RELATED KNOWLEDGE
The Federal Court of Australia yesterday released its long-awaited decision concerning the Commonwealth's claim for compensation on the usual undertaking as to damages (Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) (No 5) [2020] FCA 543 28 April 2020).
The Court held that the Commonwealth was not entitled to compensation for the loss it suffered due to the delay in listing Apotex’s generic clopidogrel product on the PBS due to the grant of a preliminary injunction, which was subsequently overturned. The Court held that the evidence did not establish that Apotex would have sought and obtained PBS listing of its products by the proposed date had the injunction not been granted by the Court.
Having decided the case against the Commonwealth on the facts, the Court proceeded to make findings on other related issues. Of particular interest is the Court’s view that the Commonwealth’s lost opportunity to benefit from the price cuts to pharmacies it would have achieved (ie. as a result of clopidogrel moving from F1 to F2 on generic entry) did not flow directly from the grant of the preliminary injunction, and therefore was not compensable by Sanofi. This finding will no doubt provide comfort to patentees on the level of risk, if injunctions are carefully worded, of a successful Commonwealth claim for compensation if the patent infringement litigation is commenced, a preliminary injunction is granted but the patentee is ultimately unsuccessful in the litigation.
Brief history of the litigation giving rise to Commonwealth’s claim
The history of this litigation was long and complex.
The original proceedings began in 2007, when Apotex sought to "clear the way" and revoke Sanofi's patent protecting clopidogrel, (brand Plavix – a platelet aggregating agent). Sanofi cross-claimed alleging threatened patent infringement, and sought a preliminary injunction to prevent Apotex from importing or selling clopidogrel products in Australia until the determination of the case. The preliminary injunction was granted, with Sanofi giving the usual undertaking as to damages required by the Court (Usual Undertaking) in support of the injunction.
The Usual Undertaking operates as a condition imposed on the party seeking the preliminary injunction that it will compensate any person adversely affected by the operation of the injunction for their loss if it is ultimately found that the injunction should not have been granted because the relevant claims of the patent were either not infringed or invalid, or both.
Surprisingly, in this case, at the preliminary injunction hearing, Apotex also gave the Court an undertaking that it would not apply to list its clopidogrel products on the PBS until determination of the proceeding. This latter undertaking was unilaterally volunteered to the Court by Apotex's lawyers and was not given in return for the Usual Undertaking from Sanofi. This fact was ultimately critical in the judge's reasoning.
Sanofi was successful at first instance – the Court found four claims of the patent were valid and infringed including, in particular, a claim directed to the salt form of clopodigrel. The Court ordered a final injunction against Apotex. Surprisingly, Sanofi agreed to extend its Usual Undertaking pending the outcome on appeal. On appeal, Apotex was successful, and, in 2009 the patent was revoked and the final injunction was set aside. Apotex's clopidogrel products were not listed on the PBS until May 2010, by which time it had lost its "first mover" advantage. Both Apotex and the Commonwealth sought compensation from Sanofi pursuant to the Usual Undertaking. However Apotex and Sanofi subsequently reached a settlement, leaving only the Commonwealth's claim remaining.
In 2015, the Full Federal Court held that the Commonwealth was entitled to pursue its claim under the Usual Undertaking, despite also having specific rights to recover damages under the Therapeutic Goods Act 1989. Sanofi was unsuccessful in obtaining special leave to appeal to the High Court.
The remaining questions were whether the Commonwealth had a valid claim for compensation on the facts of the case, and, if so, the extent of that claim. Those questions have now been decided.
The Commonwealth’s claim
The Commonwealth sought compensation pursuant to the Usual Undertaking given (or extended) by Sanofi to the Court at three points in time in the proceeding, namely in support of the preliminary injunction, at the time of the final injunction and when a stay was granted by the Full Federal Court of its order vacating the final injunction. The Commonwealth contended that Apotex's inability to supply its generic products due to the injunction had the effect of delaying price reductions to pharmacies under the PBS between 2008 and 2014. The compensation claimed by the Commonwealth for this loss totalled approximately AU$325 million.
Was the Commonwealth entitled to compensation from Sanofi?
