Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) (No 5)
[2020] FCA 543
•28 April 2020
FEDERAL COURT OF AUSTRALIA
Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis)
(No 5) [2020] FCA 543
File number: NSD 1639 of 2007 Judge: NICHOLAS J Date of judgment: 28 April 2020 Catchwords: PRACTICE AND PROCEDURE – where usual undertaking as to damages given in relation to interlocutory injunction obtained by patentee restraining infringement of pharmaceutical patent – where interlocutory injunction restrained generic supplier from supplying generic medicine – where generic supplier also gave interlocutory undertaking to the Court not to take steps to cause its generic medicine to be listed under the Pharmaceutical Benefits Scheme (“PBS”) – where interlocutory undertaking was not the subject of any cross-undertaking as to damages – where final injunction subsequently granted against generic supplier by trial judge restraining it from supplying its generic medicine – where undertaking as to damages given in relation to final injunction as part of a package of undertakings to operate until determination of generic supplier’s appeal and patentee’s cross-appeal – where Full Court made orders setting aside final injunction and revoking patent – where claim for compensation under undertakings as to damages subsequently brought by generic supplier – where claim by generic supplier discontinued after it entered into settlement agreement with patentee – where Commonwealth claims against patentee for compensation under undertakings as to damages on the basis that it is a person adversely affected by interlocutory injunction and final injunction – where Commonwealth alleges loss and damage reflecting subsidies paid by it under PBS that it would not have paid had generic supplier obtained PBS listing of its generic medicine from 1 April 2008 – whether Commonwealth a person adversely affected by interlocutory injunction and final injunction – whether Commonwealth’s alleged loss and damage would have been suffered but for interlocutory injunction or final injunction – whether generic supplier would have taken steps to list its generic medicine on PBS in absence of interlocutory injunction or final injunction – significance of undertaking given by generic supplier not to take steps to obtain PBS listing of its generic medicine – whether evidence establishes that PBS listing of generic supplier’s medicine would have occurred but for the existence of the interlocutory injunction or final injunction – whether Commonwealth’s alleged loss and damage a direct and reasonably foreseeable result of interlocutory injunction or final injunction – significance of final injunction and undertaking as to damages given in relation to final injunction in relevant counterfactual analysis – whether loss claimed by Commonwealth compensable under undertaking as to damages – whether relief claimed by Commonwealth should be refused in whole or part on discretionary grounds on account of conduct that would have been engaged in under relevant counterfactual scenario involving infringement by generic supplier of patentee’s copyright in product information documents and alleged infringement of Canadian patent by generic supplier’s Canadian parent company and on public interest grounds
Held: application for compensation dismissed
Legislation: Copyright Act 1968 (Cth) s 44BA
Federal Court of Australia Act 1976 (Cth) s 51A
Federal Court Rules 1979 (Cth) O 58, r 14(1)(c)
Federal Court Rules 2011 (Cth) r 16.08(b)
National Health Act (1953) (Cth) ss 54, 84AD, 84AE, 84AF, 85, 85AB(5), 85AD, 99, 99ACB, 99ACC, 99ACH, 99ACI, 99AD, 99ADB(4)-(6), 99ADD, 99ADE, 99AEB, 99AEC, 99AED, 99AEE, 99AEF, 99AEG, 99AEH, 99AEJ, 100A, 101(3A)
National Health Amendment (Pharmaceutical Benefits Scheme) Act 2007 (Cth) s 99ACF, s 99ACIA, Sch 2
National Health (Pharmaceutical Benefits) Regulations 1960 (Cth) reg 37C, reg 37F
Therapeutics Good Act 1989 (Cth) s 26C(2)
Therapeutic Goods Legislation Amendment (Copyright) Act 2011 (Cth)
Therapeutic Goods Regulations 1990 (Cth) reg 9A(2)
Cases cited: Advanced Building Systems v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121
Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Barratt Manchester Ltd v Bolton Metropolitan Borough Council [1998] 1 All ER 1
Blatch v Archer (1774) 1 Cowp 63
Brandi v Mingot (1976) 12 ALR 551
British Westinghouse Electric and Manufacturing Company, Limited v Underground Electric Railways Company of London, Limited [1912] AC 673
C T Bowring & Co (Insurance) Ltd v Corsi Partners Ltd [1994] 2 Lloyd’s Rep 567
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) [2017] FCA 382
Commonwealth v Sanofi (2015) 237 FCR 483
Eastman v The Queen (2008) 166 FCR 579
Elsinora Global Ltd v Deputy Commissioner of Taxation (2006) 155 FCR 413
European Bank Limited v Robb Evans of Robb Evans & Associates (2010) 240 CLR 432
Faulkner v Keffalinos (1970) 45 ALJR 80
Huddart, Parker & Co Pty Ltd v Moorehead (1909) 8 CLR 330
Isaacs v Robertson [1985] 1 AC 97 (PC)
Jones v Dunkel (1959) 101 CLR 298
Love v Thwaites (No 4) [2012] VSC 521
Love v Thwaites [2014] VSCA 56
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638
Manly Council v Byrne & Anor [2004] NSWCA 123
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24
Minnesota Mining & Manufacturing Company v Johnson & Johnson Limited [1976] FSR 139
Otsuka Pharmaceutical Co Ltd v Generic Health Pty Ltd [2015] FCA 848
Payne v Parker [1976] 1 NSWLR 191
Principal Strategic Options Pty Ltd v Coshott [2003] FCA 736
Red Bull Australia Pty Ltd v Sydneywide Distributors Pty Ltd [2001] FCA 1750
Roche Therapeutics Inc v GenRx Pty Ltd (2007) 71 IPR 546
Schlesinger v Bedford (1893) 9 TLR 370
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Servier Laboratories (Australia) Pty Ltd v GenRx Pty Ltd [2006] FCA 1763
Smith v Day (1882) 21 Ch D 421
Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 3) (2012) 290 ALR 263
Thomson Publications (Australia) Pty Ltd v Trade Practices Commission (1979) 40 FLR 257
Warner-Lambert Company LLC v Apotex Pty Ltd (2017) 249 FCR 17
McGregor H, McGregor on Damages (19th ed, Sweet & Maxwell, 2014)
Date of hearing: 28-31 August, 1 September, 4-5 September, 7-8 September, 11 September, 18-20 September, 26-29 September 2017 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Category: Catchwords Number of paragraphs: 698 Counsel for the Applicant: Mr PJ Brereton SC with Dr BR Kremer and
Mr PM KnowlesSolicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondents: Mr JC Sheahan QC with Dr SM Nixon SC, Mr S Fitzpatrick and Mr JJ Hutton Solicitor for the Respondents: Jones Day Counsel for Apotex Pty Ltd, Apotex Inc and Apotex Research Private Ltd: Ms JM Beaumont (28-31 August, 1 September, 4 September, 26-29 September 2017 only) Solicitor Apotex Pty Ltd, Apotex Inc and Apotex Research Private Ltd: Ashurst Counsel for Alphapharm Pty Ltd: Ms F St John (31 August, 1 September, 4 September only)
Table of Corrections 4 May 2020 Para [523] amended to add to the end of the third sentence the following words: “to have given the Famvir and Sandostatin precedent” ORDERS
NSD 1639 of 2007 BETWEEN: COMMONWEALTH OF AUSTRALIA
Applicant
AND: SANOFI (FORMERLY SANOFI-AVENTIS)
First Respondent
SANOFI-AVENTIS US LLC
Second Respondent
BRISTOL-MYERS SQUIBB INVESTCO LLC
Third Respondent
JUDGE:
NICHOLAS J
DATE OF ORDER:
28 april 2020
THE COURT ORDERS THAT:
1.The application for compensation filed on 1 April 2013 be dismissed.
2.The applicant and the respondents exchange written submissions (limited to five pages in length) in relation to the question of costs of the application by 4.00pm, 8 May 2020.
3.The applicant and the respondents exchange written submissions in reply (limited to four pages in length) by 4.00pm, 19 May 2020.
4.The contents of the paragraphs in the Reasons for Judgment specified in the Schedule to these orders (“the specified paragraphs”) not be further published or disclosed except in accordance with inter partes arrangements previously agreed with Apotex Pty Ltd or prior orders of this Court in relation to the disclosure of any document referred to in any of the specified paragraphs.
5.Subject to any further order or direction, order 4 shall operate until 4.00pm, 12 May 2020 after which time neither order 4 nor any other non-publication or confidentiality order made in this proceeding shall prevent any person from publishing or disclosing the contents of any of the specified paragraphs.
6.For the avoidance of doubt, nothing in these orders, or any other non-publication or confidentiality order made in this proceeding, shall prevent any person from publishing or disclosing any part of the reasons for judgment not contained in the specified paragraphs.
7.Any application to vary order 4 or 5 shall be made by way of interlocutory application which (together with any affidavit upon which the party seeking such an order seeks to rely) must be filed and served by 4.00pm on 7 May 2020.
8.Any interlocutory application filed pursuant to order 7 be fixed for hearing at 9.30am on 12 May 2020 before Nicholas J.
SCHEDULE
Paragraphs [227], [234], [296], [311], [550], [551]
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
INTRODUCTION
[1]
THE PHARMACEUTICAL BENEFITS SCHEME
[36]
Listing of a medicine on the PBS
[36]
The 2007 Amendments
[45]
Combination items on the PBS
[54]
Co-marketed pharmaceutical items
[56]
Assurance of supply
[58]
Payment by the Commonwealth for listed products
[59]
Setting of the AP2P and AEMP and price reductions under the PBS
[61]
12.5% statutory price reduction on first listing of a generic
[64]
Other statutory price reductions
[66]
Negotiated (administrative) price reductions
[68]
Price disclosure price reductions
[71]
The Repatriation Pharmaceutical Benefits Scheme
[77]
ARTG REGISTRATIONS FOR GENERIC CLOPIDOGREL
[78]
THE PRINCIPAL PROCEEDING BETWEEN APOTEX AND SANOFI
[80]
Commencement of the patent proceeding
[80]
The interlocutory hearing
[82]
Gyles J’s orders of 25 September 2007
[89]
Gyles J’s orders of 19 August 2008
[100]
The undertakings given to Moore J on 15 September 2008
[109]
The Full Court’s orders of 13 October 2009
[121]
The Special Leave Application
[131]
THE CLAIMS FOR COMPENSATION
[133]
The Apotex companies’ discontinued claims
[133]
The Commonwealth’s claim
[139]
WITNESSES
[148]
The Commonwealth
[148]
Sanofi BMS
[158]
Failure to call witnesses
[164]
LEGAL PROFESSIONAL PRIVILEGE
[174]
THE RELEVANT LEGAL PRINCIPLES
[177]
Air Express Ltd
[177]
European Bank
[190]
FACTUAL ANALYSIS
[197]
The Apotex Group
[197]
Proceedings in Canada and the USA
[201]
Would Apotex would have applied to list its clopidogrel products from 1 April 2008?
