Last year, Bayer was awarded more than $25 million (plus interest and indemnity costs) against Generic Health in the first Federal Court award of damages for pharmaceutical patent infringement.  In the appeal by Generic Health, the Full Court of the Federal Court allowed Generic Health a 2% discount to the $25 million damages originally awarded. What made the FCFCA give Generic Health such a modest discount?

Procedural history

Patent infringement

In 2013, the Federal Court found that Generic Health had infringed Bayer’s patent for a pharmaceutical combination of ethinylestradiol and drospirenone for use as an oral contraceptive (OC).  The Bayer product for this combination is known as ‘Yasmin’.  Yasmin had been sold in Australia since August 2002 and is a third generation OC. It has never been listed on the Australian PBS Schedule and was priced at a premium to first and second generation OCs listed on the PBS, at a cost to the patient of $71 to $84 for a three month supply (compared with $19 to $24 for a fourth month supply of a PBS-listed prescription OC).

In January 2012, Generic Health manufactured and supplied an OC under the name, ‘Isabelle’, which was bioequivalent to Yasmin (and was registered on the Australian Register of Therapeutic Goods (ARTG) as such).  Before Isabelle entered the market in January 2012, Yasmin had been the only product of its kind registered on the ARTG.  At the relevant time, Isabelle was priced at around $60 to $61 for a three month supply.

Generic Health’s appeal was dismissed and as a consequence, it was required to withdraw Isabelle from the Australian market on 19 June 2014.  Bayer launched a generic version of Yasmin, called ‘Petibelle’, the following week.  Petibelle was priced at around $66 for a three month supply, which was cheaper than Yasmin.

Damages

Bayer’s damages case proceeded on the basis that every sale of Yasmin was a lost sale of Isabelle and Petibelle.

Generic Health argued that any damages should be lowered or discounted because:

1. Bayer’s patent was amended during the infringement proceedings and after Isabelle’s market launch and when assessing damages, that period should not encompass the period prior to the amendments to the patent; and
2. It is not certain that every sale of Isabelle or Petibelle was a lost sale of Yasmin.

In 2017, the Federal Court awarded Bayer more than $25 million (plus interest and indemnity costs).

In relation to whether the damages should be assessed prior to the amendments to the patent, the Court found that Bayer had established that the unamended specification had been framed in good faith and with reasonable skill and knowledge and that damages were therefore available for pre-amendment infringement under section 115(1) of the Patents Act 1990 (Cth).  The evidence established that Bayer had taken an opportunity to amend the claims because their validity had been challenged in other jurisdictions and they had consequently been amended in those jurisdictions.

In relation to whether every sale of Isabelle or Petibelle was a lost sale of Yasmin, the Court accepted the “one for one” basis of lost sales advanced by Bayer.  The Court found that the OC market was not one of consumer choice and substitutability because OC products could only be obtained on prescription.  Bayer provided evidence that doctors prescribed on the basis of the originator brand, and therefore continued to prescribe Yasmin after Isabelle was introduced.  A pharmacist could then sell the customer Isabelle, if the prescription for Yasmin did not exclude brand substitution.  Accordingly, a woman could only purchase Isabelle if she held a prescription for Yasmin or the pharmaceutical by name.

The Court also found that no discount should be made to Bayer’s  damages in order to allow for the possibility that some women who bought Isabelle would not have bought Yasmin if Isabelle had not been on the market.  The Court accepted evidence that this class of women was likely to be very small, to the point of immateriality, given that women who were purchasing third generation OC’s were likely to be the least price sensitive consumers in the OC market.  The Court also gave weight to the principle that the assessment of damages ought to be liberal and that any doubts in this regard ought to be resolved in favour of Bayer.  Similarly, the Court accepted evidence that, but for the launch of Isabelle and its subsequent withdrawal after the finding of infringement, Bayer would not have introduced Petibelle.  Bayer launched Petibelle to mitigate any reputational damage that may have resulted from Isabelle’s entry into the market, where women who had paid a discounted price for Isabelle but would later have felt aggrieved by having to pay the full price for Yasmin again.  The Court found that it was a reasonable response to redress the effects of the infringement, and that the claimed period of damages for two years after the withdrawal of Isabelle and consequent introduction of Petibelle was reasonable.

