Recent developments implemented by the Australian Federal Court to streamline the management of patent litigation and also several recent decisions by Federal Court judges granting interlocutory injunctive relief to pharmaceutical patentees should give pharmaceutical originator patent litigants good reason to consider bringing action against generic competitors.
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There has been a rise in the number of proceedings instituted in the Federal Court relating to pharmaceutical patents and, in particular, proceedings which commence with the originator patentee seeking interlocutory injunctive relief against a generic competitor. The rise in this litigation can probably be traced to the number of “blockbuster” drugs losing patent protection and also changes made to the Australian Government’s Pharmaceutical Benefits Scheme by which prescription drug use by Australians is heavily subsidised by taxpayer funds.
If originator patentees now have more compelling commercial reasons to commence litigation, then the Federal Court’s patent litigation management guidelines are a welcome procedural advance that should be of benefit to them.
Federal Court patent litigation procedures
The Federal Court has indicated that the aim of the procedures is to accelerate the identification of issues and generally to improve the facilitation of the trial process in patent proceedings. overriding policy behind the procedures is to reduce the time and costs associated with patent litigation.
The Court has become concerned at the significant costs incurred by litigants in giving discovery in patent proceedings and also the time and costs associated with the giving of expert evidence. he Court has established a Patent Panel of judges in several of its Registries to deal with all patent cases.
Special aspects of the Australian patent litigation procedures
Challenges to validity of patents
This aspect of the Federal Court’s procedures is likely to benefit pharmaceutical patentee applicants. A generic respondent to an infringement claim who seeks to cross-claim for a revocation of the patent in issue may be at a disadvantage early in the proceeding as the Court will expect that each ground of invalidity pleaded in the cross-claim can be supported and explained soon after the particulars of invalidity have been filed. This will involve identifying the relevant passages that are relied upon in any prior art cited by the cross-claimant.
In ‘normal’ proceedings, a cross-claimant will generally have only about two months after being served with patent infringement proceedings to file its cross-claim and particulars of invalidity. That period will generally be insufficient for the cross-claimant to determine, with certainty, the grounds of its attack on the validity of the patent, let alone be able to satisfy the Court that such grounds are supportable. This will be so because there will likely be difficulties locating appropriate experts in the relevant technology field willing to assist and, further, once an expert has been selected, to determine what was the common general knowledge in the field at the relevant priority date.
Discovery
The starting point under the patent litigation procedure is that general discovery of documents will not be permitted. For the most part, it appears that discovery will not be permitted at all in patent cases, unless a party obtains the leave of the Court to seek discovery of documents related to very limited categories of documents.
In the comparable procedures introduced in 2003 in England for dealing with patent cases, discovery on validity issues is limited to those documents which came into existence within the period commencing two years before the earliest claimed priority date and ending two years after that date. If the Australian Federal Court adopts a similar restriction, this will likely be welcomed by pharmaceutical patentees as discovery of documents relating to the research and development undertaken and the common general knowledge in the field may be able to be significantly reduced.
Expert evidence
The procedures provide for a flexible approach to be taken regarding the manner in which expert evidence may be given to the Court. The approach that is taken in each particular case is likely to depend on the complexity of the technology in the patent in dispute, and the nature of the issues in dispute.
For example, the Court may consider that in some cases it is more efficient and cost-effective for the experts to give their evidence orally, either on all issues or a limited range of issues, rather than in voluminous affidavits.
In some cases it may be appropriate for a Court to consider the use of a single, Court-appointed expert to prepare a single report rather than each party engaging their own experts.
Courts may also consider whether a “hot tub” procedure is appropriate. The “hot tub” procedure for expert witnesses has, to date, been used only to a very limited extent in Australian patent cases, but it may gain momentum under the new procedures. “hot tub” procedure, which has been used mainly in litigation in the United States, usually involves the expert witnesses engaged by each of the parties conferring prior to trial to identify issues on which the experts are in dispute, and issues on which the experts agree.
In recent Australian Pharma cases, the Federal Court judges have allowed the parties to rely on their own expert witnesses, with the judge ultimately preferring one expert’s evidence over the other in relation to infringement and validity issues.
Recent pharmaceutical patent interlocutory injunction decisions
A number of recent favourable decisions for patentee applicants seeking interlocutory injunctive relief would seem to reflect a more positive litigation environment in Australia for originators.
