FEDERAL COURT OF AUSTRALIA

Novartis AG v FH Faulding & Co Ltd [2004] FCA 1002

Federal Court Rules O 29 r 2

The Wik Peoples v Queensland (unreported, 26 May 1994, Drummond J) cited

GMB Research & Development Pty Ltd v The Commonwealth (unreported, 28 August 1997, Sackville J) cited

Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 cited

Olbers Co Ltd v The Commonwealth (No 3) [2003] FCA 651 cited

Soufflet Beheer v AWB Limited [2004] FCA 518 cited

Novartis Pharmaceuticals Canada Inc v Rhoxalpharma Inc (unreported, Federal Court of Canada, 29 March 2004) considered

Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 cited

Dunstan v Simmie & Co Pty Ltd [1978] VR 669 cited

Century Medical v THLD [2000] NSWSC 5 (unreported, Supreme Curt of NSW, 3 February 2000, Rolfe J) cited

EnergyAustralia v Australian Energy Limited [2001] FCA 1049 cited

Idoport Pty Ltd v National Australia Bank Ltd [2000]NSWSC 1215 cited

NOVARTIS AG v FH FAULDING & CO LIMITED and HEXAL AUSTRALIA PTY LIMITED

V1163 OF 2003

SUNDBERG J

3 AUGUST 2004

MELBOURNE

THE COURT ORDERS THAT:

1.                  The first paragraph of the motion notice of which was filed on 21 April 2004 be dismissed.

2.                  The second respondent pay the applicant’s costs of the first paragraph of the motion.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The applicant is registered under the Patents Act 1990 as the proprietor of Australian Letters Patent No 606,908 for an invention entitled “Pharmaceutical Injectable Hydrosol Compositions”. The applicant alleges the respondents have infringed the Patent. The first of the claims defining the invention reads:

“A pharmaceutical preparation the active agent of which comprises a cyclosporin, said preparation comprising:

a hydrosol, the particles of which comprise said active agent in solid form, have an average statistical diameter of below one micrometer, have a diameter of from 1 to 10,000 nanometers, and are stabilized whereby the particular size distribution of said particles is maintained constant; or

a stabilized particulate phase of the hydrosol as defined above in dry or isolated form.”

2                     The parts of the amended statement of claim relevant for present purposes are as follows (omitting the particulars):

“6.       …

(a)               the Respondents have, without the licence or authority of the Applicant, supplied, or caused the supply of, ‘Cysporin’ capsules.

(b)               the Second Respondent has, without the licence or authority of the Applicant, supplied, or caused the supply of, ‘Cicloral’ capsules.

7.               The active agent of Cysporin capsules and Cicloral capsules comprises a cyclosporin.

8.               The Cysporin capsules and Cicloral capsules were each supplied with instructions to take the capsules with water (‘the instructions’).

9.               Patients have purchased the Cysporin capsules and the Cicloral capsules and taken them in accordance with the instructions.

10.           In consequence of taking the Cysporin capsules and the Cicloral capsules in accordance with the instructions the said patients have:

(a)               made, in their stomachs, a pharmaceutical preparation comprising a hydrosol as claimed in claims 1, 2, 3, 4, 16, 17 and 18 of the Patent (‘the claims’);

(b)               used the said pharmaceutical preparation;

(c)                exploited the invention defined in the claims by the conduct referred to in subparagraphs (a) and (b) hereof; and

(d)               accordingly infringed the Patent.

11.           By supplying, or causing the supply of, Cysporin capsules to patients with the instructions, the Respondents have authorised, alternatively aided, abetted, counselled or procured the said patients to exploit the invention defined in the claims and the Respondents have thereby infringed the Patent.”

Paragraph 12 is the same effect as paragraph 11 save that it refers to Cicloral capsules and pertains to the second respondent alone.

3                     The respondents either admit or substantially admit the allegations in paragraphs 6 to 9, and deny those in paragraphs 10 to 12. In its Defence the second respondent asserts that the Patent is invalid, and foreshadows a cross‑claim to that effect. While admitting the applicant’s registration as proprietor of the Patent, the first respondent does not admit the allegation that the Patent is, and has at all material times been, valid.

