No compensation for delayed generic entry, and doubt cast on future Commonwealth claims

What you need to know

• In a landmark decision, and the first of its kind in Australia, Justice Nicholas of the Federal Court has rejected the Commonwealth Government's application for compensation from two originator pharmaceutical companies.
• The Commonwealth sought compensation for higher Pharmaceutical Benefits Scheme (PBS) prices that it paid, due to delayed generic entry caused by a preliminary injunction in a pharmaceutical patent dispute.
• Justice Nicholas found that the Commonwealth had not established to the requisite degree of certainty that the relevant generic pharmaceutical company, Apotex, would have applied for and obtained PBS listing were it not restrained by the injunction.
• The Commonwealth's position was made more difficult by the fact that Apotex had settled its claim against the originators, Sanofi and Bristol-Myers Squibb.
• Justice Nicholas also held that the Commonwealth's losses were not a "direct result" of the injunction. This presents a very significant barrier to the Commonwealth being able to recover these kinds of losses in similar cases.

What you need to do

• This decision should be closely reviewed by pharmaceutical companies considering the Australian market.
• Originators / patentees should continue to actively monitor the market and seek injunctions early. In particular, seeking agreement from generics to voluntarily withdraw PBS applications, or provide voluntary undertakings, may reduce the likelihood of a successful Commonwealth claim.
• Originators should also be mindful when making representations about the losses they expect to suffer when seeking a preliminary injunction, that this evidence will likely be relied on by any claimant under the "usual undertaking as to damages".
• Generics should be careful to document their decision making and launch activities to ensure they can demonstrate what would have happened but for any subsequent preliminary injunction.
• Generics should also be aware that, even after settling their own claims for damages under the usual undertaking, their witnesses may still be required (under subpoena or other documentary processes) to participate in any Commonwealth claim and this should be factored in to relevant settlement agreements.

The Federal Court of Australia has delivered its long awaited judgment in the Commonwealth Government's claim for compensation against Sanofi and Bristol-Myers Squibb (BMS) for losses suffered when Sanofi and BMS obtained a preliminary injunction preventing Apotex from launching generic clopidogrel (PLAVIX) products in 2007. In what many consider a surprising result, the Court dismissed the Commonwealth's claim in its entirety.

Background

In 2007, the Federal Court of Australia granted Sanofi and BMS' application for a preliminary injunction restraining the launch of Apotex's generic clopidogrel products in Australia on the basis that the sale of such products would have infringed Sanofi's (then granted) patent for the drug. At the time, Sanofi and BMS alleged that permitting such a launch would cause them significant and possibly irreparable harm. Sanofi and BMS relied upon the fact that Apotex's launch would trigger a reduction in the price paid by the Commonwealth for prescriptions under the Pharmaceutical Benefits Scheme (PBS). As the price for the injunction, Sanofi and BMS provided the "usual undertaking as to damages" to the Court (the usual undertaking), undertaking to compensate to any person adversely affected by the grant of the injunction in the event that Sanofi and BMS were ultimately unsuccessful in defending the patent.

Ashurst represented Apotex in its battle with Sanofi and BMS, and for two and a half years after the grant of the preliminary injunction, Apotex fought to establish that Sanofi's patent was invalid. Apotex ultimately succeeded (Apotex Pty Ltd v Sanofi-Aventis [2009] FCAFC 134; (2009) 82 IPR 416) and Sanofi's patent was revoked in October 2009. The High Court refused Sanofi's application for special leave to appeal that decision in March 2010.

That decision allowed Apotex to make a claim for compensation to recover the losses it suffered as a result of being kept off the market for over two years. At the time, PLAVIX was one of the most valuable drugs prescribed in Australia with sales in the hundreds of millions of dollars per annum. Apotex claimed substantial losses, but ultimately settled its claim for damages.

