Australia: Commonwealth damages claim for overpaying on patented products continues

Last Updated: 26 January 2016
Article by Katrina Crooks

The Full Court of the Federal Court of Australia has rejected an argument that the Commonwealth is precluded by provisions of the Therapeutic Goods Act 1989 (Cth) from seeking damages pursuant to undertakings given by two patentees when obtaining interlocutory relief preventing the launch of generic pharmaceutical products. The Commonwealth's claims, in one case including a claim for AU$54.8 million, continues.

Key Points

  • Sections 26B-D of the Therapeutic Goods Act require generic pharmaceutical suppliers to provide certain certificates relating to relevant patents when applying for registration of therapeutic goods and relying on another party's data to support the application. The owners of the relevant patents may then also be required to provide certain certificates if commencing legal action for patent infringement. The provisions also provide for the Commonwealth to recover damages/a pecuniary penalty in certain circumstances, effectively where the relevant party has engaged in misconduct in connection with such legal action.
  • The above provisions were found by the Full Court not to preclude a claim by the Commonwealth for damages pursuant to an undertaking as to damages given by a patentee when an interlocutory injunction is granted in patent infringement proceedings. Importantly in the present cases, this includes situations where there is no allegation of misconduct against the patentee.
  • The Commonwealth will now continue with its claim but must now prove its case for damages.

In the run up to the end of 2015, the Full Court of the Federal Court of Australia handed down its decision in Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) [2015] FCAFC 172. The Court considered an issue arising in two separate proceedings brought by the Commonwealth, one against Sanofi and one against Wyeth. In each case, the Commonwealth sought damages for additional costs allegedly incurred as the result of interlocutory injunctions which prevented the marketing of certain generic products alleged to infringe Sanofi and Wyeth's respective patents.

In patent infringement cases, the patentee may seek an interlocutory injunction prohibiting marketing of a product alleged to infringe the relevant patent(s) pending the final outcome in the case. In such circumstances the patentee will generally be required to give an undertaking to abide by any order of the Court awarding damages to a party adversely affected by the interlocutory injunction, if the infringement claim is unsuccessful at the final hearing. In the cases at hand, Sanofi had obtained interlocutory relief preventing Apotex from supplying products alleged to infringe its clopidogrel bisulphate patent. Similarly Wyeth had obtained interlocutory relief against three generic parties preventing supply of certain venlafaxine products. In each case, the patentee had given the usual undertaking as to damages. Ultimately, the relevant claims of the patents in each case were found invalid such that the infringement actions failed.

The Commonwealth brought proceedings in each case seeking compensation pursuant to the undertakings as to damages. It alleges it has suffered loss as a result of the injunctions, being the difference between the actual reimbursed price for the patented products under the Pharmaceutical Benefits Scheme (PBS) and the price which would have applied if the generic products had been launched. In particular, in the Sanofi case, the claim includes an amount of AU$54.8 million in respect of an initial 12.5% statutory price reduction which the Commonwealth alleges would have been triggered if Apotex's products had been listed on the PBS at the relevant date.

In this context, the Full Court considered a preliminary issue raised in both proceedings as to whether it was open to the Commonwealth to bring such a claim in light of sections 26B-D of the Therapeutic Goods Act 1989.

These provisions were enacted in response to Australia's entry into the Australia-United States Free Trade Agreement of 2004 which required Australia to provide measures in its marketing approval process to prevent a generic supplier 'piggybacking' on clinical data for an originator product, where the product was still covered by a patent. They require a generic supplier seeking to use such data to provide a certificate stating that they do not believe they are marketing a product which would infringe a valid claim of a granted patent, or that they have given the patentee notice of the application for registration of the relevant goods. Where such a certificate is given by the generic party, the originator party must then also provide a certificate if intending to issue proceedings for patent infringement against that generic party, certifying that the proceedings are to be commenced in good faith, have reasonable prospects of success and will be conducted without unreasonable delay. A penalty may be payable to the Commonwealth if such a certificate is found to be misleading, and in certain circumstances where an application for interlocutory relief is sought, and the applicant engages in conduct tantamount to abuse of process, the Court may award compensation to the Commonwealth.

Sanofi and Wyeth each relied on legal authorities holding that statutory rights which are inconsistent with a common law right can displace that common law right. They argued that the relevant provisions of the Therapeutic Goods Act set out a prescriptive scheme which restricted recovery of damages by the Commonwealth to circumstances where the patentee had engaged in the kind of misconduct described. Outside of such cases the Commonwealth could not call upon the usual undertaking as to damages.

The Court did not agree with Sanofi and Wyeth. It found that, rather than restricting the Commonwealth's ability to claim damages, the relevant provisions of the Therapeutic Goods Act provide the Commonwealth with a monetary remedy that would not be available under the usual undertaking as to damages. There was no inconsistency between the relevant provisions and the usual undertaking as to damages. There was also nothing in the Australia-US Free Trade Agreement or any other aspect of the legislative history to suggest that the intention was to curtail the right of the Commonwealth to recover on the usual undertaking as to damages.

Following the decision the Commonwealth's claims will continue. If damages are ultimately awarded to the Commonwealth, this will clearly be of concern to originator companies considering applications for interlocutory injunctions. As the figures cited in this judgment make clear, compensation sought by the Commonwealth on an undertaking as to damages may not be insubstantial.

Shelston IP will keep you updated with further developments in these cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Shelston IP ranked one of Australia's leading Intellectual Property firms in 2015.

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Katrina Crooks
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