4                     The second respondent has applied for an order under Order 29 rule 2(a) of the Rules of Court that the following questions be determined separately from any other question and before the trial of the proceeding:

“1.       Do or could Cysporin capsules or Cicloral capsules that have been supplied as alleged in the Amended Statement of Claim (‘the Capsules’), when taken with water as referred to in paragraphs 8, 9 and 10 of the Amended Statement of Claim, result in a ‘pharmaceutical preparation’ as that term is used in claim 1 of the complete specification of Australian Letters Patent number 606,908 (‘the Patent’), as alleged in paragraph 10(a) of the Amended Statement of Claim?

2.                  Further, or in the alternative to 1, on the assumption made for the purposes of this question only that the Capsules:

(a)               contain a cyclosporin which is the active agent; and

(b)               when taken with water as referred to in paragraphs 8, 9 and 10 of the Amended Statement of Claim, they form a hydrosol, the particles of which comprise the said active agent in solid form, have an average statistical diameter of below one micrometer, have a diameter of from 1 to 10,000 nanometres, and are stabilised whereby the particle size distribution of said particles is maintained constant,

would there be a ‘pharmaceutical preparation’ within the meaning of claim 1 of the Patent?”

The respondents have undertaken that if the preliminary questions are answered in the second respondent’s favour, they will not challenge the validity of the Patent in the proceeding. The applicant opposes the making of an order for preliminary questions.

5                     In The Wik Peoples v Queensland (unreported, 26 May 1994), speaking of Order 29 rule 2(a), Drummond J said (omitting citations):

“For the procedure to be appropriate it is no longer necessary that the decision on the preliminary question must be conclusive of that issue, whichever way it is decided: it is enough that, if it is decided in one way, that will be decisive of the issue. … The procedure can be appropriate even though a decision on the preliminary issue or issues will not determine the litigation: it is enough if the determination will ‘substantially narrow the field of controversy’. … Whether the procedure is appropriate in a particular case will in large part depend upon the Court being satisfied that, even if it will not put an end to litigation, a determination of the preliminary issue in one way will substantially shorten the trial or result in a significant saving in time or money….”

This passage was quoted with approval by Sackville J in GMB Research & Development Pty Ltd v The Commonwealth (unreported, 28 August 1997).

6                     In Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 at [8] Branson J summarised the relevant principles. Those of relevance to the present case are as follows (omitting citations):

“(b)     a question can be the subject of an order for a separate decision under O 29 r 2 even though a decision on such a question will not determine any of the parties’ rights …;

…

(f)        factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may –

(i)                 contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; …

…

(g)        factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may ‑

(i)                give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial …;

(ii)              result in significant overlap between the evidence adduced on the hearing of the separate question and at trial ‑ possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding …. This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or

(iii)            prolong rather than shorten the litigation ….”

The principles stated by her Honour have been approved in later cases. See Olbers Co Ltd v The Commonwealth (No 3) [2003] FCA 651 and Soufflet Beheer v AWB Limited [2004] FCA 518.

7                     The second respondent’s solicitor filed an affidavit in which he claimed that

·               if the Court answers the questions in favour of the second respondent, the applicant’s infringement claim will fail

·               if the questions are not determined separately, the parties will have to prepare their cases on infringement on the basis that the in vivo conversion to the hydrosol is capable of infringing claim 1

·               this will require a large amount of very technical evidence on both sides as to what happens to the capsules both in theory and in practice

·               the second respondent’s proposed cross‑claim challenging the validity of the Patent will result in an increase in the length of the trial and the amount of evidence by a factor of at least 100 per cent

·               there will be a great saving of time and expense if the preliminary questions are determined in favour of the respondents, because the cross claim will then not proceed.

8                     Counsel for the respondents accept that the proposed preliminary questions will probably involve evidence from one or two expert witnesses from each side. They point out that while such evidence is admissible on the question of construction, the matter is ultimately one for the Court, and submit that the meaning of the term “pharmaceutical preparation” will largely be determined by its context in the specification. They say the hearing of the questions would take, at most, two or three days. While acknowledging that if the questions are answered adversely to the respondents, the parties may call at trial the same witnesses who gave evidence at the preliminary hearing, counsel contend that it is most unlikely that questions of credit of the experts will arise in a manner that could affect whether they are re‑called or otherwise embarrass the Court or the parties. Counsel accept the undesirability of fragmenting proceedings, but submit that this is outweighed by the utility of the preliminary questions procedure. They claim that the questions are discrete, the hearing will be relatively short, and if the questions are answered in favour of the respondents they will be determinative of the proceeding.

