28 April 2015

Australian Government Seeks $60M Damages Over Invalid Patent

Gold BarsA court ruling has revealed that the Commonwealth of Australia (i.e. the Federal Government) is seeking to recover $60 million it considers has been ‘overpaid’ for the anti-clotting drug marketed by Sanofi (formerly Sanofi-Aventis) and Bristol-Meyers Squibb under the brand name PLAVIX: Commonwealth of Australia v Sanofi-Aventis [2015] FCA 384.

Sanofi was the owner of Australian Patent No. 597784, which includes claims directed to the compound having the international non-proprietary name clopidogrel.  As noted above, clopidogrel has anti-clotting activity, and is prescribed primarily to prevent heart attack and stroke in high-risk patients, such as those who have a history of these conditions.  The brand-name drug PLAVIX was immensely profitable – according to Wikipedia, it was the second best-selling drug in the world, grossing over US$9 billion in global sales in 2010.  (And, since this is the Internet, Wikipedia also reveals that clopidogrel may have beneficial uses in cats.)

In 2007, generic pharmaceutical manufacturer Apotex Pty Ltd, wanting to introduce its own clopidogrel product to the Australian market, commenced proceedings against Sanofi in the Federal Court of Australia seeking revocation of its patent.  Sanofi, in turn, accused Apotex of threatening infringement.

For the duration of the resulting proceedings, injunctions imposed by the court, along with undertakings that Apotex provided, prevented it from introducing a generic product, leaving patients, and the Australian Government, with no alternative to the premium-priced brand-name product PLAVIX.  Eventually, Sanofi’s patent was found to be invalid, implying that a cheaper generic version of the drug could have been made available all along. 

The notional difference in price between the brand-name product and a hypothetical generic alternative is the basis for the Government’s claim for $60 million in damages.

The Government’s Claim in More Detail

Under the Australian Pharmaceutical Benefits Scheme (PBS), various approved drugs are subsidised by the Government to improve availability and affordability.  In exchange for these subsidies (which undeniably increase levels of prescription, sale and use) the government exercises a degree of price control to ensure that taxpayers are not unduly burdened by the cost of patented drugs.

One of the consequences of these price controls is that the entry of a generic product onto the market results in an immediate, and irreversible, 16% drop in the price that the government will pay for the drug.  A manufacturer can apply to charge a ‘brand price premium’, however if this is granted the additional cost is paid by the patient, not by the Government, meaning that the generic product will be cheaper to the end user.  So the introduction of generic competition results in guaranteed immediate, and ongoing, cost savings to the Government, regardless of patient choices.

As a result of the injunctions that were variously in place from 25 September 2007, along with other undertakings provided by Apotex until the proceedings relating to the validity of the patent were finalised in October 2009, Apotex was unable to obtain a listing of its generic clopidogrel product under the PBS.  The only clopidogrel product available in Australia therefore continued to be Sanofi’s patented brand-name drug PLAVIX.

The Government contends that it incurred additional costs of subsidising the supply of PLAVIX to the tune of $60 million, which would have been saved if a generic alternative had been available.  According to the Government (which is yet to provide full details of its damages calculation) most of these costs flow from the statutory price reductions and price disclosure reductions that would have occurred had Apotex not been the subject of the relevant interlocutory restraints.

Revocation of the PLAVIX Patent

The clopidogrel patent would have expired on 4 February 2013, except that it was revoked on 13 October 2009, following a finding by a Full Bench of three judges of the Federal Court of Australia (in Apotex Pty Ltd v Sanofi-Aventis [2009] FCAFC 134) that the claimed invention was obvious.  However, the court’s decision in this case has been controversial on the basis that it took, as the starting point for assessing inventive step, the background knowledge described in the specification rather than evaluating the state of knowledge at the relevant time based on the available objective evidence.

