Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd [2017] FCA 250

File number(s): NSD 236 of 2012
Judge(s): JAGOT J
Date of judgment: 16 March 2017
Catchwords: DAMAGES – patent infringement – pharmaceutical product – whether specification framed in good faith and with reasonable skill and knowledge – whether other contraceptives substitutable – use of internal costs – fixed and variable costs 
Legislation:

Evidence Act 1995 (Cth) s 140

Federal Court of Australia Act 1976 (Cth) s 51A

Patents Act 1990 (Cth) ss 115; 122

Patents Act 1977 (UK) s 63  

Cases cited:

Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd [2001] FCA1098; (2001) 52 IPR 305

Apotex Pty Ltd v Warner-Lambert Company LLC (No 2) [2016] FCA 1238

Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) [2007] FCAFC 40; (2007) 157 FCR 564

Asahi Kasei Kogyo Kabushiki Kaisha v W R Grace & Co (1991) 22 IPR 491

Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 7) [2016] FCA 991

Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345

Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd (2012) [2012] FCA 1510; 99 IPR 59

Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd (No 2) [2013] FCA 279; (2013) 100 IPR 414

Blair v Curran (1939) 62 CLR 464

British Motor Syndicate Ltd v Taylor & Sons Ltd (1900) 17 RPC 189

British United Show Machinery Co Ltd v Gimson Shoe Machinery (No 2) (1929) 46 RPC 137

Comcare v Martin [2016] HCA 43; (2016) 339 ALR 1

Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

EI Du Pont de Nemours & Co v Imperial Chemical Industries PLC [2007] FCAFC 163; (2007) 163 FCR 381

Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633; (2009) 81 IPR 378

Fabio Perini SpA v LPC Group plc [2012] RPC 30

General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] RPC 203

General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd (1976) 93 RPC 197

Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft [2014] FCAFC 73; (2014) 222 FCR 336

Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft [2014] HCATrans 261

Gerber Garment Technology Inc v Lectra Systems Ltd (1995) 112 RPC 383

Gilead Sciences Pty Ltd v Idenix Pharmaceuticals Ltd [2016] FCA 169; (2016) 117 IPR 252

Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125

Jones v Dunkel (1959) 101 CLR 298

Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361

Les Laboratoires Servier v Apotex Pty Ltd (2016) 117 IPR 415

Meters Ltd v Metropolitan Gas Meters Ltd (1911) 28 RPC 157

Molins and Molins Machine Co Ltd v Industrial Machinery Co Ltd (1938) RPC 3

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992]…

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Details
Case
[2017] FCA 250
Decision Date

CaseChat Overview and Summary

Bayer Pharma Aktiengesellschaft initiated proceedings against Generic Health Pty Ltd concerning a dispute over patent infringement involving a pharmaceutical product. Bayer, the patent holder, alleged that Generic Health had infringed its patent related to a pharmaceutical combination of ethinylestradiol (EE) and drospirenone (DRSP) for use as a contraceptive. The court had to determine several key legal issues, including whether Bayer’s original patent specification was framed in good faith and with reasonable skill and knowledge, whether the sales of the infringing product were substitutable for sales of Bayer's product, and the appropriate method for calculating Bayer’s lost profits. The court also had to consider whether Bayer’s standard costings, including fixed and variable costs, should be adjusted for risk before calculating damages.

In its judgment, the court found that Bayer had sufficiently demonstrated that its original patent specification met the statutory requirements of good faith and reasonable skill and knowledge. The court also held that each sale of Generic Health’s product was a lost sale of Bayer’s product, justifying the calculation of damages based on this premise. Furthermore, the court rejected Generic Health’s argument that Bayer’s standard costings should be discounted for risk, affirming that Bayer’s approach to calculating lost profits was appropriate. The court concluded that Bayer was entitled to damages of $25,751,336 plus interest, as calculated by Bayer.

In light of the findings, the court ordered the parties to confer and submit agreed short minutes of order within 14 days, including any directions for the issue of costs.