[219]
Would the Minister or the Delegate have listed Apotex’s clopidogrel products on 1 April 2008?
[353]
THE SIGNIFICANCE OF THE FIRST APOTEX UNDERTAKING
[422]
Did the Commonwealth’s loss flow directly from the grant of the interlocutory injunction?
[433]
Could loss of the kind sustained have been foreseen at the time the interlocutory injunction was granted?
[452]
THE SIGNIFICANCE OF THE FINAL ORDERS
[482]
The Interrupted Supply Counterfactual
[490]
Reversal of the 12.5% Price Reduction
[499]
The Continuous Supply Counterfactual
[530]
Remoteness
[560]
RELEVANCE OF OTHER GENERIC SUPPLIERS
[568]
IS THE LOSS CLAIMED BY THE COMMONWEALTH COMPENSABLE?
[571]
DISCRETION
[587]
Delay
[596]
Copyright infringement
[629]
Patent infringement
[645]
Public interest
[653]
QUANTUM
[661]
The Commonwealth’s loss in the interrupted supply counterfactual
[664]
The Commonwealth loss in the continuous supply counterfactual
[666]
Interest
[695]
DISPOSITION
[698]
NICHOLAS J:
INTRODUCTION
Clopidogrel is a medication which inhibits blood platelet aggregation (ie. the formation of blood clots). It is a drug that, in Australia, can only be prescribed by medical practitioners. It is usually prescribed to patients who have suffered a heart attack or stroke, are at risk of suffering a heart attack or stroke, or who suffer from some other condition that is treated by prescription of a blood platelet aggregation inhibitor. It is a “blockbuster” drug that generated worldwide annual sales equivalent to more than US$1 billion revenue for the Sanofi group of companies (“the Sanofi Group”) and the Bristol-Myers Squibb group of companies (“the BMS Group”).
Clopidogrel, in the form of hydrogen sulfate, has been supplied in Australia in tablet form by Sanofi Australia Pty Ltd (“Sanofi Australia”) under the brand name Plavix and also by Bristol-Myers Squibb Australia Pty Ltd (“BMS Australia”) under the brand name Iscover. Both products were registered on the Australian Register of Therapeutic Goods (“ARTG”) on 2 December 1998 and listed on the Pharmaceutical Benefits Scheme (“PBS”) on 1 November 1999.
There is a global co-marketing arrangement in place between the Sanofi Group and the BMS Group in relation to the marketing and sale of clopidogrel around the world. In Australia, these arrangements provided for co-marketing of clopidogrel by Sanofi Australia under the Plavix brand and by BMS Australia under the Iscover brand.
An essential step that must be taken before a drug can be marketed and supplied in Australia is to obtain approval from the Secretary of the Department of Health (“Department”) or a Delegate in the Therapeutic Goods Administration (“TGA”) for registration on the ARTG.
Clopidogrel products sponsored by Apotex Pty Ltd (“Apotex Australia”) were registered on the ARTG on 21 August 2007. The effect of these registrations was to allow Apotex Australia to supply such products under the brand names “Genrx Clopidogrel”, “Chemmart Clopidogrel” and “Terry White Chemists Clopidogrel” in blister packs, and “Apo-Clopidogrel” in blister packs and bottles.
After a sponsor secures ARTG registration, an application can be made to list the registered brand on the PBS. The PBS listing of a brand of pharmaceutical item usually provides a substantial benefit to the supplier or sponsor, essentially because the Commonwealth subsidises, often heavily, the cost of supplying PBS listed medicines to patients. PBS listing was an essential component of Apotex Australia’s plan to launch its generic clopidogrel products in Australia.
On 16 August 2007 Apotex Australia, which was until 20 September 2007 called GenRx Pty Ltd, commenced a proceeding in this Court against Sanofi-Aventis (“Sanofi”) (“the patent proceeding”) in which it sought an order revoking Australian Patent No 597784 for clopidogrel (“the Patent”) registered in the name of Sanofi. On 17 September 2017 Sanofi filed a cross-claim against Apotex Australia in the patent proceeding seeking injunctive and other relief for threatened infringement of the Patent.
The Patent was for the dextro-rotatory enantiomer of methyl alpha-5 (4,5,6,7-tetrahydro (3,2-c) thieno pyridyl) (2-chlorophenyl)-acetate, (commonly known by the non-proprietary name “clopidogrel”), a process for its preparation, and pharmaceutical compositions containing it.
Some drugs can be produced in different salt forms which may have advantages over their parent molecules. In particular, a drug salt may be more stable or easier to administer than its non-salt parent molecule, even though they are therapeutically equivalent. Claim 1 of the Patent encompassed clopidogrel in all of its pharmaceutically acceptable salts. Each of claims 2 to 5 covered particular forms of salt. The active pharmaceutical ingredient in Plavix and Iscover and Apotex Australia’s generic clopidogrel products is clopidogrel hydrogen sulfate which is the compound specified in claim 3.
In early September 2007, Apotex Australia applied for PBS listing of its clopidogrel products from 1 December 2007. It was soon after informed that its application had been lodged too late for its clopidogrel products to be listed on 1 December 2007. This led Apotex Australia to withdraw the application. The next available date for a listing of a first generic brand of clopidogrel, which would result in a change to the price of the existing listed brands of the drug (ie. the Plavix and Iscover brands), was 1 April 2008. An application for listing on that date had to be made by 1 December 2007.
On 25 September 2007 Sanofi obtained from Gyles J an interlocutory injunction (“the interlocutory injunction”) against Apotex Australia restraining it from infringing the Patent (including) by importation or sale of pharmaceutical products which had clopidogrel as their active ingredient. The interlocutory injunction was expressed to operate until the determination of the proceeding or further order. Sanofi gave the usual undertaking as to damages to the Court in support of the interlocutory injunction.
Apotex Australia also gave to the Court an undertaking (“the first Apotex undertaking”) that it would not apply to list its clopidogrel products on the PBS until the determination of the proceeding or further order. Sanofi did not give any undertaking as to damages in return for the first Apotex undertaking.
On 20 February 2008 Spirit Pharmaceuticals Pty Ltd (“Spirit”) also commenced a proceeding (“the Spirit proceeding”) against Sanofi, Sanofi-Aventis US LLC (“Sanofi US”), and Bristol-Myers Squibb Investco LLC (collectively “Sanofi BMS” or “the Sanofi BMS companies”) seeking revocation of the Patent. On 7 March 2008 Gyles J ordered that the two proceedings be heard together.
The trial of the patent proceeding before Gyles J commenced on 28 April 2008. Reasons for judgment were published by his Honour on 12 August 2008. Final orders were made by his Honour on 19 August 2008 revoking various claims of the Patent. Importantly, however, Gyles J found that claims 2 to 5 were valid including, in particular, claim 3 which was directed to clopidogrel as hydrogen sulfate. His Honour granted Sanofi a final injunction on 19 August 2008 (“the final injunction”) restraining Apotex Australia from infringing that claim. His Honour also noted in the relevant minute of order that Apotex Australia was released from the first Apotex undertaking. There was an appeal filed by Apotex Australia and a cross-appeal filed by the Sanofi BMS companies against his Honour’s orders. An appeal and a cross-appeal were also filed against Gyles J’s orders in the Spirit proceeding.
On 15 September 2008 various interlocutory undertakings were given to a Judge of the Court (Moore J) to operate until further order or the determination of the appeal. The appeal was heard by the Full Court of the Federal Court (Bennett, Emmett and Middleton JJ) in February 2009. On 29 September 2009 the Full Court delivered its reasons for judgment in the appeal. On 13 October 2009 the Full Court made orders allowing Apotex Australia’s appeal and setting aside the final injunction. The Full Court also ordered that the Patent be revoked.
Further undertakings were provided to the Full Court by the Sanofi BMS companies and Apotex Australia pending the determination of an application made by Sanofi for special leave to appeal to the High Court. That application was heard and refused on 12 March 2010. The first generic clopidogreneric clopidogrel product to be listed on the PBS was the clopidogrel Sandoz brand of clopidogrel products by Sandoz Pty Ltd (“Sandoz”) on 1 April 2010. Apotex Australia’s clopidogrel products were not listed on the PBS until 1 May 2010.
On 4 May 2010 Apotex Australia and two related entities, Apotex Inc (“Apotex Canada”) and Apotex Research Private Limited (“ARPL”) filed a notice of motion in the patent proceeding seeking orders against the Sanofi BMS companies for the payment of compensation pursuant to the various undertakings given to the Court in support of the interlocutory injunction and other undertakings that Apotex Australia subsequently gave to the Court which I will refer to in greater detail later in these reasons.
The compensation claims made by Apotex Australia, Apotex Canada and ARPL were discontinued by those companies by a notice of discontinuance filed on 7 November 2014 pursuant to a settlement deed entered into between those companies and Sanofi BMS companies on 4 November 2014 (“the Settlement Deed”).
In this proceeding, which was commenced by interlocutory application filed in the patent proceeding on 11 April 2013 (ie. more than three years after the High Court refused special leave), the Commonwealth, as applicant, seeks orders requiring the Sanofi BMS companies to pay to it compensation for the loss said to have been suffered by the Commonwealth as a result of Apotex Australia having been prevented from supplying its generic clopidogrel products in Australia and obtaining a PBS listing of such products on 1 April 2008.
The Commonwealth contends that the interlocutory injunction granted by Gyles J had the effect of delaying significant reductions in the payments it was obliged to make to pharmacists under the PBS for the supply of Plavix and Iscover and a number of related combination products between 2008 and 2014.
The cost to the Commonwealth of subsidising the supply of clopidogrel under the PBS in the financial year ended 30 June 2008 was approximately $171 million, making clopidogrel the third most heavily subsidised prescribed drug available under the PBS during that financial year. The Commonwealth contends that the listing of Apotex Australia’s clopidogrel brands on the PBS on 1 April 2008 would have triggered an automatic and immediate statutory reduction of 12.5% to the existing listed prices for Plavix and Iscover with the ex-manufacturer price for Plavix and Iscover reduced from $64.94 a pack to $56.82. In addition, the Commonwealth contends that there would have been a further 2% statutory price reduction on 1 August 2009, and further price reductions from 1 April 2010 arising from the operation of the system of mandatory price disclosure that was introduced into the National Health Act (1953) (Cth) (“NHA”) with effect from 1 August 2007.
