31 August, 2017
Spruson

Commonwealth of Australia v Sanofi: Hearing of Commonwealth's Claim Commences in Federal Court of Australia

Commonwealth of Australia v Sanofi: Hearing of Commonwealth's Claim Commences in Federal Court of Australia

A six-week hearing in the Federal Court of Australia commenced this week to decide whether the Commonwealth is entitled to damages related to generics being delayed from listing on the Pharmaceutical Benefits Scheme.

NSD1639/2007 Commonwealth of Australia v Sanofi-Aventis & Ors

On Monday 28 August 2017, the long-awaited hearing of Commonwealth of Australia v Sanofi-Aventis & Ors commenced in the Federal Court of Australia before Justice Nicholas. The hearing is scheduled to run for six weeks, with the final hearing day listed for 6 October 2017.

Background to Proceedings

This proceeding is a continuation of long-running litigation commenced in 2007, in which two patentees, including Sanofi (Patentees), sought and obtained interlocutory injunctions in two different sets of patent litigation proceedings, which prevented the alleged infringers, including Apotex (Generics), from marketing and supplying generic pharmaceutical products that were registered under the Therapeutic Goods Act 1989 (TG Act). The drug in question in Sanofi’s proceedings is clopridogel (Plavix®), which is used to reduce the risk of heart disease and stroke.

To understand the significance of these proceedings, it is worth noting some background regarding the operation of the Australian healthcare system. Australia has a universal healthcare system, a key feature of which is the Pharmaceutical Benefits Scheme (PBS). The PBS is funded by the federal government (i.e. the Commonwealth) and provides significantly subsidised prescription drugs to Australian residents. The vast majority of drugs sold in Australia are sold via the PBS, and the Commonwealth’s total expenditure on the PBS in 2015-2016 was about AU$10 billion.

The pricing of drugs sold via the PBS is heavily regulated. When the first generic or biosimilar product for an originator product is listed on the PBS, a statutory price reduction is applied to the existing PBS-listed originator product. At the time of the interlocutory injunction proceedings commenced by the Patentees in 2007, a 12.5% statutory reduction applied (this has since increased to 16% and is likely to further increase to 25% from 1 October 2018). The application of the statutory price reduction leads to immediate and significant savings for the Commonwealth with respect to the money it pays out under the PBS.

As the interlocutory injunctions prevented the generic products from being listed on the PBS, the 12.5% statutory reduction that would otherwise have reduced these payments did not take effect during the period the interlocutory injunctions were in place.

In general, before a court will grant an interlocutory injunction, the party seeking the order will almost always offer or be required to give to the court the “usual undertaking as to damages”. To paraphrase, this is an undertaking to:

a) submit to such order…as the Court may consider to be just for the payment of compensation…to any person (whether or not that person is a party), affected by the operation of the order or undertaking…; and

b) pay the compensation referred to in (a) to the person affected by the operation of the order or undertaking.[1]

The usual undertaking as to damages was given by the Patentees in this case.

Ultimately, the Patentees’ infringement proceedings were unsuccessful, the relevant claims of the patents in suit were found to be invalid and the interlocutory injunctions were dissolved (see Apotex Pty Ltd v Sanofi-Aventis [2009] FCAFC 134 (special leave refused).

Subsequently, the Generics and the Commonwealth (although not a party to the earlier proceedings) sought compensation pursuant to the usual undertaking as to damages. This is the first time that the Commonwealth has sought compensation pursuant to the usual undertaking.

The Commonwealth’s claim concerns the difference between the payments it made under the PBS in respect of clopidogrel and the payments that the Commonwealth would have made had the interlocutory injunction not been in force. In the present proceedings, the Commonwealth is claiming $54.8 million from Sanofi.

Arguments

This week has involved, inter alia, the Commonwealth and Sanofi presenting their respective oral opening submissions.

In its opening submissions, the Commonwealth outlined that it intends to argue, inter alia, that if the interlocutory injunction had not been granted in favour of Sanofi, Apotex would have applied for PBS listing such that its generic clopridogel brand would have been listed on the PBS on 1 April 2008. As a result, the Commonwealth would have enjoyed savings resulting from the statutory price reduction from that date. The loss to the Commonwealth in the absence of timely PBS listing is alleged to have been an entirely foreseeable consequence flowing from the granting of the interlocutory injunction.

Sanofi, on the other hand, outlined in its opening submissions that it intends to argue, inter alia,  that Apotex was not restrained from applying for PBS listing by the interlocutory injunction (it was restrained from supply), and its decision not to apply was voluntary. Further, Sanofi will argue that it is in any event unclear if the Minister would have accepted Apotex’s application to list on the PBS, had it been made, in view of an upcoming final trial. As such, Sanofi intends to argue that the interlocutory injunction granted in its favour was not the direct cause of the Commonwealth’s loss, which Sanofi asserts is required for a valid claim under the usual undertaking.

Once the hearing has concluded on 6 October 2017, it is likely that Justice Nicholas will hand down his judgment approximately nine to 12 months later. However, given the significance of this matter, we expect that an appeal is likely.

Significance

This decision will be extremely significant in clarifying whether, in seeking preliminary injunctive relief for patent infringement, patentees will need to consider compensating the Commonwealth, as well as generic or biosimilar suppliers, in the event that an interlocutory injunction is later dissolved. We will keep you updated on further developments in relation to this proceeding. In the meantime, if you have any questions, please contact us.

[1] Federal Court of Australia, Usual Undertaking as to Damages Practice Note (GPN-UNDR), 25 October 2016 (Allsop CJ).


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