a standard patent, the exclusive rights of the patentee during the term of the extension are not infringed: (a) by a person exploiting: (i) a pharmaceutical substance per se that is in substance disclosed in the complete specification of the patent and in substance falls within the scope of the claim or claims of that specification; or … for a purpose other than therapeutic use; or (b) by a person exploiting any form of the invention other than: (i) a pharmaceutical substance per se that is in substance disclosed in the complete specification of the patent and in substance falls within the scope of the claim or claims of that specification; or … 87 The following provisions of the Act are also relevant: 13 Exclusive rights given by patent (1) Subject to this Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention. (2) The exclusive rights are personal property and are capable of assignment and of devolution by law. (3) A patent has effect throughout the patent area. 120 Infringement proceedings (1) Subject to subsection (1A), infringement proceedings may be started in a prescribed court, or in another court having jurisdiction to hear and determine the matter, by the patentee or an exclusive licensee. (1A) Infringement proceedings in respect of an innovation patent cannot be started unless the patent has been certified. (2) If an exclusive licensee starts infringement proceedings, the patentee must be joined as a defendant unless joined as a plaintiff. (3) A patentee joined as a defendant is not liable for costs unless the patentee enters an appearance and takes part in the proceedings. (4) Infringement proceedings must be started within: (a) 3 years from the day on which the relevant patent is granted; or (b) 6 years from the day on which the infringing act was done; whichever period ends later. 88 The following definitions which appear in Schedule 1 are also relevant: exclusive licensee means a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons. patentee means the person for the time being entered in the Register as the grantee or proprietor of a patent.

The Effect of Section 79 89 In the absence of s 79, a patentee would have no right to bring a proceeding in respect of an act that occurred after the term of a patent had expired but before the term was extended ("the relevant period"). This is because such an act could not infringe the exclusive right to exploit the invention referred to in s 13 which exists only during the term of the patent. A patentee seeking relief in respect of an act which had occurred during the relevant period must instead rely on s 79. The primary judge referred to the gap in the patentee's rights to which we have referred as follows at [187]-[189]: [187] Section 79 deals with the gap by creating a legal fiction. The fiction involves treating the extension as granted at the time the (infringing) acts were done when in fact, the acts must have occurred within the gap between expiry of the patent and the grant of the extension of the term. The rights which s 79 vests in the patentee under the legal fiction are expressed to be the same rights to start proceedings the patentee would have had if the extension had been granted when the act was done. As explained, for the fiction to work for the patentee, those rights (to start proceedings), to be the "same rights" the patentee would have had, necessarily carry with them the patentee's exclusive s 13 rights to exploit the invention. That is, the s 79 fiction can only function at all if part of the fiction is that during the period covered by s 79, when the extension of term is granted, the patentee has the s 13 exclusive rights to exploit the invention as if it were "during the term of the patent", when in fact that period is never "during the term of the patent". And because, like ss 13 and 78, s 79 has effect (albeit a future contingent effect) from the moment a patent is granted, it must be the case that the suite of rights which a patentee has from the date of grant of a patent are the exclusive rights provided for by ss 13, 78 and 79 (and s 120). To operate as a coherent scheme, it is that suite of rights which a patentee may assign to an exclusive licensee, including the exclusive rights as qualified by s 78 and as provided for by the legal fiction in s 79. [188] These considerations mean that s 79 is an ambiguous provision for at least two reasons. One, it does not refer to the patentee having the same exclusive rights to exploit the invention as if the extension had been granted at the time the act was done, even though this must be the case. Two, it refers instead to the patentee having the "same rights" to start proceedings as it would have had if the extension had been granted at the time the act was done when, on my view as to how the section must be understood (as giving the patentee the same right to exploit the invention), s 120 would simply operate according to its terms. [189] The one thing that is clear is that, given the ambiguity of s 79, the interpretation which best gives effect to the purpose or objects of the Patents Act is to be preferred and regard may be had to extrinsic material to assist in the task of giving meaning to the provision. In particular, this is not a case where, like Actavis v Orion, the statutory provision is clear and, in terms, does not permit a person other than a patentee or the exclusive licensee to start proceedings. 90 After referring to a paragraph in the Explanatory Memorandum to the Patents Bill 1990 (Cth) which she did not find of much assistance, her Honour continued at [191]-[193]: [191] To my mind, the objects or purposes of the Patents Act are best given effect by reading s 79 as if it vests in the patentee the same exclusive rights it would have had to exploit the invention under s 13 during the period covered by s 79 as if the extension had been granted at the time when the (infringing) acts were done. On this basis, on an assignment of the s 13 rights to an exclusive licensee, the rights assigned are subject to and include the future contingent effects of ss 78 and 79. The words "the patentee has … the same rights to start proceedings …" in s 79 would not be read as if they operated to exclude an exclusive licensee from starting proceedings. They would be read as rights the patentee has from the grant of the patent (as with ss 13, 78 and 120) which are capable of assignment to an exclusive licensee so that for the patentee in fact to have the "same rights to start proceedings", both the patentee and the exclusive licensee must have the rights under s 120. To read the words as if they were intended to exclude an exclusive licensee from starting proceedings under s 120 for the period covered by s 79 is to ensure that the patentee does not have the "same rights" for which s 79 provides because, under the fiction created by s 79, those rights include assignment and, if assigned to an exclusive licensee, the rights under s 120. [192] Sandoz's arguments to the contrary would result in a scheme which is unworkable. Section 79 cannot be read literally as to do so means the patentee has no exclusive rights to protect by starting proceedings for infringement in the period which s 79 covers. So the "same rights to start proceedings" cannot be given its literal meaning. It must mean (also or instead) that the patentee has the same exclusive rights under s 13 it would have had if the extension had been granted at the earlier time. Not