Quite an undertaking: quantifying damages from an interlocutory injunction preventing sale of a generic pharmaceutical

In a recent decision, the Federal Court of Australia has clarified how to calculate loss resulting from an interlocutory injunction preventing sale of a generic pharmaceutical product where the Court later decides that the patent was invalid - but the outcome took a long, long time (Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2018] FCA 1556).

Six claimants sought compensation from pharmaceutical company Wyeth (now a division of Pfizer) for loss suffered because of interlocutory injunctions preventing the sale of generic equivalents of the antidepressant Effexor (the active ingredient of which is venlafaxine), pending the outcome of infringement proceedings relating to an Australian patent.

The interlocutory injunctions were granted in mid-2009, against three genetic pharmaceutical companies: Sigma, Alphapharm and Generic Health. All three were planning to seek listing on the Pharmaceutical Benefits Scheme (PBS) for generic equivalents of Effexor.

In November 2010, the Federal Court held that Wyeth's patent was valid and infringed and issued final injunctions restraining the sale of the generic products. Those injunctions would have remained in place for the remainder of the patent term. However, the generic parties appealed, and the Full Federal Court upheld the appeal, finding the patent invalid. In December 2011, the Full Court directed the trial judge to consider applications for compensation in accordance with the usual undertaking as to damages.

When an interlocutory injunction is granted to restrain infringement of a patent, the patentee is required to give the "undertaking as to damages". The patentee undertakes that if the Court ultimately decides that the interlocutory injunction was improperly granted, the patentee will submit to any order the Court considers just, to compensate any person adversely affected by the injunction. The undertaking is not given only to the opposing parties to the proceedings, but is "at large". In addition to the three generic pharmaceutical companies, two supplier companies, Pharmathen and Alembic, also claimed damages against Wyeth. Notably, so too did the Commonwealth of Australia.

The Commonwealth of Australia has a potential claim under the undertaking as to damages because, upon listing of a generic equivalent of a pharmaceutical product on the PBS, there is a mandated reduction of the PBS list price - and thus of the cost to the government of supplying the PBS listed product to the public. If interlocutory injunctions prevent this process from occurring, the Commonwealth must continue to contribute to the cost of supply of the product at the higher price. In this case, the Commonwealth presented its arguments at the hearing but reached a settlement with Wyeth before judgment was delivered. As a result, the Court's judgment provides a determination only on the claims by the three generic companies and two suppliers, although the reasoning the Commonwealth presented in argument is necessarily taken into account in the decision.

How to assess the claimants' lost opportunities to sell their generic pharmaceutical products

The Court's judgment sets out detailed parameters for the assessment of the appropriate damages for the claimants' lost opportunities to sell during the injunction period. These are assessed based on the likelihood of the claimants having been able to obtain PBS listing, and, consequently, sales of the product during that period.

Importantly, the Court held that no compensable loss occurred in the period following the final injunction being granted, and before the appeal was determined. This was because the term of the interlocutory injunction - to which the undertaking as to damages applies - ended when the final injunction was granted. No compensable loss resulted from the fact that the final injunctions had not been stayed pending the appeal. Nor could compensation be sought for any losses alleged to have been sustained as a result of the fear of being faced by an interlocutory injunction application (as those losses cannot be said to flow from the interlocutory injunction). In other words, if you decide to delay your launch plans because you expect that the patentee will seek an interlocutory injunction, you cannot recover the losses stemming from that decision - because that decision was made, and the losses incurred, before the interlocutory injunction was granted.

Lessons for the pharmaceutical sector from the Sigma v Wyeth decision

The decision confirms that claimants seeking to rely on the undertakings as to damages in patent cases of this kind must be in a position to prove, on the balance of probabilities, that they would have supplied to the Australian market if not for the injunction. A court's approach is to attempt to assess the position the claimants would have been in, if the interlocutory injunctions had never been granted. This is a complex exercise involving expert evidence as to policy, management and economic analysis. The compensable losses include the profits that would have been made, and the costs of destroying ingredients and finished products which passed their expiry date without being used. Despite the settlement of the Commonwealth's claim, it also appears that the Commonwealth will continue have a good basis for making such claims in respect of PBS listed pharmaceuticals in future. The methodical and reasoned judgment of the Court in this case is likely to provide a useful touchstone for future cases.

Considered from a commercial perspective, the timelines in this case present some stark issues. The interlocutory injunctions were granted in mid-2009 - more than nine years ago - and were in place for between 12 and 18 months. The final injunctions were overturned in mid-2011. The value to the claimants in the ultimate outcome must be considered in the context of the very considerable resources and time expended in the litigation process between the grant of the interlocutory injunctions and the hearing of the application for damages under the undertaking. Equally, the ultimate order to pay what will be significant compensation to the generic companies and their suppliers will continue to weigh heavily in the consideration of patentees, when deciding whether to seek interlocutory injunctions.