Appeal

Generic Health appealed the Court’s decision and argued that the damages to Bayer should be lower because (among other things):

1. the trial judge was wrong in concluding that Bayer had discharged its onus of proof under section 115(1)(a) of the Act by demonstrating that the original specification had been framed with reasonable skill and knowledge; and
2. the trial judge was wrong in concluding that every sale of Isabelle was a loss of a sale of Yasmin and Petibelle.

Amended specification: good faith

Generic Health argued that the pre-amendment specification was not framed in good faith and with reasonable skill and knowledge in relation to the dosage range of drospirenone.  The pre-amendment specification disclosed a dosage range of 2 mg to 4 mg of drospirenone.  The amendment restricted the dosage to 3 mg. In determining the dosage range, Generic Health argued that Bayer did not prove that a report that found the appropriate maximum dose to be 4 mg (9274 Report) was actually before its patent attorneys that drafted the specification.

The Full Court rejected Generic Health’s argument and held that when assessing whether reasonable skill was exercised, section 115(1)(a) of the Act allows the assessment to proceed on reasonable knowledge, which is not limited to documents actually before the drafter of the specification.  The Full Court further observed that Generic Health did not allege at any time that the patent was obtained by fraud, false suggestion or misrepresentation, or that there was no proper scientific support for the selection of a dosage range of 2 mg to 4 mg of drospirenone.

Lost sales of Yasmin

Generic Health argued that the trial judge ought to have applied a discount to the damages awarded to Bayer to account for the “completely speculative” “mere possibility” that “a very, very small” and / or “immaterial” number of women who purchased Isabelle and would not have purchased Yasmin if Isabelle had not been available.

The Full Court accepted Generic Health’s argument and held that some very small and modest discount should have been made to reflect the uncertainty.  In the Full Court view, it was not in doubt that on the balance of probabilities, for all sales of Isabelle there was a loss of an opportunity to make a sale of Yasmin.  The question was what the value of the lost opportunity was.  Although the Full Court found that the trial judge was entitled to fix damages on a liberal scale, when a court is valuing a loss of opportunity, there still needs to be a discount if the relevant probabilities or possibilities reflect doubt concerning the relevant counterfactual.  The Full Court also noted that the purpose of the award of damages for patent infringement was compensatory, not punitive.  When assessing the evidence that was before the FC, the Full Court held that it was apparent that there would have been a small number of women who, if Isabelle had not been available, would have purchased another OC other than Yasmin or would not have purchased an OC at all.

Generic Health sought a 10% to 15% discount but the Full Court held that there was no evidence to justify a discount at this level.  The Full Court looked at the number of women likely not to purchase Yasmin if Isabelle had not been available and determined that the number was likely within a range of one to three women in a hundred (1% to 3%).  Accordingly, the Full Court found that the appropriate discount was 2%.

Lost sales of Petibelle

Generic Health argued that it was not reasonably foreseeable for Bayer to respond to the infringement by introducing a generic version of Yasmin, especially after Isabelle had been removed from the market.  The Full Court rejected this argument and found that it was open for the trial judge to find that it was reasonably foreseeable.  The Full Court agreed with the findings of the FC, that “the introduction of Petibelle to rectify the damage, to the extent it could be rectified, was a reasonable response to the difficult commercial position in which Generic Health’s infringing conduct had placed Bayer”.

Generic Health also argued that the trial judge was wrong to calculate the loss caused by the continued presence of Petibelle on the market for two years, as opposed to three months, being the maximum multicycle purchase.  The Full Court rejected this argument and found that the trial judge was entitled to award Bayer the amount they would have earned in the two-year period immediately following Isabelle’s withdrawal, as if every sale of Petibelle during that period would otherwise have been a sale of Yasmin, subject to a 2% discount (for the same reasons as above).

Interest and indemnity costs

In a short passage, the Full Court also dismissed Generic Health’s challenges to the trial judge’s decision to calculate pre-judgment interest on a pre-tax loss, and to award indemnity costs.  As to the question of calculating interest on a pre-tax as opposed to post-tax loss basis, the Full Court referred to earlier decisions (to the effect that interest should be approached in a broad and practical way) and noted the limited ability of a court to estimate tax liability, as reasons for rejecting Generic Health’s appeal on this issue.

All in all, Generic Health had a very modest win.  Although 2% may seem very small, Generic Health still managed to reduce the amount of damages payable by more than $500,000!