Separately, the Commonwealth filed its own claim seeking to recoup its losses linked to the higher prices it paid for clopidogrel and other drugs as a result of delayed generic entry. For context, in financial year 2008 clopidogrel was the third most heavily subsidised prescription drug available under the PBS. In 2018, it was reported that BMS had flagged in US securities filings that an adverse finding in the Commonwealth claim may result in damages of up to AU$449 million (split equally with Sanofi).

The Commonwealth has made three other claims under undertakings in relation to PBS prices resulting from delayed generic entry. This is the first such case to proceed to substantive judgment, with the claims against Wyeth (venlafaxine / Efexor XR) and AstraZeneca (rosuvastatin / Crestor) settled between the relevant parties, and the claim against Otsuka and BMS (aripiprazole / Abilify) ongoing.

Key arguments

Sanofi and BMS

From the outset of the compensation claims (from Apotex and the Commonwealth), Sanofi and BMS argued that they should not have to pay compensation to anyone. They argued that absent the preliminary injunction, Apotex would not have launched its product anyway and, even if it did, the Commonwealth losses were not foreseeable, were caused by the Commonwealth itself or did not flow from the preliminary injunction (among other arguments).

Earlier they had also argued that the Commonwealth did not have standing to claim at all – but that was rejected by the Court in favour of the Commonwealth in December 2015 ([2015] FCAFC 172). Special leave was refused for Sanofi ([2016] HCASL 98).

Commonwealth

The Commonwealth argued that, but for the injunction, Apotex would have listed on the PBS from 1 April 2008. The Commonwealth claimed as compensation the difference between:

1. the amounts it had paid under the PBS for clopidogrel products including PLAVIX and clopidogrel plus aspirin; and
2. the lesser amounts it would have paid if Apotex had obtained PBS listing on 1 April 2008, which would have triggered a statutory 12.5% price reduction, and subsequent price reductions due to price disclosure and competition in the market (eg, the effects of Sanofi discounting its originator brand, Plavix, as a defensive strategy, or otherwise launching an authorised generic).

Key findings

The Commonwealth claim was heard in August and September 2017, and Justice Nicholas delivered his judgment on 28 April 2020. Justice Nicholas found:

• The key question is whether it is just and equitable that the party who gave the usual undertaking is ordered to pay compensation in light of the facts of the case. Making an award of compensation is a discretionary matter, and the Court can take into account any matters it considers relevant. A party resisting paying compensation does not need to establish any exceptional or special circumstances for the discretion to be exercised in its favour.
• The Commonwealth was not prevented, as a matter of course, from claiming under the usual undertaking simply because, as the Government, it also had a valid interest in ensuring orders of the Court (the injunction) were observed (it was argued that this interest meant the Commonwealth had not suffered any adverse consequences from the granting of the injunction). Justice Nicholas said there was no logical connection between the Commonwealth interest in ensuring Court orders are observed and its right to claim compensation. Justice Nicholas similarly dismissed an argument that the Commonwealth caused its own losses because it created the PBS in the first place.
• The preliminary injunction did, in effect, stop Apotex applying to list its products on the PBS, even though its terms did not go that far. Nevertheless, while this was reasonably foreseeable in 2007, it was not a direct cause of the Commonwealth's losses as the injunction did not directly affect the legal rights, obligations or interests of the Commonwealth. The Commonwealth's losses were a natural and direct result of Apotex's failure to list on the PBS. The preliminary injunction under which the Commonwealth was entitled to claim did not specifically prevent Apotex's PBS listing on its terms (although had that effect in practice), thus the Commonwealth losses only flowed indirectly from the preliminary injunction.
• While some delay in PBS listing by Apotex was reasonably foreseeable in 2007, a delay until April 2010 was not. The Court found that any losses for the period after August 2008 (when a final injunction was granted – later overturned on appeal) were not a direct or reasonably foreseeable consequence of the 2007 injunction under which the Commonwealth had claimed.
• The evidence did not establish that Apotex would have sought and obtained a PBS listing from 1 April 2008. This highlights the challenges facing the Commonwealth of proving what might have been, had events unfolded differently.
• It did not harm the Commonwealth's case that other generic suppliers had not listed their products on the PBS before 2010 or that the Commonwealth did not show that they had not listed because of the Apotex injunction. There could be more than one direct cause of the losses, the preliminary injunction just needed to be one of them.
• The delay by the Commonwealth in bringing its claim, while significant, was not prejudicial to Sanofi and BMS and did not disentitle the Commonwealth from making a claim.
• The copyright in the Sanofi PLAVIX product information would not have provided a basis to restrain the launch of the Apotex products absent the patent restraint (typically the TGA requires a generic company to follow the wording of originator product information closely, and while that conduct is now exempted by copyright law it was not at the time).
• There was no reason to reduce the Commonwealth's claim by reference to whether the manufacture of products in Canada by Apotex would have infringed a Canadian patent. Sanofi and BMS failed to establish that the Canadian patent was valid and would have been infringed.

