Federal Court dismisses first Commonwealth damages claim against an unsuccessful pharmaceutical patentee
Published on 05 May, 2020
In an unprecedented decision, the Federal Court of Australia has considered and dismissed a claim by the Commonwealth Government for compensation from sponsors of innovator pharmaceutical products, pursuant to undertakings as to damages given in exchange for an interlocutory (preliminary) injunction restraining the launch of the first generic product: Commonwealth of Australia v Sanofi (No 5)  FCA 543.
Notwithstanding this first-instance decision against the Commonwealth, given some of the findings in the case, the potential for Commonwealth damages claims would appear to remain a relevant factor to be taken into account by innovators in their risk assessment, prior to commencing any application for an interlocutory injunction to restrain the launch of a first generic or biosimilar competitor product.
The judgment also provides a number of other “takeaways” for both innovators facing generic launch during the term of a patent, and generics defending their position in such circumstances, which are discussed further below.
- In principle, the Commonwealth is not precluded from claiming compensation under a patentee’s usual undertaking as to damages, where it can be established that the Commonwealth’s loss would not have occurred but for the grant of the interlocutory injunction, the loss was a direct legal consequence of the grant of the injunction, and the loss was reasonably foreseeable.
- However, the Court found that the Commonwealth’s losses were not a direct consequence of the interlocutory injunction granted in this case which, although restraining infringement of Sanofi’s patent generally, did not explicitly restrain listing on the Commonwealth’s Pharmaceutical Benefits Scheme (PBS) (instead, Apotex gave a separate undertaking, not supported by any undertaking as to damages, to refrain from listing its products on the PBS pending the outcome of the patent case). This finding calls into question future Commonwealth damages claims based on interlocutory injunctions that do not explicitly restrain PBS listing.
- Compelling evidence (supported by contemporaneous documents) from the ultimate decision-makers at the generic party and the Commonwealth is likely to be required to convince the Court that, but for the grant of the interlocutory injunction, the generic product would have been launched and listed on the PBS in the face of the significant damages risk if the patent owner ultimately succeeded in establishing infringement of a valid patent claim. In the present case, the Commonwealth failed to lead evidence from those key decision-makers and, in those circumstances, the Court was not prepared to draw inferences favourable to the Commonwealth, or accept the evidence given by subordinates without the relevant decision-making authority.
- The Court found that it was more likely than not that the Commonwealth would have been prepared to reverse statutory reductions in the reimbursed price for Sanofi’s products triggered by the generic listing on the PBS, if sale of the generic product was subsequently restrained by a permanent injunction.
Background to the litigation
The case concerned the blockbuster blood-thinning (platelet-inhibiting) medication clopidogrel, sold in Australia by Sanofi as PLAVIX and by Bristol-Myers Squibb (BMS) as ISCOVER, under a global co-marketing arrangement. Apotex proactively commenced proceedings in August 2007 against Sanofi seeking revocation of Sanofi’s Australian Patent No. 597784 (the Patent), relating to clopidogrel and various of its salts. The litigation progressed relatively quickly, compared to more recent cases in the Federal Court. An interlocutory injunction was granted in late September 2007, the trial on validity was conducted in April 2008 and a first-instance decision upholding the validity of some claims of the Patent was delivered in August 2008. A Full Court appeal decision, revoking all claims of the Patent, was delivered in late September 2009 and an application by Sanofi for special leave to appeal to the High Court was refused in March 2010. Apotex’s clopidogrel products were listed on the PBS from 1 May 2010. In 2010, Apotex and other generic companies commenced damages proceedings, seeking compensation from Sanofi and BMS pursuant to the undertaking as to damages. Those claims were settled in 2014. The Commonwealth brought its claim for damages in 2013.
The interlocutory injunction obtained by Sanofi in September 2007 restrained Apotex from infringing the Patent, including by importation and sale of pharmaceutical products which had clopidogrel as their active ingredient. Sanofi gave the usual undertaking as to damages in connection with the interlocutory injunction. Importantly, the interlocutory injunction did not expressly prevent Apotex from applying for inclusion of its products on the PBS. However, on the same date (and noted in the same set of orders as gave effect to the interlocutory injunction) Apotex gave the Court a voluntary undertaking (the Apotex Undertaking) that it would not apply to list its clopidogrel products on the PBS until the determination of the patent proceeding. Sanofi did not provide any cross-undertaking as to damages for the Apotex Undertaking.
The Commonwealth’s claim
The Commonwealth claimed losses in respect of the supply of clopidogrel products under the PBS, said to result from the delay in the Commonwealth’s ability to reduce the subsidised price for those products via statutory price reductions triggered by first generic entry and subsequent price disclosure-related reductions. The various components that made up the claimed price difference amounted to a sum of approximately AU$325 million, excluding interest:
This is the first case in which judgment has been given on a Commonwealth claim for damages pursuant to a pharmaceutical patentee’s undertaking as to damages given in connection with grant of an interlocutory injunction. The Commonwealth has previously settled claims for compensation against Wyeth, relating to extended release formulations of the antidepressant venlafaxine (EFFEXOR-XR) (a decision in that case concerning damages claims by generic suppliers issued in late 2018), and against AstraZeneca relating to the “super statin” rosuvastatin (CRESTOR) (in that case, both the Commonwealth and the generic parties reached a settlement with AstraZeneca). A Commonwealth claim for damages pursuant to undertakings given by Otsuka and BMS in relation to the antipsychotic aripiprazole (ABILIFY) is continuing.