The total amount of compensation claimed by the Commonwealth is approximately $325 million excluding interest and costs. Of this, approximately $51 million relates to mandatory price reductions that would have automatically taken effect on 1 April 2008 had Apotex Australia obtained and maintained a PBS listing of its clopidogrel products with effect from that date. The balance of the claim relates to further price reductions that the Commonwealth says would have occurred when the first of the relevant price disclosure price reductions would have first taken effect from 1 April 2010.
The loss claimed by the Commonwealth consists of the difference between:
·the amount paid by the Commonwealth in respect of the supply of clopidogrel products under the PBS and the Repatriation Pharmaceutical Benefits Scheme (“RPBS”) since 1 April 2008; and
·the amount that would have been paid by the Commonwealth in respect of the supply of those products under the PBS and the RPBS since 1 April 2008 if Apotex’s clopidogrel products had been listed on the PBS from that date.
There are three different components that make up the difference claimed by the Commonwealth (exclusive of interest):
·a total of $50,718,312 in respect of mandatory statutory price reductions that would have occurred on 1 April 2008 and 1 August 2009;
·a total of $215,922,465 in respect of price disclosure price reductions that would have occurred between 1 April 2010 and 31 December 2014;
·a total of $58,307,301 in respect of payments made by the Commonwealth in respect of clopidogrel with aspirin combination products in the period 1 December 2009 to 31 March 2016.
Much of the evidence in the proceeding is concerned with the issue of whether Apotex Australia’s clopidogrel products would have been listed on the PBS on 1 April 2008 but for the interlocutory injunction granted by Gyles J.
There are two specific questions that arise in relation to that issue. The first is whether the evidence establishes that Apotex Australia would have applied for a PBS listing of its clopidogrel products by 1 December 2007 so that they would be listed on the PBS from 1 April 2008. The second question is whether the Minister, or a Delegate, would have accepted such an application and listed those products on the PBS with effect from 1 April 2008.
It is common ground that both questions are to be decided on the balance of probabilities. It is also common ground that if either of these questions is answered in the negative, then the Commonwealth’s application for compensation must fail.
Another issue concerns the first Apotex undertaking whereby Apotex Australia undertook not to apply for a PBS listing of its clopidogrel products until the determination of the patent proceeding. As previously mentioned, this undertaking was not supported by any cross-undertaking as to damages. For reasons that will be further explained, Sanofi BMS contends that the existence of the first Apotex undertaking is fatal to the Commonwealth’s case because it was the first Apotex undertaking rather than the interlocutory injunction that prevented Apotex Australia from applying to list its clopidogrel products on the PBS.
Another issue concerns the final orders made by Gyles J on 19 August 2008. There is a contest between the parties as to the significance to be attributed to those orders in the counterfactual analysis. The Commonwealth contends that the appropriate counterfactual analysis (which the parties referred to as the “continuous supply counterfactual”) requires that it be assumed that:
·there was no interlocutory injunction or final injunction preventing Apotex Australia from supplying its clopidogrel products;
·Apotex Australia’s clopidogrel products had been listed on the PBS since 1 April 2008 and had been on the market from or shortly before that date.
There is an issue between the parties as to whether that is the appropriate counterfactual analysis and, even if it is, whether Apotex Australia would have continued supplying its clopidogrel products once the outcome of the trial before Gyles J became known.
There is also an issue as to whether, in what Sanofi BMS contended was the appropriate counterfactual analysis (which the parties referred to as the “interrupted supply counterfactual”) the Commonwealth would have responded to any cessation of supply by not only delisting the Apotex clopidogrel products from the PBS, but also by restoring the ex-manufacturer price for Plavix and Iscover to the level that it was before the 12.5% statutory price reduction took effect on 1 April 2008, which is the date on which the Commonwealth says Apotex Australia’s clopidogrel products would have been listed but for the interlocutory injunction.
There is a further issue as to what effect the listing of Apotex Australia’s clopidogrel products on the PBS on 1 April 2008 may have had on price negotiations between the Commonwealth and Sanofi Australia and BMS Australia in relation to the clopidogrel with aspirin combination products sold by Sanofi Australia under the CoPlavix brand and by BMS Australia under the DuoCover brand.
Other issues that arise in the proceeding include the questions whether the Commonwealth was a person adversely affected by the operation of the interlocutory injunction, whether the Commonwealth, as a body politic, has suffered any compensable loss or damage, and whether any such loss or damage was a direct and reasonably foreseeable consequence of the interlocutory injunction.
There are a number of other matters that were relied upon by Sanofi BMS in support of their contention that the Commonwealth’s claim to compensation should be rejected (either in whole or substantial part) on discretionary grounds. The matters relied upon included the Commonwealth’s delay in bringing its application, whether considered either alone or in combination with what Sanofi BMS contended would have involved, in any counterfactual scenario in which Apotex’s clopidogrel products were launched by Apotex Australia in March or April 2008, an infringement by Apotex Australia of Sanofi Australia’s copyright in product information documentation, and an infringement of Sanofi’s Canadian Patent No 1336777 (the “Canadian Patent”) by Apotex Canada.
Other issues in the proceeding are relevant to the quantum of the Commonwealth’s damages claim. The principal question to be decided in relation to quantum is what market share Apotex Australia was likely to have captured had it continuously supplied its clopidogrel products from 1 April 2008.
THE PHARMACEUTICAL BENEFITS SCHEME
Listing of a medicine on the PBS
The PBS is a scheme for subsidising medicines. It is not necessary for a medicine sold in Australia to be listed on the PBS. Medicines that are not listed on the PBS are not subsidised and are known as either “private prescriptions” or “over-the-counter medicines”. Clopidogrel products have been subsidised on the PBS since 1 November 1999.
The PBS legislation is found in Pt VII of the NHA. Relevantly, s 85(1) provides: “Benefits shall be provided by the Commonwealth, in accordance with this Part, in respect of pharmaceutical benefits”. Section 85(2) provides that the drugs and medicinal preparations in relation to which Part VII applies are “declared by the Minister, by legislative instrument” pursuant to one of the limbs of that subsection.
Section 85(2AA) empowers the Minister by legislative instrument to revoke or vary a declaration under s 85(2) in relation to a drug or medicinal preparation. However, before doing so the Minister must obtain the advice in writing of the Pharmaceutical Benefits Advisory Committee (“PBAC”) in relation to the proposed revocation or variation: s 85(2AB). The PBAC is established by s 100A of the NHA. Its functions include making recommendations to the Minister from time to time as to the drugs and medicinal preparations which it considers should be made available as pharmaceutical benefits under Part VII: s 101(3A). PBAC is required to give consideration to the effectiveness and cost of therapy when making such recommendations: s 101(3A).
The relevant legislative instruments are referred to as “Listing Instruments” and are made or amended monthly. Listing Instruments do not record the price paid by the Commonwealth to dispensers, but dispensed prices under the PBS are included in a document published by the Department of Health called the Schedule of Pharmaceutical Benefits (“PBS Schedule”). The PBS Schedule is updated monthly to incorporate revisions made in or to the Listing Instruments.
Any new therapeutic good (including a generic brand of a drug) must be registered on the ARTG before it can be generally marketed in Australia. However, there are no requirements in the NHA concerning the information that has to be provided in support of an application to list a generic brand of a listed drug on the PBS. At the relevant time, an application for listing a generic brand was not required to be considered by the PBAC. Such applications were referred to the Pharmaceutical Evaluation Branch (“PEB”) of the Department for consideration.
For any applications to list generics which would result in a change to the price subsidised by the Commonwealth for a drug, there were, at the relevant time, three application deadlines and three listing dates (1 April, 1 August and 1 December) each year. Applicants seeking to list a generic brand were required to furnish to PEB a letter of application (for which there was no specified form); a completed “Application to list a Drug or Medicinal Preparation as a Pharmaceutical Benefit” form; a completed “Request for Price Alteration” form; a copy of the letter from the TGA approving the entry of the product in the ARTG; a copy of the current Certificate of Medicine Registration or Certificate of Listing for the product issued by the TGA; a copy of the current product information approved by the TGA, if applicable; a copy of the primary pack label or final artwork; and written assurance that stock of the product will be available on the proposed date of listing in the PBS Schedule.
Applicants usually also provided a completed form entitled “Notification of Responsible Person under National Health Act 1953” which, from 1 April 2008, confirmed that the applicant was the responsible person under s 84AF seeking a determination from the Minister. They also had to request the TGA to provide to the PEB a statement indicating that it is appropriate for an equivalence indicator to be shown in the PBS Schedule and against which other brands (ie. a statement of bioequivalence of the generic brand with the existing listed brands).
Applicants were also instructed to contact the Director, Pharmaceutical Pricing and Estimates Section, of the PEB in relation to the pricing of the new brand, and to check the “reference pricing groups” document to determine whether the 12.5% price reduction policy may affect the drug for which the application is being made.
The Commonwealth submitted that, in practice, applicants seeking PBS listing for a generic brand of a pharmaceutical item already listed on the PBS were approved as a matter of course subject to them complying with the administrative requirements referred to above. It further submitted that if PEB requested a Delegate to list a generic brand by executing the relevant Legislative Instrument, the Delegate invariably did so. The Commonwealth also submitted that from 1 August 2007, the question of whether the generic brand seeking listing might be the subject of a patent (or the subject of any patent infringement or revocation proceedings) was not relevant and not considered by the Delegate. It also submitted that assurances of supply were taken at face value. I will return to these submissions later in these reasons.
The 2007 Amendments
Important changes were made to the NHA by the National Health Amendment (Pharmaceutical Benefits Scheme) Act 2007 (Cth) (“the 2007 Amendment Act”). The 2007 Amendment Act received royal assent on 28 June 2007 and these changes (“the 2007 Amendments”) took effect from 1 August 2007. Relevantly, the changes made provision for the creation of the F1 and F2 formularies and various mandatory price reductions that would occur (inter alia) when a pharmaceutical item moved from F1 to F2. From 1 August 2007 to 30 November 2010 F2 was further divided into Part A of F2 and Part T of F2: see s 84AD. On 1 December 2010 Part A and Part T were merged resulting in a singular F2 formulary.
According to the Second Reading Speech for the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 (Cth) in the House of Representatives (“the Second Reading Speech”):
One of the main changes proposed in this bill is the separation of PBS medicines into two formularies – F1 and F2 – each with different pricing arrangements. Medicines where there is only a single brand listed will be referred to as F1. It will contain both on-patent and off-patent medicines that are not substitutable with other brands or medicines. With this formulary, there will be no mandatory price reductions, and existing price linkages will be retained within this group. This means that single-brand medicines will retain their higher prices until they become subject to competition, providing companies with a greater certainty about the prices of these medicines. This allows the Australian government to ensure these medicines remain subsidised by the PBS, hence continuing their availability at affordable prices. Medicines where there are brands listed and groups of medicines that are interchangeable between patients will be referred to as F2.
