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Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis)  (No 5) [2020] FCA 543

Background: Damages cross undertakings as the "price" for preliminary injunctions in pharmaceutical patent cases

The Federal Court of Australia has rejected the Australian Government's claim for $325 million in damages from Sanofi. The claim was made under a cross-undertaking as to damages given by Sanofi to secure an interlocutory injunction (referred to as a Preliminary Injunction (PI) in this article) preventing Apotex from supplying generic clopidogrel products (Gx products) in Australia pending the determination of Sanofi's patent infringement case.

The undertaking was "triggered" when Apotex successfully invalidated Sanofi's Plavix patent and accordingly demonstrated that the PI had been wrongly granted.

The Australian Government argued that the PI prevented Apotex from listing its Gx products on the Pharmaceutical Benefits Scheme (PBS) in 2008, which, in turn, would have reduced the amount of the subsidy the Government would have paid for Plavix (and the Apotex Gx) under that scheme from April 2008 and when a generic clopidogrel product was ultimately PBS listed in April 2010.

The decision confirms that the Australian Government is eligible to make a claim under the usual undertaking as to damages given by patentees in exchange for an order preventing the launch of a Gx pending the outcome of a patent infringement trial.

However, proving such a claim requires cogent evidence demonstrating on the balance of probabilities that the Gx would have entered the market in the face of ongoing patent litigation if a PI had not been sought.

Relevant to broader issues commonly arising in pharmaceutical patent litigation, the judgment also:

Clopidogrel, in the form of hydrogen sulfate, had been supplied in Australia prior to the institution of these proceedings in August 2007, in tablet form by Sanofi under the brand name "Plavix" and also by Bristol-Myers Squibb Australia Pty Ltd (BMS) under the brand name "Iscover". Both products were registered on the Australian Register of Therapeutic Goods (ARTG) on 2 December 1998 and listed on the Pharmaceutical Benefits Scheme (PBS) on 1 November 1999.

Clopidogrel products sponsored by Apotex were registered on the ARTG on 21 August 2007. In early September 2007, Apotex first applied for PBS listing of its Gx products from 1 December 2007. However, this application was soon withdrawn after Apotex learned that the application was filed too late to achieve a December 2007 PBS listing. The next available listing date was 1 April 2008. To have its Gx products listed by this date, Apotex had to submit another application by 1 December 2007.

On 16 August 2007, Apotex commenced a proceeding in the Federal Court of Australia against Sanofi (Patent Proceeding) in which it sought revocation of Sanofi's Australian Patent No 597784 covering clopidogrel (Patent). On 17 September 2017, Sanofi filed a cross-claim against Apotex in the Patent Proceeding seeking injunctive and other relief for threatened infringement of the Patent.

On 25 September 2007, Sanofi obtained a PI against Apotex restraining it from importing or selling its Gx products in Australia.

The PI was expressed to operate until the determination of the Patent Proceeding or further order.

As the "price" for the PI, Sanofi gave the Court the "usual undertaking as to damages", namely, to compensate any person adversely affected by the grant of the PI, if following the main liability trial it turned out that the Patent was invalid or not infringed.

On 25 September 2007, Apotex also gave an undertaking to the Court (First Apotex Undertaking) that it would not apply to list its Gx products on the PBS until the determination of the proceeding or further order.

Sanofi did not give any undertaking as to damages in return for the First Apotex Undertaking.

The trial of the Patent Proceeding commenced in April 2008. In August 2008, the Court found that the Patent was valid and granted Sanofi a final injunction (Final Injunction) restraining Apotex from infringing the Patent. Apotex appealed the decision.

In September 2008, various interlocutory undertakings were given by each of the parties to the Court to operate until further order or the determination of the appeal.

The appeal was heard by the Full Court of the Federal Court in February 2009. In September 2009, Apotex's appeal was allowed. As a result, the Patent was revoked and the final injunction set aside.

Further undertakings were provided to the Full Court by Sanofi, BMS and Apotex pending the determination of an application made by Sanofi for special leave to appeal against the appeal decision to the High Court of Australia. The High Court application was heard and refused in March 2010.

The first generic Plavix product was listed on the PBS by Sandoz on 1 April 2010. Apotex's Gx products were not listed on the PBS until 1 May 2010.

On 4 May 2010, Apotex filed an application seeking damages against Sanofi and BMS pursuant to the various undertakings given to the Court in support of the PI and other undertakings that Sanofi subsequently gave to the Court. Apotex and Sanofi later settled this claim in November 2014 on confidential terms.

In the decision the subject of this article, the Australian Government sought orders requiring Sanofi and BMS to pay to it compensation for the loss it asserted it suffered as a result of Apotex having been prevented from supplying its Gx products in Australia and obtaining a PBS listing of such products on 1 April 2008.

The Court held that, in addressing the Government's claim, the following questions must be answered:

The Court identified the following key issues for consideration in answering the above questions:

(1) Whether Apotex's Gx products would have been listed on the PBS on 1 April 2008 but for the grant of the PI.

Question 1, in turn, required consideration of:

The Court explained that if either of these questions were to be answered in the negative, the Government's application would fail.