only would s 79 not work if s 79 is given its literal meaning, s 78 also would not work because the period covered by s 79 is not "during the term" of the patent and thus the confining effect of s 78 would not operate during the period covered by s 79. So, even for the patentee and leaving aside any consideration of an exclusive licensee, s 79 cannot be given its literal meaning. For these reasons, contrary to the submissions for Sandoz, there is no "logical sense in the proposition that only the patentee may sue during the period provided for in s 79(d)-(e) because during that period the 'patentee' has no patent in force and therefore no exclusive rights under s 13 over which it could grant an exclusive licence". [193] The best way to give effect to the scheme of the Patents Act for extensions of term of patents is to construe ss 78 and 79 in the same manner. For the reasons given above, the rights of the patentee which are confined under s 78 necessarily, from the grant of the patent, are also so confined so that the exclusive licensee can never get a greater right and takes rights subject to s 78. And the rights of the patentee under s 79, in my view, must be understood as contingent rights that existed from the moment of grant of the patent, so that the exclusive licensee takes those rights as well. Otherwise, looked at from the time of grant of the patent when the entire suite of rights exists and is assignable, the patentee would not have the "same rights to start proceedings" as it would have had as provided for in s 79. To be the "same rights to start proceedings" the patentee must be able to create an exclusive licensee who can also start proceedings under s 120 including for the period of an extension. The object or purpose of s 79 being to fill the gap between the expiry of the patent and the grant of the extension by giving rights as if the extension had been granted at the earlier time is best achieved by a construction which results in the same position for the patentee during the s 79 period. The construction of Sandoz does not achieve that object or purpose. 91 The primary judge concluded that an exclusive licensee has the right to start proceedings in respect of an act done during the relevant period. In essence, her Honour reasoned that s 79 necessarily expanded the scope of the exclusive rights of the patentee to exploit the invention and to authorise another person to exploit the invention during the term of the patent. Her Honour considered that unless s 79 extended the scope of the patentee's exclusive rights, an action for infringement based on an act during the relevant period would necessarily fail because there never could be any infringement of the patentee's exclusive rights during the relevant period. 92 Her Honour considered that the patentee's exclusive rights, as enlarged by s 79, include the right to start proceedings under s 120, and that those rights are capable of assignment to an exclusive licensee. If, in accordance with the express terms of s 79, the patentee has "the same rights to start proceedings" during the relevant period then the patentee must be capable of creating an exclusive licence which also gives the exclusive licensee the right to start proceedings under s 120 in respect of acts done during the relevant period. 93 Sandoz submitted that, in the circumstances of this case, the only source of any right to commence proceedings under the Act was s 79, and that the primary judge erred in finding that s 79 conferred any such right on an exclusive licensee. Sandoz submitted that the language of s 79 was unambiguous in this respect and that it only allowed the patentee to start a proceeding in respect of an act done during the relevant period. 94 Sandoz challenged the correctness of the primary judge's reasoning on the basis that her Honour did not identify any true ambiguity in the language of s 79 and was instead founded on what she perceived to be a need to arrive at an interpretation of the relevant provisions which allowed the patentee to assign the right to start proceedings under s 79 to an exclusive licensee, something that she regarded as essential to the maintenance of a coherent statutory scheme. Sandoz further submitted that her Honour's reliance on the concept of assignment was misplaced because an exclusive licensee under the Act is not a person to whom any rights must have been assigned. 95 Lundbeck's submissions reflected the same approach to the construction question that was taken by the primary judge. Lundbeck submitted that under s 120, the patentee or exclusive licensee may start proceedings for infringement of the exclusive rights created by s 13. It submitted that an exclusive licensee has the "right to start proceedings through the patentee" and that the right to grant an exclusive licence under s 13 which permits the exclusive licensee to commence proceedings is one of the patentee's "rights to start proceedings". Lundbeck submitted that because s 79 is a substantive provision which has the effect that where an extension of term is granted after expiry, the patentee's rights under the patent backdate to the date of expiry, the exclusive rights of the patentee under s 13 must also extend to the period commencing after expiry and ending when the extension is granted. According to Lundbeck's written submissions: The effect of the regime is that where an exclusive licensee has the benefit of an exclusive licence of the patentee's rights, the extension of the duration of the patentee's rights flows on via the exclusive licence to the exclusive licensee … As a consequence of the substantive right granted by s 120, the exclusive licensee has the right to sue for infringement during the relevant period pursuant to s 120. If the exclusive licensee is party to proceedings bought by the patentee, the exclusive licensee may enforce its rights. 96 In its oral submissions Lundbeck also referred to s 57 of the Act which relevantly provides: 57 Effect of publication of complete specification (1) After a complete specification relating to an application for a standard patent has become open to public inspection and until a patent is granted on the application, the applicant has the same rights as he or she would have had if a patent for the invention had been granted on the day when the specification became open to public inspection. (3) Subsection (1) does not give the applicant a right to start proceedings in respect of the doing of an act unless: (a) a patent is granted on the application; and (b) the act would, if done after the grant of the patent, have constituted an infringement of a claim of the specification. 97 Lundbeck pointed to s 57 as another example of a situation in which an exclusive licensee may be entitled to commence proceedings in respect of acts that were done at a time when the patent was not in force, ie. because it had not been granted at the time the relevant act was done. The fact that s 57 was expressed to confer this expanded right on the patent applicant (there being no mention of an exclusive licensee in the section) was said to support the conclusion that s 79 allows the exclusive licensee to commence infringement proceedings in respect of acts done during the relevant period. 98 We note at the outset that the only acts of infringement that were the subject of the infringement proceeding brought against Sandoz were acts that took place after the Patent had expired and before the extension of the term was granted. It follows that any entitlement that Lundbeck Australia had to bring its infringement proceeding against Sandoz depended on the operation of s 79. 