News From Abroad: Australia Is a Favourable Jurisdiction for Innovator Pharmaceutical Companies Seeking Interlocutory Injunctions

By Andrew Mullane, Craig Humphris, Todd Shand --

Due to the complexity of Australian patent litigation, it can take more than 18 months for a patent dispute to be finally determined by a judge.  This is more than enough time for an infringing competitor to irreversibly damage the patentee and its exclusive market.  Interlocutory injunctions (also known as preliminary injunctions) are designed to prevent competitors from marketing their products before the court finally determines whether they infringe (or the patent is invalid).

Australian courts appear strongly inclined to grant interlocutory injunctions, and within a very short period of time, in pharmaceutical patent disputes.  Annexure 1 (below), which outlines 16 interlocutory injunction applications filed by pharmaceutical patentees since 2005, shows that only three of those applications were rejected.  Annexure 1 also demonstrates that, if necessary, the courts will hear an interlocutory injunction application and deliver its judgment very quickly (in as little as four days) to protect the patentee's market.  This article provides a brief introduction to interlocutory injunctions in Australia and explains why innovator pharmaceutical companies are likely to be granted interlocutory injunctions in Australian patent disputes.

BACKGROUND TO INTERLOCUTORY INJUNCTIONS IN AUSTRALIA

Determination of the Application

Applications for interlocutory injunctions are heard at first instance by a single judge of the Federal Court of Australia.  The court will grant an interlocutory injunction against an alleged infringer (such as a generic) if it is satisfied that:

(a)  the patentee has a prima facie case; and

(b)  the balance of convenience lies with granting the injunction.

Prima Facie Case

A patentee has a prima facie case if there is a probability that they will succeed at final trial (i.e., it is arguable that (a) infringement has occurred and (b) the patent is valid).  An invalidity case must verge on the irresistible to defeat a prima facie infringement case.

When deciding whether the patentee has a prima facie case, courts are usually reluctant to consider legal or factual disputes in any detail because:

(a)  the court is only required to consider whether the patentee's case is arguable, rather than reach a final conclusion; and

(b)  while both sides will make submissions and put on evidence, they are seldom as comprehensive as would be adduced for a final trial, and witnesses are rarely cross-examined, limiting the court's ability to choose between them.

Instead, the court will typically simply acknowledge that both positions are arguable, and find that the patentee has established a prima facie case.  Accordingly, this element is usually quite easy to satisfy.

Balance of Convenience

When considering whether the balance of convenience favours granting the interlocutory injunction, the court will weigh up all of the surrounding factors.

First, the court will consider the harm that the patentee may suffer if an interlocutory injunction is refused and a final injunction is subsequently granted, and whether that harm can be compensated by way of damages.  The greater the patentee's potential loss, the more likely the court is to grant the injunction, particularly if it cannot be adequately compensated by damages (such as reputational damage).  Patentees often argue that allowing the generic onto the market will:

(a)  reduce the patentee's sales and force it to lower its prices to compete with the generic, affecting profit;

(b)  cause flow-on losses to other areas of the patentee's business, including reputational damage, reduced opportunities to promote other products and the forced reduction in expenditure on research and development and marketing, damaging future revenue streams; and

(c)  encourage other generics to enter the market, causing further damage to the patentee and significantly complicating the assessment of how damages should be apportioned between the generics.

The patentee's potential harm is a particularly strong factor if the generic intends to list their product on the Schedule of Pharmaceutical Benefits (Schedule) under the Pharmaceutical Benefits Scheme (PBS).

By way of background to Australian drug regulation and subsidisation, pharmaceutical products cannot be marketed in Australia unless they are registered on the Australian Register of Therapeutic Goods (ARTG).  If a prescription medicine is registered on the ARTG, the sponsor may also apply to list it on the Schedule.  The PBS is administered by the Australian government and seeks to subsidise the cost of medicines to the public.  The Australian government sets the price of all products listed on the Schedule (PBS Price).  Patients who purchase a listed prescription medicine from a pharmacy are required to pay a set proportion of the PBS Price, with the Australian government reimbursing the pharmacy with the balance of the PBS Price.  If a generic version of an innovator product is listed on the Schedule, the PBS Price paid by the government for that product (and therefore the amount that pharmacies will pay the innovator for its product) is automatically reduced by 16%.  If the generic offers its product at a discount to the innovator product, as is often the case, the PBS Price may be decreased even further.  Importantly, a decrease in the PBS Price is virtually always irreversible.

Accordingly, if a generic is permitted to list their product on the Schedule, the innovator will be paid a reduced PBS Price over the life of the patent, irrespective of whether they are successful in obtaining a final injunction, causing the patentee significant and continuing loss.  This potential loss will often persuade a court to award an interlocutory injunction because:

(a)  it is likely to be very significant; and

(b)  assessing the patentee's continuing loss caused by the reduced PBS Price is difficult because it involves estimating future sales.

The court will consider whether the generic will suffer any loss if the interlocutory injunction is granted and the patentee's infringement argument is rejected at the final trial.  Generics often refer to:

(a)  the advantage of being the first competitor to market, both in terms of market share for that product and flow-on effects to other products; and

(b)  the difficulty of estimating what would have been the generic's market share, and therefore calculating their profit, had the interlocutory injunction been refused.

As generics tend to significantly discount their products, their potential loss is typically much less than that of a patentee.  Further, it is often argued that a generic who elects not to revoke a patent before entering the market knowingly takes the risk of having an interlocutory injunction awarded against them, such that their loss is self-inflicted.  Courts regularly use this argument to reduce the weight given to a generic's loss.

