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Monday, May 16, 2016

Commonwealth allowed to sue on the usual undertaking as to damages

By Lauren John, Associate

The High Court last week dismissed applications by Sanofi and Wyeth for special leave to appeal against a Full Federal Court decision that the Commonwealth is not precluded from recovering compensation pursuant to the usual undertaking as to damages by virtue of certain provisions of the Therapeutic Goods Act 1989 (Cth) (TG Act).

As a condition on the grant of interlocutory relief in patent infringement proceedings, a patentee or exclusive licensee is ordinarily required to give the 'usual undertaking as to damages', that is, an undertaking to submit to such order (if any) of the Court for the payment of compensation to any person (whether or not a party), adversely affected by the operation of the interlocutory injunction.

In the case of Sanofi, the High Court refused the grant of special leave on the ground that there was no reason to doubt the correctness of the Full Court's conclusion, and in the case of Wyeth, on the grounds that the applications did not raise any issue of principle suitable for the grant of special leave, and if special leave were granted, the appeals would have insufficient prospects of success.


By way of background, in September 2009, a Full Court revoked Sanofi's patent (which claimed the compound clopidogrel), and in October 2011, a Full Court revoked Wyeth's patent (which claimed the compound venlafaxine hydrochloride). Earlier, Sanofi had obtained interlocutory relief against Apotex Pty Ltd, and Wyeth had obtained interlocutory relief against various generic companies. Both Sanofi and Wyeth had given the 'usual undertaking as to damages'.

Consequently, the Commonwealth brought claims against Sanofi and Wyeth on the usual undertaking on the basis that it has suffered losses as a result of the difference between what it says it had to pay under the Pharmaceutical Benefits Scheme while the interlocutory injunctions were in force, and what it would have had to pay if the sale of the generic companies' products had not been restrained. In the case of Sanofi, the Commonwealth is seeking an amount in damages in the order of $54 million.

In an attempt to defeat the Commonwealth's claim, Sanofi and Wyeth argued before the Full Court that the TG Act establishes a legislative scheme that restricts recovery by the Commonwealth on the usual undertaking.

Legislative context

The TG Act contains various provisions, introduced to give effect to Australia's obligations under the Australia-United States Free Trade Agreement, which allow for an applicant for registration or the Commonwealth to recover compensation in certain circumstances where a certificate is given by an applicant and an interlocutory injunction is obtained by a patentee:

  1. certificates in relation to applications for registration. Section 26B provides that applicants seeking registration of therapeutic goods on the ARTG must provide one of two certificates in relation to patents, being either a certificate to the effect that the applicant: (i) acting in good faith, believes on reasonable grounds that it does not propose to market the therapeutic goods in a manner that would infringe a valid claim of a patent; or (ii) proposes to market the goods before the end of the term of the patent and the applicant has notified the patentee of the application (notification certificate).
  2. certificates in relation to patent infringement proceedings. Section 26C provides that, where a certificate has been provided under s 26B, the patentee (or exclusive licensee) must provide the TGA and the applicant for registration a certificate before commencing patent infringement proceedings, to the effect that the proceedings are to be commenced in good faith, have reasonable prospects of success and will be conducted without unreasonable delay. A court may order that the patentee/exclusive licensee pay to the Commonwealth compensation for any damages sustained as a result of the grant of an interlocutory injunction, where a court declares that a certificate provided is false or misleading (and s 26D does not apply): s 26C(8). 
  3. requirement to notify the Commonwealth of an interlocutory injunction application. Section 26D requires that, where a patentee (or exclusive licensee) is given a notification certificate, the patentee must notify the Commonwealth in writing before applying for an interlocutory injunction. Further, a court may, pursuant to the usual undertaking as to damages, award to the Commonwealth compensation for any damages sustained by it as a result of the interlocutory injunction, provided it can be shown that the patentee engaged in certain conduct (eg, the patentee did not have reasonable grounds to believe that it would be granted final relief against the applicant for registration): s 26D(5).

Does the TG Act provide an exhaustive regime? 

Sanofi and Wyeth argued that the above provisions provide an exhaustive regime for the recovery of compensation by the Commonwealth. That is, they argued that unless the Commonwealth establishes that the patentee provided a false or misleading certificate (to satisfy s 26C(8)), or, where a notification certificate was given, the patentee engaged in the relevant conduct proscribed by s 26D(5) (conduct which the Full Court described as equivalent to abuse of process), the Commonwealth is not entitled to claim on the undertaking.

The Full Court (Kenny and Nicholas JJ, with whom Dowsett J agreed) rejected Sanofi and Wyeth's arguments.

Kenny and Nicholas JJ said that s 26C(8) provides an additional right of recovery, as recovery by the Commonwealth under that subsection is possible where a patentee (who did not receive a notification certificate) obtains an interlocutory injunction against a generic company but ultimately settles with it (ie, there is no finding by the Court that the patent is invalid), in circumstances where the patentee did not have reasonable grounds to believe the patent was valid. In contrast, their Honours said that s 26D(5) 'enhances' the Court's power to grant relief ordinarily available under the usual undertaking.

Kenny and Nicholas JJ said that the provisions contain no express restriction on the Commonwealth's right of recovery on the usual undertaking (or indeed that of any generic company), and that no such restriction arises by implication. Kenny and Nicholas JJ said it was necessary to consider the effect of the provisions upon the claims of other persons besides the Commonwealth. If Sanofi and Wyeth's view of the provisions was to be accepted, their Honours said this was likely to lead to inconvenient and unjust results, as a generic supplier may be kept out of the relevant market for a lengthy period of time and without any redress if the patent was eventually held invalid. Further, their Honours said that no inconsistency or incompatibility arises by permitting recovery by the Commonwealth (or any other person) pursuant to the provisions, while not excluding the common law right of recovery pursuant to the usual undertaking.

The High Court's refusal to grant special leave means that the Full Court's decision stands and it is not necessary for the Commonwealth to establish that a patentee has engaged in any relevant misconduct under the TG Act provisions in order to enliven its right to claim compensation under the usual undertaking.

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