99 It is necessary to distinguish between the exclusive rights granted to the patentee under s 13 from the right to commence infringement proceedings. While s 13 defines the exclusive rights of the patentee, it does not confer on the patentee or an exclusive licensee a right to commence an infringement proceeding. Section 120 is the source of both a patentee's and an exclusive licensee's right to commence such a proceeding. 100 Provided that the relevant licence agreement creates a true "exclusive licence" then the exclusive licensee will have a statutory right to commence infringement proceedings under s 120 regardless of what the licence agreement has to say. Of course, the licence agreement may, as between the parties, impose contractual restrictions on the right of the exclusive licensee to commence an infringement proceeding. But the licence agreement is not the source of the exclusive licensee's right to sue except in so far as it confers the right that is necessary to make the licensee an exclusive licensee. 101 As we have mentioned, Lundbeck referred in its submissions to the right of an exclusive licensee to "start proceedings through the patentee" suggesting, as we understood the submission, that the exclusive licensee's right to commence proceedings was somehow derived from the patentee's own right to commence proceedings. However, the exclusive licensee's right to bring proceedings does not involve it commencing proceedings through the patentee. When an exclusive licensee commences a proceeding for patent infringement it does not do so in the name or right of the patentee. 102 At this point it is useful to refer to some well-established principles of statutory construction. As the plurality (Hayne, Heydon, Crennan and Kiefel JJ) stated in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at 46-47 [47]: [47] This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy. (footnotes omitted) 103 In Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 the High Court said at 519 [39]: [39] … The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself. (footnote omitted) See also SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 at 368 [14] per Kiefel CJ, Nettle and Gordon JJ, and 374 [37] per Gageler J. 104 We do not think s 57 or s 78 of the Act assists Lundbeck. Section 78 makes clear that, during the term of an extension, the exclusive rights of the patentee are not infringed by a person engaging in certain acts of exploitation. It has nothing to say about who may commence proceedings for patent infringement during the extended term. As for s 57, it confers on the patent applicant the right to sue in respect of acts done after the complete specification became open for public inspection but before any patent was granted subject to certain provisos. It does not purport to confer any right on any person other than the patent applicant consequent upon publication of the complete specification. 105 In the absence of s 79, the patentee would have no right to commence proceedings in relation to an act done during the relevant period because such an act could not infringe the patentee's exclusive rights. In that respect, we agree with the primary judge that s 79 enlarges the scope of the patentee's rights in that it implicitly deems an act done at a time when the patent had expired but had not been extended to be an act done after the patent was extended. While that explains why an act of the kind to which s 79 is directed may constitute an infringement of the patentee's exclusive rights, it does not explain why the exclusive licensee should also be taken to enjoy the same right to commence proceedings in the circumstances in which s 79 applies. 106 As we have explained, the primary judge's interpretation of s 79, and its relationship to s 13 and s 120, was influenced by a perceived need to adopt an interpretation of those provisions which best gives effect to the purposes or objects of the Act. Her Honour was of the view that those purposes or objects were best given effect by interpreting s 79 so as to create a "coherent scheme" that would allow an exclusive licensee to commence a proceeding in relation to an act done during the relevant period. 107 It is by no means clear to us that the purposes or objects of the Act justify an interpretation of s 79 that is not supported by the ordinary meaning of the statutory text which, by its terms, does not confer on an exclusive licensee any right to commence proceedings in respect of an act done during the relevant period. 108 One matter that featured prominently in Lundbeck's submissions was what it said would be the anomalous result of holding that a patentee could bring proceedings in respect of acts done during the relevant period, but that an exclusive licensee could not. Lundbeck submitted that there was no discernible reason why the legislature would not want to extend this same right to an exclusive licensee in the circumstances at which s 79 was directed. 109 We do not accept that submission. In the case of an expired patent, a patentee is still the patentee of the patent and, as Lundbeck has demonstrated, has the right to apply for an extension of the time in which to apply for an extension of the term of a patent that has previously expired. But the question whether a person remains an exclusive licensee of a patent after it has expired can be more problematic. If an exclusive licence is expressed to operate for the term of the patent then it would, subject to any term to the contrary, cease to do so once the patent expired: cf. s 145 of the Act which applies despite anything to the contrary in the licence agreement. The potential uncertainty surrounding the rights of an exclusive licensee during the relevant period may explain why the legislature referred only to the patentee in s 79. Another possibility is that the legislature considered that the right to commence proceedings in respect of an act done during the relevant period should be confined to the patentee because it is only the patentee who has the right to apply for an extension of the term of the patent, and to avoid the possibility of an exclusive licensee asserting a right to commence proceedings (contingent on an extension being granted) in circumstances where only the patentee has the right to apply for an extension of the term. 110 We do not suggest that either of the possibilities to which we have referred necessarily explain why s 79 refers to the patentee but not an exclusive licensee. We refer to them only for the purpose of demonstrating that there may be other reasons apart from infelicitous drafting that explain why s 79 (unlike s 120) refers to the patentee but not an exclusive licensee. Ultimately, we do not think the proper construction of s 79, or its relationship to s 13 or s 120, is assisted by a consideration of any general legislative object or purpose beyond acknowledging that the purpose of s 79 is to allow the patentee to commence infringement proceedings in circumstances where it could not otherwise do so. In the result, we consider that s 79 should be interpreted in accordance with its plain language which means that it is only the patentee that may commence proceedings in respect of acts done during the relevant period.

