In the first decision of its kind, in Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth the Australian Federal Court has decided that Wyeth must pay compensation to three generic companies and associated manufacturers/suppliers for lost opportunities suffered as a result of interlocutory injunctions that were subsequently found to have been wrongly granted.

The compensation is payable as a result of the "usual undertaking as to damages" given by Wyeth upon the grant of interlocutory injunctions for patent infringement.

Background

In Australia, an applicant for an urgent interlocutory injunction to prevent allegedly infringing conduct must provide an undertaking as to damages to the Court. The "usual undertaking as to damages" given by an applicant for an interlocutory injunction in the Federal Court of Australia is in the following terms:

"to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court, or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; …"

In essence, the undertaking is intended to protect a respondent in circumstances where an interlocutory injunction is granted but an applicant is not successful in obtaining a permanent injunction to prevent allegedly infringing conduct. The undertaking to pay damages, and associated risk, is the "price" for the grant of an interim injunction.

In 2009, Wyeth (subsequently acquired by Pfizer) obtained interlocutory injunctions restraining Sigma, Alphapharm and Generic Health from infringing Wyeth's patent for an extended release formulation of venlafaxine, including by supplying generic versions of the drug in Australia. At that time, the generic parties had not yet commenced selling the generic products in Australia but had obtained registrations for them on the Australian Register of Therapeutic Goods (ARTG).

Wyeth provided the usual undertaking as to damages in the terms set out above.

On 8 November 2010, the Court discharged the interlocutory injunctions and released Wyeth from the undertakings as to damages. Final injunctive orders were made restraining each of the generic parties from infringing Wyeth's patent. However, on appeal, the final injunctive orders were overturned, and the Full Court determined that Wyeth's patent was invalid.

The generic parties sought compensation pursuant to the undertaking as to damages. In addition, although they were not parties to the original litigation, two associated suppliers/manufacturers of the generic parties, Alembic Pharmaceuticals and Pharmathen, also claimed losses on the basis that they were "adversely affected" by the operation of the interlocutory injunctions.

In addition to these claims, the Australian Federal Government sought compensation pursuant to Wyeth's undertaking as to damages, asserting that there had been a delay in reduction of the reimbursed price for the drug paid by the Government under the Pharmaceutical Benefits Scheme (PBS) as a result of the interim injunctions which delayed entry of generic products on the market. The Government's claim was settled after the hearing.

Basis for compensation awarded under an undertaking as to damages

The award of compensation pursuant to an undertaking as to damages is an equitable remedy available at the discretion of the Court and is assessed according to what is "just and equitable" or "fair and reasonable" in all the circumstances of the case. In this case, the Court considered whether the following elements had been demonstrated by each of the claimants so as to entitle them to compensation:

    a. that the claimant had suffered loss, which may include a lost opportunity;
    b. that the loss was due to the "adverse effect" of the operation of the interlocutory injunctions alone (rather than any potentially adverse effects of the litigation); and
    c. that the loss was reasonably foreseeable at the time the interlocutory orders were made.

The Court's findings in relation to the availability of compensation

The Court found that the generic parties had each proved on the balance of probabilities that they suffered the loss of an opportunity because the interlocutory injunction prevented them from exercising the rights associated with approval and ARTG registration of their products, including the lost opportunity to supply their products to pharmacists. Justice Jagot held that these losses were reasonably foreseeable at the time the interlocutory injunctions were granted.

Alphapharm was also awarded compensation for 90% of the value of products that it had ordered before the imposition of the interlocutory injunction but which could not be delivered until the discharge of the injunction, following which Alphapharm was required to destroy the products as they were too close to their expiry dates to sell.

In relation to the suppliers/manufacturers, the Court held that although they had not been parties to the interlocutory injunctions they were nevertheless persons “adversely affected” by the injunctions. The Court concluded that, if not for the interlocutory injunctions, the generics would have placed orders with these suppliers, and the suppliers would have supplied products to the generic companies in fulfilment of those orders. The Court found that the suppliers/manufacturers were entitled to compensation for that lost opportunity.

Justice Jagot concluded that the losses claimed by the suppliers/manufacturers were reasonably foreseeable and were the "direct and natural consequence" of the interlocutory orders which prevented supply. Her Honour noted that it was inevitable that the generic parties would not place orders with suppliers if restrained by interlocutory injunctions.

The Court rejected an argument by Generic Health that it should be compensated for its lost opportunity to supply generic products to third party generic companies pursuant to potential contracts which did not exist at the time the interlocutory injunctions were granted. Generic Health's opportunity to supply other generics depended on the future decision of those generics to enter into supply agreements with Generic Health. The Court held that this loss was not reasonably foreseeable and was too remote to be recoverable.

Assessment of quantum

In relation to the assessment of quantum, Justice Jagot held as follows:

  • The relevant period of assessment of compensation was the period of each interlocutory injunction, from its commencement until its discharge upon the making of final orders on 8 November 2010. The contention of the generic parties that compensation should extend beyond that date was rejected.
  • The approach to the assessment of compensation should be “liberal”. Given Wyeth had the benefit of the wrongly granted interlocutory injunctions, where doubt exists across a reasonable spectrum the doubt should be resolved in the claimants’ favour.
  • Compensation should be assessed on the basis of sales volumes and sales prices predicted by an econometric expert, and the calculations of an accounting expert. This should involve a calculation based on the probabilities and possibilities of the supply of the generic products in the private market, and the listing and supply of the products on the PBS. Before any final orders are made, the parties have been given an opportunity to be heard further in respect of the method of calculation proposed by Justice Jagot.

Conclusion

This decision represents the first Australian judicial guidance as to the approach the Federal Court is likely to take in relation to claims for compensation pursuant to an undertaking as to damages in pharmaceutical patent cases where an interlocutory injunction is granted. It demonstrates the Court's willingness to order compensation to parties who were not the subject of an interlocutory injunction on the basis that those parties may demonstrate that they were "adversely affected" by the injunction and their loss was reasonably foreseeable at the time the injunction was granted.

The decision is the first of two much-anticipated judgments in proceedings involving claims which arise from an undertaking as to damages, given by patentees of pharmaceutical products or processes. This judgment provides some useful guidance to patentees of pharmaceutical products who are acutely aware of the inherent risks in seeking interlocutory orders restraining the supply of pharmaceutical products and the listing of generic products on the PBS.

Whether any of the parties intends to appeal the decision will not be known until after Justice Jagot makes final orders regarding the payment of compensation.

With thanks to Chantal Savage and Anna Harley for their assistance in preparing this article.
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