In the keenly awaited judgment in Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis)  FCAFC 97, the Full Court of the Federal Court of Australia has upheld the trial judge’s decision that the Commonwealth is not entitled to damages arising from the grant of a 2007 interlocutory injunction preventing Apotex from launching generic clopidogrel products, on the basis of a patent which was later found invalid.
In the financial year 2008, Sanofi’s PLAVIX clopidogrel products (also sold in Australia as ISCOVER by Bristol-Myers Squibb), a medication inhibiting the formation of blood clots, was the third most heavily Government subsidised prescribed drug in Australia. Commonwealth costs for that year extended to approximately $170 million.
In August 2007 Apotex commenced legal action to revoke Sanofi’s Australian patent 597784 covering the product, and was quickly met with an interlocutory injunction application. That injunction was granted, and remained in force until the patent was ultimately found wholly invalid by the Full Court and special leave for appeal to the High Court was refused. Apotex’s clopidogrel products were launched on 1 May 2010.
On grant of the interlocutory injunction, Sanofi was required to give the ‘usual undertaking as to damages’, by which it undertook to compensate any person adversely affected by the operation of the injunction. After the patent was revoked, both Apotex and the Commonwealth brought claims pursuant to the undertaking, seeking damages for their losses resulting from the delayed launch of Apotex’s products. Apotex’s claim was settled. The Commonwealth continued with its claim which was based on its lost opportunity for pricing decreases for clopidogrel products which would have been triggered by a first generic entry, including an immediate mandatory price reduction, and further price disclosure related price reductions which would have occurred in the years following. The Commonwealth’s claim on this basis exceeded $325 million plus interest.
Key findings and implications
- The Full Court upheld the decision of the trial judge that the Commonwealth did not succeed in making out its case. Ultimately this finding arises from a failure to make out the ‘counterfactual’ that Apotex would have launched in the circumstances at play at the relevant time, had Sanofi not obtained an interlocutory injunction.
- The appeal decision highlights once again the complexities in establishing that ‘counterfactual’ to the required standard. Combined with this difficulty, the Full Court did not consider the trial judge’s finding that it was more likely than not that the Commonwealth would have been prepared to reverse statutory reductions in the reimbursed price for Sanofi’s products triggered by the generic listing on the PBS, if sale of the generic product was subsequently restrained by a permanent injunction. Both of these matters are likely to continue to be raised in interlocutory injunction hearings as factors requiring a re-evaluation of the delicate balance between the interests of both parties in such a scenario.
- The decision highlights again the need for compelling evidence (supported by contemporaneous documents) from the ultimate decision-makers at the generic party and the Commonwealth to convince the Court that, but for the grant of the interlocutory injunction, the generic product would have been launched and listed on the PBS in the face of the significant damages risk if patent infringement was later made out.
- In overturning the judge’s conclusion that the Commonwealth’s losses were not a direct consequence of the interlocutory injunction (because it did not restrain PBS listing), the Full Court has released some pressure on the need to explicitly include such a restraint in interlocutory injunction orders.
First instance decision against the Commonwealth
The first instance decision delivered in May 2020 was the first case dealing with a Commonwealth claim for damages in these circumstances. We reported on this decision here. The Commonwealth had previously settled claims for compensation against Wyeth, relating to extended release formulations of the antidepressant venlafaxine (EFFEXOR-XR), and against AstraZeneca relating to the “super statin” rosuvastatin (CRESTOR). The judgment also followed the late 2018 Federal Court decision relating to venlafaxine, in which the generic party claims were upheld, including third party generic companies who were not party to the proceedings: Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth  FCA 1556.