Was the Deed of Exclusive Licence Varied? 111 The primary judge found that Lundbeck and Lundbeck Australia were parties to a Deed dated 26 September 2005 which constituted an exclusive licence within the meaning of the Act. The term of the licence was expressed by cl 3 to continue until termination of the Deed in accordance with cl 4. Clause 4 entitled Lundbeck, the licensor, to terminate the Deed at any time by giving 30 days' notice in writing to Lundbeck Australia, the licensee. Clause 9 of the Deed provided that any variation of any term of the Deed must be in writing signed by the parties. 112 While Sandoz accepted that the Deed was an exclusive licence for the purpose of the Act, it contended that it was subsequently varied by the settlement agreement that both Lundbeck and Lundbeck Australia entered into with Sandoz. Sandoz contended that by cl 3 of the settlement agreement (which we have previously set out) Lundbeck and Lundbeck Australia varied the Deed. The precise terms of the alleged variation of the Deed were never made clear in Sandoz's submissions but it was said to have resulted in a state of affairs in which Lundbeck Australia no longer retained for itself the right to authorise others to exploit the patented invention. 113 We do not think there is any substance to this argument which was, in our view, correctly rejected by the primary judge. The fact that Lundbeck and Lundbeck Australia jointly and severally granted to Sandoz an irrevocable non-exclusive licence to the Patent by cl 3 of the settlement agreement is not evidence of the existence of an agreement whereby Lundbeck Australia relinquished any of the rights conferred on it by the Deed. It is impossible to find in cl 3 of the agreement any express or implied agreement between Lundbeck and Lundbeck Australia amending the terms of the Deed. Moreover, the recitals to the settlement agreement state that Lundbeck Australia is the exclusive licensee of the Patent in Australia which provides still more reason for not construing cl 3 as an agreement between Lundbeck and Lundbeck Australia amending the Deed so as to deprive Lundbeck Australia of its standing as exclusive licensee: Ex parte Dawes (1886) 17 QBD 275 at 286 per Lord Esher MR. 114 Sandoz also relied on a number of distribution agreements entered into between Lundbeck and CNS Pharma and between Lundbeck and Lundbeck Australia. These distribution agreements were entered into in 2012. They were said by Sandoz to amount to evidence that the settlement agreement amended the exclusive licence agreement (an agreement wholly in writing) in accordance with the submission that we have rejected. In oral submissions it was accepted by Sandoz that its argument based on the alleged amendment of the exclusive licence agreement by the settlement agreement raised a question of construction. It is sufficient to say for the purpose of disposing of the argument based on the distribution agreements that neither agreement was admissible as evidence relevant to the proper construction of the settlement agreement: James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603 per Lord Reid; Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [35] per Gummow, Hayne and Kiefel JJ.

Damages 115 Given our conclusion that the appeals should be allowed, the cross-appeal filed by Lundbeck must be dismissed. However, since the parties made submissions on the cross-appeal, we propose to consider it. 116 There were two issues argued in the appeal in relation to the damages awarded by the primary judge. The first issue, raised by Sandoz, concerned the primary judge's award of damages to Lundbeck. The second issue, raised in Lundbeck's cross-appeal, concerned the 25% discount that the primary judge applied when assessing damages. We can deal with the first of these issues relatively briefly.

Lundbeck's Damages 117 Sandoz submitted that the damage claimed by Lundbeck in this proceeding was not suffered by it in its capacity as patentee. It argued that Lundbeck was incapable of suffering any loss in its capacity as patentee "because it had rendered its rights as patentee valueless" by entering into a "royalty free" exclusive licence agreement with Lundbeck Australia and that its loss was merely that of "an overseas manufacturer of goods". It submitted that there was therefore no basis to award any damages to Lundbeck for patent infringement. The primary judge rejected Sandoz's submissions on this issue which she described as misconceived. We respectfully agree. 118 As her Honour said, because Lundbeck Australia was the exclusive licensee of the Patent, it alone had the right to exploit and authorise the exploitation of the Patent in Australia. But it does not follow that Lundbeck was not entitled to recover its own loss in infringement proceedings commenced by it as patentee. The damage alleged by Lundbeck was loss of profits on sales of product manufactured by it and supplied to Lundbeck Australia and CNS Pharma. This was a loss suffered by the patentee as a result of what her Honour found to be Sandoz's infringement of the Patent. Her Honour's findings that such losses were caused by what she held to be Sandoz's infringements and that such losses were reasonably foreseeable were not challenged by Sandoz. 119 We see no reason why a patentee may not suffer damage in the form of a loss of profits on sales of goods made by it overseas which it would have supplied to its exclusive licensee for sale in Australia were it not for the infringement of the patent. The question is whether Sandoz's alleged infringements were a cause of Lundbeck's loss and whether that loss was of a kind that was reasonably foreseeable at the time the alleged infringements occurred. We do not accept that the primary judge committed any error in finding that the loss claimed by Lundbeck was recoverable.

The 25% Discount 120 In support of its cross-appeal Lundbeck submitted that the primary judge erred in reducing the damages payable to Lundbeck and Lundbeck Australia by 25% on the basis that some sales made by Sandoz of generic escitalopram products represented sales of generic escitalopram products won by Sandoz from other generic medicine suppliers rather than from Lundbeck Australia or CNS Pharma. 121 The primary judge applied a discount of 25% when assessing damages because her Honour considered that some of Sandoz's sales of its generic escitalopram product were sales made at the expense of other generic suppliers rather than Lundbeck Australia or CNS Pharma. The primary judge's reasons for imposing the 25% discount are set out in the following paragraphs of the Primary Judgment at [419]-[422]: [419] The overall effect of this evidence is this. Doctors prescribe the antidepressant that they think will be clinically appropriate for the particular patient. In practice, provided the antidepressant is PBS listed (which Lexapro was), cost is not an issue. This is so whether or not there is a generic equivalent product. [420] For these reasons, Sandoz's submissions are over-stated. If escitalopram is not or proves not to be the right antidepressant for the patient, it will not be prescribed or will cease being prescribed. Such a patient, accordingly, would either never be prescribed Sandoz's escitalopram products or will have ceased being prescribed Sandoz's escitalopram products. As a result, the starting point must be that every sale of Sandoz's escitalopram products is a lost sale of a Lundbeck escitalopram product. [421] The reason I say that in this case 1:1 substitution is the starting point is that, as we know, Sandoz's escitalopram products were not the only generic equivalent escitalopram products on the market. As Sandoz identified, from mid-2009 there were multiple generic equivalent escitalopram products available. The