Introduction

The Central District Court recently rendered a precedential decision in a claim brought by Unipharm Ltd (an Israeli manufacturer and distributor of generic pharmaceuticals) against Sanofi (one of the largest multinational innovator pharmaceutical companies in the world).

The court's decision deals with the legal challenges faced by an innovator pharmaceutical company in its attempts to prevent or delay the entrance of generic drugs into the market. The issue raises a variety of questions regarding the interface between IP law and antitrust law, some of which arose in the case at hand.

To date, Israeli case law in this area (particularly in the context of the pharmaceutical industry) is limited. The decision provides a preliminary legal framework for subsequent pharmaceutical litigation to follow in the coming years.

Unipharm's claim concerned Sanofi's patent protected Plavix, an anti-clotting drug used for the treatment and prevention of heart attacks and strokes. Plavix's development was a major breakthrough and it soon became Sanofi's most profitable, flagship drug.

Halfway through the term of Plavix's patent, Sanofi discovered an easier and cheaper method of formulating the drug's active ingredient. Sanofi filed an additional patent application at the Israeli Patent Office (among other jurisdictions) for the new formulation method. Generic drug companies, including Unipharm, opposed the grant of the patent. Approximately two years after the original patent expired, Sanofi withdrew its additional patent request.

In its lawsuit, Unipharm argued that the chances for approval of the additional patent application were low (as it was a "weak patent") and if the application had not been withdrawn it would have been rejected. Unipharm further argued that Sanofi had misled the Patent Office by submitting incomplete and misleading information with the hope of delaying the entrance of competing generic products into the market. As for the desired remedy, Unipharm claimed to hold rights to the profits that Sanofi generated as a result of the latter's alleged misconduct.

Objectives of patent law and competitive impact of existing system

Patent laws create incentives for the investment of resources in the development of innovative and creative inventions. In return for the public disclosure of an invention, the state grants the inventor a monopoly on the invention, thereby preventing others from making use of it. Contrary to popular opinion (and reflected occasionally in court decisions), having a monopoly right over a specific invention is not necessarily tantamount to possessing a monopoly in a market. A patented product may face competition from other patent-protected (as well as unprotected) products. For example, an innovator company holding a patent for the treatment of a specific skin disorder is not immune to competition from other products that treat the same disorder (whether unpatented or each having its own unique patent). However, on occasion the amount of substitutability between originator drugs is limited. In such cases, the competitive significance of competition from generics that use the same active ingredient as the innovator drug is much greater; these generics may be the only effective substitutes to the innovator drug.

Generic companies (which in large part develop their products based on the information disclosed in patent applications) wait for patents to expire and the commencement of open competition. The moment at which patent protection ends and competition begins reflects the intersection between the desire to promote the objectives of granting patents in the first place (incentivising research, creativity and innovation) and the public interest in market competition.

The dichotomy between the patent monopoly period and the open competition period is blurred by the 'intermediate period' (ie, between the submission of a patent application or request to prolong or expand an existing patent and its approval or denial). During the intermediate period, an innovator company cannot prevent its generic competitors from launching a competing project or using the information disclosed in the patent application. Nevertheless, if the patent is subsequently granted, the patent owner can claim damages from the generic company retroactively from the time in which the patent application was submitted. Launching a competing drug during this period is therefore aptly titled an 'at-risk' launch.

When a generic company calculates whether to make an at-risk launch, it considers, among others, the probability of whether the patent will be granted. If the patent is not granted and the at-risk launch succeeds, the generic company will profit. However, these profits will be lower than those that would have been generated by the innovator company had it been granted a patent due to the absence of direct competition. On the other hand, if the generic drug is launched at-risk and a patent is later granted to the innovator, the generic company bears a risk which is greater than the potential benefits of the at-risk launch itself, because it will likely be required to reimburse the innovator for the total reduction of its profits – and this includes the portion of profits that were not transferred to the generic company, but rather to the public, which enjoyed a more competitive price.

As stated in the court's decision, undertaking an at-risk launch is legally permissible, but the incentives to do so are lower than desired. The possibility that a generic drug will be launched at-risk is not enough to deter innovator companies from attempting to prolong unjustifiably the patent monopoly period granted to them by law.