In August 2014, an expanded five-judge panel of the Federal Court ruled (in AstraZeneca AB v Apotex Pty Ltd [2014] FCAFC 99) that, under the Patents Act 1990, the approach taken in the earlier Apotex decision is incorrect, and inventiveness must be assessed objectively, by reference to the relevant prior art information, in light of the ‘common general knowledge’ of the person skilled in the art.  The enlarged panel had been assembled to enable the court to overrule its earlier decision in Apotex, should that have proven to be necessary.  In the event, the court dodged this issue on the basis that Apotex was decided under the provisions of the earlier Patents Act 1952.

(For further details of this ‘starting point’ issue, see earlier Patentology article What is the Starting Point for Inventive Step?  Note, however, that on 13 March 2015 the High Court granted special leave to appeal the decision in AstraZeneca: see Astrazeneca AB v Apotex Pty Ltd [2015] HCATrans 58.)

Sanofi’s Claims of Injustice

For its part, Sanofi is no doubt feeling more than a little hard done by. 

Sanofi reached a settlement with Apotex, which duly discontinued its own claim for damages on 14 November 2014.  While the terms of this settlement have not been disclosed, it doubtless involves Sanofi paying compensation that is in some way based upon the profits that Apotex might have expected to earn had it been free to market generic clopidogrel.  These are profits that would have been, in large part, generated by the subsidies paid by the Australian Government.  On top of this, the Government now wants Sanofi to pay the amount it says it would have saved, had it been subsidising generic clopidogrel rather than name-brand PLAVIX.

While the mathematics of all this is mind-bending (especially so given the lack of detailed financial information) it certainly seems possible that Sanofi could end up effectively ‘doubling-up’ on payments, in that it is being asked to pay not only for Apotex’s lost sales, but also for the savings the Government says it would have made had it been able to buy from Apotex.  On the other hand, Sanofi did undertake to ‘submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person whether or not a party, adversely affected by the operation of the interlocutory injunction or any continuation…’.

To add insult to injury, as noted above the decision of the Full Court to revoke Sanofi’s patent is one that has been called into question (though not expressly overruled) by a subsequent panel of five judges in AstraZeneca.  It was certainly, therefore, not unreasonable for Sanofi to have held a genuine belief that its patent was valid, and to have acted on that basis.

Unsurprisingly, then, Sanofi is resisting the Government’s efforts to pursue its damages claim.  It is doing so via a number of arguments based in equity – broadly speaking, Sanofi contends that, for various reasons, it is unfair, unjust, or unreasonable that it should be expected to compensate the Government for its alleged loss.  One of the more interesting theories advanced by Sanofi is that Apotex could not have obtained approval to bring its generic product to market without infringing Sanofi’s copyright in various forms of product information, and that the Government should not be entitled to an award of damages in circumstances in which Apotex could not have supplied the product without infringing Sanofi’s rights.

As convoluted as this sounds, the court has indicated that this proposed defence ‘raises an interesting point’, and should therefore proceed to trial.

Conclusion – Good for Taxpayers?

This is not the first time that a patent covering a pharmaceutical product has been found to be invalid following a full trial and all available appeals.  Nor is it the first time that an interlocutory injunction has prevented the introduction of a competing generic product for the duration of the legal proceedings, resulting in the generic challenger receiving compensation.  However, I am unaware of any previous occasion on which the Commonwealth has sought compensation for the higher prices it has paid for subsidised drugs as a result of an injunction.

As an Australian taxpayer, I should probably be pleased to see the Government trying to claw back the savings it might have realised if no injunction had been issued.  However, as a patent practitioner I find it a little disturbing that an unsuccessful patent-holder might be expected to compensate not only its competitor, but also its competitor’s prospective customers, even in the rather special case of government-subsidised pharmaceutical products, and in circumstances in which the patent-holder gave fairly broad undertakings.