fact that Lundbeck settled its claims against these generics does not mean that their products may be disregarded. While I would accept that there is a very high probability (approaching a certainty) that every sale of any one of these generic equivalent escitalopram products must represent a lost sale of Lundbeck's escitalopram products, I do not accept that every sale of Sandoz's escitalopram products involves a near certainty of representing a lost sale of Lundbeck's escitalopram products. In a crowded market of multiple generic equivalent escitalopram products from mid-June 2009 onwards, some sales of Sandoz's escitalopram products must represent lost sales not of Lundbeck's escitalopram products but of other generics' escitalopram products. [422] The fact that those other generics were in the market cannot be ignored. Sandoz is not responsible for the conduct of those other generics and cannot be held liable for it. This indicates that Sandoz must be right, albeit not for the reasons it gave, that there should be a material discount to account for the probability that some Sandoz sales otherwise would have been sales of other generics' escitalopram products rather than Lundbeck's products. The materiality of this necessary adjustment is to be assessed having regard to the other factor which I noted above, that Lundbeck has approached the matter on the basis that every lost sale is a sale of the cheapest product offered by CNS Pharma (Esipram) rather than the more expensive product offered by Lundbeck AU (Lexapro). There is a very high likelihood that some sales of Sandoz's escitalopram products would represent lost sales of Lexapro rather than of Esipram … Her Honour then referred to some expert evidence that explained why some patients may stay on Lexapro and not switch to the less expensive Esipram supplied by CNS Pharma. Her Honour continued at [423]-[425]: [423] As a result, it is reasonable to infer that some patients who had been taking Lexapro would have been likely to keep taking Lexapro but instead were substituted to Sandoz's escitalopram products. [424] In my view, while it is preferable as a matter of principle to make one overall adjustment for risk at the end of the damages assessment process, this issue is likely to be the most material factor to take into account in deciding the size of the adjustment which should be made. There is little evidence to assist in resolving what size of adjustment would be appropriate to account for the fact that some sales of Sandoz's escitalopram products must represent lost sales not of Lundbeck's escitalopram products but of other generics' escitalopram products. There is some evidence that generic substitution rates were increasing over time. Whilst Lundbeck characterised the evidence of Jason Turner of Sandoz about increasing generic substitution rates as unreliable, noting that "he could not name a single pharmacist who had informed him of this", and had been Sandoz's Chief Financial Officer in 2009 (only subsequently moving into a business sales management role), I do not have any concern accepting Mr Turner's evidence. Even in his role as Chief Financial Officer he must have had a good sense about the market within which Sandoz was operating which was all about generic substitution. It also stands to reason that over time pharmacists and patients will become more familiar with the process and potential benefits of generic substitution. [425] The result is that, doing the best I can on the evidence, I consider that a material discount from the assumed substitution rate of 1:1 is required. Resolving remaining doubts in Lundbeck's favour to reflect the general principle that a liberal approach to damages is required and having regard to the fact that Lundbeck's approach excludes any claims for lost sales of Lexapro, I consider that a deduction of 25% is required to account for the fact that it is likely that some sales of Sandoz's escitalopram products must represent lost sales not of Lundbeck's escitalopram products but of other generics' escitalopram products. 122 There was further argument on damages before the primary judge following delivery of the Primary Judgment. Lundbeck submitted that the 25% discount allowed by her Honour had not been the subject of any relevant submission by Sandoz. Lundbeck maintained that although Sandoz had submitted that some of Lundbeck Australia's claimed sales may have been lost to different anti-depressant products rather than those containing escitalopram (which submission was rejected by the primary judge), Sandoz had not submitted that there should be a discount because some of those sales may have been lost to other generic escitalopram products. 123 In response to this submission, the primary judge permitted the parties to make further submissions on the 25% discount. She subsequently delivered the Discount Judgment in which her Honour said at [7]-[10]: [7] I accept Sandoz's submissions. I did not find any infringement of the 144 patent by Apotex, Alphapharm and Aspen Pharma. I do not accept that I may find any such infringement in circumstances where Lundbeck discontinued its claims against each of these parties. Even if I could make such findings, the evidence discloses the availability of other generic escitalopram products at various times relevant to Lundbeck's damages claims which, it must be inferred, would have been substitutable for Lundbeck's products and Sandoz's products. The status of these products, whether they infringed the 144 patent or not, is unknown. As a matter of principle, Lundbeck is entitled to damages for the proved infringement by Sandoz, not the proved infringement by Sandoz and assumed infringements by non-parties. My inference that a material proportion of Sandoz's sales must have been lost sales not of Lundbeck's products but of the products of these other non-parties demonstrates that the relevant loss is loss of those non-parties, not Lundbeck. If Lundbeck had a claim against those parties, made that claim and proved infringement, so be it. The loss would then be Lundbeck's, but it did not do so and, indeed, the basis upon which it did not do so, remains unknown. The possibilities are endless. Lundbeck may have negotiated any one of a number of deals with those other non-parties, the details of which are unknown. All that is known is that it has not proved any infringement of the 144 patent by those non-parties. [8] Lundbeck's submission that the discount means that no-one would be "legally responsible" for the lost sales represented by the discount assumes that Lundbeck has proved infringement against those other generics and thus is entitled to be compensated for sales it otherwise would have made. Once it is recognised that Lundbeck has not proved any such infringement, it is apparent that the concept of someone being "legally responsible" to compensate Lundbeck for those sales is inapplicable. [9] Nor is it the case that a discount of this kind would necessarily be applied in the example Lundbeck gave of a market in which three generics sold infringing products and Lundbeck sued all three generics. In such a case, assuming no other product was substitutable, all sales by all three generics would be lost sales to Lundbeck. This is not the present case. Numerous generics entered the market at times relevant to Lundbeck's damages claims. Ultimately, Lundbeck proved infringement by only one generic, Sandoz. It did not prove that any of the other generics infringed the patent. In these circumstances, there is no "closed loop" and, in my view, a material discount to account for those circumstances is required. In particular, it must be recalled that the relevant infringements are those by Sandoz, not Sandoz and every other generic which was selling escitalopram products during the relevant periods. The 25% discount reflects the fact that had Sandoz's infringements not occurred, a material proportion of the sales Sandoz made would have been made by the other generics against whom there has been no finding of infringement. [10] It may be accepted that Lundbeck proved that every sale Sandoz made infringed Lundbeck's patent. But Lundbeck did not prove, and it is not necessarily the case based on the facts it did prove, that every sale of an infringing Sandoz product caused a lost sale of a Lundbeck product. It could have instead caused a lost sale to another generic of a product not proved to be infringing. Her Honour went on to hold that the 25% discount she identified in the Primary Judgment should be applied. 