Australia’s High Court has delivered a much-anticipated judgment in the Commonwealth damages case (Commonwealth of Australia v Sanofi [2024] HCA 47). While the Commonwealth has failed in its attempt to recover $325 million in damages from Sanofi, the judgment provides important lessons that are expected to strengthen the prospects of success for both the Commonwealth and generics in future similar cases.
Introduction
On 11 December 2024, the High Court of Australia delivered a much-anticipated judgment concerning the Commonwealth’s attempt to recover $325 million in damages from Sanofi for increased costs to Australia’s Pharmaceutical Benefits Scheme (PBS), incurred when a preliminary (or “interlocutory”) injunction (PI) granted to Sanofi delayed market-entry of generic clopidogrel products by approximately 2 years.
In a split 3:2 decision, the Commonwealth’s appeal was narrowly defeated, bringing to an end its attempts to recover damages in this case. Nevertheless, in the manner explained below, the High Court’s decision provides important lessons that are likely to strengthen prospects of success, both for the Commonwealth and for suppliers of generic medicines, when seeking to claim damages in future analogous cases.
Members of Spruson & Ferguson Lawyers’ patent litigation team and Spruson & Ferguson’s Chemistry & Life Sciences patent team attended the hearing of this appeal as observers at the High Court in Melbourne on 4 and 5 September 2024.
Key takeaways
- The Commonwealth’s status as a “body politic” will not preclude it from recovering damages on a patent owner’s undertaking in an appropriate case.
- Where damages are claimed on an undertaking given to secure a PI, the critical question is whether, but for the PI, the generic party would have launched “at risk” (i.e., before final judgment) despite the risk of substantial liability if the patent is held valid and infringed.
- In answering that counterfactual question, all real world events other than grant of the PI (and anything inextricably connected with it) will be taken into consideration.
- To prove that the generic party would have launched at risk, direct evidence from the person ultimately responsible for deciding to launch (such as the CEO of the generic or its parent company) will likely be required.
- Direct evidence from the ultimate decision maker will be particularly important where (as in this case) internal records detailing the generic’s launch plans have been heavily redacted on grounds of legal professional privilege.
- Damages will ordinarily be limited to compensation for losses that flow directly from grant of the PI and were reasonably foreseeable at the time the PI was granted.
Background
Details of this long-running litigation are available in our previous publications. Briefly:
- In August 2007, Apotex commenced legal action, seeking revocation of Sanofi’s Australian patent covering its blockbuster PLAVIX clopidogrel products.
- In response, Sanofi applied for a PI seeking to restrain supply of Apotex’s generic clopidogrel products in Australia pending the final outcome of the patent dispute. Justice Gyles granted the PI in September 2007.
- Gyles J delivered judgment in August 2008, finding several of Sanofi’s patent claims to be valid and infringed and granting a final injunction restraining supply of Apotex’s clopidogrel products.
- However, an appeal by Apotex to the Full Federal Court was successful. The Full Court found all claims of Sanofi’s patent to be invalid and dissolved the final injunction.
- Apotex’s clopidogrel products were listed on Australia’s PBS and launched on the Australian market on 1 May 2010.
Following the Full Court’s decision (and dismissal of an application by Sanofi for special leave to appeal to the High Court of Australia), both Apotex and the Commonwealth filed claims on the undertaking given by Sanofi to secure the PI, seeking compensation for losses suffered due to grant of the PI. Apotex’s damages claim was resolved by a confidential out-of-court settlement.
The “undertaking as to damages” is a long-standing aspect of Anglo-Australian courts’ equitable jurisdiction to grant preliminary (or interlocutory) injunctive relief to preserve the status quo pending the final outcome of litigation. In circumstances where the court has not yet finally determined the parties’ respective legal rights and liabilities, it requires a party to whom a PI is granted to undertake (to the court) that it will compensate any person (whether or not a party to the litigation) found to have been adversely affected by grant of the PI.
The basis for the Commonwealth’s claim on Sanofi’s undertaking arose from the operation of the PBS. In Australia, the cost of supplying most (although not all) medicines to consumers is paid by the Commonwealth government (subject to a small consumer co-payment). In the 2008 financial year, the Commonwealth spent approximately $170 million funding supply of clopidogrel products via the PBS.