At first instance, Nicholas J confirmed that in principle, a claim by the Commonwealth on an undertaking as to damages in these circumstances could be made out. However the Commonwealth failed in its case in several respects:
- The Court found that the Commonwealth’s losses were not a direct consequence of the interlocutory injunction granted. In this case the injunction prohibited commercial activities such as manufacture and sale, but did not explicitly restrain listing by Apotex of its products on the Commonwealth’s Pharmaceutical Benefits Scheme (PBS). There had been some debate at the original interlocutory injunction hearing as to whether such listing would be a patent infringing act and so whether the Court should restrain such an act by injunction. However Apotex in any event gave a separate undertaking to refrain from PBS listing its products, given that practically it would not have been able to meet the guarantee of supply requirements of such listing in the face of an injunction on supply. Crucially the Court found that Apotex’s undertaking was not supported by any undertaking as to damages from Sanofi. Accordingly, the Court found that the loss was directly caused by Apotex’s decision not to list on the PBS, not by the interlocutory injunction itself;
- Despite Apotex’s Australian Managing Director giving evidence that Apotex would “almost certainly” have launched “at risk”, Nicholas J was not satisfied that Apotex’s CEO and ultimate decision-maker, who did not give evidence, would have authorised a launch if no interlocutory injunction had been granted;
- The Court found that it was more likely than not that the Commonwealth would have been prepared to reverse statutory reductions in the reimbursed price for Sanofi’s products triggered by the generic listing on the PBS, if sale of the generic product was subsequently restrained by a permanent injunction.
Full Court upholds decision against Commonwealth
On appeal, the Full Court focussed on two key issues: whether the trial judge erred in finding that:
(a) Apotex would not have sought to PBS list its clopidogrel products even if it had not been restrained by the interlocutory injunction (Apotex Launch and Listing Issue); and
(b) the loss claimed by the Commonwealth did not flow directly from the interlocutory injunction (Directness Issue).
The Court noted that other issues in the appeal all related to “further hypothetical causative obstacles sequentially secreted within each other”, all within the overarching hypothetical scenario where Apotex did list and launch its products in 2008. However these issues did not arise if one of the two key issues above was decided against the Commonwealth. That proved to be the case.
On the Apotex Launch and Listing Issue, the Court reviewed a significant body of both documentary and testimonial evidence relied upon at trial, including a substantial number of emails. Amongst other asserted errors, the Commonwealth argued that the trial judge had failed to have regard to various parts of this material and submissions made at trial, and that he had erred in drawing a ‘Jones v Dunkel’ inference against the Commonwealth for failing to call Dr Sherman (the ultimate Apotex decision maker), that is, an inference that evidence from Dr Sherman would not have assisted the Commonwealth. Notably, the Commonwealth also claimed that by reason of his delay in giving judgment (31 months from hearing), the trial judge had lost the advantage usually afforded to a trial judge with regard to the assessment of credit of witnesses.
The Full Court rejected all of these arguments, affirming the trial judge’s approach to the evidence. On the question of delay it found that the trial judge had clearly set out his reasons, showing that he was very much alive to the detail of the evidence and its significance. The judge’s reasons were described as “a most thorough and searching excavation of the very complicated factual questions which the case generated”.
The Commonwealth therefore failed in showing that had the injunction not been granted, Apotex would have launched its products. Its failure in this crucial respect was determinative of the case.
However the Court also considered the Directness Issue, on which it found that the trial judge had erred in applying such a strict causative test. Notwithstanding an intermediate causative step (Apotex’s undertaking not to PBS list) between the grant of the interlocutory injunction and the loss suffered by the Commonwealth, such loss did flow directly from the injunction.
It now remains to be seen whether Commonwealth will seek special leave to appeal to the High Court, an appeal which might be considered ambitious, in light of the Full Court’s strong endorsement of the trial judge’s approach to the evidence in the case.
However regardless, it is likely that the implications of this case will be felt not only in future damages cases, but also at the interlocutory injunction stage.
A further Commonwealth claim for damages pursuant to undertakings given by Otsuka and BMS in relation to the antipsychotic aripiprazole (ABILIFY) is also continuing, and notably was referred to a referee for an estimated 3 week hearing in May 2023.