Since 1 August 2007, the listing of a new brand of an existing listed pharmaceutical item has various price consequences. The listing of the new brand of a pharmaceutical item (eg. a generic version of the listed pharmaceutical item) triggers an automatic and immediate 12.5% price reduction: ss 99ACH. While there are various exceptions to this, it is common ground that none of them are relevant for the purpose of the present proceeding. Prior to 1 August 2007, the listing of a new brand of pharmaceutical item did not automatically trigger a 12.5% price reduction; whether or not such a price reduction would be imposed was a matter left to the discretion of the Minister or Delegate.
It appears that a 12.5% reduction was never imposed prior to 1 August 2007 where the generic supplier chose to launch its new brand “at risk” (ie. in circumstances where the pharmaceutical item was within the scope of an unexpired patent owned by the innovator of the pharmaceutical item). However, the 12.5% discount was imposed if the patent had expired or the generic brand was to be supplied by or with the licence of the owner of the patent. Hence, the 12.5% discount applied to what were referred to in the industry as “autogenerics” or “pseudogenerics” which were generic products marketed by or with the licence of the innovator. From 1 August 2007, the 12.5% price reduction was imposed automatically when the first generic brand was listed on the PBS irrespective of whether or not it was launched at risk.
From 1 August 2007, the NHA imposed supply obligations with respect to newly listed brands: see Part VII Div 3C which include those provisions that relate to what is usually referred to as the “guarantee of supply”. According to the Second Reading Speech the guarantee of supply would:
… guarantee the supply of all new brands listed on the PBS from 1 August 2007 and the already listed medicines for which price reductions are offered to all patients who require these medications. This will significantly help patients on these medications, as the guarantee of supply period will be 24 months, or until another new brand is listed, or a further price reduction is offered for another already listed medicine. Any company which believes that it will be unable to supply, or has failed to supply, will be required to notify the minister. A criminal penalty will apply for failure to notify the minister. There is also a $33,000 fine for a corporation.
Companies which fail to supply or which are unable to supply may have that brand or other brands on the PBS delisted or they may be refused the listing of new brands. These tough measures introduced with respect to noncompliance with the new price disclosure and supply guarantee measures are another advantage for patients, as they aim to ensure that companies adhere to their commitments. Patients have a right to know that the prices that they are paying for their medications are truly reflective of manufacturing costs. They also have a right to have a continual, guaranteed supply of medications available to them. Patients do not need the added stress of costs often incurred by having to change their medications because they are too expensive or unavailable. These reforms aim to further ensure patients’ quality of life by increasing the accountability and compliance of companies which supply the medication.
Section 99AEB provided, subject to some specific exceptions, that the responsible person for a newly listed brand (“the guaranteed brand”) “must supply” that medicine for 24 months beginning on the day that the brand is listed on the PBS: see ss 99AEC-99AED. If the responsible person failed to supply, or was unable to supply the brand (as defined by ss 99AEE and 99AEF respectively), or forms the belief that they will fail to supply or be unable to supply, then they must notify the Minister as soon as possible: s 99AEG. Failure to notify the Minister in accordance with the requirements of ss 99AEG is a criminal offence.
Importantly, s 99AEB provided that the period of the guarantee of supply (ie. “the guaranteed period”) might end sooner than it otherwise would in a number of situations including upon the listing of another generic brand of the same pharmaceutical item. Hence, if the innovator of the pharmaceutical item obtained a listing of an autogeneric product in response to the prior listing of a generic brand then the guarantee of supply in respect of that generic brand would no longer apply to it. It follows that the relevant guaranteed period might last for considerably less than 24 months.
If during the guaranteed period the responsible person failed to supply, or was unable to supply the guaranteed brand on one or more occasions, it was open to the Minister to cancel the PBS listing for that brand or any other listed brand of the responsible person. The Minister could also refuse to list any other brands of the responsible person on the PBS. Those and other actions that could be taken by the Minister are fully described in s 99AEH(2). Section 99AEH(3) refers to various matters that the Minister may take into account when considering what action to take pursuant to s 99AEH(2) which include:
·the number of times the responsible person failed to supply, or was unable to supply the guaranteed brand;
·the period in which those failures or inabilities occurred;
·the duration of those failures or inabilities;
·the reasons for those failures or inabilities; and
·whether those reasons are, in the Minister’s opinion, reasonable.
In the event that the Minister exercises the power under s 99AEH revoking or varying a determination under s 85(6) to issue a Listing Instrument in relation to a brand of a pharmaceutical item then there are various actions that he or she may also take to ameliorate the effects that were triggered by the listing of that brand. These include making a determination under s 99AEI to increase the price of a brand of a pharmaceutical item and, under s 99AEJ, restoring a pharmaceutical item to F1 where the requirements of that section are satisfied.
Combination items on the PBS
The Act provides for the listing of pharmaceutical items that contain more than one drug. Under s 84 a “combination item” is a pharmaceutical item that has a drug that contains at least two other drugs, at least one of which is a PBS listed drug. The medicine containing the drug clopidogrel with aspirin is a combination item.
Since 1 August 2007, combination items where there is only one listed brand have not been allocated to either F1 or F2: see s 85AB(5). The Department maintains a (non-statutory) list of combination items known as the Single Brand Combination Drug list (“SBCD list”).
Co-marketed pharmaceutical items
Whether two or more brands of a pharmaceutical item are co-marketed brands for the purpose of the Act is determined by reference to s 84AE. Co-marketing involves two responsible persons, usually the innovator and one of its licensees, co-marketing a pharmaceutical item for which there is no generic competition under different brands.
As at 1 August 2007 co-marketed brands of a pharmaceutical item, including combination items, were treated as if they were one brand of the pharmaceutical or combination item: s 84AE(1).
Assurance of supply
As previously mentioned, applicants for a PBS listing of a new brand of a pharmaceutical item are required to provide what is referred to as an “assurance of supply”. The assurance of supply (unlike the guarantee of supply) is a purely administrative requirement imposed by the Department; there is nothing in the NHA that requires that it be given as a condition of listing. The form of the assurance of supply required from an applicant prior to listing on the PBS has evolved over time. From June 2005 to December 2006, the PBAC Guidelines required applicants to provide to the Department written assurance that stock of the product would be available on the proposed listing date. Since December 2006, the Department has required applicants to provide a written assurance that sufficient stock of their brand of the relevant pharmaceutical item would be available on the proposed date of listing to meet anticipated demand.
Payment by the Commonwealth for listed products
The amount a patient pays for pharmaceutical products subsidised under the PBS is usually set by the NHA. The amount paid by patients (referred to as the “Patient co-payment”) for clopidogrel has always been capped. The general co-payment as at 1 April 2008 was $31.30 and the concessional co-payment as at that date was $5.00. The amount of the co-payments is adjusted each year. By 1 January 2016 the general co-payment was $38.30 and the concessional co-payment was $6.20.
The remainder of the cost of a PBS-subsidised product is paid by the Commonwealth directly to the dispenser. Section 99 provides that a pharmacist or approved medical practitioner who has supplied a pharmaceutical benefit is “entitled to be paid by the Commonwealth … an amount equal to the Commonwealth price of the pharmaceutical benefit as at the time of the supply” (or, if certain conditions are satisfied, an amount based on the Commonwealth price), where the “Commonwealth price” is as defined in s 84(1).
Setting of the AP2P and AEMP and price reductions under the PBS
Section 85AD empowers the Minister and the responsible person for a listed brand of a pharmaceutical item to agree the appropriate maximum price for sales of the brand of the pharmaceutical item by wholesalers or manufacturers to approved pharmacists. At all material times, price agreements existed between the Minister and Sanofi Australia (and its predecessors) and BMS Australia (and its predecessors) in respect of the clopidogrel products Plavix and Iscover respectively. The price agreed, until 30 September 2012, was known as the AP2P (ie. the approved price to pharmacists) and since that date, the AEMP (ie. the approved ex-manufacturer price).
The AP2Ps and AEMPs set in price agreements can be, and were, reduced by virtue of statutory provisions that did not require new agreements to be executed. These provisions are found in Div 3A and Div 3B of Part VII of the NHA.
There are three kinds of price reductions to the AP2P/AEMP under the NHA that are relevant: statutory price reductions, negotiated price reductions (as also known as “administrative price reductions”) and statutory price disclosure price reductions (“PDP reductions” or “PDPR”).
12.5% statutory price reduction on first listing of a generic
Pursuant to s 99ACB, upon the listing of the first generic brand of an existing listed drug, the AP2P of the existing brand of the drug would be reduced by 12.5% (with the price of the first generic also set at the same level).
As at 31 March 2008, the AP2P for a pack of clopidogrel was $69.82; the effect of a 12.5% reduction on 1 April 2008 would have been to reduce it to $61.09. A reduction in the AP2P would not have affected the dispensing fee for clopidogrel (which was a fixed dollar amount) but would have reduced the amount paid under the dispenser mark-up, as this was a percentage of the AP2P.
Other statutory price reductions
In 2008, once a mandatory 12.5% statutory price reduction took effect, further 2% price reductions automatically followed on nominated days. As at 1 April 2008, these were 1 August 2008, 1 August 2009 and 1 August 2010: s 99ACI. The third 2% price reduction would only occur if there was no prior price disclosure price reduction resulting from the listing of the first generic brand. Amendments made to the NHA in 2010 provided that these 2% reductions also occur on 1 February 2011 in certain circumstances: (see s 99ACF, s 99ACIA and Schedule 2 of the National Health Amendment (Pharmaceutical Benefits Scheme) Act 2010 (Cth)).
From 2008 if a combination item was listed on the PBS and recorded on the SBCD list, and a listed component drug of the combination item became subject to a statutory price reduction, including under s 99ACB, then pursuant to s 99ACC the existing price for the combination item ceased to have effect the day before the statutory price reduction took effect and the Minister could then agree a new price for the brand(s) of combination item.
Negotiated (administrative) price reductions
In addition to changes to AP2Ps and AEMPs dictated by statute, it is also possible for the Minister and the responsible person to agree a price change for a particular listed brand. This occurred twice in respect of clopidogrel.
The first occasion was on 1 February 2009, when the listing conditions for clopidogrel were expanded to cover a new therapeutic use. The Pharmaceutical Benefits Pricing Authority (“PBPA”) determined that a reduction in the price of clopidogrel would be a reasonable offset for the increased sales that would result from the extended listing conditions, and sent letters to Sanofi Australia and BMS Australia suggesting price reductions. Each of Sanofi Australia and BMS Australia agreed to a 3% reduction in price.