Following patent expiry or revocation, listing of the first generic version of a medicine on the PBS ordinarily triggers a reduction in the price paid by the Commonwealth for all brands of that medicine (including originator and generic brands). In the years following generic listing, further successive reductions in the medicine’s PBS-price typically occur.
The Commonwealth’s damages claim in this case was founded on the premise that the PI granted to Sanofi delayed the PBS-listing and launch of generic clopidogrel products for approximately two years, with the consequence that the Commonwealth was required to pay a higher price for supply of clopidogrel via the PBS than would have been the case had the PI not been granted.
Outcome of the Commonwealth’s damages claim
For reasons addressed below, the Commonwealth’s damages claim was unsuccessful before the primary judge (Nicholas J) and on appeal to the Full Federal Court. By a narrow margin, the Commonwealth was also unsuccessful on final appeal to the High Court, in a 3:2 split decision. Justices Jagot and Beech-Jones, in dissent, would have allowed the Commonwealth’s appeal and upheld its claim for damages.
While it is noteworthy that the Commonwealth’s damages claim was dismissed in this case, the judgments delivered by the High Court do not suggest that analogous Commonwealth damages claims would necessarily fail in other cases. On the contrary, armed with the lessons learned from these proceedings, there is reason to believe that the Commonwealth’s prospects of recovering damages in future cases against pharmaceutical originators may be increased. Key lessons from the High Court decision are outlined below.
Lesson #1: Commonwealth not barred from claiming on undertaking
Sanofi submitted that the Commonwealth was not entitled to claim damages pursuant to its undertaking, for at least the following reasons:
- First, as a body politic, the Commonwealth was not a person “adversely affected” within the meaning of Sanofi’s undertaking; further, any losses suffered by the Commonwealth were not compensable because they arose from the operation of its own laws.
- Secondly, the patent linkage regime established by sections 26B, 26C and 26D of Australia’s Therapeutic Goods Act 1989 (Cth) establishes an exhaustive code of the circumstances in which, and the extent to which, the Commonwealth is entitled to compensation arising from the conduct of pharmaceutical patent litigation of the kind at issue in these proceedings.
Both arguments were rejected by all five High Court judges. The majority characterised the first argument as involving “a basic constitutional misconception”, noting that “as a legal person, the body politic generally falls to be treated in the same way as any other person”.[1] All judges observed that the second argument was rejected by the Full Federal Court at an earlier stage of these proceedings.[2]
These findings tend to confirm that, as a matter of law, there is nothing in the status of the Commonwealth that would preclude it from recovering damages on an undertaking, given by a patent owner to secure a PI, in an appropriate case.
Lesson #2: Nature of the “counterfactual”
Throughout these proceedings, the central question raised for determination was as follows: Had Justice Gyles not granted a PI to Sanofi in September 2007, would Apotex have obtained listing of its generic clopidogrel products on the PBS, and launched those products on the Australian market, on 1 April 2008, notwithstanding that Apotex may thereby have been exposed to very substantial damages liability if the validity of Sanofi’s patent had ultimately been upheld? This hypothetical question is referred to as the “counterfactual”.
The High Court majority explained that, in assessing the counterfactual, all facts in the real world (including the conduct of the parties before and after grant of the PI) should be taken into consideration except for the court order granting the PI and anything inextricably connected with it, such as the court’s reasons for granting the PI.[3] The focus of inquiry is what the particular generic party (in this case, Apotex) would have done in the counterfactual circumstances, not what some other person (real or hypothetical) may have done in those circumstances.[4]
Lesson #3: The central importance of evidence
In this case, the Commonwealth was required to establish, on the balance of probabilities that Apotex would have sought and obtained PBS listing on 1 April 2008, but for grant of the PI.[5] The High Court majority upheld the unanimous finding of the courts below that the Commonwealth had failed to discharge its onus of proof on this question. The following points assumed significance in the majority’s analysis:
- While the Commonwealth called as a witness the managing director of Apotex Australia (Mr Roger Millichamp), it did not call the CEO and owner of Apotex’s parent company, Dr Barry Sherman. This was significant because Mr Millichamp accepted during cross-examination that any decision to launch at risk would ultimately be taken by Dr Sherman, as it was his company and “his money”.