The guidance provided to the Australian pharmaceutical industry by this clopidogrel decision complements the recent (late 2018) Federal Court decision relating to venlafaxine, in which generic party claims arising from an undertaking as to damages were upheld: Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth  FCA 1556. In the venlafaxine case, the Court found that the unsuccessful innovator patentee should pay compensation to both the generic companies party to the litigation, and third party generic companies who were affected by the interlocutory injunction. The Commonwealth settled its claim with the patentee Wyeth before trial, but its evidence and submissions were referred to in the decision on the generic party claims, with an intimation that the Commonwealth could, in the right circumstances, have a sound claim to compensation. However, Nicholas J’s decision in the present clopidogrel case highlights the need to satisfy the threshold requirement for the Commonwealth’s loss to flow directly from the interlocutory injunction itself, and the significant circumstantial and evidentiary hurdles the Commonwealth will often face in proving what would have happened if there had been no interlocutory injunction.
The Court’s reasoning
The Court’s findings regarding the complex issues, arguments and evidence led by the parties can be distilled as follows:
- Did the interlocutory injunction restrain Apotex from PBS-listing? – Nicholas J found that the Apotex Undertaking, which had been given voluntarily, was not a necessary or natural consequence of the making of the interlocutory injunction. His Honour did however accept the Commonwealth’s position that the Apotex Undertaking would not have been proffered but for the interlocutory injunction, and that the interlocutory injunction had the practical (indirect) effect of preventing Apotex from applying for PBS listing of its generic clopidogrel products.
- Would Apotex have PBS-listed “but for” the interlocutory injunction? – Despite Apotex’s Australian Managing Director giving evidence that Apotex would “almost certainly” have launched “at risk”, Nicholas J was not satisfied that Apotex’s CEO and ultimate decision-maker would, in September 2007, have authorised such a launch in the circumstances where:
- hypothetically, no interlocutory injunction had been granted;
- a judgment in the validity trial was expected within 1 year, given that the presiding judge was due to retire; and
- significant financial consequences would result if the challenge to the validity of the Patent failed, because Apotex “…could find itself having to cease any further sales following the grant of a final injunction shortly after obtaining a PBS listing that triggered a price reduction that might not be reversed or, at least, might not be reversed for some significant period of time”.
- Was the Commonwealth’s loss a direct consequence of the interlocutory injunction, or too remote? – Nicholas J found that the interlocutory injunction did not directly affect the legal rights, obligations or interests of the Commonwealth as it did not prevent the Commonwealth receiving applications for PBS listing from Apotex or any other generic supplier. His Honour also considered that the fact that Sanofi’s undertaking as to damages did not extend to the Apotex Undertaking gave strong contextual support to the view that the undertaking as to damages should not be interpreted as extending to loss suffered by the Commonwealth due to Apotex being prevented from applying for PBS listing as a result of its voluntary undertaking.
- Could the Commonwealth’s loss have been foreseen at the time the interlocutory injunction was granted? – Nicholas J found that all losses claimed by the Commonwealth, including the operation of the price disclosure price reduction regime and the pricing of the clopidogrel plus aspirin combination products, were reasonably foreseeable. His Honour rejected Sanofi’s contention that it could not have reasonably foreseen that the Commonwealth would be affected, as no legal right or liability of the Commonwealth was affected by the interlocutory injunction.
- Was the loss claimed by the Commonwealth compensable (in principle)? – Nicholas J found that the Commonwealth was in principle entitled to seek compensation under Sanofi’s undertaking because its circumstances were not different from those of a natural person, notwithstanding that it had control over the PBS regime.
- Would the statutory PBS price reductions have been reversed? – Nicholas J considered it more likely than not that the Commonwealth would have de-listed Apotex’s clopidogrel products from the PBS, and reversed the 12.5% statutory price reduction for PLAVIX and ISCOVER, if (in the counterfactual) Apotex’s products had been PBS-listed but their supply was later restrained by a final injunction. His Honour was strongly influenced by evidence of two previous examples of (discretionary) PBS price reductions for other products having been reversed and lamented the lack of evidence from the senior Commonwealth decision-maker to support its contentions that it would not have reversed the 12.5% price reduction.
Implications for the conduct of pharmaceutical patent litigation in Australia
The implications for the conduct of pharmaceutical patent litigation flowing from this long-awaited decision are multi-faceted and can be summarised as follows:
- Commonwealth damages claims are possible in principle – This decision is consistent with the view that loss incurred by the Commonwealth as a result of delayed PBS-listing of generic products due to patent litigation is compensable, in principle, where the necessary elements are established, and reinforces comments to that effect made in the recent venlafaxine case. Patentees seeking interlocutory injunctions must therefore continue to take into account a possible Commonwealth claim as an incident of obtaining an interlocutory injunction.