No hearing date has been set for the main trial, and the Commonwealth has made it clear that it will require a lengthy period in which to prepare its evidence, so I expect we will be waiting some time to find out how the cards will fall in this case.
Sanofi is a client of my employer, Watermark. However, Watermark was not involved in the filing or prosecution of the application which became patent no. 597784, or any of the proceedings discussed in this article.  The article is based wholly upon publicly-available information, including the contents of the published decisions of the Federal Court of Australia.  Any opinions expressed in this article are mine alone, and should not be taken to represent the views of Watermark, or any of its other employees or agents.  The general disclaimers, as set out on the 'About' page, also apply.


Unknown said...

I don't think there is any doubling up on damages - where do you see it? As you point out, the patentee gets paid at a higher rate under the PBS, and can therefore make 'extra' profit during the term of the injuction (over and above any damages suffered by Apotex, which would have been part of the settlement). Isn't the government only claiming back the 'extra' amount it has already paid to Sanofi, as its 'customer'?

In any case, if the government can't recover this extra amount, this might just mean that interlocutory injunctions won't be granted in similar situations in the future (because the undertaking as to damages won't safeguard the position of adversely affected persons). Interlocutory injunctions are hardly ever granted outside the pharma space, anyway. If no injunction had been granted here, but the infringement finding went in favour of Sanofi, the government would not be out of pocket, but neither would Sanofi - they should still be able to claim back damages (from the infringer, not the government) calculated at the higher PBS rate.

Unknown said...

You might be right. I thought about it for a while, and was unable to convince myself one way or the other. On the one hand, you might think that the damage (lost profits) to Apotex plus the additional cost incurred by the government must be comparable to the net profit made by Sanofi (assuming its costs of production and distribution are similar to those of Apotex).

On the other hand, we have no idea what Apotex's profits would have been (or what they say they would have been), or whether any allowance has been made for the fact that, absent an injunction, other generic competitors would also have entered the market. The Government will (eventually) present its own theories on this latter point because, as I understand it, more competition and corresponding price disclosure enables it to drop subsidies further than the initial 16%.

There is, therefore, a disconnect between whatever claims Apotex might have made, and those that will be made by the Government. It stands to reason that both would seek to maximise the damage they claim has been caused to them, and they are doing so independently. What Sanofi ends up paying out of these two separate processes (and I suppose it may yet reach a settlement with the Government, rather than going to trial) will almost certainly be different from the total amount it would have paid if all claims were considered together, based on common assumptions about what would have happened in the market had the injunction not been in place.

Whether Sanofi will end up paying more, or less, in these circumstances is, to my mind, impossible to determine. Of course, it might all be much simpler than I am supposing. I really don't know!

I must say I find the whole situation vaguely troubling. As you say, if there had been no injunction, and Sanofi had been successful, it would have been fully compensated, while the Government would have saved $60 million that it would have incurred had Apotex not challenged the patent. The worst-case outcome for the Government is that it pays the higher rate for the term of the patent, as expected. However, when a dispute arises between private litigants it apparently stands a decent chance of making savings that will be paid for by one of the parties involved, and without even making itself a party to the litigation. And all of this is within a system that the Government created, and in which it has a high degree of influence over the prices anyway.

Perhaps the occasional failure of the Government to receive a windfall of a few tens of millions of dollars is nothing more than a 'cost' (in the sense of an unrealised gain) of running its own system? And why is it pursuing these damages in this case, when it has never (as far as I can determine) done so previously?

And why stop at the Government? Where are all of the other generic manufacturers that would have entered the market, and could therefore now be seeking their own pound of flesh? No doubt each one would claim that it would have captured the lion's share of the market! Undertaking to compensate non-parties seems to me to be a fairly dangerous action.

Unknown said...

Fantastic article, thanks for the details. I have been following this blog for about a year now and I have found it to be the best blog on patent law. As someone aspiring to go into this field after my Ph.D, a blog format really helps supplement info I get from WIPO and text books.

Unknown said...

Thanks Christopher. I am glad you find the blog to be useful. All the best for your PhD!

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