- In the absence of evidence from Dr Sherman, the majority agreed that the courts below were justified in refusing to draw an inference, from contemporaneous internal emails, to the effect Apotex would have launched at risk had no PI been granted.
- That was particularly so in circumstances where the internal emails in evidence (obtained via subpoenas) did not directly disclose Dr Sherman’s views following notification that the patent revocation proceedings would be decided much earlier than originally anticipated, and within a few months after the earliest possible launch date for Apotex’s products.
- Further, the internal emails in evidence had been heavily redacted by Apotex on grounds of legal professional privilege. In the majority’s view, this provided an additional, important justification for the reluctance of the courts below to draw inferences, favourable to the Commonwealth, from those records.
By contrast, the dissenting judges considered that evidence from Dr Sherman, several years after the events, as to what he would have done in hypothetical circumstances (i.e., had no PI been granted) would be of limited value, and were more willing to draw inferences, favourable to the Commonwealth, from the contemporaneous documents in evidence.[6]
The divergent views expressed by the majority and the dissenting judges are likely to be of interest to practitioners preparing future cases of similar nature. However, for parties (or potential parties) to such proceedings, the lessons of the Commonwealth v Sanofi damages case are clear:
- It is likely that, wherever practicable, the party claiming damages will need to adduce direct evidence from the person or persons who would ultimately have been responsible for deciding to launch the relevant generic products at risk, had no PI been granted.
- To that end, it is highly likely that senior officers (including, potentially the chief executive officer) of the generic company and/or its parent company will need to give affidavit evidence and make themselves available for cross-examination, in support of any damages claim on an undertaking.
- When asserting privilege over internal records, generic parties should consider carefully whether this may impede their ability to establish that, but for the grant of a PI, they would have launched at risk. In appropriate cases, consideration should be given to whether a limited waiver of privilege may be necessary and appropriate, and legal advice obtained.
Lesson #4: Scope of damages recoverable
Where a claim is made on an undertaking given by a pharmaceutical originator to secure a PI, any damages will ordinarily be limited to compensation for losses that “flow directly from” grant of the PI and that were reasonably foreseeable at the time that the PI was granted. The majority confirmed that the losses suffered by the Commonwealth due to delayed PBS-listing of generic clopidogrel products were of this nature and thus potentially recoverable, had the Commonwealth discharged its onus of proof.[7]
Lesson #5: Undertaking itself no panacea for generics
Viewed broadly, this case serves to emphasise that obtaining a PI is – of itself – no panacea for the suppliers of generic medicines that are parties to patent disputes in Australia. That is because a PI will only be of value if the generic party is able to establish, by admissible evidence (including contemporaneous internal records and the direct evidence of the ultimate decision maker(s)) that, had no PI been granted, it would have obtained PBS-listing and launched its products on the Australian market prior to the final outcome of the patent litigation, notwithstanding that doing so would have exposed the generic party to the risk of a very substantial damages claim, if the patent had ultimately been found valid and infringed.
Concluding observations
For the reasons outlined above, although the Commonwealth has ultimately been unsuccessful in its attempts to recover damages from Sanofi in the clopidogrel case, it appears unlikely that the Commonwealth will be deterred from bringing analogous damages claims in other cases. Armed with the lessons learned from its battle with Sanofi, the Commonwealth is likely to be better equipped to prosecute such claims in the future.
[1] Gordon A-CJ, Edelman and Steward JJ at [176]-[179].
[2] Gordon A-CJ, Edelman and Steward JJ at [180]-[183]; Jagot J at [336]-[337]; Beech-Jones J at [341].
[3] Gordon A-CJ, Edelman and Steward JJ at [41]-[43]; cf. Jagot J at [274]-[275]; Beech-Jones J at [351]-[353].
[4] Gordon A-CJ, Edelman and Steward JJ at [42], [140].
[5] Gordon A-CJ, Edelman and Steward JJ at [13]-[16].
[6] See, in particular Jagot J at [276]-[286] (with whom Beech-Jones J agreed).
[7] Gordon A-CJ, Edelman and Steward JJ at [161]-[175].