In a recent landmark Australian Federal Court decision, Bayer v Generic Health [2017] FCA 250, Bayer was awarded $30m ($25.7m in damages plus interest) to compensate for lost revenue caused by generic product sales infringing its patent covering the oral contraceptive Yasmin (ethinylestradiol/drospirenone).  This sets a new benchmark in Australia for future damages claims against generic manufacturers.  The Court’s willingness to adequately compensate the patent holder enhances Australia’s already very attractive “value proposition” for patentees.

The long-running dispute

Bayer initially sued Generic Health for infringement of its Australian patent, AU780330, by the manufacture and sale of the competing product, Isabelle. Interestingly, in 2012 during the initial infringement proceedings, Bayer amended the claims of the patent to more directly read on Isabelle, the amendments being approved by the Court.

Generic Health was found to have infringed the Bayer patent. Its subsequent appeal to the Full Federal Court was dismissed and its request for leave to appeal to the High Court was denied, thereby exhausting all avenues for appeal.

Bayer sought damages, as opposed to an account of profits, and argued that every sale of Isabelle (and of Bayer’s own generic Petibelle) was a lost sale of Yasmin. Generic Health submitted that:

Bayer should not be entitled to damages before the date the patent was amended (14 December 2012), because the original specification was not framed in good faith and with reasonable skill and knowledge;

  • damages should not be calculated on the basis that each sale of Isabelle and Petibelle was a lost sale of Yasmin;
  • a discount should be applied to Bayer’s costings to reflect the risk that Bayer would have incurred more costs in producing additional Yasmin tablets; and
  • interest should be calculated on post-tax losses.

However, the Court:

  • having considered extensive evidence from experienced patent attorneys, found that the claims were framed in good faith and with reasonable skill and knowledge (ie. not because Bayer considered that the original claims might be invalid) and that, as such, losses incurred before the amendment of the claims were compensable;
  • accepted evidence that “but for Isabelle, Bayer would never have put Petibelle on the market”and, moreover, found that Bayer’s loss was best assessed on the basis that every sale of Isabelle – and every sale of Petibelle over the period from its introduction until 30 June 2016, i.e. just over two years after Isabelle was removed from the market – was a lost sale of Yasmin (it was found that the number of women who would have bought Isabelle but not Yasmin was immaterial);
  • found that “in respect of the costings used to assess Bayer AG’s loss, the only discount should be in the amount of 2% to account for the risks associated with uncertainty about Bayer’s costings”; and
  • while noting that there is no guidance in the relevant legislation regarding whether interest should be applied to pre-tax or post-tax amounts, found that interest should be assessed on Bayer’s pre-tax losses.

Conclusion

The Bayer decision provides a useful benchmark for innovator companies to rely on in relation to future damages claims, and generally assessing the possible relief which might be obtained in patent infringement proceedings – particularly for a prescription pharmaceutical product listed on Australia’s Pharmaceutical Benefits Scheme (PBS). In particular, the finding that the quantum of damages was “best assessed” on the basis that every sale of a generic product is a lost sale of the innovator product, will no doubt be relied upon as a precedent by patentees. Further, the amount of damages awarded and the methodology by which they were calculated may influence the strategies adopted by generics when considering entering into the Australian market and may ultimately act as a deterrent.

Coupled with the relatively low cost of obtaining patent protection in Australia, not to mention our generous provisions relating to the extension of pharmaceutical patent terms, this case further enhances the attractiveness of Australia to patentees in the pharmaceutical area.

Despite our vast landmass, Australia is often considered a relatively small jurisdiction when developing a global patent strategy due to our population size of around 24 million. However, Australians are high consumers of pharmaceuticals,[1] owing largely to the substantial government subsidies available under the PBS. In the financial year ending June 2016, we spent over $10bn on pharmaceuticals, representing an increase of 19.5% from the previous year.[2] Moreover, many patented drugs generated revenues well in excess of $100m in the 2016 financial year eg. Denosumab ($126m, Amgen), Adalimumab ($339m, AbbVie) and Sofosbuvir/Ledipasvir+Sofosbuvir ($213m/$358m, Gilead).

Hence, overlooking Australia in a national phase patent filing programme, especially in relation to patents covering pharmaceuticals, carries with it the risk of foregoing significant revenue in what some might consider a “small jurisdiction”.