Relevant principles
The recent favourable decisions have confirmed the relevant principles to be applied in determining an application for interlocutory injunctive relief:
- whether there is a serious question to be tried, or the pharmaceutical patentee has made out a prima facie case in the sense that, if the evidence remains the same, there is a probability that at trial it will be entitled to relief;
- whether the pharmaceutical patentee will suffer irreparable harm, for which damages will not be an adequate remedy, unless an injunction is granted; and
- whether the balance of convenience favours the granting of an injunction.
In the 2009 Federal Court decision in Sigma Pharmaceuticals (Australia) Pty Ltd v. Wyeth, Justice Sundberg noted that factors 1 and 3 above were related in the sense that whether there is a serious question or a prima facie case should not be considered in isolation from the balance of convenience. Justice Sundberg indicated that in a patent matter where the party seeking interlocutory relief alleges infringement and the other party alleges invalidity, special considerations apply. In that regard, he repeated Justice Jessup’s views expressed in the 2008 case of Interpharma Pty Ltd v. Commissioner of Patents where Justice Jessup said that, in a patent case, the fact of registration constitutes prima facie evidence of validity. Unless the infringer’s invalidity case is sufficiently strong, the Court should move to consider the adequacy of damages, the balance of convenience and other discretionary matters. The important question is whether the patentee has a serious question, or probability of success, not whether the infringer does, in relation to its defence.
Accordingly, the real issue in determining whether there is a serious question to be tried is the strength of the patentee originator’s infringement case.
Pharmaceutical Benefits Scheme
As indicated above, the Australian Government’s Pharmaceutical Benefits Scheme (“PBS”) significantly subsidises the cost of prescription drugs. Since 1 August 2005, if a generic medicine is being listed on the PBS for the first time (that is, a generic to a medicine already listed on the PBS), the generic manufacturer is required to offer a minimum 12.5% price reduction in the Government price for the medicine. This of course would make the generic product a lot more attractive to buy than the originator product. The price reduction applies only to the first new generic brand of any medicine listed after 1 August 2005 and applies only once for each medicine. Sponsors of brands directly affected by the listing of the new generic product are therefore approached to reduce the price of their own product either to the same price as the generic product, or somewhere between the previous price and the proposed price of the generic product.
From 1 August 2008, further price reductions have been introduced for medicines where there are many brands listed that attract the 12.5% price reduction. If there is low price competition between brands in this 12.5% group, a further price drop of 2% a year for three years would be required (the 2% group) and if there is a high price competition between brands in the 12.5% group, there would be a one off price reduction of 25% (the 25% group).
A primary concern to originators with drugs listed on the PBS is a listing by a generic competitor of a product on the PBS with the possibility that such a listing would result in the product being sold at a lower price, thereby eroding the originator’s market share.
It is this significant price reduction flowing from the PBS listing of a generic medicine that has provided much weight to the patentee’s interlocutory relief claims that it would suffer irreparable injury for which damages or an account would not be an adequate remedy.
Damages, adequate or not?
The question of whether damages are an adequate remedy for the originator patentee is, more often than not, met with arguments by the generic that any losses by the originator will be readily quantifiable. These arguments together with an undertaking by the generic to keep adequate records of sales have resulted in a number of decisions where interlocutory relief has been refused.
On the other hand, recently, a number of Federal Court judges have ruled that damages are not an adequate remedy for the originator in circumstances where the generic was proposing to list its product on the PBS. In those cases, the potentially unpredictable and irreversible effect of the price reduction under the PBS rules have been a major factor weighing in favour of the pharmaceutical patentees.
For instance, in the 2007 GenRx v. Sanofi-Aventis case, Justice Gyles was not satisfied that damages would be an adequate remedy for Sanofi. He was concerned with the likely interference with Sanofi’s trade patterns with its customers that may not be measurable in monetary terms. In circumstances where GenRx had “looked on” as Sanofi built up its trade, the Judge was much influenced by the effects of disturbing the status quo, particularly as it related to the operation of the PBS. Where the Sanofi patent was of long-standing existence and GenRx had failed to bring revocation proceedings in a timely fashion, he considered that an injunction should be granted.
Justice Jessup in Interpharma noted that the purpose of an interlocutory injunction is to preserve the status quo pending trial. He was attracted to the approach taken in GenRx v. Sanofi-Aventis, where Justice Gyles stated that temporary disturbance of the status quo which was reflected in the considerable trade build up by Sanofi, was not justified.
