Commonwealth entitled to claim on the undertaking as to damages
The question before the Court regarding the Commonwealth’s claim for damages
Last year the Full Federal Court of Australia comprising Justices Dowsett, Kenny and Nicholas was asked to consider the following question:
Is the Commonwealth of Australia precluded, as a matter of law, from recovering compensation pursuant to any of the Undertakings as to Damages by reason of Chapter 3, Part 3-2, Division 2 of the Therapeutic Goods Act 1989 (Cth)?
In December 2015 the Full Federal Court answered that question in the negative. It found that the relevant provisions of the Therapeutic Goods Act 1989 (Cth) (TGA) did not limit the Commonwealth’s right to recover compensation pursuant to the usual undertaking as to damages.
How does this decision affect patentees?
This decision will impact significantly on patentees. Patentees successful in obtaining interlocutory injunctive relief against a generic supplier, only to lose at trial with dissolution of the injunctions, may not only be liable to compensate the generic supplier, but may face an increased risk of liability to compensate the Commonwealth. This risk has always existed but the Commonwealth has only recently decided to apply to recover compensation and the rejection of the asserted technical defence by the Full Court will doubtless embolden the Commonwealth to make further claims in the future. Undoubtedly, this will be a factor for patentees to consider very seriously when deciding whether to seek an interlocutory injunction, which may in turn have an effect on the number of patentees applying for interlocutory injunctive relief.
The patentees (Sanofi and Wyeth) have applied to the High Court of Australia for special leave to appeal the Full Federal Court’s decision. The special leave application has yet to be heard and we will keep you updated on developments.
The initial patent infringement proceedings
The Sanofi Proceedings
In September 2006, Sanofi obtained an interlocutory injunction against Apotex Pty Ltd (then called GenRx Pty Ltd) (Apotex) restraining Apotex from supplying clopidogrel bisulphate, a compound claimed in Sanofi’s patent. As a condition for obtaining interlocutory injunctive relief, Sanofi was required to give the usual undertaking as to damages, which required Sanofi to undertake to pay compensation to any person, whether or not a party, adversely affected by the interlocutory injunction. The terms of the usual undertaking are set out in Federal Court Practice Note CM 14.
Sanofi was successful at first instance in 2008, however on appeal by Apotex in 2009, the Full Federal Court found Sanofi’s patent to be invalid and ordered it be revoked. In 2010, Sanofi’s application for special leave to appeal the Full Federal Court’s decision was refused by the High Court.
The Wyeth Proceedings
From June to November 2009, Wyeth obtained interlocutory injunctions against Sigma Pharmaceuticals (Australia) Pty Ltd, Alphapharm Pty Ltd and Generic Health Pty Ltd (together, the Generic Parties) restraining each of the Generic Parties from supplying venlafaxine hydrochloride, a compound claimed in Wyeth’s patent. In each case Wyeth was required to give the usual undertaking as to damages.
Similarly, Wyeth was successful at first instance in 2010, however on appeal by each of the Generic Parties in 2011, the Full Federal Court found Wyeth’s patent to be invalid and ordered it be revoked. Wyeth’s special leave application to appeal the Full Federal Court’s decision was refused by the High Court in 2012.
After special leave was refused in each case, the Commonwealth claimed compensation from Sanofi and Wyeth pursuant to the usual undertaking as to damages which they gave as a condition of obtaining the interlocutory injunctions.
The Commonwealth’s claim arises from the difference in payments it made under the Pharmaceutical Benefits Scheme for Sanofi’s clopidogrel bisulphate and Wyeth’s venlafaxine hydrochloride and the payments it would have made had the injunctions not been granted. In the case of clopidogrel bisulphate, the Commonwealth is claiming $54.8 million from Sanofi.
Arguments put forward by the parties regarding the application of the TGA
Sanofi and Wyeth argued that sections 26B, 26C and 26D of the TGA provided an exhaustive statement of the Commonwealth’s right to seek compensation and did not allow the Commonwealth to claim compensation under the usual undertakings as to damages.
The Commonwealth argued that the remedies available under sections 26B, 26C and 26D (particularly, sections 26C(8) and 26D(5)) were additional to any claim that the Commonwealth may have under the usual undertaking as to damages.
Given that sections 26B, 26C and 26D were enacted in response to Australia entering into the Free Trade Agreement (FTA) with the United States, the Court carefully considered the FTA and the legislative history of sections 26B, 26C and 26D when construing those provisions.
Full Federal Court’s findings regarding the TGA as a bar to Commonwealth’s recovery of damages
The Full Federal Court held by that there was nothing in the FTA or the relevant legislative history to suggest that sections 26B, 26C and 26D were intended to limit the right of the Commonwealth to recover compensation under the usual undertaking as to damages given by a patentee as a condition of obtaining an interlocutory injunction.
In coming to this conclusion, Justices Kenny and Nicholas noted the following:
- Section 26C(8) of the TGA which gives the Commonwealth a right to claim compensation in certain circumstances is not linked to the Commonwealth’s right to recover under the usual undertaking as to damages.
Under section 26C(3), a patentee who intends to commence infringement proceedings is required to provide a certificate which certifies that the proceedings:
- are to be commenced in good faith;
- have reasonable prospects for success; and
- will be conducted without unreasonable delay.
Section 26C(8) provides the Commonwealth with a right to recovery in circumstances where a patentee has obtained an interlocutory injunction, the certificate is false or misleading in a material particular or the patentee has breached an undertaking given in the certificate and section 26D does not apply (that is, the generic supplier has not provided the patentee with notice under section 26B(1)(b)(iii)).
Justices Kenny and Nicholas noted that “sections 26C(5)-(8) are essentially concerned with ensuring that certificates given under section 26C(2) are given in good faith, and on reasonable grounds …”
- Sections 26D(2) and (3) of the TGA require a patentee seeking an interlocutory injunction to give notice to the Attorney General and the Attorney General is deemed to be a party to any proceeding unless written notice has been given that he or she does not desire to be a party. Justices Kenny and Nicholas noted that section 26D(3) may also have the effect of ensuring that the Commonwealth is entitled to claim on the usual undertaking as to damages in States or Territories where the usual undertaking is still given in respect of damage suffered by a party as opposed to “any person, whether or not a party“.
- Section 26D(5) of the TGA enhances the Court’s power to award compensation ordinarily available pursuant to the usual undertaking as to damages in circumstances where:
- notice has been given to the patentee under section 26B(1)(b)(iii); and
- the patentee is found to have engaged in the misconduct described in section 26D(4)(c) (that is, the patentee did not have reasonable grounds to believe that it would be granted final injunctive relief, the application for the interlocutory injunction was vexatious or not reasonably made or pursued).
The usual undertaking as to damages – where to from here?
This decision is significant for patentees and generic suppliers alike. Patentees successful in obtaining an interlocutory injunction, which is later overturned, may face hefty compensation claims from generic suppliers and the Commonwealth. No doubt this will be a factor for patentees to consider when deciding whether to seek interlocutory injunctive relief.
Sanofi and Wyeth have applied to the High Court for special leave to appeal the decisions. We will keep you updated on developments.
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