Commonwealth claims on undertakings continue to be a risk for pharmaceutical patent owners

John Collins, Ashley Cameron and Ethan Tindall
20 Dec 2018
Patentees, generic pharmaceutical companies and the Commonwealth hold their breath as they await a decision on the Commonwealth's entitlement to compensation under the usual undertaking as to damages.

Owners of pharmaceutical patents continue to face exposure to a claim by the Commonwealth for compensation under the "usual undertaking as to damages" given by a patentee as a price for securing preliminary injunctions in infringement actions relating to generic pharmaceutical products.

The Federal Government's Mid-Year Economic and Fiscal Outlook, released 17 December 2018, indicates that the Commonwealth of Australia will continue to forge ahead with its claims for compensation from patentees who obtain preliminary injunctions against generic suppliers, in circumstances where the patent or patents are ultimately held to be invalid, issuing the following statement:

"The Government will continue to litigate to seek compensation for losses incurred by the Government as a result of pharmaceutical companies taking action to delay the listings of generic forms of medicines on the Pharmaceutical Benefits Scheme".

This statement implies there will be further action beyond the compensation claims already commenced by Commonwealth. This includes the Commonwealth's continuing claim for compensation against Otsuka and Bristol-Myers Squibb Company (BMS), relating to the anti-psychotic drug Abilify (aripiprazole).

Meanwhile, patentees, generic pharmaceutical companies and the Commonwealth hold their breath as they await the first instance decision of Justice Nicholas in the Federal Court concerning the Commonwealth's claim on the usual undertaking as to damages (Usual Undertaking) given for preliminary injunctions relating to a patent protecting Sanofi's Plavix product (clopidogrel) which was ultimately held to be invalid. The hearing concluded in September 2017, and judgment on whether the Commonwealth is entitled to recover compensation under the Usual Undertaking is expected imminently.

In anticipation of this decision and having regard to the Commonwealth evincing an willingness to continue these types of claims, this article summarises the four claims made by the Commonwealth on the Usual Undertaking to date, and we identify some potential considerations that may arise from Justice Nicholas' decision in the clopidogrel proceeding.

Background to the Commonwealth's claims

We've previously explored why the decision for a patentee to seek a preliminary injunction involves a consideration of the risk of potential liability under the Usual Undertaking. If the infringement action is ultimately unsuccessful, with the result that the preliminary injunction is dissolved, the patentee is likely to face a claim on the Usual Undertaking to compensate affected parties, including generic pharmaceutical companies and the Commonwealth.

The Usual Undertaking is an undertaking given to the Court (as set out in Federal Court Practice Note GPN-UNDR):

"(a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation, (to be assessed by the Court or as it may direct), to any person, (whether or not that person is a party), affected by the operation of the order or undertaking or any continuation (with or without variation) of the order or undertaking; and

(b) to pay the compensation referred to in (a) to the person affected by the operation of the order or undertaking."

In Australia, the first generic equivalent of a pharmaceutical product listed on the Pharmaceutical Benefits Scheme (PBS) triggers an automatic reduction in the price the Commonwealth pays for that product and begins a process of further price review over time. The Commonwealth's claims on the Usual Undertaking seek to recover the loss the Commonwealth has incurred by reason of the relevant pharmaceutical products being reimbursed at a higher price than would have otherwise occurred pursuant to the pricing mechanisms under the PBS.

The Commonwealth first made a claim on the Usual Undertaking in 2009 in proceedings concerning Pfizer's Efexor (venlafaxine). Since that first claim. the Commonwealth has made further claims on the Usual Undertaking. The various claims made by the Commonwealth are summarised below.

Commonwealth claim history

The Commonwealth has claimed damages in four separate proceedings against originator pharmaceutical companies, the most recent and only active proceeding being the proceeding concerning Abilify (aripiprazole). In two of these proceedings the Commonwealth has settled its claim with the relevant patentee. Judgment is pending in the proceeding concerning clopidogrel.

Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2018] FCA 1556 – venlafaxine

This case related to the medicine Efexor (venlafaxine). Proceedings began in 2009 when Wyeth was granted a preliminary injunction to restrain three generic drug companies from supplying generic venlafaxine. As a result of the preliminary injunction, Wyeth's monopoly over venlafaxine was extended until November 2011, when the Full Federal Court held that the patent relied upon by Wyeth was invalid and lifted the injunction.

The generic companies, two of their suppliers, and the Commonwealth all sought compensation pursuant to the Usual Undertaking. Each claimant argued the extended injunction had caused significant detriment by reason of the injunction being in place. Justice Jagot of the Federal Court found that the generic companies and their suppliers were entitled to compensation. However, this ruling did not apply to the Commonwealth, which settled its claim after the hearing. This case therefore provides no direct guidance on whether the Commonwealth is entitled to make such a claim..