9                     Counsel submit that on the applicant’s construction of the specification the question of infringement will involve experimental proof of whether a hydrosol is formed in vivo, which is likely to be expensive, time‑consuming and contentious. This is said to be illustrated by the recent decision of the Federal Court of Canada in Novartis Pharmaceuticals Canada Inc v Rhoxalpharma Inc (unreported, 29 March 2004), in which it was decided at trial, on a patent in substantially the same form as that in suit here, that a hydrosol formed in situ was a pharmaceutical preparation within claim 2(a) of the patent. Finally, counsel submit that the cross‑claim on validity will take quite some time, and is likely to involve considerable discovery.

10                  The applicant’s solicitor filed an affidavit in which he expressed the following opinions:

·               the separate question procedure will result in delay and extra expense

·               it is unlikely that there will be a decision on the questions until mid‑2005 having regard to the time required for the filing of the parties’ evidence on the questions, assuming a hearing in early 2005

·               if there is an appeal from the decision, the result of an appeal is unlikely to be known until early 2006

·               if the applicant is successful on the questions, the proceeding will be back where it started – the applicant will have to prove the existence of the other integers of the claim, the second respondent will pursue its cross‑claim, discovery will have to be completed, and the parties’ evidence in support of their claims, response evidence and evidence in reply will have to be prepared

·               the separate questions are not short or easy, and reliance is placed on the Canadian Novartis decision which indicates that the issue is a substantial one involving extensive evidence and cross‑examination, and the same could be expected here

·               the proper construction of the specification will involve expert evidence, and if the questions are answered against the respondents, the same witnesses will be required to give evidence again in relation to the other infringement issues and the validity issue.

11                  Counsel for the applicant elaborated on some of these matters. He painted the following scenario, which assumes that the separate questions are answered favourably to the applicant:

·               there will be discovery of documents relating to the separate questions

·               experts for each party will file evidence going to the separate questions

·               there will be a trial, and the experts will be cross‑examined in relation to their opinions as to the meaning of the words of the claim and in particular of the phrase “pharmaceutical preparation”

·               there will be judgment in favour of the applicant

·               there will be an appeal

·               the appeal will be unsuccessful

·               the respondents will cross‑claim for revocation of the Patent

·               there will be discovery in relation to the remaining issues on infringement, including whether a hydrosol is in fact formed, whether the particle sizes of the active ingredient fall within the claims, and matters going to authorisation, aiding, abetting, counselling and procuring, and s 117 of the Patents Act

·               there will be discovery in relation to the issues arising on the allegations of invalidity

·               there will be further affidavit evidence on the remaining infringement issues and the validity issues, including affidavits from the experts who gave evidence on the separate questions

·               there will be cross‑examination, including a second round of cross‑examination of the experts on their further affidavits

·               there will be judgment and an appeal.

12                  On the basis of the foregoing scenario it was said that if the separate questions are decided in favour of the applicant, there will be a prolongation of the matter, the need for witnesses to give evidence and be cross‑examined twice, multiplication of interlocutory procedures, and the need for the parties to prepare for trial twice. Counsel for the applicant submitted that separate determination of the questions would only be a useful course if the Court could have some confidence that the answers would favour the respondents, thereby relieving it and the parties of any further need to consider infringement and validity. In the light of the Canadian Novartis, it was said that the Court could have no such confidence.

