Justice Jagot's mammoth judgment in Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth  FCA 1556 sets down important principles relating to claims for damages under the usual undertaking as to damages, where an interlocutory injunction has been wrongly granted. Senior Associate Tracy Lu reports.
- Wyeth was the patentee of a method patent, which related to its product EFEXOR-XR (venlafaxine), a leading anti-depressant in Australia that had annual sales in the order of $114 million.
- In 2009, generic companies Sigma, Alphapharm and Generic Health challenged the validity of the method patent. Wyeth cross-claimed for infringement and obtained interlocutory injunctions against each of the generic companies.
- In November 2010, Justice Jagot, at first instance, upheld the validity of the method patent and granted permanent injunctions against each of the generic companies.
- In October 2011, the Full Court allowed the appeal by the generic companies and found the method patent invalid.
- In May 2012, the High Court dismissed Wyeth's application for special leave.
- The form of the usual undertakings as to damages in relation to the grant of an interlocutory injunction is 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 any operation of the interlocutory injunction or any continuation (with or without variation) thereof.
What is the real cause?
Justice Jagot repeated a number of times in the judgment that the damage claimed must be shown to be caused by the operation of the interlocutory injunction. That means, any relevant damage ceased when the permanent injunction was granted at first instance (even if it was later lifted by the Full Court). No compensation is payable for damage as a result of the grant of the permanent injunction – that is just a risk that a party who gets involved in legal proceedings has to take. However, the fact that a permanent injunction was granted does not mean that the interlocutory injunction was not wrongfully granted, so it does not cancel out the earlier damage.
Her Honour also found that any action taken by a claimant based on an undertaking given to obtain an interlocutory injunction that bound a different person but not the claimant itself was not caused by the operation of the interlocutory injunction.
For example, if Party C saw that Party A sought and was granted an interlocutory injunction against Party B in relation to the same allegedly infringing conduct that Party C is engaging in, and Party C then changed its conduct, which caused damage to Party C, Party C cannot claim under the undertaking given to obtain the interlocutory injunction against Party B if it was later found to be wrongly granted. This is because Party C's actions were caused by Party C's anticipation that Party A would seek a similar injunction against Party C: ie the damage was a result of anticipated litigation.
Unknown unknowns in the real world are still unknown unknowns in the hypothetical world
In assessing what compensation is payable, the court has to conduct a comparison between what economic benefits have been received by the claimant in the real world and what economic benefits would have been received by the claimant in the hypothetical world.
Given that in the real world, it was known by the time the case was decided by the Full Court that the patent was invalid, should it be assumed therefore that in the hypothetical world, an interlocutory injunction would have been refused? Justice Jagot's answer is no – in the hypothetical world as at 2009 (the time of the interlocutory injunction), the generic companies could not be assumed to know what only became known in the real world in 2011 (the time of the Full Court decision finding that the patent was invalid). Rather, it is to be assumed that the patentee still had a valid patent and still would have commenced the proceedings. The only difference is that the patentee would not have applied for an interlocutory injunction. Then it would be up to the generic companies to decide whether they would enter the market at risk under those circumstances.
The winner does not take it all
Wyeth argued that the generic companies had to prove, on the balance of probabilities, that they would have obtained PBS listing or sold their products on the PBS market, or would have sold their products on the private market, in order to be awarded damages. That is, if the generic companies can cross the 51 per cent threshold on the balance of probabilities, they would get 100 per cent of the damages, or if they cannot cross the threshold, they would get 0 per cent of the damages.
Justice Jagot found instead that the generic companies' loss was a loss of opportunity to use their ARTG registration. The registration itself gave the registration holder certain rights that were valuable, including the opportunity to pursue PBS listing or supply products. Therefore, if there is a 20 per cent possibility that a generic company would have supplied the PBS market, it would be compensated for that 20 per cent, rather than 0 per cent.
However, for the manufacturers and suppliers to the generic companies who were not themselves the subject of the interlocutory injunction, they did not have ARTG registrations and must prove on the balance of probabilities (51 per cent) that they would have supplied the products, or some additional products, to the generic companies, if not for the interlocutory injunctions.
Not supported by contemporaneous documents? It's fake news
Justice Jagot was particularly scathing about the credibility of many of the generic companies' witnesses. However, even assuming that the witnesses were honest and careful, her Honour considered the evidence now of what the witnesses thought they would have done almost 10 years ago, in the hypothetical world, to be likely inherently unreliable. It takes no stretch of the imagination to see how this evidence could be tainted by hindsight.
Therefore, Justice Jagot placed much heavier reliance on the contemporaneous documents of the generic companies as indications of what the generic companies are likely to have done: eg what was their appetite for risk and what was their financial capability to pursue a particular hypothetical course of action.
The precise quantum of damages payable to the generic claimants are yet to be calculated according to the formulae set down by Justice Jagot and can be expected to be substantial. It is another reminder to originators to consider carefully the pros and cons of applying for an interlocutory injunction and the likelihood of ultimate success – particularly now that the compulsory statutory price reduction upon the initial listing of a generic brand on the PBS is 25 per cent.