Justice Nicholas held that, in order for the Commonwealth to be entitled to compensation pursuant to the Usual Undertaking:
- the preliminary injunction must be the cause of the relevant damage, in the factual sense that, "but for" the injunction, the Commonwealth would not have suffered the damage [185], [196] ;
- the preliminary injunction must be the cause of the damage in the legal sense that the damage must flow directly from the operation of the injunction [186], [196] ; and
- the damage must be of the kind that could have been foreseen at the time the preliminary injunction was granted. [196]
The key question was therefore, if the preliminary injunction had not been granted, would Apotex have applied for PBS listing of its generic clopidogrel products by 1 December 2007 so that they would be listed on the PBS with effect from 1 April 2008.
The preliminary injunction was not the cause of the Commonwealth’s loss
Firstly, Justice Nicholas was not convinced that Apotex Australia would have sought and obtained PBS listing of its clopidogrel products by 1 December 2007, even if the injunction had not been granted. There was a large body of evidence including detailed records of internal communications and strategy discussions (some privileged) within Apotex concerning patent proceedings in both Australia and Canada relevant to the products. Justice Nicholas considered that this evidence indicated that there were alternative commercial scenarios that may have been adopted, and how those scenarios might play out. The Judge relied on this material to find that Apotex had not finally decided to seek PBS listing and launch.
A particularly relevant factor in the Judge's mind was that, if the injunction had not been granted and (as seemed almost certain) the infringement proceedings remained on foot, there would be still very significant exposure to Apotex in an "at risk" launch of its product.
These aspects of the judgment may seem somewhat commercially counter-intuitive. It might be argued that if Apotex was prepared to commence litigation to revoke the patent, and to oppose a preliminary injunction application by Sanofi, one might assume that it did so in order to launch its product, and had factored these various risks into its decision.
The Commonwealth’s loss did not directly flow as a result of the injunction
The Court also looked at the precise wording of the preliminary injunction. On its face, it did not prevent Apotex from applying to list its generic clopidogrel products on the PBS. Rather, it was the undertaking Apotex voluntarily gave to the Court that prevented it from doing so.
His Honour was therefore of the view that any financial loss suffered by the Commonwealth as a result of Apotex Australia’s clopidogrel products not having been listed on the PBS from 1 April 2008 was not a loss that flowed directly from the existence of the injunction but was a direct and immediate consequence of Apotex’s own undertaking. This is a somewhat peculiar factor of this particular case because such undertakings are rarely given by generic companies and, if they are, they are secured by the Usual Undertaking.
Where to from here?
The decision highlights the inherent difficulty Courts face in cases involving claims on the Usual Undertaking – namely, that of determining, through an assessment of evidence from one particular course of events, what "would have happened" in an alternative/counterfactual scenario. The length of time from the commencement of the original proceedings to the time at which the assessment must be made adds to such evidentiary difficulties.
This decision will be welcomed by innovator/patentees. His Honour’s views on causation and directness of loss will give some comfort to patentees.
The case also provides a potential pathway for injunctions to be drafted and Usual Undertakings given that will make it difficult for third parties such as the Commonwealth to bring a successful claim on the Usual Undertaking. For example, innovator/patentees may vary the current practice of some innovators in seeking both an injunction against patent infringement, and an injunction preventing the generic from listing on the PBS. The patentee may prefer to simply seek the former injunction. This would place the generic in a very difficult situation. It would be a very brave generic that would list its product on the PBS, and accept the consequent legal obligation to supply the Commonwealth with product, while at the same time being constrained by a no-infringement injunction, and also risking being found in contempt of Court.
Further, the finding that the injunction was found not to be causative of the Commonwealth's loss could be applied equally to the loss alleged by Apotex. In other words Sanofi could have alleged that it was not obliged to compensate Apotex under the Usual Undertaking given in support of the preliminary injunction as as it was Apotex's own undertaking volunteered to the Court not to list on the PBS that gave rise to its loss. While Sanofi and Apotex confidentially settled this aspect of the claim one wonders whether any payment by Sanofi to compensate Apotex was actually justified.
The above two factors alone may have the effect of reducing the likelihood of any claim (whether by the generic or a third party, such as the Commonwealth) on the Usual Undertaking succeeding against a patentee, so long as the form of injunction and any Usual Undertaking is carefully worded so as to avoid an obligation to compensate the generic for not seeking PBS listing.
There is a high likelihood that the Commonwealth will appeal this decision.