The second occasion was on 1 December 2011, when Alphapharm Pty Limited (“Alphapharm”) negotiated a 20% price reduction with the Minister. The Minister invited the responsible persons of other listed brands to agree to similar reductions or risk having their brands delisted. Sanofi Australia and BMS Australia agreed a corresponding price reduction.
Price disclosure price reductions
Between 1 August 2007 and 30 November 2010, a new generic brand that was listed on the PBS was subject to mandatory price disclosure requirements under s 99AD: see s 99ADD. Regulations specified information that had to be supplied to the Department, which used the information to calculate what is known as the Weighted Average Disclosed Price (“WADP”) for a pharmaceutical item (or group of pharmaceutical items with the same listed drug and same manner of administration): see s 99ADB(4)-(6) and reg 37F of the National Health (Pharmaceutical Benefits) Regulations 1960 (Cth).
WADP was calculated according to a formula which took into account the volume of sales of the particular brands the subject of price disclosure and the extent to which the responsible persons of those brands offered discounts and other incentives which resulted in the price actually paid by pharmacists being less than the AEMP plus the applicable wholesale mark-up.
The responsible person for existing listed brands could elect to comply with the price disclosure requirements for those brands: s 99ADE. Once made, the election could not be revoked by the responsible person but the Minister could (at the responsible person’s request) determine to revoke the election (with prospective effect) if the listing of the generic brand that activated the PDPR regime was varied or revoked: s 99AEL.
On 23 March 2010 BMS Australia elected to participate in the PDPR regime for Iscover before the listing of the first generic clopidogrel product took effect on 1 April 2010. Sanofi Australia elected to participate for Plavix on 28 April 2010.
If the WADP as calculated and recorded in a determination by the Minister was more than 10% below the current AEMP, then the AEMP was reduced to the WADP. The AP2P was also reduced in accordance with a formula set out in Reg 37C. The effect of the PDPR regime was, therefore, to impose mandatory price reductions aimed at ensuring that the subsidy paid by the Commonwealth under the PBS for a particular drug more closely reflected the price actually paid for that drug by pharmacists. The earliest date on which a PDP reduction can take effect is two years after the PDP reduction regime is activated by the listing of a generic product.
If Apotex Australia’s clopidogrel products had been listed on 1 April 2008, all listed clopidogrel products would have moved from F1 to F2 on that date. In fact this did not occur until 1 April 2010 when Sandoz’s clopidogrel products were first listed on the PBS. PDP reductions consequent upon that listing did not occur until 1 April 2012, that being the earliest date that such price reductions could have taken effect. There was a 32.62% reduction in the AEMP (from $58.07 to $39.13) that took effect on 1 April 2012. Subsequent reductions took place on 1 August 2013, 1 April 2014 and 1 October 2014, at which point the AEMP reduced to $10.17.
The Repatriation Pharmaceutical Benefits Scheme
The RPBS is a subsidy scheme administered by the Department of Veterans’ Affairs for eligible veterans, war widows/widowers and their dependants. The pricing and reimbursement arrangements for the supply of pharmaceutical benefits under the PBS are automatically translated across to the RPBS. However, under the RPBS, the patient generally never pays more than the concessional rate of the patient co-payment.
ARTG REGISTRATIONS FOR GENERIC CLOPIDOGREL
Records produced by the TGA that are in evidence show that both Sandoz and Spirit applied for ARTG registration of generic clopidogrel products about twelve months after Apotex Australia commenced the patent proceeding. Applications were made by other generic suppliers in 2009 and 2010. As the following table shows, Sandoz’s clopidogrel products were the first to be registered after Apotex on 20 November 2009:
The evidence does not show why any of these other generic suppliers did not apply for ARTG registration any sooner than they did. In particular, it is not possible to say on the evidence whether any of them was deterred by the existence of the Patent and the prospect of being sued by Sanofi were they to have entered the market for clopidogrel in Australia or whether there is some other explanation for them not applying for ARTG registration sooner than they did. What is clear, however, is that, based on the ARTG application dates, no generic supplier apart from Apotex Australia could have obtained a PBS listing of a generic clopidogrel product on 1 April 2008.
THE PRINCIPAL PROCEEDING BETWEEN APOTEX AND SANOFI
Commencement of the patent proceeding
Apotex Australia commenced the patent proceeding by an originating application filed on 16 August 2007 seeking orders revoking the Patent. On 17 September 2007 Sanofi filed a defence and cross-claim.
By its cross-claim, Sanofi sought two separate injunctions, on a final basis, and also on an interim basis pending the determination of the proceedings. The first injunction sought by Sanofi (proposed order 1 in the cross-claim) was an injunction which, in broad terms, restrained manufacture and supply. The second injunction sought by Sanofi (proposed order 2 in the cross-claim) was an injunction restraining Apotex Australia from “taking any steps to obtain listing of any of the [Apotex Australia] Clopidogrel products under the pharmaceutical benefits scheme maintained by the Commonwealth under the National Health Act 1953 (Cth) [ie, the PBS]”.
The interlocutory hearing
The interlocutory hearing before Gyles J took place on 18 September 2007. The evidence includes the transcript of the hearing before his Honour and of a brief hearing on 25 September 2007 when his Honour made the interlocutory orders.
In its written submissions dated 18 September 2007 in support of its claim for interlocutory relief, Sanofi stated that it offered the usual undertaking as to damages in respect of both of its proposed interlocutory injunctions including that which would have prevented Apotex Australia from taking steps to list its clopidogrel products on the PBS.
During the course of the hearing before Gyles J on 18 September 2007, his Honour indicated that he did not see any proper basis on which the Court could prevent Apotex Australia from taking steps to list its clopidogrel products on the PBS. Senior Counsel for Apotex Australia, Mr DK Catterns QC, stated that his client’s position was that, if the Court was minded to restrain supply, “the question of needing to restrain us from doing anything with the PBS or restraining the PBS doesn’t arise”. That statement prompted the following exchange between his Honour and Mr Catterns QC:
MR CATTERNS: We would be prepared, if your Honour is against us and grants an injunction against us from selling, we will not apply to the PBS during the period of that restraint with liberty to apply.
HIS HONOUR: Yes. All right.
MR CATTERNS: Because, in short your Honour, it’s pointless for us, the question of needing to restrain us from doing anything with the PBS or restraining the PBS doesn’t arise. If your Honour were against us…
HIS HONOUR: Why would that be, why would that be, because - - -
MR CATTERNS: It’s of no value to us, your Honour. We don’t want to get listed, to be candid, we don’t want to be listed on the PBS if we can’t sell. It would damage our friends by bringing their price down twelve and a half per cent.
HIS HONOUR: Yes, that’s a risky thing anyway.
MR CATTERNS: Yes, it will only damage our friends, it’s of no benefit to us, and we will make enemies in the industry.
HIS HONOUR: Yes. All right. I’m not inquiring really why, I just want to know what the situation is.
MR CATTERNS: So, your Honour, we would be happy to – if your Honour, we would be unhappy, but if your Honour makes an injunction against us selling, we would agree on an appropriate undertaking that would fix that up.
HIS HONOUR: Yes. All right. Thank you.
This exchange is relied upon by the Commonwealth to show that, were it not for Gyles J’s decision to grant an interlocutory injunction, Apotex Australia would never have proffered the first Apotex undertaking not to take steps to list its clopidogrel products on the PBS.
On 21 September 2007, Gyles J published reasons for concluding that an interlocutory injunction should be granted provided that the undertaking as to damages was adequately secured. His Honour said in his reasons at [15]:
I am not satisfied the damages would be an adequate remedy if Sanofi succeeds in the suit, notwithstanding the offer on the part of GenRx to adequately secure a very substantial amount to cover any reasonable likely assessment of damages and offering other undertakings to ameliorate the effect of commencing to trade. It is put on behalf of Sanofi that the assessment of damages would be difficult, if not impossible, for reasons spelled out in detail with some force. No doubt the assessment of damages would be a formidable exercise but I am not persuaded that it would be as complex as suggested. It should not be all that difficult to assess the effect on the incumbent of a new entrant who would have to keep clear records of what took place. I do not see that task as being any more complex in principle than working out the damages which Sanofi would have to pay GenRx under the undertaking for damages for keeping it out of the market if revocation succeeds. However, I am much influenced by the effects of disturbing the status quo, particularly as it relates to the operation of the PBS. A new entrant in this field would have an effect which may be both unpredictable and irreversible. There is also likely to be interference with the trade patterns of Sanofi with its customers, both wholesale and retail, that may not be detectable or measurable in money terms. Sanofi has built up a considerable trade since 2003, and the establishment to go with it, as GenRx looked on. Temporary disturbance of that status quo is not justified …
His Honour’s observations in this paragraph were largely based on evidence from witnesses who made affidavits for Sanofi including, in particular, Mr Lindsay and Mr Dick which explained, amongst other things, the potential price effects if Apotex Australia were to obtain a PBS listing of its clopidogrel products and the losses Sanofi would suffer if the injunctive relief sought by it was not granted. Those losses would arise, according to their evidence, from a statutory reduction in the price to pharmacists for clopidogrel, the erosion of Sanofi’s clopidogrel sales to pharmacists and the erosion of Sanofi’s sales of other drugs to pharmacists. Mr Lindsay’s and Mr Dick’s evidence was also relied upon by Sanofi to show that the statutory price reductions may not be reversed (even if Sanofi succeeded at the trial) and that Sanofi’s potential losses were unpredictable and unquantifiable.
As the Commonwealth’s submissions in the present case correctly pointed out, all of that evidence concerning potential loss was predicated on the assumption that, if the interlocutory relief sought by Sanofi was not granted, Apotex Australia would obtain a PBS listing for its products.
Gyles J’s orders of 25 September 2007
On 25 September 2007 his Honour published his revised reasons for judgment which he had delivered orally the previous week. His Honour’s reasons for judgment show that he was satisfied that there was a substantial issue to be tried as to the validity of the Patent, but that he considered that the balance of convenience weighed in favour of granting an interlocutory injunction. It is apparent from the 25 September 2007 transcript that the parties had reached agreement with respect to the interlocutory relief that should be granted in light of his Honour’s reasons for judgment delivered orally the previous week. This included agreement in relation to the form of undertakings that were to be provided to the Court by both Apotex Australia and Sanofi.
The minute of the orders made by Gyles J on 25 September 2007 includes a notation of undertakings given to the Court on that date by Sanofi and Apotex Australia, an interlocutory injunction restraining Apotex Australia from infringing the Patent, and an order requiring Sanofi to provide security. Other orders made by his Honour provided for security, pleadings, discovery, the filing and service of affidavit evidence, and a final hearing before his Honour fixed to commence on 28 April 2008 for a period of two to three weeks.