Decision

The court determined that Unipharm failed to meet the burden of proof to demonstrate that Sanofi's application was for a weak patent. Therefore, the court was not required to deal with the question of whether (and under what circumstances) the submission of a weak patent by an innovator company in order to delay generic competition establishes a cause of action for a generic company whose market entry has been delayed by the weak patent application.

The decision focuses on misleading conduct during the patent application process. It determines that Sanofi:

  • misled the Patent Office by submitting information that it knew to be incorrect at the time of submission; and
  • did not disclose required information regarding the circumstances of the discovery that led to the additional patent application.

In doing so, Sanofi:

  • artificially increased the chances that its patent application would be accepted;
  • burdened the process of opposing the patent; and
  • delayed the entrance of generic companies (including Unipharm) into the market.

Thereafter, the court examined whether Unipharm was entitled to the profits that Sanofi generated as a result of the misleading conduct (as opposed to reimbursement for losses). In this context, the court ruled that misleading the Patent Office in such a way constitutes an infringement of not only patent law, but also antitrust law. The court ruled that Sanofi had abused its monopoly position in contravention of Section 29A(a) of the Restrictive Trade Practices Law 1988 (the Antitrust Law) in that it attempted to preserve its monopoly position after the expiration of its patent through misleading conduct.

Unipharm succeeded in convincing the court that Sanofi's misleading behaviour towards the Patent Office was intentional. In obiter dictum, the court determined that the standard of liability under Section 29A(a) of the Antitrust Law does not require an "intent to mislead" the Patent Office; rather, gross negligence on the part of the patent applicant is sufficient.

Regarding the requested remedy (a claim to Sanofi's profits) the court determined that the Antitrust Law which provides for a number of remedies (including the right to tort damages) does not grant a right to the profits of the violating party, as is the case with patent law. However, this should not be understood as a negative inference. The existence of a claim to profits generated as a result of a violation of antitrust law must be determined in accordance with unjust enrichment law.

Based on various considerations, including the aims to encourage fair competition following the expiration of a patent and deter innovator companies from performing illegitimate actions aimed at de facto prolonging their patent monopoly, the court determined that Unipharm had a legal claim to Sanofi's profits in the framework of unjust enrichment law.

The actual measure of Unipharm's claim to Sanofi's total profits has yet to be determined. The court ruled that Sanofi must submit a report detailing its profits stemming from the sale of Plavix in Israel from the date of the original patent's expiry until the withdrawal of the application for the additional patent. The restitution amount out of such profits will be determined after the parties have had a chance to make their arguments before the court. Conversely, Sanofi was given the option of paying the full amount claimed under the suit (approximately $700,000).

Comment

The court's decision attempts to rebalance the incentives for market participants during the period in which an innovator company's patent nears expiration, by introducing a risk to innovator companies: the transfer of their profits to generic companies if they are found liable of misconduct in prolonging a patent. The court's decision serves to caution innovator companies, which must tread carefully when protecting, expanding or prolonging their patent rights. Such companies must now consider not only patent law, but also antitrust law.

The decision's significance is not limited to the pharmaceutical sector. Its underlying rationale is also applicable in areas where there is tension between the protection of IP rights and harm to potential or actual competitors. The decision is likely to affect the conduct of innovators and generic manufacturers especially towards the end of a patent's term.

The decision raises a number of issues, including:

  • establishing Unipharm's right (as opposed to the public's) to all or a portion of Sanofi's profits; and
  • determining that a monopoly's profits that were generated illegally at the public's expense will be distributed to its competitors.

This precedential decision is likely to find its way to the Supreme Court, which will also be required to adjudicate on this important issue.

For further information on this topic please contact Shai Bakal, Nava Karavany or Itai Cohen at Tadmor & Co Yuval Levy & Co by telephone (+972 3 684 6000) or email (shai@tadmor-levy.com, nava@tadmor-levy.com or itaic@tadmor-levy.com). The Tadmor & Co Yuval Levy & Co website can be accessed at www.tadmor.com.

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