AstraZeneca AB v Apotex Pty Ltd [2015] HCA 30 –rosuvastatin

In a similar case, the High Court unanimously dismissed AstraZeneca's appeal in relation to the cholesterol-lowering drug Crestor (rosuvastatin). This decision resulted in the dissolution of the preliminary injunction which prevented generic companies from supplying their own rosuvastatin products. 

However, in a similar fashion to the Wyeth case, the Commonwealth settled its claim with AZ before the Court's judgment was handed down.

Apotex v Sanofi & Ors - clopidogrel

Apotex commenced proceedings to revoke a patent protecting the medicine Plavix (clopidogrel). Sanofi filed a cross-claim alleging threatened infringement and obtained interlocutory injunctive relief, preventing Apotex from exploiting its clopidogrel products. Sanofi provided the Usual Undertaking. Apotex was later successful in obtaining a revocation of the relevant patent, and both Apotex and the Commonwealth sought compensation from Sanofi pursuant to the Usual Undertaking.

In 2015 the Full Federal Court unanimously rejected the argument that the Commonwealth was precluded from making a claim on the Usual Undertaking by reason of sections 26B, 26C and 26D of the Therapeutic Goods Act 1989 (Cth) (Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) [2015] FCAFC 172). These sections provide for the Commonwealth to recover damages where a party has engaged in misconduct by commencing legal action for patent infringement. The Full Federal Court ruled that these provisions do not expressly or implicitly preclude the Commonwealth's rights to compensation under the Usual Undertaking. Sanofi applied for special leave to appeal to the High Court. However, this application was refused (Sanofi-Aventis & Ors v Apotex Pty Ltd [2015] HCATrans 300 (13 November 2015); Sanofi (formerly Sanofi-Aventis) & ORS v Commonwealth Of Australia [2016] HCASL 98).

This decision did not determine the issue of whether the Commonwealth is entitled to compensation pursuant to the Usual Undertaking. This remains an outstanding issue that will be addressed in Justice Nicholas' pending reasons for judgment. 

Apotex and Sanofi settled have their dispute, leaving the Commonwealth as the sole claimant on the Usual Undertaking. The hearing on the Commonwealth's claim for damages pursuant to the Usual Undertaking was adjourned on 29 September 2017 with judgment reserved. 

Otsuka & Bristol-Myers Squibb Company v Generic Health – aripiprazole

The proceeding involving Otsuka and BMS and Otsuka's product Abilify (aripiprazole) are the latest in the series of cases in which the Commonwealth has claimed on the Usual Undertaking. Otsuka and BMS commenced proceedings against Generic Health, alleging infringement of its patents in 2012. Generic Health filed a cross-claim alleging the patents were invalid. Otsuka and BMS successfully obtained preliminary injunctive relief. However, the remaining patent that was pressed was ultimately held to be invalid (Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd (No 2) [2016] FCAFC 111). 

The loss claimed by the Commonwealth is the over-payments made by the Commonwealth during the period from April 2012 to August 2016 by reason of the higher PBS prices. Otsuka has already been required to post bank guarantees of $6 million by the Federal Court to account for the estimated loss for the 12 months from 1 October 2015 (Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd [2015] FCA 848). In making that order, Justice Nicholas noted there have been a number of arguments proffered by patentees as to why the Commonwealth should be precluded from making such a claim, but did not opine on the merits of these arguments. 

What is at stake for patentees?

The Commonwealth's claims on the Usual Undertaking in the future will present an even greater risk for innovator pharmaceutical companies, as the mandatory price reduction applied by reason of generic entry was increased from 16% to 25% effective from 1 October 2018. Balanced against this is the benefit of obtaining an interlocutory injunction, and preventing this 25% price reduction.

The following observations were noted by Justice Dowsett in Sanofi, and remain relevant:

  • individual judges are not generally obliged to use the standard forms adopted by their respective courts;
  • nothing in the legislation suggests that the Court cannot tailor its own form of undertaking to meet the needs of the case; and
  • any limitations upon the undertakings should be sought at the time at which they are given. The Court would then be required to consider whether the limited undertakings were sufficient to justify the grant of an interlocutory injunction.

We expect that a more refined undertaking will be offered in future litigation. The UK version of the Usual Undertaking is normally confined to be for the benefit of the respondent, and may form a model for future proposed undertakings. However, it remains to be seen whether a more refined undertaking will be accepted by the Federal Court.

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