It was common ground before me that by reason of s 72 of the Constitution, Gyles J’s appointment as a Judge of the Court expired on 22 August 2008. This is a matter that would most likely have been known to the parties’ legal representatives who would have understood that since the trial was to be before Gyles J, his Honour would be required to deliver judgment on or before that date.
Relevantly, the minute of orders made on 25 September 2007 state:
UPON the Respondent/Cross-Claimant undertaking to the Court to:
(a)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 a party, adversely affected by the operation of Order 1 set out below or any continuation (with or without variation); and
(b)pay the compensation referred to in (a) to the person or persons there referred to.
THE COURT:
1.ORDERS that, pending the determination of the proceedings or further order, the Applicant/Cross-Respondent whether by itself, its directors, officers, servants, agents or otherwise, be restrained from infringing Australian Letters Patent No 597784 (the Patent) and, in particular, from engaging in the following acts within the patent area (as that term is defined in Patents Act 1990 (Cth)), without the license or authority of the Respondent/Cross-Claimant:
(a)making, selling or otherwise disposing of the products known as GenRx Clopidogrel, Apo-Clopidogrel, Chemmart Clopidogrel and Terry White Chemists Clopidogrel or any other pharmaceutical composition the active ingredient of which is clopidogrel bisulfate, a compound claimed in claims 1, 3, 10 and 11 of the Patent (collectively, the GenRx Clopidogrel Products);
(b)offering to make, sell or otherwise dispose of the GenRx Clopidogrel Products;
(c)using or importing the GenRx Clopidogrel Products;
(d)keeping the GenRx Clopidogrel Products for the purpose of doing any of the acts described in sub-paragraphs (a) to (c) above;
(e)authorising other people to engage in any of the acts described in sub-paragraphs (a) to (d) above.
2.NOTES that the Applicant/Cross-Respondent undertakes to the Court that, pending the determination of the proceedings or further order, it will not, whether by itself, its directors, officers, servants or agents or otherwise, take any steps to obtain listing of any of the GenRx Clopidogrel products under the pharmaceutical benefits scheme maintained by the Commonwealth under the National Health Act 1953 (Cth).
There are six important points to make about this order and various undertakings.
First, the interlocutory injunction referred to in numbered paragraph 1 of the orders operated “pending the determination of the proceedings or further order”. In the events that happened, the interlocutory injunction operated in accordance with its terms until final orders were made by Gyles J on 19 August 2008 at which time it ceased to operate.
Secondly, paragraphs (a)-(e) of the interlocutory injunction did not include, among the specified activities in respect of which Apotex Australia was expressly restrained, taking steps to list on the PBS. Nevertheless, the description of the particular acts in the interlocutory injunction is preceded by the general words “… be restrained from infringing …” the Patent and it is clear that the scope of the restraint could extend beyond the infringing activities specified in subparas (a)-(e) to the order.
Thirdly, although the interlocutory injunction restrained Apotex Australia from infringing the Patent, it would not have been an infringement of the Patent for Apotex Australia to apply to list its clopidogrel products on the PBS. This proposition derives from the Full Court’s decision in Warner-Lambert Company LLC v Apotex Pty Ltd (2017) 249 FCR 17 (“Warner-Lambert”) in which it was held that a person who makes an application to list a pharmaceutical product on the PBS does not thereby “exploit” a patented invention. It was Apotex Australia’s contention at the interlocutory hearings on 18 and 25 September 2007, and at the hearing on 19 August 2008 at which the form of the final orders was debated, that taking steps to obtain a PBS listing of a pharmaceutical product was incapable of constituting an act of patent infringement. But until the Full Court’s decision in Warner-Lambert was published, the correctness of that proposition was open to debate.
Fourthly, the undertaking given to the Court by Apotex Australia referred to in numbered paragraph 2 of the orders specifically prevented Apotex Australia from taking any steps to list its clopidogrel products on the PBS until the determination of the proceeding or further order. Importantly, however, that undertaking was not supported by any undertaking as to damages by Sanofi. The minute of order shows that Sanofi’s undertaking as to damages required it to submit to an order for compensation in favour of any person adversely affected by the operation of the interlocutory injunction but not the undertaking given to the Court by Apotex Australia. This is a critical point to which I will return.
Fifthly, the undertaking as damages given to Gyles J permitted the Court to make an order for compensation that “it may consider just … to any person whether or not a party, adversely affected by the operation of [the relevant order] …”. This language reflected the form of what by that time had become the usual undertaking as to damages that an applicant is required to give in this Court in return for an interlocutory injunction.
Sixthly, the usual undertaking as to damages given to Gyles J was given by Sanofi but not by Sanofi US or BMS. Neither of those entities was a party to the patent proceeding at that time and neither of them was bound by the undertaking as to damages given to his Honour by Sanofi.
Gyles J’s orders of 19 August 2008
At the time of granting the interlocutory injunction, Gyles J fixed the matter for a final hearing commencing 28 April 2008. The trial before Gyles J commenced on that date. Apotex Australia did not contest infringement. The principal issue in dispute was the validity of the Patent.
Reasons for judgment were published by Gyles J on 12 August 2008. His Honour upheld the validity of claims 2-5 of the Patent, but found the other claims to be invalid. His Honour held (inter alia) that claim 3 (which covered clopidogrel bisulfate, which was the active ingredient in Apotex Australia’s clopidogrel products) was valid.
On 14 August 2008, the proceeding was again before Gyles J for argument regarding the form of final orders. At the hearing on that date, Sanofi sought a final injunction restraining supply of Apotex Australia’s clopidogrel products, in terms similar to the interlocutory injunction, and also a final injunction restraining Apotex Australia from taking any steps to obtaining a PBS listing of those products. The latter form of injunction was sought by Sanofi on the basis that a listing would require a guarantee of supply which would constitute offering to sell and, therefore, an exploitation of the invention.
Apotex Australia resisted the making of a final injunction restraining the taking of steps to list on the PBS, and sought a release from the first Apotex undertaking, on the basis that taking such steps would not constitute exploitation. Gyles J refused to grant the injunction sought by Sanofi in respect of PBS listing and granted Apotex Australia the release it sought from the first Apotex undertaking. The transcript of the hearing before his Honour on 14 August 2008 clearly suggests that his Honour doubted that by applying for a PBS listing of its clopidogrel products, Apotex Australia would infringe the Patent.
Apotex Australia also sought from Gyles J a stay of the final injunction pending the determination of its appeal or, alternatively, an undertaking from Sanofi in lieu of such a stay allowing the final injunction to operate on condition that, if so directed, Sanofi would pay compensation to Apotex Australia for any damage suffered by it in the event its appeal was successful with the final injunction being discharged: see Minnesota Mining & Manufacturing Company v Johnson & Johnson Limited [1976] FSR 139 at 145 per Buckley LJ. It is apparent that Gyles J (quite understandably) regarded this as an exceedingly ambitious application given that Apotex Australia had been restrained by the interlocutory injunction since 25 September 2007. His Honour indicated that Apotex Australia’s application for a stay of the permanent injunction should be made to the Full Court.
On 19 August 2008 Gyles J made orders declaring that claims 2, 3, 4 and 5 of the Patent were valid and that Apotex Australia’s clopidogrel bisulfate products infringed claim 3. The final injunction granted by his Honour was in these terms:
The Applicant/Cross-Respondent whether by itself, its directors, officers, servants, agents or otherwise, be restrained from infringing claim 3 of the Patent and, in particular, from engaging in the following acts within the patent area (as that term is defined in Patents Act 1990 (Cth)), without the license or authority of the Respondent/First Cross-Claimant:
(a)making, selling or otherwise disposing of the products known as GenRx Clopidogrel, Apo-Clopidogrel, Chemmart Clopidogrel and Terry White Chemists Clopidogrel, each being pharmaceutical compositions the active ingredient of which is clopidogrel bisulfate, or any other pharmaceutical composition the active ingredient of which is clopidogrel bisulfate, a compound claimed in claim 3 of the Patent (collectively, the Apotex Clopidogrel Products);
(b)offering to make, sell or otherwise dispose of the Apotex Clopidogrel Products;
(c)using or importing the Apotex Clopidogrel Products;
(d)keeping the Apotex Clopidogrel Products for the purpose of doing any of the acts described in sub-paragraphs (a) to (c) above;
(e)authorising other people to engage in any of the acts described in subparagraphs (a) to (d) above.
Thus, the terms of the final injunction granted on 19 August 2008 (“the final injunction”) was in similar terms to the interlocutory injunction except that it was no longer expressed to operate until further order or the determination of the proceeding and was also expressed in terms which only restrained infringement of claim 3 of the Patent.
His Honour also ordered that claims 1, 6 to 9, 10 and 11 be revoked. That order was stayed until the final determination of any appeal subject to Sanofi providing a number of undertakings including “… not to threaten any person other than the Applicant in these proceedings or the Applicant, Spirit Pharmaceuticals Pty Ltd, in Federal Court Proceeding No. NSD 214 of 2008 with infringement of [those] claims ...”.
Gyles J also recorded, by a note included in the minute of orders, that the undertaking given by Apotex Australia to the Court on 25 September 2007 (ie. the first Apotex undertaking) ceased to have effect.
The undertakings given to Moore J on 15 September 2008
On 19 August 2008 Apotex Australia filed an appeal from Gyles J’s judgment and orders against (inter alia) the final injunction granted by his Honour based on claim 3. For reasons not clear from the evidence, Sanofi US and BMS were joined as second and third respondents to Apotex Australia’s appeal. On 8 September 2008 the Sanofi BMS companies filed a cross-appeal.
On 15 September 2008 Moore J made the following order by consent:
1.Upon the parties giving the undertakings noted in paragraphs 2 and 3 below, the security in the sum of A$40 million provided by the First Respondent pursuant to paragraph 3 of the orders made by Gyles J on 25 September 2007 in Federal Court of Australia Proceeding No NSD 1639 of 2007 remain in place pending the final determination of this appeal, as security for such compensation, if any, as the Court may consider should be paid to the Appellant should it be found to have been adversely affected by any of:
(a)paragraph 1 of the orders made by Gyles J on 25 September 2007 in Federal Court of Australia Proceeding No NSD 1639 of 2007;
(b)paragraph 2 of the orders made by Gyles J on 19 August 2008 in Federal Court of Australia Proceeding No NSD 1639 of 2007; and
(c)the undertakings of the Appellant noted in paragraph 3 below.