Other issues noted, and considered, by the Court included:

(2) Did the Government's loss flow directly from the grant of the PI?

(3) Could loss of the kind sustained by the Government have been foreseen at the time the PI was granted?

(4) Whether the Government was a person "adversely affected" by the operation of the PI, and whether the Government, as a body politic, had suffered any compensable loss or damage.

Finally, the Court also briefly considered the following secondary issues:

(5) Whether the Government's application for compensation should be refused, if not in whole, at least in substantial part, on discretionary grounds.

(6) Various issues relating to the quantum of the Government's alleged loss.

(7) The various counterfactual scenarios in which there was (for example) no PI granted, the First Apotex Undertaking was never given, and the Australian Health Department had received and approved an application made by Apotex for PBS listing of its Gx products with effect from 1 April 2008.

On this question, the Court considered an extensive body of evidence, including detailed records of internal Apotex communications and strategy discussions, with a particular focus on evidence from Roger Millichamp, Apotex's Managing Director at the time. The Court did not find Mr Millichamp's evidence to be persuasive, and in particular, concluded that there were a number of potential scenarios at play, including Apotex (a) attempting to launch at risk; or (b) placing itself in a position to obtain the benefits of Sanofi's "usual undertaking" without exposing itself to the risks of launching its Gx products in the face of ongoing patent litigation.

The evidence pointed to Dr Bernard Barry Sherman, co-founder of Apotex Canada, and ultimate controller of the Apotex group, having deferred any final discussion as to whether to launch Apotex's Gx products until after the outcome of the PI was known. Relevantly, the Government did not call Dr Sherman as a witness, which the Court inferred meant that this evidence would not have assisted the Government's case.

The evidence also indicated that:

In view of the above, the Court was not persuaded, on the balance of probabilities that Apotex would have sought and obtained a PBS listing of its Gx products from 1 April 2008 at very substantial risk, even if the PI had not been granted.

As such, on the facts of the case, the Government's claim failed at the first hurdle.

Given this conclusion, the Court noted that it was unnecessary to proceed any further. However, given the extent of the evidence and submissions, and the likelihood of an appeal, the Court proceeded to make further findings in relation to the other key issues.

The Court formed the view that it was unlikely that the Department of Health would have refused Apotex's application on the basis of the ongoing Patent Proceeding, or any anticipated judgment in that proceeding (which was expected between May 2008 and August 2008).

The Court was of the view that the Health Department was most likely to have been influenced by two matters:

The Court held that any PBS application made by Apotex in the face of ongoing litigation would most likely have been approved by the Department of Health.

The Court accepted that if the PI had not been granted then the First Apotex Undertaking would also not have been provided. However, this did not mean that the Government's loss was a direct consequence of the PI.

Notably, in considering the question of direct connection, the Court found that the PI did not actually prevent the Government from receiving and accepting an application for PBS listing by Apotex of its Gx products. Doing so would not have involved a breach of the terms of the PI.

Rather, the Government's loss was a natural and direct consequence of Apotex not being able to apply to list its Gx products on the PBS with effect from 1 April 2008, which was the precise conduct to which the First Apotex Undertaking was directed, but not something the PI expressly or implicitly prohibited.

The First Apotex Undertaking, as explained above, was not supported by any cross-undertaking as to damages.

On this point, the Court noted that there was no evidence to explain why no undertaking as to damages was given in relation to the First Apotex Undertaking, and further, that there was no evidence to suggest that this departure from the usual practice was anything other than a matter to which the parties to the Patent Proceeding knowingly and willingly agreed.

Therefore, based on this evidence, the Court concluded that the Government's loss was not pursuant to the undertaking as to damages given in support of the PI but rather, directly flowed from the First Apotex Undertaking that was not secured by a cross-undertaking as to damages.

The Court concluded that the fact the PI did not itself prevent Apotex from taking steps to list its Gx products on the PBS did not mean that the loss was not reasonably foreseeable:

It was reasonably foreseeable at the time Sanofi applied for the interlocutory injunction that, if Apotex  Australia was prevented from supplying its  clopidogrel  products, then it would not make any application to list those products on the PBS for so long as the  interlocutory injunction  remained in force. Although I found that this was an indirect consequence of the grant of the  interlocutory injunction, it was nevertheless a consequence that was reasonably foreseeable at the time the  interlocutory injunction  was granted.

The Court confirmed that the Government was eligible to make a claim under the usual undertaking as to damages.

The Court described the Government's circumstances as similar to those of a "natural person", who has suffered loss as a result of an asserted legal wrong and is required to spend more than he or she otherwise would, to make good the loss.

Sanofi and BMS contended that the Government's application for compensation should be refused, if not in whole, at least in substantial part, on discretionary grounds having regard to the following matters:

The Court was not persuaded by these contentions, and concluded that none of the above discretionary factors would have justified refusal, in whole or in part, of the relief sought by the Commonwealth.

The Court has given the parties until 18 May 2020 to exchange written submissions on the issue of the very substantial legal costs of the Government's claim. Particularly given the size of the claim at stake and the novelty of the legal issues considered by the Court, an appeal to the Full Federal Court is likely.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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