124 There are a number of points to make in relation to the Discount Judgment. 125 Firstly, it is apparent that her Honour considered it significant that she did not find any infringement of the Patent by Apotex, Alphapharm and Aspen, the three other generic suppliers sued for infringement of the Patent by Lundbeck in the proceedings heard with the Sandoz proceeding but which were settled prior to, or during the course of, the trial. The evidence does not disclose what the terms of the settlements were but it is common ground that Lundbeck discontinued its claims against each of those generic suppliers without admission of liability for infringement. 126 Secondly, her Honour did not accept that she could make findings of patent infringement by the three generic suppliers in circumstances where Lundbeck had discontinued its claims against them. In our view this was an error. The fact that Lundbeck had discontinued its claims against the three generic suppliers did not preclude the primary judge from making a finding as to whether the escitalopram products sold by them infringed the Patent for the purposes of determining Lundbeck's rights and entitlements as against Sandoz. In circumstances where the other generic suppliers were not party to the proceeding against Sandoz they would not have been bound by any such findings. But that would not provide any reason not to make such a finding as between Lundbeck and Sandoz if it was relevant to the quantification of damages to be awarded against Sandoz. 127 Thirdly, there was evidence that established that the escitalopram products of the other three generic suppliers infringed claims 1 and 3 of the Patent. In particular, evidence from Professor Stephen Davies, one of Lundbeck's experts, showed that the Alphapharm product (Loxalate), the Aspen product (Lexam) and three generic escitalopram products supplied by Apotex, infringed claims 1 and 3 of the Patent. According to Professor Davies' evidence, each of those products consisted of a tablet containing as the active ingredient escitalopram oxalate (a salt of escitalopram) of a very high level of purity with insignificant levels of (−)-citalopram (ie. the R-enantiomer) also present. The presence of (−)-citalopram or other impurities at insignificant levels does not preclude a finding that the products fell within the scope of claims 1 and 3. 128 Fourthly, expert evidence accepted by the primary judge established that the generic escitalopram supplied by Alphapharm, Apotex, Aspen and Sandoz accounted for 90% of the market for escitalopram during the relevant period. Although her Honour did not make an explicit finding, it is apparent that in assessing damages she accepted an assumption to that effect that informed Lundbeck's market share calculations. This aspect of her Honour's reasoning was not challenged by Sandoz. 129 Fifthly, the balance of the market for generic escitalopram products was taken up by a number of other generic suppliers. Lundbeck commenced infringement proceedings against two of these suppliers (Generic Health and Dr Reddy's Laboratories) which it discontinued without any findings of infringement being made. In its submissions in reply, Sandoz also referred to two other generic suppliers (Pharmacor and Ascent Pharma) that it said supplied generic escitalopram products during the relevant period, but which were not sued by Lundbeck. 130 Sandoz sought to uphold the 25% discount on two grounds. It first submitted that it was not open to the primary judge to find that the Alphapharm, Apotex or Aspen generic escitalopram products infringed the Patent. This argument was founded on the incorrect assumption that no such finding could be made in the absence of those parties. We have already explained why that is not so. Sandoz's submissions also focused on the existence of the other generic suppliers whose products accounted for approximately 10% of the generic escitalopram market. It submitted that the evidence did not support a finding that those suppliers' products were infringing products. 131 It seems unlikely to us that these other suppliers' escitalopram products did not fall within claims 1 and 3. On the other hand, there is the theoretical possibility that these suppliers' products contained significant levels of (−)-citalopram which, if that were the case, might form the basis for concluding that the products were not infringing. Further, there is also the theoretical possibility that sales of these products had been licenced by Lundbeck or Lundbeck Australia. While that may also seem unlikely, there was no evidence as to whether these other generic suppliers' products infringed either in terms of their formulation or as to whether they were supplied by or with the licence of Lundbeck or Lundbeck Australia. Lundbeck bore the onus of establishing that each of Sandoz's sales was a sale that either Lundbeck Australia or CNS Pharma would have made if it had not been made by Sandoz. 132 One difficulty with Sandoz's submission is that the only generic suppliers that were in the escitalopram market between July 2009 and July 2011 were Alphapharm, Apotex, Aspen and Sandoz. An expert witness called by Lundbeck, Mr Owain Stone, produced a report which showed that Generic Health entered the escitalopram market in July 2011 followed by Pharmacor and Dr Reddy's Laboratories in September 2011. Three other generic manufacturers (Ranbaxy, Amneal Pharma and Eric Pharma Aust) referred to in Mr Stone's report did not enter the market until after the extended term of the Patent had expired. What Mr Stone's evidence shows is that for most of the relevant period, the only generic suppliers who were supplying generic escitalopram were those who supplied infringing products. 133 Sandoz did not make any submission as to what it said would be an appropriate percentage reduction to the damages to be awarded to Lundbeck and Lundbeck Australia in the event that we held that approximately 90% of generic escitalopram sales made between July 2009 and December 2012 were of infringing products. Given the market dominance of Alphapharm, Apotex, Aspen and Sandoz in the generic escitalopram market in this period, it would not be appropriate in our view to impose any significant reduction on account of what could only have been a relatively small number of sales that could potentially benefit three or four other generic suppliers in the period July 2009 to December 2012 whose products were not shown to be infringing. 134 On the assumption (contrary to our primary conclusion) that Sandoz infringed the Patent during the relevant period, some modest discount should be made to reflect the possibility that some of Sandoz's sales would have gone to other generics whose products may not have been infringing rather than to Lundbeck: Generic Health Pty Ltd and Another v Bayer Pharma Aktiengesellschaft and Another (2018) 267 FCR 428 at [187] per Allsop CJ, Yates and Beach JJ. On the material before us we do not think a reduction of more than 2% or 3% could be justified.

