4 January, 2016
The Commonwealth of Australia takes a step forward in its attempt to claim compensation under the usual undertaking as to damages in patent proceedings
Commonwealth of Australia v Sanofi [2015] FCAFC 172
What you need to know
- As a condition of the grant of interlocutory injunctive relief in patent infringement proceedings, the owner or exclusive licensee of a patent is normally required to give an undertaking to the Court to compensate any person adversely affected by the grant of the injunction, if the injunction is later shown to have been wrongly granted.
- The Full Court of the Federal Court of Australia held in this case that the Commonwealth of Australia is not precluded from claiming on an undertaking of that kind despite sections 26B-D of the Therapeutic Goods Act 1989 (Cth), which provide for the award of compensation to the Commonwealth for damages sustained or costs incurred as a result of the grant of an interlocutory injunction in certain circumstances.
- This case is the first decision on whether the Commonwealth has a right to make a claim under the usual undertaking as to damages and is a reminder of the potential breadth of claims made under such an undertaking.
Background
Where a competitor threatens to enter a market protected by a patent, the owner or exclusive licensee of that patent (the patentee) may seek interlocutory relief from a Court to restrain the competitor from doing so, until such time as the matter has been finally determined.
In exchange for the grant of such interlocutory relief, the Court will normally require the patentee to give the "usual undertaking as to damages". Under the normal form in which that undertaking is given, the patentee undertakes to submit to essentially any future order of the Court for the payment of compensation to any person (whether or not a party to the case) who is adversely affected by the operation of the injunction.
The Commonwealth's claims for compensation
In this case, the Full Court of the Federal Court of Australia considered whether or not sections 26B-D of the Therapeutic Goods Act 1989 (Cth) preclude the Commonwealth of Australia from claiming compensation under the undertakings as to damages that were given in two unrelated patent proceedings where the liability issues have been finally determined. The first proceeding involved Sanofi's patent covering the compound clopidogrel bisulphate and the second proceeding involved Wyeth's patent covering the compound venlafaxine hydrochloride. In both cases, interlocutory injunctions were initially granted that restrained a number of generic companies from launching competing products and in both cases, the generic companies were ultimately successful.
Following the determination of the liability issues in both proceedings, the Commonwealth claimed compensation on the undertakings. The Commonwealth's claims relate to the Commonwealth's position that it would have paid less in subsidies during the periods of restraint had the interlocutory injunctions not been wrongly granted, because the generic companies would have launched competing products had they been free to do so, which would have in turn led to automatic price reductions in the reimbursed prices that the Commonwealth was required to pay the sponsor of the relevant pharmaceutical benefits under the Pharmaceutical Benefits Scheme.
The principal issue
Under sections 26B-D of the Therapeutic Goods Act 1989 (Cth) (the TG Act):
- a generic company must give a certificate if it is required to submit evidence or information establishing the safety or efficacy of a therapeutic good which it has applied to register or list, where the generic company wishes to rely on another party's evidence or information to support its application;
- the certificate is either to the effect that the generic company believes its therapeutic good will not infringe a valid claim of a patent granted in relation to the therapeutic good (the first certificate); or that the generic product will be marketed during the term of a patent granted in relation to the therapeutic good and notice has been given to the patentee of the generic company's application (the second certificate); and
- in certain circumstances where a certificate has been given, the Commonwealth may be awarded compensation for damages sustained or costs incurred by it as a result of the grant of an interlocutory injunction.
The principal issue in this case was whether or not the Commonwealth can also claim compensation on an undertaking as to damages in light of the above provisions.
Sanofi and Wyeth relied on authorities for the proposition that where Parliament creates a right under legislation which is inconsistent with a right at common law, the right at common law is displaced (eg, Monro v Revenue and Customs Commissioners [2009] Ch 69).
Sanofi and Wyeth argued that the above provisions establish an "exhaustive code" that restrict the Commonwealth's right to recover compensation. They argued that where a person is required to give a certificate under section 26B and an interlocutory injunction has been obtained, the Commonwealth can only claim compensation under section 26C(8) (where a first certificate has been given) or section 26D(5) (where a second certificate has been given) of the TG Act.
Importantly, those provisions can only operate where a patentee has been found to have engaged in relevant misconduct (eg, by commencing a patent infringement proceeding that has no reasonable prospects of success). However, cases will arise (such as the two proceedings in issue) where interlocutory injunctive relief has been granted and the patentee is ultimately unsuccessful, but is not shown to have engaged in any such misconduct.
The Full Court disagreed with Sanofi and Wyeth's submissions and distinguished the authorities on the basis that there was no relevant inconsistency or incompatibility between the above provisions and a Court holding that the Commonwealth could also claim on an undertaking in the ordinary way. The Court considered there was no reason to suggest that the above provisions were intended to supersede or displace the rights of a person (including the Commonwealth) to claim compensation in that way.
The Court also held that the provisions did not treat the Commonwealth differently from a generic company. If the provisions were read as submitted, the generic company's rights to claim on an undertaking would be similarly restricted. The Court held Parliament had not intended the provisions, which had been enacted in response to the Free Trade Agreement with the United States, to have that effect, and that to hold otherwise would lead to inconvenient and unjust results.
Conclusion
The Court held that the chapter in which sections 26B-D of the TG Act appear do not preclude the Commonwealth from claiming compensation on the usual undertaking as to damages in the ordinary way.
For further information, please contact:
Grant Fisher, Partner, Ashurst
grant.fisher@ashurst.com