13                  It is a powerful consideration in favour of ordering separate questions that if they are answered in favour of the respondents it will be determinative of the proceeding. However I do not understand the passage from Wik set out in [5] as indicating that in such a case the court must or should exercise its discretion under Order 29 rule 2(a) in favour of separate questions. Rather the position is, as stated in Reading, that that is a factor tending to support such an order. See Branson J’s principle (f) quoted at [6]. The statement of Giles CJ in Comm D in Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141 that

“separate decision of a question may be appropriate where, for example, the decision of the question is critical to the outcome of the proceedings and (at least if decided in one way) will bring the proceedings to an end”

supports this approach. Other authorities indicate that a stronger case for a separate question would exist if the answer would resolve the whole of the proceedings whichever way it was returned. See Dunstan v Simmie & Co Pty Ltd [1978] VR 669 at 671, cited with approval in Century Medical v THLD [2000] NSWSC 5 (unreported, Supreme Court of NSW, 3 February 2000 per Rolfe J) at [29]. Where the proceeding would only be brought to an end if the question were resolved in favour of one side, all relevant factors must be weighed in the balance, including the possibility that the questions may be answered in favour of the other side and the consequences that may flow therefrom. Each case must be treated on its own merits. There is no absolute rule: Century Medical at [31]. In my view, that possibility and those consequences outweigh the fact that answers in favour of the respondents will determine the proceeding.

14                  A separate question hearing that is resolved in favour of the applicant may result in the need to determine contested factual issues at the separate questions hearing and again at trial. In Tallglen the Chief Judge observed that:

“It is often the case that the need to make findings of fact for a decision of the separate question, especially findings which may involve issues of credit, tells strongly against the making of an order because related facts, and renewed issues of credit, will or may arise at a later stage in the proceedings.”

15                  On the same assumption, an order for separate questions may result in an overlap between the evidence called at the two stages, with experts being cross‑examined twice, resulting in additional expense and inconvenience. This danger was recognised by Stone J when her Honour refused to order separate questions in EnergyAustralia v Australian Energy Limited [2001] FCA 1049 at [8]. As the Canadian Novartis case shows, the questions involved are neither short nor easy, and are likely to involve a considerable amount of expert evidence.

16                  There is also a danger that the order may considerably prolong the litigation as a result of appeals and duplicated interlocutory steps. In Idoport Pty Ltd v National Australia Bank Ltd [2000]NSWSC 1215 at [7] Einstein J warned that

“(5)     … the separate determination of an issue will rarely be an appropriate procedure where:

…

(c)                there is a possibility that the resolution of the separate issue will not finally determine the issue but will merely result in an appeal from that decision in relation to that separate issue, creating a multiplicity of proceedings, interruption to the court and the undesirable fragmentation of the proceedings ….

(6)        The experience of courts suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings as anticipated, but often has the reverse effect, merely causing added delay and expense to the resolution of the litigation. Thus, before an issue is to be separately determined, it must be possible to clearly see that it will facilitate the quicker and cheaper resolution of the proceedings ….”

See also Energy Australia at [6], and Century Medical at [31] where Rolfe J said that in his experience an order for separate issues “usually leads to a proliferation rather than a truncation of litigation”.

17                  The possibility referred to by Einstein J in Idoport exists here. Neither the applicant’s solicitor’s timetable set out in [10] nor its counsel’s scenario set out in [11] is unrealistic.

18                  I have recorded the applicant’s submission that separate determinations would only be useful if the Court had some confidence that the answers would favour the respondents. I do not have any such confidence. I have not found the Canadian Novartis of assistance on this question. In an earlier proceeding between the same parties (2001 FTC 137) Tremblay-Lamer J rejected Novartis’ argument that “pharmaceutical preparation” covered a hydrosol formed in situ. As I have said, in the later case Lemieux J accepted that argument. The judge said at [223] that the expert evidence before Tremblay‑Lamer J was “substantially different than the evidence I received and that difference justifies the opposite conclusion I have reached”.

19                  The ordinary course is that all issues in a proceeding should be dealt with at the one time: Tallglen at 141, Idoport at [7](3) and EnergyAustralia at [5]. That position should not be disturbed unless it can be clearly seen that determination of a separate question will facilitate the quicker and cheaper resolution of the proceedings: Tallglen at 142, Idoport at [7](6), EnergyAustralia at [6]. For the reasons indicated, the respondents have not satisfied me that that presumption should be displaced. In the exercise of the discretion conferred by Order 29, I decline to make the order they seek.

Associate:

Dated:              3 August 2004