His Honour also noted the following undertakings that were given to the Court by Apotex Australia (the appellant) and the Sanofi BMS companies (the respondents):
2. The Respondents undertake to the Court to:
(a)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 a party, adversely affected by the operation of any of paragraph 1 of the orders made by Gyles J on 25 September 2007 in Federal Court of Australia Proceeding No NSD 1639 of 2007, paragraph 2 of the orders made by Gyles J on 19 August 2008 in Federal Court of Australia Proceeding No NSD 1639 of 2007 and the undertakings of the Appellant noted in paragraph 3 below, or any continuation of any of them (with or without variation); and
(b)pay the compensation referred to in (a) to the person or persons there referred to.
3.The Appellant undertakes to the Court that, pending the final determination of this appeal or further order:
(a)it will not, whether by itself, its directors, officers, servants or agents or otherwise, take any steps to obtain listing of any of the Apotex Clopidogrel Products (as defined in paragraph 2(a) of the orders made by Gyles J on 19 August 2008 in Federal Court of Australia Proceeding No NSD 1639 of 2007) under the pharmaceutical benefits scheme maintained by the Commonwealth under the National Health Act 1953 (Cth);
(b)it will not, whether by itself, its directors, officers, servants or agents or otherwise:
(i)infringe any of claims 1, 6, 7, 8, 9, 10 and 11 of Australian Letters Patent No 597784;
(ii)take any steps to obtain listing of clopidogrel or any salt of clopidogrel under the pharmaceutical benefits scheme maintained by the Commonwealth under the National Health Act 1953 (Cth).
The only order made by Moore J is that recorded in paragraph 1 of the minute of orders which, in substance, preserved the security previously given by Sanofi in support of its undertakings as to damages given to Gyles J on 25 September 2007 and 19 August 2008 and the various additional undertakings provided by the Sanofi BMS companies to Moore J as recorded in paragraph 2 of the minute of order.
It will be necessary to say more about the effect of these undertakings later in these reasons but it is worth noting a few key points at this stage.
The form of orders and undertakings of 15 September 2008 were in a form agreed between Apotex Australia and the Sanofi BMS companies. The agreed undertakings prevented Apotex Australia, until the determination of the appeal or further order, from supplying clopidogrel or any salt of clopidogrel including those within the scope of the claims held invalid by Gyles J. This is likely to have been important to Sanofi because the final injunction granted by Gyles J and his Honour’s other orders left Apotex Australia free to make and supply a clopidogrel product using a different clopidogrel salt as the active ingredient.
The agreed undertakings also prevented Apotex Australia from taking any steps to have any clopidogrel product listed on the PBS until the determination of the appeal or further order.
The agreed undertakings required each of the Sanofi BMS companies to pay compensation, if so directed by the Court, to any party adversely affected by the interlocutory injunction granted by Gyles J on 25 September 2007, the final injunction granted by his Honour on 19 August 2008, and the various undertakings given to Moore J by Apotex Australia referred to in paragraph 3. These included the undertaking not to take steps to have any clopidogrel product listed on the PBS.
An important point to note in relation to the agreed orders and undertakings of 15 September 2008 is that they did not include any undertaking as to damages in respect of the first Apotex undertaking given by Apotex Australia to Gyles J on 25 September 2007. Although paragraph 3 of the agreed orders and undertakings is an undertaking not to take any steps to obtain a PBS listing of any of Apotex Australia’s clopidogrel products, clopidogrel or any salt of clopidogrel, this undertaking was essentially forward looking in the sense that it could only apply to activities engaged in from the time the undertaking took effect, which was when it was proffered to and accepted by Moore J.
Although it must now be accepted that taking steps to apply for a PBS listing of a pharmaceutical product the supply of which infringes a patent does not constitute an act of infringement, it does not follow that the Court lacked power to accept undertakings from Apotex Australia forbidding it from taking such steps. The Court has power to receive undertakings from parties in settlement of a dispute where they are reasonably related to the subject matter of the proceedings before the Court: Thomson Publications (Australia) Pty Ltd v Trade Practices Commission (1979) 40 FLR 257 at 280 per Deane and Fisher JJ. The same is also true of the undertakings as to damages given by the Sanofi BMS companies in relation to the various undertakings referred to in paragraph 3 of the minute of order of 15 September 2008.
On the other hand, the undertaking as to damages was given to Moore J by Sanofi BMS in the usual form and in terms that are very clear. There is nothing in the evidence that would enable me to infer that Sanofi BMS did not understand that the Commonwealth may be entitled to recover compensation from them pursuant to that undertaking in the event that Gyles J’s judgment was later set aside.
I am not persuaded there is any additional public interest consideration that would, even if the Commonwealth were otherwise entitled to recover compensation, justify the refusal of such relief.
QUANTUM
Although it is unnecessary to do so, I propose to make findings on various issues relating to the quantum of the Commonwealth’s alleged loss.
The accounting experts have agreed the calculation methodologies for the computation of both loss and interest. The differences between them concern the appropriate assumptions they should make.
All dollar figures quoted in this section of the judgment are exclusive of interest.
The Commonwealth’s loss in the interrupted supply counterfactual
The accounting experts agree that if it is found that:
·Apotex Australia would have ceased supplying its clopidogrel products from 19 August 2008 until 1 April 2010; and
·the 12.5% statutory price reduction triggered on 1 April 2008 would have been reversed;
then the loss suffered by the Commonwealth is $11,038,663. They also agree that if there was no reversal then the Commonwealth’s loss is $55,724,324 which includes $1,995,963 in respect of the fixed statutory price reductions as they would have applied to clopidogrel with aspirin. There would have been no price disclosure price reductions in the interrupted supply counterfactual.
As previously mentioned, the Commonwealth submitted that so much of its alleged loss that is attributable to any decision not to reverse the 12.5% statutory price reduction (ie. $44,685,661) could be adjusted to reflect the possibility that no such reversal would have occurred. I have previously found that there was about a 10% chance that the 12.5% price reduction would not be reversed which would have justified an award of compensation in that scenario of $15,507,229.
The Commonwealth loss in the continuous supply counterfactual
The Commonwealth’s claim based on the continuous supply counterfactual has three components; the first is that based on the fixed statutory price reductions that would have occurred on 1 April 2008 and 1 August 2009, the second relates to price disclosure price reductions that the Commonwealth alleges would have occurred from 1 April 2010 through to 31 December 2014, and the third relates to the alleged impact that the price disclosure price reduction regime would have had on price negotiations in respect of clopidogrel with aspirin in 2009 in the lead up to any price disclosure price reduction on 1 April 2010.
The quantum of the Commonwealth’s claimed loss in respect of the fixed statutory price reductions that would have occurred on 1 April 2008 and 1 August 2009 has been agreed between the accounting experts at $50,718,312. The agreed figure does not include any amount in respect of price disclosure price reductions, the first of which would not have occurred until 1 April 2010. Nor does the agreed figure include any amount in respect of the Commonwealth’s claim arising out of price negotiations for clopidogrel with aspirin.
If I had found that the Commonwealth was entitled to recover any compensation in respect of price disclosure price reductions, then it is necessary to determine what market shares would have been obtained by Sanofi BMS and generic suppliers throughout the relevant period and what level of discounts would have been offered by them from time to time. This is because the market shares and price of each of the clopidogrel products in the continuous supply counterfactual are used in calculating the WADP that would have been determined periodically in the counterfactual world. The WADP would then have been used to determine whether a price disclosure price reduction was to occur on any of the prescribed dates.
Sanofi BMS invited me to apply the discount levels which Mr Montgomery had applied in his expert report. The Commonwealth did not contend for any different approach. The discount levels used by Mr Montgomery have been used in calculating price disclosure price reductions that would have occurred in the continuous supply counterfactual.
There was a substantial disagreement between Mr Montgomery and Mr Hobbs as to the market share for clopidogrel that would have been obtained by Apotex Australia in the continuous supply counterfactual.
The Commonwealth relies on the evidence of Mr Montgomery who estimated that the market share that would have been achieved by Apotex Australia in the continuous supply counterfactual in the period 1 April 2008 to 31 March 2010 would have been higher (on average 5%) than the aggregate of the market shares of all suppliers of generic clopidogrel products that were achieved in the real world in the period 1 April 2010 to 31 March 2012. Mr Hobbs, on the other hand, estimated that the market share that would have been achieved by Apotex Australia during the first two years after launch was likely to be in the order of 5% to 8% below the total market share that was achieved by all generic suppliers in the real world during that two year period.
The loss claimed by the Commonwealth based on Mr Montgomery’s market share estimates in respect of clopidogrel (but excluding any amount in respect of clopidogrel with aspirin) is agreed by the accounting experts to be $266,640,777 which includes the amount of $50,718,312 previously referred to in respect of the fixed statutory price reductions on 1 April 2008 and 1 August 2009. If the Commonwealth’s case based on the price negotiations for clopidogrel with aspirin were to have been accepted, then the Commonwealth would be entitled to a further $58,307,301 in respect of clopidogrel with aspirin giving a total amount in respect of the continuous supply counterfactual of $324,948,078.
Adopting Mr Hobbs’ market share estimates, the agreed figure in respect of clopidogrel (but excluding any amount in respect of clopidogrel with aspirin) is $233,560,796. To that it would be necessary to add an additional amount of $1,414,103 in respect of the fixed statutory price reductions as they would have applied to clopidogrel with aspirin. No additional amount has been included in the accounting experts’ agreed figures in respect of the effect of any price disclosure price reduction on the negotiations relating to clopidogrel with aspirin. Were it necessary for me to have done so I would have directed the accounting experts to calculate a precise figure in respect of that component of the Commonwealth’s alleged loss.
It is important to note that Mr Montgomery’s market share estimates were based on a “bottom up” analysis of the market for clopidogrel in 2008 and 2009 and did not involve any analysis of sales made in the real world. It was Mr Hobbs who adopted what was referred to in submissions as the “backdated actual market share” approach which took actual sales figures for the period 1 April 2010 to 31 March 2012 as its starting point. For reasons that I will now explain I prefer the approach taken by Mr Hobbs.
It would be surprising if Apotex Australia would have achieved a greater market share in the continuous supply counterfactual than it and all other generic suppliers achieved in the real world a few years later. Some of those generic suppliers which Apotex Australia found itself competing with in the clopidogrel market in 2010 were large and well-known businesses (eg. Sandoz, Sigma, Alphapharm and Generic Health) all of which would have been striving to acquire market share. Mr Montgomery conceded that the “rational, normal expectation” is that a single generic supplier would perform less well than a group of generic suppliers competing for business because there would be less pressure to maximise discounts and offer the best terms. However, he maintained that this expectation did not apply in the circumstances of the continuous supply counterfactual.