Orders

Orders of the court

1. The parties confer and submit agreed short minutes of order reflecting these reasons for judgment within 14 days, including directions if the issue of costs is not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The next issue is the documents which are in evidence.Documentary evidence As explained below there is force in Bayer’s submission that Generic Health’s case “is based on the flawed premise that the universe of information available to those involved in the process of drafting the Patent priority documents is solely that contained in the summary reports summarised in” a table which was prepared within Bayer immediately before instructions were given to obtain patent protection for the Yasmin formulation. As Bayer also said:Such an approach is artificial and ignores the reality of the drug development process at a pharmaceutical company. It overlooks the background research work against which the invention was made and the accumulated knowledge of the properties and characteristics of DRSP known to the drug discovery team members resulting from an ongoing 10 year research and development project investigating potential uses of DRSP including as an OC or in Hormone Replacement Therapy (HRT). The documents fall into three categories, the documents relating to the preparation of the PCT application (and related priority documents), other documents created within Bayer which pre-date the PCT application, and the PCT application itself (including documents referred to in the PCT application). Documents relating to the preparation of the PCT application: Dr Broesamle explained that in late 1998 the then Head of Patents at Schering AG directed him and Dr Ulrich to engage P&V to obtain patent protection for the Yasmin formulation of DRSP and EE. Dr Broesamle believed that P&V had particular expertise in the preparation of pharmaceutical formulation patents and he had confidence in the quality and soundness of P&V’s work, his experience always having been that P&V complete their work with a high level of skill and care and in accordance with his instructions. The PCT application (on which the Australian patent was based) was based on two priority documents, being US and European patent applications which were filed on 31 August 1999. To prepare those priority documents, Dr Broesamle instructed P&V, but others from Schering AG were also involved in the process including Dr Ulrich and three of the named inventors, Mr Hilmann, Dr Heil, and Dr Lipp. The PCT application based on the priority documents was filed on 31 August 2000. In accordance with its instructions P&V then instructed Australian patent attorneys (FB Rice & Co initially and then Davies Collison Cave) to obtain patent protection in Australia. The Australian application was filed on 14 March 2002 and granted on 30 June 2005 and was based on the PCT application, subject to an amendment made in 2004, before the grant of the patent, to ensure consistency with the European Patent application then also being prosecuted based on the PCT application. The amendment is relevant to the dissolution test issue which is dealt with separately below. The first document which I infer is of direct relevance to the preparation of the priority documents and thus the PCT application is dated August 1998. It is a table identifying five reports in respect of different formulations of DRSP and EE including 0.5, 1, 2, and 3mg of DRSP. From the fact that the table identifies the status and availability of each report, I infer that Schering AG was collating information it considered of obvious relevance to the patents for DRSP for which it subsequently applied. I infer that Schering AG was at least aware of all of the information in these five reports when it gave instructions to P&V for the framing of the specifications for the priority documents and PCT application.

Decision

Reasons for decision

In the reasons for judgment in Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd (No 2) [2013] FCA 279; (2013) 100 IPR 414 (the principal decision) I found that Generic Health had infringed claims 3 and 11 of Australian Patent No 780330 for a pharmaceutical combination of ethinylestradiol (EE) and drospirenone (DRSP) for use as a contraceptive. Pursuant to the patent, Bayer manufactured and sold in Australia the oral contraceptive known as Yasmin. Generic Health infringed the patent by manufacturing and selling the oral contraceptive known as Isabelle. I made orders on 8 May 2013 which included the following, but which were stayed pending the outcome of a foreshadowed appeal:3.Generic Health (whether by itself, its directors, officers servants, agents or howsoever otherwise) be restrained from infringing claims 3 and 11 of the Patent by importing, selling, supplying, and offering to sell and supply the Isabelle Product (or keeping it for any such purpose) in Australia during the term of the Patent without the licence or authority of the Applicants.4.Lupin (whether by itself, its directors, officers servants, agents or howsoever otherwise) be restrained from authorising any person to exploit the invention claimed in claims 3 and 11 of the Patent by importing, selling, supplying, and offering to sell and supply the Isabelle Product (or keeping it for any such purpose) in Australia during the term of the Patent without the licence or authority of the Applicants.…7.Generic Health and Lupin pay to the Applicants damages (including additional damages pursuant to section 122 (1A) of the Patents Act 1990, if any) or, at the Applicants' option, an account of profits, to be assessed pursuant to the procedure contemplated in order 10(a) or order 10(b). A subsequent appeal was dismissed (Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft [2014] FCAFC 73; (2014) 222 FCR 336), as was an application for special leave to appeal to the High Court (Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft [2014] HCATrans 261). Bayer elected for damages rather than an account of profits. Bayer’s total claim is for damages of $25,751,336 plus interest. This claim is based on an assessment of Bayer’s lost profits in which each sale of Isabelle and of Petibelle, a generic version of Yasmin which Bayer introduced after Isabelle was removed from sale, is taken to be a lost sale of Yasmin. Bayer’s lost profits are based on its standard costings for the production and sale of Yasmin including for determining its fixed and variable costs. Generic Health contends that this amount would over-compensate Bayer on the grounds that:(1)Section 115(1)(a) of the Patents Act 1990 (Cth) (the Patents Act) precludes any award of damages to Bayer for any infringements before 14 December 2012 (the date on which the patent was amended) because Bayer has not satisfied the Court that its original specification, before amendment, was framed in good faith and with reasonable skill and knowledge as required by that provision. The parties referred to this as the good faith issue.(2)It should not be found that each sale of Isabelle and of Petibelle is a lost sale of Yasmin. At least some, and perhaps a substantial number, of sales of Isabelle were not in substitution for Yasmin. Further, the claim for damages in respect of Petibelle should be rejected based on the requirements of causation and remoteness of damage and, if maintainable at all, would relate to a relatively short period of time, measured in months not years. The parties referred to this as the one for one issue.(3)Bayer’s standard costings should not be applied without also applying a discount for the risk that Bayer’s costs in producing the additional number of Yasmin tablets for sale would have been greater than the standard costings contemplate. The parties referred to this as the costings issue.THE BASIC FACTS