Interest 135 Sandoz also challenged the primary judge's decision to award pre-judgment interest to Lundbeck and Lundbeck Australia for the period prior to 25 June 2014 (that being the date on which the relevant extension of term was granted) on the basis that, contrary to her Honour's decision, such an award of interest could not be justified by reference to s 51A(1) of the Federal Court of Australia Act 1976 (Cth) ("FCA Act"). Although it is not necessary for us to consider this ground of appeal, we will state our views in relation to the application of s 51A(1) in the circumstances of this case. 136 Section 51A(1) of the FCA Act provides: 51A Interest up to judgment (1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either: (a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or (b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest. Section 51A(1) authorises an award of interest in a proceeding for the recovery of (inter alia) damages for the whole or any part of the period between the date when the cause of action arose and the date on which judgment is entered. 137 It is common ground that the damages awarded by the primary judge were in respect of a cause of action. The critical question is when that cause of action arose. If, as Sandoz submitted, the cause of action did not arise until the relevant extension of term was granted, then s 51A(1) did not authorise the Court to award interest in respect of any period prior to that date. 138 The primary judge referred at [531] of the Primary Judgment to a number of authorities which she considered in Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth (2018) 136 IPR 8 ("Sigma"). Her Honour said in that case at [1293]-[1295]: [1293] … [T]he words "the date when the cause of action arose" in s 51A(1)(a) also involve a temporal requirement. If there is no period between the date on which the claim may be made for the payment of money and the date of judgment, then the provision cannot apply. [1294] In any event, in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 610 Brennan J said: There is an imprecision in the meaning of the term cause of action, which is sometimes used to mean the facts which support a right to judgment (see per Williams J. in Carter v. Egg and Egg Pulp Marketing Board (Vict.) (1942) 66 CLR 557, at pp 600, 601); sometimes to mean a right which has been infringed (see Serrao v. Noel (1885) LR 15 QBD 549), and sometimes to mean the substance of an action as distinct from its form (see Krishna Behari Roy v. Brojeswari Chowdranee (1875) LR 2 Ind App 283 ). [1295] In CGU Insurance Ltd v Watson (as trustee of the deed of arrangement in respect of Greaves) [2007] NSWCA 301 Giles JA with whom Spigelman CJ and Basten JA agreed said at [44] that what is "meant by cause of action is notoriously difficult". His Honour continued at [46]: In Onerati v Phillips Constructions Pty Ltd (in liquidation) (1989) 16 NSWLR 730, in which a question was whether a proprietor's second proceedings for breach of contract against the builder for defects discovered after judgment in the first proceedings was barred by res judicata, I said at 738-9 - "Different forms of words have been used to describe what is meant by a cause of action. Brennan J referred to three descriptions; others are every fact which it would be necessary for a plaintiff to prove, if traversed, in order to support his right to a judgment (Read v Brown (1888) 22 QBD 128 at 131 per Lord Esher); the essential ingredients in the title to the right which it is proposed to enforce (Williams v Milotin (1957) 97 CLR 465 at 474 per Dixon CJ, McTiernan, Williams, Webb and Kitto JJ; Cartledge v E Jopling& Sons Ltd [1963] AC 758 at 783-784 per Lord Pearce); the act on the part of the defendant which gives the plaintiff his cause of complaint ( Jackson v Spittall (1870) LR 5 CP 542 at 552 per Brett J for himself, Bovill CJ and Keating and Montague Smith JJ; Bass v The King [1948] NZLR 777 at 781 per Gresson J; Distillers Co (Biochemicals) Ltd v Thompson [1971] AC 458 at 467 (PC); and rights which can be enforced, or liabilities which can be redressed, by legal proceedings: Sugden v Sugden [1957] P 120 at 133 per Denning LJ. I do not find minute examination of the verbal formulae particularly helpful. The form of words may vary according to the purpose for which the description is required, and in any event may not be illuminating… 139 In the present case her Honour, having referred to those paragraphs of her judgment in Sigma, concluded at [532]: Sandoz's submissions fail to recognise the operation of s 79 of the Patents Act which provides that once the extension is granted there is the "same rights to start proceedings in respect of the doing of an act during the period" commencing on the expiration of the term of the patent and ending on the day on which the extension was granted. This statutory fiction has effect for all purposes. It means that Lundbeck is taken to have had its rights as at the date Sandoz commenced its infringement of the 144 patent on 15 June 2009. Accordingly, in my view, the requirements of s 51A are satisfied on and from 15 June 2009. This is when the first cause of action arise. The causes of action accrued thereafter annually (for Lundbeck A/S) and on each lost sale for Lundbeck AU. I consider that it would be contrary to the terms of the legislation not to give effect to the clear intention of s 79 of the Patents Act. It follows that good cause has not been shown to confine the period of interest to the period commencing on 26 June 2014. 140 We do not think it assists the analysis of Lundbeck's rights under s 79 to describe that section as creating a statutory fiction or a statutory fiction that has effect for all purposes. There is nothing in s 79 that could deem any cause of action to have arisen prior to the grant of the extension of term upon which of the operation of the section depends. 141 Mr Bannon SC referred us to the decision of the House of Lords in Sevcon Limited v Lucas Cav Limited [1986] 1 WLR 462 ("Sevcon") which was concerned with s 13(4) of the Patents Act 1949 (UK) ("the UK Act"). Section 13(4) provided: After the date of the publication of a complete specification and until the sealing of a patent in respect thereof, the applicant shall have the like privileges and rights as if a patent for the invention had been sealed on the date of the publication of the complete specification: Provided that an applicant shall not be entitled to institute any proceedings for infringement until the patent has been sealed. 