Before considering Mr Montgomery’s reasoning in more detail, it is necessary to say something about the likelihood of an autogeneric product being listed on the PBS in the continuous supply counterfactual. As previously explained, an autogeneric is a generic product marketed by or with the licence of the innovator. In the pharmaceutical industry, an autogeneric is not usually thought of as a true generic. An innovator will usually launch an autogeneric as part of a broader strategy to defend its market share for a particular drug in circumstances where the innovator has or will soon lose its exclusivity in respect of that drug.
Mr Montgomery was of the view that Sanofi was likely to have listed its autogeneric Winthrop brand clopidogrel products on 1 November 2008 if Apotex Australia had listed its clopidogrel products on 1 April 2008. This evidence may be contrasted with that given by Mr Millichamp who said that it was “very unlikely” that Sanofi would have launched an autogeneric clopidogrel product before the patent proceedings had been finally determined and any rights of appeal had been exhausted. Mr Millichamp’s evidence on that issue was against the weight of the evidence given by Sanofi witnesses and Mr Montgomery. In fairness to the Commonwealth, it did not place any reliance on Mr Millichamp’s evidence on this particular point and it agreed that if Apotex Australia listed its clopidogrel products on the PBS on 1 April 2008 and supplied them continuously thereafter, then the autogeneric product would have been listed on the PBS on 1 November 2008.
However, in its closing submissions the Commonwealth sought to rely on a number of other statements made by Mr Millichamp in his written evidence (which were said to be unchallenged) in support of its contention that Apotex Australia would have achieved a greater market share in the continuous supply counterfactual than was later achieved in the real world by all generic suppliers combined. I do not regard Mr Millichamp’s evidence on this topic as reliable and I give it no weight.
Mr Montgomery’s estimate of the market shares that would have been achieved by generic suppliers in the continuous supply counterfactual was based on a consideration of the following three factors:
·clopidogrel offered a large profit opportunity for pharmacists since it combined a high volume of scripts and a highly subsidised price;
·Apotex Australia would have enjoyed an extended period of exclusivity (or clean air) of approximately 23 months duration;
·the August 2007 PBS reforms would have motivated pharmacists to more enthusiastically substitute generic products to offset the impact of those reforms on their profit margins.
I will deal with each of these factors in turn.
Profit opportunity
The “profit opportunity” for pharmacists referred to by Mr Montgomery had three components: the volume of scripts a pharmacist can dispense; the government subsidised price of the product against which a percentage discount is offered by the generic supplier; and the level of the discount offered by the generic supplier. However, Mr Montgomery accepted in cross-examination that the profit opportunity available to pharmacists was greater in 2010 than it was in 2008. That was because each of the three components of the profit opportunity was equally or more advantageous to pharmacists in 2010.
Mr Montgomery reasoned that the high volume of clopidogrel sales (2,111,423 PBS scripts dispensed in the 12 months to 30 June 2007) was a factor that would have driven generic substitution in 2008. However, the evidence shows that clopidogrel PBS script volume grew significantly from 2,309,279 in the 12 months to 30 June 2008 to 2,676,941 in the 12 months to 30 June 2010. Mr Montgomery accepted that in terms of volume, the opportunity for pharmacists was greater in 2010 than in 2008.
Mr Montgomery also reasoned that the relatively high price of clopidogrel was a factor that would have driven generic substitution in 2008. However, he accepted that the AP2P for clopidogrel was not materially different between 2008 and 2010.
Mr Montgomery pointed to the aggressive discounting by Apotex Australia as a factor that would also have driven generic substitution in 2008. However, the evidence shows that the deals offered to pharmacists in the real world in 2010 were more favourable than they would have been in the counterfactual world in 2008. In particular:
·the discounts that Apotex Australia would have offered in 2008 in the counterfactual were 10% smaller than those which Sandoz and Apotex Australia in fact offered in the real world (Apotex Australia would have offered a 60% discount in 2008 whereas Sandoz offered a 70% discount in 2010 that Apotex Australia matched);
·the purchasing terms that Apotex Australia would have offered in 2008 were less attractive than those it offered in the real world (Apotex’s 60% discount in 2008 would have required the purchase of 13 months of stock, the offer in the real world in 2010 was 70% with a minimum buy of six months of stock, or 65% with no minimum buy requirement).
Mr Montgomery accepted that Apotex Australia’s 65% discount with no minimum buy requirement was a “better deal” than what would have been offered in 2008.
“clean air”
Mr Montgomery suggested that in the counterfactual world Apotex Australia would have had a period of 23 months of “clear air” in which to maximise generic substitution in circumstances where it would not have been “distracted by other generics with competing messages and competitive pricing”.
If Apotex Australia had launched its clopidogrel products in early 2008, it would have found itself in direct competition with Sanofi, which would have adopted an aggressive defence strategy in an attempt to minimise the growth of the generic market for clopidogrel. The evidence shows Sanofi would have offered a 30% discount on Plavix with a six month buy requirement soon after Apotex Australia began offering deals on its products in January 2008. Mr Montgomery accepted that an offer of that kind in 2008 would have been unprecedented, and would have offered a very large profit opportunity for pharmacists.
If the Apotex clopidogrel products had been listed on the PBS on 1 April 2008, Sanofi’s autogeneric Clopidogrel Winthrop product would have been listed on the PBS on 1 November 2008. Sanofi would have commenced to market this product aggressively from 5 August 2008 when it was registered on the ARTG. The evidence shows that it would most likely have been offered at a discount of 75% which Apotex Australia would have then had to match.
Mr Montgomery also accepted that Clopidogrel Winthrop had an advantage over the Apotex clopidogrel products in that at least some pharmacists would have preferred to purchase an authorised generic product as opposed to a true generic.
In any event, it seems to me that what Mr Montgomery refers to as “clean air” is an environment free from aggressive competitive activity engaged in by multiple generic suppliers all of who would be seeking to increase their market share for clopidogrel products. In my opinion, competitive activity of that kind would be likely to lead to increased generic substitution resulting in the generic suppliers enjoying a larger aggregate market share of the clopidogrel market than would be achieved by one generic supplier.
PBS reforms
Mr Montgomery emphasised that at the time of a hypothetical launch by Apotex Australia in early 2008, the 2007 reforms to the PBS would have come into effect. He considered that these changes impacted pharmacy profit margins and that “[p]harmacists were … keenly interested in addressing profit declines from PBS reforms, and the need to drive generic substitution was seen by many pharmacists as the most effective way to address those profit declines”. However, as Mr Montgomery conceded in cross-examination:
·pharmacists were as focused on making profits from the sale of discounted generic products in 2008 as they were in 2010;
·by 2010 pharmacists were more effective at switching patients to generic products as generic brands were more widely accepted by patients; and
·the rate of generic substitution increased between 2008 and 2010.
I am not persuaded that Apotex Australia would have achieved a higher level of generic substitution in the continuous supply counterfactual than was achieved by multiple generics suppliers in the real world.
The Commonwealth submitted that if Mr Montgomery’s market share estimates were not accepted, then its loss should be assessed using the backdated actual market share approach on the basis that Apotex Australia would have sold as much generic clopidogrel between 1 April 2008 and 31 March 2010 as was sold by all generic suppliers in the two year period commencing from 1 April 2010. Sanofi, on the other hand, submitted that it was unlikely that Apotex Australia would have had that level of success and that some discount should be applied to the real world figures to reflect this. Sanofi BMS submitted that an appropriate discount factor was 10%.
The Commonwealth submitted there was an insufficient evidentiary basis to support a finding that Apotex Australia’s market share in its first two years selling clopidogrel would have been any lower than the aggregate market share that was achieved by all generic suppliers in the real world. It was on that basis that the Commonwealth submitted that there should be no discount applied to the figures obtained using Mr Hobbs’ backdated market share approach. I do not accept that submission because I think it is unlikely that Apotex Australia would have achieved the same level of market penetration in the continuous supply counterfactual that was later achieved by all generic suppliers in the real world. It seems to me that some discount should be applied. I accept that arriving at an appropriate discount involves an element of speculation and guess work.
The discount that I would have adopted in this case is 5% on the basis that it represents the midpoint between the parties’ competing positions on this particular issue which, it seems to me, is most likely to approximate what would have occurred in the continuous supply counterfactual. In that regard, I note that while the evidence supports the application of some discount to the figures derived using Mr Hobbs’ backdated market share approach, Sanofi’s reliance on a 10% discount figure finds no direct support in Mr Hobbs’ evidence. The 5% discount would need to be applied to the figures previously quoted in [673] based on Mr Hobbs’ market share estimates to arrive at the final figure.
Interest
There was a dispute between the parties as to whether or not the Court had any power to order the payment of interest in this case. That dispute raised the question of whether the present proceeding is “… for the recovery of any money … in respect of a cause of action …” within the meaning of those words as used in s 51A of the Federal Court of Australia Act 1976 (Cth). It was acknowledged by Sanofi BMS that at least two judges of this Court have awarded interest under s 51A in a proceeding to recover compensation under an undertaking as to damages: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 3) (2012) 290 ALR 263 (Katzmann J), Principal Strategic Options Pty Ltd v Coshott [2003] FCA 736 (Branson J). However, it was submitted by Sanofi BMS, correctly in my view, that in neither of those cases was the question now raised addressed. In particular, neither of those cases considered the implications of the reasoning in Elsinora Global Ltd v Deputy Commissioner of Taxation (2006) 155 FCR 413 for a claim for interest under s 51A in a proceeding of this kind: see the judgment of Young J (with whom Gyles J and Stone J agreed) at 422-423 [44]-[48].
The point raised by Sanofi BMS in relation to interest was not articulated until Sanofi BMS delivered their closing submissions. It was not foreshadowed in their written or oral openings or in a statement of issues to which they agreed. In my view, the point is one that Sanofi BMS was required to expressly plead: see r 16.08(b) of the Federal Court Rules 2011 (Cth). I have no doubt that the point took the Commonwealth by surprise which is understandable given that nothing was said about it until closing submissions.
The point raised by Sanofi BMS is a pure question of law which is not necessary for me to decide given the other conclusions I have reached. But if I was to have concluded that the Commonwealth was entitled to recover on any one or more of the relevant undertakings, and that s 51A did not permit the Court to award interest, I would have included in the award an additional sum for simple interest calculated from 1 April 2008 on the basis that it was just and equitable to do so: see Love v Thwaites (No 4) [2012] VSC 521 at [91] per Dixon J and, on appeal, Love v Thwaites [2014] VSCA 56 at [51].
DISPOSITION
The Commonwealth’s application for compensation filed on 11 April 2013 will be dismissed. The parties will be given an opportunity to file written submissions on the question of costs.
I certify that the preceding six hundred and ninety-eight (698) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate:
Dated: 28 April 2020
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