07 September 2012

Merck Injunction Gets Up Apotex’s Nose

Merck Sharp & Dohme Corp v Apotex Pty Ltd [2012] FCA 928 (31 August 2012)

Interlocutory injunctionsprima facie case – balance of convenience – permanent impact of generic competition upon market for pharmaceutical products

NasonexThe Federal Court of Australia (Justice Jagot) has issued a preliminary injunction barring generic pharmaceutical manufacturer from marketing and selling nasal sprays containing the corticosteroid mometasone furoate (MF) for the treatment of allergic rhinitis.  The injunction will remain in place pending a final hearing to determine the validity of Merck’s Australian Patent No. 691880, entitled ‘use of mometasone furoate for treating airway passage and lung diseases’. 

Merck sells its own MF-based product in Australia under the brand name NASONEX, which enjoyed sales worth $24.6 million in 2011.  Apotex had commenced marketing, and proposed to commence sales in September 2012 of generic versions APO-MOMETASONE NASAL SPRAY, APOTEX-MOMETASONE NASAL SPRAY, CHEMMART MOMETASONE NASAL SPRAY, GENRX MOMETASONE NASAL SPRAY and TERRY WHITE CHEMISTS MOMETASONE NASAL SPRAY.

Apotex did not deny that its proposed activities would infringe Merck’s patent, but argued that the patent is invalid, and that the claimed invention was obvious at the relevant priority date.  The court was not persuaded that Apotex’s case for invalidity was sufficiently strong to deny Merck’s establishment of a prima facie case of infringement.  Furthermore, the court found that the balance of convenience in this case favoured granting the preliminary injunction sought by Merck.

The injunction means that generic competitors to the NASONEX product will most likely be kept off the market in Australia until at least the second half of 2013.

BASIS FOR GRANT OF PRELIMINARY INJUNCTION

It is surprising that the court in this case did not cite and apply the decision of the Full Court in last year’s Apple/Samsung appeal (Samsung Electronics Co. Limited v Apple Inc. [2011] FCAFC 156 – see also Samsung v Apple – A Closer Look at the Appeal Decision).  This is the most recent and prominent authority, binding on a single judge of the Federal Court, regarding the principles to be applied in considering whether or not to grant interlocutory relief in cases of patent infringement.

However, the court did cite the High Court authority (Australian Broadcasting Corporation v O'Neill [2006] HCA 46) applied by the Full Court in Samsung, and employed essentially the same analysis of:
  1. firstly, assessing whether the patentee (Merck) has a sufficiently strong prima facie case upon which it may succeed at trial; and
  2. if so, weighing up the balance of convenience to the parties in the event that an injunction is, or is not, granted, to determine whether it is appropriate to do so in the circumstances.

APOTEX’S INVALIDITY CASE

With infringement not in dispute, the strength of Merck’s case depended wholly on the likelihood that Apotex will be able to establish invalidity of the patent at trial.  Its case was based on the sole ground of lack of inventive step, which (as the court pointed out at [6]) generally relies heavily on expert evidence.  As is also common in these cases, both sides had filed expert opinions on the issue, each of which would lead the court to a different conclusion.

As the Jagot J put the dilemma she faced (again at [6]):

If the expert evidence adduced by Apotex is preferred, it would follow that Apotex has a strong case that the patent is invalid for lack of inventive step. If the expert evidence adduced by Merck is preferred, it would follow that Apotex has a weak case that the patent is invalid for lack of inventive step.

The problem, then, is how to determine which evidence should be ‘preferred’ at an interlocutory stage, when the evidence remains incomplete, and the opportunity to fully examine and test the experts’ opinions (including by cross-examination) is not available.

After consideration of the available evidence, and both parties’ arguments, Jagot J concluded (at [19]) that:

… although I do not accept Merck’s arguments that Apotex’s case for invalidity is so weak that it fails to raise a triable issue, I am not satisfied that Apotex’s case is of sufficient strength to deny the existence of a prima facie case of infringement on Merck’s part. Merck has established a prima facie case of infringement. When dealing with the strength of that prima facie case in assessing the balance of convenience I recognise that Merck’s position on infringement is not unassailable. There are real arguments against validity which, if established, would remove the foundation of Merck’s claimed right to final and thus interlocutory relief.

Having persuaded the court of the adequacy of its allegation of infringement, Merck then needed to establish that the balance of convenience favoured the grant of an injunction in the particular circumstances of this case.

BALANCE OF CONVENIENCE

The point of a preliminary injunction, of course, is to restrain the respondent (here Apotex) from engaging in potentially infringing conduct prior to a full consideration of the facts and evidence at trial.  Wrongly granting an injunction clearly harms the respondent, by preventing it from entering the market until after a final decision has been issued, while wrongly refusing an injunction harms the patentee, by allowing the infringer to enter and compete in the market pending the final resolution.

In very many cases, the ‘harm’ done by an error at the interlocutory stage is largely financial, i.e. lost profits.  Since this loss can often be remedied after the event, by an award of damages, the courts can be loath to interfere in a competitive market in the meantime, preferring to deny the patentee a preliminary injunction, particularly in the absence of an especially strong prima facie case of infringement.  This was ultimately the decision reached on appeal in the Apple/Samsung case last year.

However, the court is first required to consider the ‘balance of convenience’, i.e. the relative consequences to each party which may flow from a decision to grant or refuse an injunction, and particularly whether an error one way or the other may cause irreparable harm to one of the parties for which damages would not be an adequate remedy.

As we have observed previously (see, e.g., Preliminary Injunction for CRESTOR—Not All ‘Tablets’ are Equal) there are particular features of the pharmaceutical market which tend to favour incumbent patent-holders when it comes to disputes over preliminary injunctions.  For a variety of commercial and regulatory reasons, the entry of a generic competitor typically causes an drop in prices which will often be irreversible, even if the generic is subsequently barred from the market following a full trial.

This case is no exception to this general rule.  As Jagot J concluded (at [28]):

Despite Apotex’s submissions to the contrary I am satisfied on the evidence that it is likely that Apotex’s entry into the market (being the market of intra-nasal corticosteroid sprays) will cause significant structural change in terms of pricing and market shares which will not be readily changed should Merck obtain final relief and which exposes Merck to unquantifiable loss not only in terms of pricing changes but also loss of staff, the need to re-train staff if Apotex is ultimately restrained, as well as loss of goodwill.

The court thus found that the balance of convenience favoured Merck, and the grant of the requested injunction.

CONCLUSION

Possibly the most important question to ask a patentee seeking advice on whether or not to pursue a preliminary injunction against an alleged infringer in Australia is ‘are you a pharmaceutical company?’  If so, and the infringement case is reasonable, then the prospects of an injunction are good.

Patentees operating in other markets and industries are likely to face greater challenges in obtaining preliminary injunctions, although a recent case involving mobile lighting rigs demonstrates that success is possible, at least in cases involving relatively flagrant disregard for the patentee’s rights (see Patent Worth Paper It’s Written On, and Then Some!).

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