Key lessons from the case

This case demonstrates the difficulty in proving a counterfactual scenario of what would have happened "but for" the grant of the injunction. The difficulty is exacerbated for Commonwealth claims where the generic settles, as the Commonwealth has to obtain evidence from the generic. In this case, the difficulty was further exacerbated by the terms of the settlement deed between Apotex, Sanofi and BMS.

The decision provides important guidance on how the Federal Court will consider claims for compensation by the Commonwealth. In particular:

• It must be asked whether the loss would have occurred "but for" the grant of the injunction. Losses must flow directly from, and have been reasonably foreseeable at the time a preliminary injunction is granted, to be recoverable in a later claim for compensation for losses arising from the grant of the injunction.
• If the preliminary injunction restraining generic launch does not expressly prohibit listing of products on the PBS, the Commonwealth will be unable to recover pricing losses it suffers as a result, despite such losses being reasonably foreseeable, as such losses will not flow directly from the grant of such an injunction. It remains to be seen whether this same approach would effectively limit all claims by third parties harmed by the grant of an injunction. On the facts of this case, other claimants might have been pharmacists who lost profits when they were unable to sell generic clopidogrel acquired by them at a discount, and private hospitals who paid higher prices for PLAVIX for the two years the injunction was in force.
• The practical effect of this decision is that the Federal Court has permitted Sanofi to argue that it needed a preliminary injunction to prevent harm including PBS listing by Apotex, but later to resile from that position and rely on alternative factual arguments to show that there was no real risk after all and therefore the injunction, if wrongly granted, did not cause any losses (Sanofi and BMS did not initially defend either compensation claim on the basis that there would not have been a generic launch, only amending their defence years later to do so). It may be noted that in Sigma v Wyeth [2018] FCA 1556; (2018) 136 IPR 8, a decision based on the relevant generic's claim for damages, Justice Jagot was critical of Wyeth for this same contradiction.
• The usual undertaking given to secure a preliminary injunction, while directed to protecting a party who is wrongly restrained, ultimately may not provide any remedy unless the persons seeking to be compensated can establish very clearly the facts that would have existed in the counterfactual (but-for the injunction) world. This is likely to always be challenging given the grant of an injunction prevents such events from occurring in the real world and evidence of what might have been is often by its nature somewhat speculative. Parties defending injunctions need to document all key decisions made beforehand to ensure their intentions can later (possibly many years later or when the persons involved are unavailable) be the subject of irrefutable evidence of what would have been.
• Justice Nicholas has not provided any guidance on whether the Commonwealth's claim undermines Australia's international obligations regarding the protection of IP rights as this was not argued by Sanofi and BMS. This is mentioned for completeness, as that argument has been made by Otsuka and BMS in relation to the Commonwealth's ongoing claim regarding aripiprazole (Abilify), and was also made by AstraZeneca in the now settled Commonwealth claim regarding rosuvastatin (Crestor).

What next?

In a December 2018 Mid-Year Economic and Fiscal Outlook report, the Commonwealth said that:

"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."

The authors are not aware of any subsequent statements retreating from this position. It remains to be seen whether the Commonwealth appeals the judgment.

Authors: Kellech Smith, Partner; and Tim Rankin, Lawyer.