Introduction
In Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) [2023] FCAFC 97, the Full Federal Court of Australia has rejected the Commonwealth's appeal and upheld the dismissal of the Commonwealth's $325 million damages claim against Sanofi arising from historical clopidogrel patent litigation. However, in doing so, it has confirmed that future claims may be possible depending on the facts.
The Commonwealth’s claim was for allegedly lost cost-savings under the Australian government’s Pharmaceutical Benefits Scheme (PBS). The Commonwealth had argued it could have achieved those savings if a preliminary injunction obtained by Sanofi had not prevented generic pharmaceutical company Apotex from listing its generic clopidogrel products on the PBS.
This is a further development highlighting the complexity of claims made under the “usual undertaking” given by a party to support the grant of an injunction to restrain allegedly infringing conduct.
Background & Context
The "usual undertaking as to damages" is a standard requirement or promise that a party must provide to the Court make when seeking certain types of court orders, particularly interim or interlocutory injunctions.
“…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”
- Usual Undertaking as to Damages Practice Note (GPN-UNDR), Federal Court of Australia]
The usual undertaking as to damages is intended to provide some level of protection for those who may suffer loss as a result of an order that is later deemed inappropriate or unjustified (eg where a patent is ultimately held invalid and a party has been incorrectly held out of the market).
As discussed in our Insight alert covering the initial dismissal, at trial, the Commonwealth had sought to claim, as a third party, against the usual undertaking provided by Sanofi. A Full Court had determined that Sanofi's patent was invalid — and, therefore the relevant interlocutory injunction restraining Apotex from launching its clopidogrel products was wrongly granted.
Sanofi’s products, Plavix and Iscover, have been listed on the PBS since 1999. When a drug is listed on the PBS, pharmacists who sell the medicine receive a significant subsidy from the Commonwealth. However, when a generic version of a drug is listed on the PBS, reductions in the subsidy occur — in this case, an initial automatic statutory 12.5% reduction occurred in the drug's listed price.
The Commonwealth, unsuccessfully, had sought to recover the amount it spent on these PBS products due to the absence of price reductions for clopidogrel products. The Commonwealth’s claim was significant: the total exceeded $325 million together with interest.[1]
The Commonwealth's claim failed at trial because it did not establish:
- That Apotex would have listed on the PBS - the trial judge found Apotex would not have sought to list its generic clopidogrel products on the PBS on 1 April 2008 even if it had not been restrained by the interlocutory injunction. (Launch & Listing)
- That the loss did not flow directly from the injunction - the trial judge concluded that even if he had found that Apotex would have successfully listed on the PBS on 1 April 2008, the loss claimed by the Commonwealth did not flow directly from the interlocutory injunction and therefore did not satisfy the requirements for a claim on the undertaking.[2] (Directness)
In accordance with Federal Court practice, Sanofi’s undertaking as to damages was expressed to extend to persons adversely affected by the injunction whether they were parties to the litigation or not and the Commonwealth claimed compensation as a third party affected by the injunction (Sanofi Undertaking). However, the Court’s orders in the proceedings included a separate and further undertaking by Apotex not to seek PBS listing of its products (Apotex Undertaking).
While the injunction restraining Apotex from distributing its clopidogrel products was supported by Sanofi’s undertaking as to damages, the Apotex Undertaking was not supported by that undertaking.[3]
The Full Court Appeal
Although the Full Court upheld the Commonwealth’s appeal on directness (ie its loss did flow directly from the interlocutory injunction) the Commonwealth’s appeal ultimately failed because the Full court agreed with the trial judge that Apotex would not have sought to list its generic even if the interlocutory injunction had not been granted.
Full Court, at [9]: “Clopidogrel was, for the financial year ending 30 June 2008, the third most heavily subsidised prescribed drug in Australia and the cost involved to the Commonwealth for that year alone was approximately $170 million. The Commonwealth submits that the mandatory 12.5% price reduction triggered by the launch of a PBS-listed generic clopidogrel product would have reduced the price per packet of Plavix from $64.94 to $56.82 from 1 April 2008 and there would have been a further price reduction of 2% on 1 August 2009. These would have saved it $50,718,312. It says a different system of price reductions known as ‘price disclosure reductions’ would have saved it a further $215,922,465 from 1 April 2010. In addition, it claims $58,307,301 for payments made by it in relation to certain combination products containing both clopidogrel and aspirin. The total sought by the Commonwealth exceeds $325 million together with interest.”
As held in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 (Air Express) and European Bank Ltd v Evans 240 CLR 432 (European Bank).
Full Court, at [7]-[8].
… damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases …
- Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 at 266-267]
|
TRIAL JUDGE
|
FULL COURT
|
Example
uses 2
|
|
|
Launch and Listing
|
At trial, the trial judge:
Full Court, at [84]. Full Court, at [77]. |
The Commonwealth was not successful on this issue. The Full Court, with a fulsome and complex analysis of the evidence, submissions, and the trial judge’s reasoning:
Full Court, at [84]. Full Court, at [77]. |
Full Court, at [84]. Full Court, at [77]. |
|
Directness
|
At trial, the trial judge found:
Full Court, at [84]. Full Court, at [77]. |
The Commonwealth was successful on this issue. The Full Court found the trial judge erred in assessing whether the Commonwealth’s loss flowed directly from the interlocutory injunction — and ought to have found that the Commonwealth’s loss did flow directly from the terms of the interlocutory injunction The Full Court’s findings included:
However, in light of the finding on the Apotex Launch and Listing Issue, the Directness Issue did not alter the outcome. Full Court, at [84]. Full Court, at [77]. |
Full Court, at [84]. Full Court, at [77]. |
Considerations for litigants in the future
Claims for loss arising from injunctions are complex. The legal analysis relevant before the trial judge and again in this appeal highlights the difficulty in claiming on the usual undertaking where interlocutory injunctions are ordered and later found to have been wrongly granted — a challenge increased by the intricate counterfactuals involved in reconstructing the Australian pharmaceutical market.
It remains an expensive and protracted exercise to compile the evidence necessary to establish a claim. Indeed, in this appeal, Apotex’s relevant PBS listing would have occurred over 15 years earlier on 1 April 2008, and a failed ancillary ground of appeal related to the period of 31 months it took for the trial judge to issue judgment.[7]
Third party claimants, like the Commonwealth, will be relieved to consider the Full Court’s equity-centred analysis of how “flows directly” is to be construed in claims on undertakings. However, it does remain to be seen what events might constitute an “interposed causal step” that would undermine a claim that damages had “flowed directly” from the grant of an injunction. This complexity is likely to become increasingly relevant in decisions to grant interlocutory injunctions or case management interventions — and our teams at KWM have already observed an increase in matters proceeding to urgent final hearing rather than patent owners relying on an extended period of interim relief.
Interested parties should also pay close attention to any proposed reforms to the PBS that could affect similar claims in future.
The Full Court’s dismissal of the Commonwealth’s appeal is subject to any application by the Commonwealth for special leave to appeal to the High Court of Australia.
The Commonwealth unsuccessfully agreed that “[t]he extreme delay by the primary judge in delivering judgment allows an appellate court more readily to conclude that arguments and evidence not addressed were overlooked, that the advantages otherwise usually held by a trial judge were lost, and that the above errors can be more readily established.”