- Remoteness of loss may be an impediment to claims for compensation under the usual undertakings as to damages – The Court’s findings on the question of whether the connection between the interlocutory injunction and the alleged loss is sufficiently direct may present an impediment to future Commonwealth claims for compensation based on interlocutory injunctions that do not expressly restrain PBS-listing of generic products. It will be of interest to see how the Full Court views this question of remoteness of loss, should an appeal take place. It will also be interesting to observe whether the Commonwealth becomes more actively involved in the hearing of interlocutory injunction applications and specifically presses for the issue of PBS listing to be addressed in the terms of any interlocutory injunction granted and the associated cross-undertaking as to damages.
- Evidentiary hurdles for the Commonwealth and other third-party compensation claims exist – On this occasion, the Commonwealth failed to establish on the evidence that Apotex would have launched “at risk” if no interlocutory injunction was granted, demonstrating the difficulties faced by the Commonwealth and other third parties in making good this proposition, particularly in circumstances where the generic involved has settled its claim. The Commonwealth’s failure to call key decision-makers from the restrained generic party and its own PBS-pricing authority were significant factors. The Commonwealth’s case was further hampered by the need to obtain documents from Apotex by subpoena, many of which were produced in heavily redacted form, to preserve privilege. Such evidentiary difficulties could potentially be lessened where both the Commonwealth and the generics are parties to the claim for compensation from the innovator. However, even where the generic parties pursue their own damages claims under a patentee’s undertaking at the same time as the Commonwealth, the Commonwealth and other third parties will be dependent on the generic parties’ evidence and therefore potentially vulnerable.
- Contemporaneous records or communications must establish the generic decision maker’s intent to PBS list in the counterfactual – For generic parties, the Commonwealth or any third parties to claim compensation under the “usual undertakings” given by an innovator, they must be able to establish by contemporaneous business records, and if necessary by calling evidence from the ultimate decision makers, that they would, in all the circumstances, have made the decision to launch and supply their generic product to the Australian market, if not restrained by grant of an interlocutory injunction. It will be important for parties planning to launch “at risk” in circumstances where they may be the subject of an interlocutory injunction to consider what contemporaneous records will be available to establish the course they would have pursued had no injunction been granted.
- Innovators and generics should consider carefully the terms of an interlocutory (preliminary) injunction and any voluntary undertakings sought – Where an innovator is able to obtain voluntary undertakings from a generic party, to the effect that it will not take steps to PBS-list pending the resolution of patent enforcement proceedings, this may reduce the likelihood of a successful Commonwealth damages claim. In light of this decision, innovators can be expected to seek interlocutory injunctions that restrain infringement of their patent(s) generally, without any express refence to the generic party’s ability to list their products on the PBS (while noting the possibility that a court could nevertheless find that the injunction had the practical effect of preventing PBS-listing because the generic will not be able to give the required “guarantee of supply”). The decision also sounds a warning to generic parties to carefully consider any voluntary undertakings they may provide to the Court, where such undertakings are not supported by any cross-undertaking as to damages given by the innovator. In the latter circumstances, the generic party is unlikely to be compensated for losses flowing from its undertakings, even if ultimately successful in the patent proceedings.
- Statutory price reduction(s) may be reversed – The Court’s finding that, on the balance of probabilities, it was likely that any statutory reduction in the PBS-price for Sanofi’s products would have been reversed had an interlocutory injunction been refused and final judgment subsequently delivered in Sanofi’s favour, may have implications for future interlocutory injunction applications in pharmaceutical patent cases. It has previously been suggested that such price reductions would be effectively irreversible, even if the innovator was ultimately successful in obtaining a final injunction. The finding of Nicholas J in this case has the potential to contribute to the trend away from the routine granting of interlocutory injunctions in pharmaceutical patent disputes, observable in a number of recent judicial decisions.
Given the size of the Commonwealth’s claim and the novel legal issues raised in the case, it appears likely the Commonwealth will consider an appeal.
 Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth (2018) 136 IPR 8.
 AstraZeneca AB v Apotex Pty Ltd; AstraZeneca AB v Watson Pharma Pty Ltd; AstraZeneca AB v Ascent Pharma Pty Ltd (2015) 323 ALR 605.
 Otsuka Pharmaceutical Co Ltd v Generic Health Pty Ltd  FCA 848
 See the reasons of the Full Court comprising Jagot, Yates and Moshinsky JJ in Sanofi-Aventis Deutchsland GmbH v Alphapharm Pty Ltd (2019) 139 IPR 409; Jagot J in Sigma Pharmaceuticals (Australia) Pty Ltd (ACN 004 118 594) v Wyeth (2009) 81 IPR 339 and H. Lundbeck A/S v Sandoz Pty Ltd (2018) 137 IPR 408; Yates J in Mylan Health Pty Ltd v Sun Pharma ANZ Pty Ltd (No 2) (2019) 141 IPR 26.