The strength of the patentee's infringement case, compared with the strength of the generic's invalidity case, is also relevant.  If the patentee has a strong case, the court will be more likely to award the interlocutory injunction.  Conversely, there is less inclination to award an interlocutory injunction if the patentee appears unlikely to succeed at the final trial.

Any unreasonable delay from the patentee in bringing the interlocutory injunction action will also weigh against its grant.

Prospects of Success

For the reasons given above, particularly:

(a)  the low standard of proof required to establish a prima facie case;

(b)  the patentee's perceived greater extent loss (especially if the product is listed on the Schedule);

(c)  the common discounting of a generic's loss as being self-inflicted; and

(d)  the possibility of other generics entering the market;

Australian courts are strongly inclined to grant interlocutory injunctions.

This tendency is highlighted by the table at Annexure 1, which lists 16 interlocutory injunction applications filed by pharmaceutical patentees since 2005 and shows that only three applications were rejected.  An analysis of those rejected applications shows that two were the result of the application of a different (more generic-friendly) law to that which currently stands in Australia (in combination with the atypical circumstances of the patentee's unreasonable delay or the generic's undertaking not to list on the PBS), while the third was a result of the patentee having a weak infringement case.

(a)  The court in Hexal v Roche held that, for an interlocutory injunction to be awarded, Roche (the patentee) must show that it would suffer irreparable harm.  As discussed above, potential irreparable harm now forms part of the assessment of the balance of convenience, rather than its own separate prerequisite.  It was found that Roche could be adequately compensated by damages, partly because Hexal undertook not to apply to list its product on the Schedule.  Notably, the rejection of the application was accompanied by a warning from the court that the parties should prepare for the final trial as quickly as possible to minimise Roche's potential harm, and that a failure to do so "might well justify reviewing the decision".

(b)  Like Hexal v Roche, the court in Interpharma v Aventis required Aventis (the patentee) to show that it would suffer irreparable harm.  Damages were found to adequately compensate Aventis because the patent would expire within 18 months and the relevant market (chemotherapy medication) was not overly competitive.  The court's decision was also swayed by Aventis' unreasonable eight month delay in filing its interlocutory injunction application.

(c)  In Warner-Lambert v Apotex, the court refused the interlocutory injunction application because Warner-Lambert did not establish a prima facie case.  Its patent was directed to the use of pregabalin for treating pain.  Apotex did not infringe because (i) its ARTG registration only indicated the use of pregabalin as an adjunctive therapy for preventing seizures and (ii) its promotional material clearly stated that pharmacies could not dispense its product without a prescription explicitly stating that it was required for treating seizures.

Timing of the Interlocutory Injunction

Annexure 1 also demonstrates that, if necessary, the courts will hear an interlocutory injunction application and deliver its judgment very quickly (in as little as four days in the case of GenRx v Sanofi-Aventis).  While there is no indication in the GenRx v Sanofi-Aventis judgment as to why a decision was required so quickly, such reasons are given in other cases.

(a)  In Abbott v Apotex, judgment was delivered on 20 November 2009, 18 days after the interlocutory injunction application was filed, because Apotex had threatened to bring product onto the market on 21 November 2009.

(b)  An interlocutory injunction was granted in Apotex v AstraZeneca within 15 days because Apotex had already commenced its marketing campaign and was ready to launch its generic product onto the market.

(c)  In Warner-Lambert v Apotex, Apotex advised Warner-Lambert on 14 February 2014 that it would bring its generic product to market on 14 March 2014.  Warner-Lambert commenced proceedings on 25 February 2014, meaning the court was required to (and did) decide the interlocutory injunction application within just 17 days.

Pressure-Testing a Case

An interlocutory injunction application in Australia also provides an excellent opportunity for a patentee to test the strength of their case.  The generic is required to reveal (at least part of) its non-infringement and invalidity evidence and arguments, and the judge may provide some preliminary comments in relation to both parties' cases.  Furthermore, an interlocutory injunction application is much less expensive than a final trial, and can be decided very quickly if required.  It can accordingly provide an indication of the patentee's likelihood of ultimate success (both in Australia and internationally) quite quickly and relatively inexpensively.  Even if the patentee discovers that their case has significant weaknesses, for the reasons discussed above they would nonetheless have good prospects of succeeding with respect to the interlocutory injunction, strengthening their position during any settlement negotiations with the generic.

Conclusion

The combination of high success rates and fast judgments means that Australia is currently a jurisdiction that favours pharmaceutical patentees seeking interlocutory injunctions.  Further, the insight gained into the strength of the patentee's case can be invaluable, allowing a more productive consideration of whether to enforce a patent in Australia and abroad.

Annexure 1 (click on table to enlrage)

Mr. Mullane is a Lawyer with Wrays; Mr. Humphris is a Principal with Wrays and Senior Member of Wray's Adelaide Chemical and Biological team; and Mr. Shand is a Principal with Wrays.

Comments

[Skeptical]

Hmmm, strong patent protection invites innovation....

[David Nowak]

This is further backed up by the decision of the Full Federal Court on 19 May 2014 overturning the Courts decision in Warner-Lambert v Apotex and granting the interlocutory injunction. See http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCAFC/2014/59.html?stem=0&synonyms=0&query=Warner-Lambert. Total time between application for an injunction and decision on appeal = 83 days