Commonwealth claims on undertakings continue to be a risk for pharmaceutical patent owners

Owners of pharmaceutical patents continue to face exposure to a claim by the Commonwealth for compensation under the "usual undertaking as to damages" given by a patentee as a price for securing preliminary injunctions in infringement actions relating to generic pharmaceutical products.

The Federal Government's Mid-Year Economic and Fiscal Outlook, released 17 December 2018, indicates that the Commonwealth of Australia will continue to forge ahead with its claims for compensation from patentees who obtain preliminary injunctions against generic suppliers, in circumstances where the patent or patents are ultimately held to be invalid, issuing the following statement:

"The Government will continue to litigate to seek compensation for losses incurred by the Government as a result of pharmaceutical companies taking action to delay the listings of generic forms of medicines on the Pharmaceutical Benefits Scheme".

This statement implies there will be further action beyond the compensation claims already commenced by Commonwealth. This includes the Commonwealth's continuing claim for compensation against Otsuka and Bristol-Myers Squibb Company (BMS), relating to the anti-psychotic drug Abilify (aripiprazole).

Meanwhile, patentees, generic pharmaceutical companies and the Commonwealth hold their breath as they await the first instance decision of Justice Nicholas in the Federal Court concerning the Commonwealth's claim on the usual undertaking as to damages (Usual Undertaking) given for preliminary injunctions relating to a patent protecting Sanofi's Plavix product (clopidogrel) which was ultimately held to be invalid. The hearing concluded in September 2017, and judgment on whether the Commonwealth is entitled to recover compensation under the Usual Undertaking is expected imminently.

In anticipation of this decision and having regard to the Commonwealth evincing an willingness to continue these types of claims, this article summarises the four claims made by the Commonwealth on the Usual Undertaking to date, and we identify some potential considerations that may arise from Justice Nicholas' decision in the clopidogrel proceeding.

Background to the Commonwealth's claims

We've previously explored why the decision for a patentee to seek a preliminary injunction involves a consideration of the risk of potential liability under the Usual Undertaking. If the infringement action is ultimately unsuccessful, with the result that the preliminary injunction is dissolved, the patentee is likely to face a claim on the Usual Undertaking to compensate affected parties, including generic pharmaceutical companies and the Commonwealth.

The Usual Undertaking is an undertaking given to the Court (as set out in Federal Court Practice Note GPN-UNDR):

"(a) 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 that person is a party), affected by the operation of the order or undertaking or any continuation (with or without variation) of the order or undertaking; and

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

In Australia, the first generic equivalent of a pharmaceutical product listed on the Pharmaceutical Benefits Scheme (PBS) triggers an automatic reduction in the price the Commonwealth pays for that product and begins a process of further price review over time. The Commonwealth's claims on the Usual Undertaking seek to recover the loss the Commonwealth has incurred by reason of the relevant pharmaceutical products being reimbursed at a higher price than would have otherwise occurred pursuant to the pricing mechanisms under the PBS.

The Commonwealth first made a claim on the Usual Undertaking in 2009 in proceedings concerning Pfizer's Efexor (venlafaxine). Since that first claim. the Commonwealth has made further claims on the Usual Undertaking. The various claims made by the Commonwealth are summarised below.

Commonwealth claim history

The Commonwealth has claimed damages in four separate proceedings against originator pharmaceutical companies, the most recent and only active proceeding being the proceeding concerning Abilify (aripiprazole). In two of these proceedings the Commonwealth has settled its claim with the relevant patentee. Judgment is pending in the proceeding concerning clopidogrel.

What is at stake for patentees?

The Commonwealth's claims on the Usual Undertaking in the future will present an even greater risk for innovator pharmaceutical companies, as the mandatory price reduction applied by reason of generic entry was increased from 16% to 25% effective from 1 October 2018. Balanced against this is the benefit of obtaining an interlocutory injunction, and preventing this 25% price reduction.

The following observations were noted by Justice Dowsett in Sanofi, and remain relevant:

• individual judges are not generally obliged to use the standard forms adopted by their respective courts;

• nothing in the legislation suggests that the Court cannot tailor its own form of undertaking to meet the needs of the case; and

• any limitations upon the undertakings should be sought at the time at which they are given. The Court would then be required to consider whether the limited undertakings were sufficient to justify the grant of an interlocutory injunction.

We expect that a more refined undertaking will be offered in future litigation. The UK version of the Usual Undertaking is normally confined to be for the benefit of the respondent, and may form a model for future proposed undertakings. However, it remains to be seen whether a more refined undertaking will be accepted by the Federal Court.