In the Sigma v Wyeth 2009 decision, Justice Sundberg ruled that even though Sigma had given an undertaking not to list its product on the PBS and it would keep a record of sales, Wyeth would suffer irreparable harm for which damages would not be an adequate remedy, if the injunction was not granted. Wyeth argued that if the Sigma generic product became available, Wyeth would lose market share and would be forced to reduce its product’s price to remain competitive. Further, other generic companies would likely also enter the market. Justice Sundberg concluded that a new entrant to the market would have an effect which may be unpredictable and irreversible. He also found that the balance of convenience lay in favour of granting the injunction because Wyeth’s product had been on the market for some time whereas Sigma had only just launched its product. Sigma proceeded with its launch after it became aware of Wyeth’s patent and had proceeded with its “eyes wide open”. Further, a change in the appearance of the medication (that is, if the interlocutory injunction was not granted and then Wyeth succeeded at trial) could cause patients to become confused and not take their medication regularly.
Justice Sundberg’s decision neatly details the issues to be argued by the originator patentee – rapid loss of the originator’s market share, sale price reduction to counter discounting, the adverse effect of other generics entering the market and so the impossibility to quantify loss, the generic’s entrance to the market aware of its risk, and finally, the undesirable confusion that is likely to affect a vulnerable section of the public, the consumers of prescription drug products.
“Eyes wide open”
As well as being a relevant factor in the GenRx v Sanofi and Sigma v Wyeth decisions, the issue of whether the generic entrant to the market has proceeded with its “eyes wide open” has been a significant factor in other recent Federal Court decisions where injunctive relief has been granted.
In the view of Justice Jessup in the Interpharma case, knowledge of the originator patentee’s rights and a failure to take timely revocation action were matters that significantly compromised the generic’s attempt to resist the injunction, which went no further than to maintain the status quo.
The Wyeth patent the subject of Justice Sundberg’s decision in the Sigma v Wyeth case referred to above was again the subject of an application for interlocutory injunctive relief by Wyeth against Alphapharm Pty Ltd, an Australian generic company, later in 2009. Justice Jagot granted Wyeth’s application for interlocutory injunctive relief and reiterated most of Justice Sundberg’s approach in the Sigma case.
Justice Jagot found that any detriment to Alphapharm was largely due to its lack of diligence in maintaining a watch over Wyeth’s patent rights and failing to take immediate action to challenge the validity of the patent on becoming aware of its existence. Alphapharm’s evidence was that it only became aware of the Wyeth patent 6 weeks before it obtained ARTG registration for its generic product and 3 months before it moved for revocation of the Wyeth patent. Justice Jagot, in essence, did not accept Alphapharm’s evidence relating to its awareness of the Wyeth patent and said that it should have challenged the validity of the patent immediately on becoming aware of its existence. He said that if Alphapharm had been diligent it would have known of the Wyeth patent since its grant, almost 2 years prior.
Similarly, in a late 2009 decision, Justice Jessup granted an interlocutory injunction to Abbott in its claim against Apotex in relation to Abbott’s patented compound found in its weight-loss drug “Reductil”.
Justice Jessup considered that in determining whether an interlocutory injunction should be granted, he should follow the principles he outlined in the Interpharma decision and he found that Abbott’s prime facie case of infringement had not been materially undermined by Apotex’s grounds of invalidity. He also found that Apotex knew of Abbott’s patent and of its potential to stand in the way of its commercial plans for about a year and yet made no challenge to its validity.
There will be few, if any, instances where a sophisticated generic company will be able to say that it only became aware of an originator patent just prior to being the subject of a claim for interlocutory injunctive relief. Commercial realities are that much preparation and financial commitment is made before a decision is taken to proceed with a proposed generic product and diligent watching of originator patent rights would be expected to be the norm.
Helpful Australian enforcement environment
While the Court’s guidelines to streamline the patent litigation process and these recent Federal Court decisions favouring the originator patentee point to a conducive Australian enforcement environment, originators should also consider the likely beneficial outcome resulting from filing an Australian innovation patent. An innovation patent can be granted in addition to a standard patent and can be granted quickly and cheaply, with the opportunity to tailor the claims to cover infringing activity. The same forms of relief against infringement are available for innovation patents as for standard patents, including injunctions and monetary relief.