Ratio Decidendi

Legal Principle Established

Documents relating to the preparation of the PCT application: Dr Broesamle explained that in late 1998 the then Head of Patents at Schering AG directed him and Dr Ulrich to engage P&V to obtain patent protection for the Yasmin formulation of DRSP and EE. Dr Broesamle believed that P&V had particular expertise in the preparation of pharmaceutical formulation patents and he had confidence in the quality and soundness of P&V’s work, his experience always having been that P&V complete their work with a high level of skill and care and in accordance with his instructions. The PCT application (on which the Australian patent was based) was based on two priority documents, being US and European patent applications which were filed on 31 August 1999. To prepare those priority documents, Dr Broesamle instructed P&V, but others from Schering AG were also involved in the process including Dr Ulrich and three of the named inventors, Mr Hilmann, Dr Heil, and Dr Lipp. The PCT application based on the priority documents was filed on 31 August 2000. In accordance with its instructions P&V then instructed Australian patent attorneys (FB Rice & Co initially and then Davies Collison Cave) to obtain patent protection in Australia. The Australian application was filed on 14 March 2002 and granted on 30 June 2005 and was based on the PCT application, subject to an amendment made in 2004, before the grant of the patent, to ensure consistency with the European Patent application then also being prosecuted based on the PCT application. The amendment is relevant to the dissolution test issue which is dealt with separately below. The first document which I infer is of direct relevance to the preparation of the priority documents and thus the PCT application is dated August 1998. It is a table identifying five reports in respect of different formulations of DRSP and EE including 0.5, 1, 2, and 3mg of DRSP. From the fact that the table identifies the status and availability of each report, I infer that Schering AG was collating information it considered of obvious relevance to the patents for DRSP for which it subsequently applied. I infer that Schering AG was at least aware of all of the information in these five reports when it gave instructions to P&V for the framing of the specifications for the priority documents and PCT application. Another document headed “Open questions for patent application regarding DRSP” contains the following:1)DRSP: EE (ratio) contraceptive[Dr Hethecker]DRSP: EE (ratio) hormonal disorders[Dr Schurmann]- therapeutic effect (optimal)- side effects (minimal) From this I infer that Schering AG was considering the ratio of, relevantly, DRSP to EE to achieve the optimal therapeutic effect and minimal side effects for contraceptive purposes (and separately for hormonal disorders). I infer that they were doing so for the purposes of seeking patent protection for the Yasmin formulation given the timing and the content of the document. There is a typed document dated 13 November 1998 which appears to have been prepared by Mr Hilmann and Dr Heil, two of the three named inventors. It refers to an active ingredient of drospirenone in the range of 0.5 to 7.0mg, with a handwritten note beside this stating “lower limit 2mg for ovulation inh” which must mean 2mg as the lower limit for ovulation inhibition (a figure to be expected once the reports, discussed below, are considered). I infer from this that Schering AG was considering the dosage range and held the view that 2mg was the lower limit for ovulation inhibition.