142 The complete specification of the patent in Sevcon was published in April 1971, sealed in October 1982, and infringement proceedings were commenced by the appellants in February 1984 which alleged infringement by the respondents between 1974 and 1977. The question that arose was whether the cause of action upon which the appellants relied accrued when the acts of alleged infringement were committed following publication of the complete specification or when the patent was granted. If the cause of action accrued when the acts of infringement took place then the proceeding was (as had been held below) statute barred. Lord Mackay (with whom Lords Keith, Fraser, Brandon and Goff agreed) said at 464-465: The first question to be considered is what is meant by the phrase "the cause of action accrued." Both parties founded upon the decision in Coburn v. Colledge [1897] 1 Q.B. 702, which was decided under the Limitation Act 1623, section 3, which provided that all actions of, inter alia, debt grounded upon any lending or contract without specialty were to be commenced within six years "next after the cause of such actions." Lord Esher M.R., at page 706, gave as the definition of "cause of action." "Every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court." This definition was agreed to by the other members of the Court of Appeal. The result of the application of this definition was that a solicitor's cause of action for payment for work done arose as soon as the work was finished although there was a statutory provision that he could not commence or maintain any action for the recovery of his fees until the expiration of one month after he had delivered to the party to be charged a bill for the fees. It was held that the statutory provision to which I have just referred did not affect the cause of action which the solicitor had but only the remedy for enforcing it. 143 The appellants in Sevcon argued that the right to sue in respect of infringement that took place prior to the grant of the patent did not arise until the patent was granted, and that once that occurred, the right was deemed to have arisen at an earlier date. Lord Mackay rejected the appellants' argument holding that s 13(4) of the UK Act gave the patent applicant rights immediately upon the publication of the complete specification but that the patent applicant could not commence infringement proceedings to enforce those rights before grant. His Lordship said at 467: I conclude therefore that section 13(4) does provide rights to an applicant for letters patent immediately after the publication of the complete specification and that if he is in a position to allege that acts have been committed by a defendant which constitute infringement of any claim of the complete specification as published, he has a cause of action from the date of these acts although he may subsequently lose that cause of action by failing to obtain a patent or by the complete specification being amended with retrospective effect in such a way that these acts no longer constitute infringement of any of its claims. I consider that the proviso does not make it necessary for the applicant to allege as part of his cause of action that he is the grantee of letters patent. Indeed, the proviso itself in describing his entitlement refers to him as "an applicant." As an applicant whose complete specification has been published he has the necessary foundation in the shape of the privileges and rights that he would have had if a patent for the invention had been sealed on the date of that publication to constitute the necessary monopoly and allegations of acts of infringement after that date would complete all that is required for a cause of action. If he were to institute proceedings for infringement before the patent for the invention was sealed, the procedural requirement of the proviso would not be satisfied but a statement of claim could not be struck out as disclosing no cause of action although it might be liable to be struck out as an abuse of the process of the court. 144 The decision in Sevcon involved a different statutory provision which, as Lord Mackay's speech makes clear, conferred rights on the patent applicant upon publication of the complete specification subject to the proviso that those rights could not be enforced until the patent was granted. Unlike the provision considered in Sevcon (and its analogue, s 57 of the Act), s 79 of the Act does not purport to confer any rights on the patentee until the extension of the term of the patent is granted. 145 In our opinion the patentee's cause of action did not arise in this case, either as a matter of form or substance, at any time prior to the grant of the extension of term on 25 June 2014. Accepting that the term "cause of action" has been given a wide range of meanings (as the authorities referred to by the primary judge demonstrate) none of them support the conclusion that Lundbeck's cause of action against Sandoz had accrued before 26 June 2014 when the term of the Patent was extended. Nor do we think s 79 provides any support for the view that any such cause of action is deemed by that section to have accrued at any time prior to the date on which the extension of term was granted. 146 Our view finds support in the decision of McLelland J (as his Honour then was) in Spedley Securities Ltd (In liq) v Western United Ltd (In liq) (No 2) (1992) 7 ACSR 721 who held that because a preference is void only against a liquidator, no cause of action for the recovery of the preference could arise under the relevant statutory provision until the liquidator had been appointed. His Honour's decision was approved by the Full Court in Ferrier and Knight (as Liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28 at 92 per Beaumont, Gummow and Lindgren JJ. 147 In our opinion s 51A(1) of the FCA Act did not authorise an award of pre-judgment interest in respect of any period commencing prior to 25 June 2014.

Misleading and Deceptive Conduct 148 The primary judge found that Sandoz engaged in misleading and deceptive conduct by failing to warn pharmacists that the supply of Sandoz's generic escitalopram products may infringe the Patent if and when an extension of the term was granted. 149 Her Honour considered that her finding that Sandoz engaged in misleading and deceptive conduct was consistent with the decisions in Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (1999) 164 ALR 239, Sanofi-Aventis Australia Pty Ltd v Apotex Pty Ltd (No 3) (2011) 196 FCR 1 and Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (2016) 118 IPR 421. 150 Each of those prior cases involved a situation in which there was, at the time the infringing sales were made, a patent that was in full force and effect and which had not expired. Before the primary judge, and in the appeals, Sandoz sought to distinguish the prior cases from the present in which any potential liability for patent infringement depended on Lundbeck obtaining an extension of time in which to apply for an extension of the term of the Patent, followed by an extension of the term of the Patent. 151 Lundbeck and CNS Pharma accepted that, in the event that the primary judge's findings of patent infringement were overturned, then the case based on misleading and deceptive conduct necessarily fell away.

DISPOSITION 152 In the first appeal brought by Sandoz against the judgment in favour of Lundbeck and Lundbeck Australia, the appeal will be allowed. The primary judge's judgment will be set aside and, in lieu thereof, Lundbeck and Lundbeck Australia's application will be dismissed. The cross-appeal brought by Lundbeck and Lundbeck Australia will also be dismissed. 153 In the second appeal brought by Sandoz against the judgment in favour of CNS Pharma, the appeal will also be allowed. The declaration and other orders made by the primary judge in that proceeding will be set aside and, in lieu thereof, CNS Pharma's application will be dismissed. 154 In relation to the costs of the appeals (including the cross-appeal) and the costs of the proceedings before the primary judge, the parties will be given an opportunity to make written submissions. All questions of costs will be determined on the papers. 155 There will be orders accordingly. I certify that the preceding one hundred and fifty-five (155) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Nicholas, Yates and Beach.