FEDERAL COURT OF AUSTRALIA

Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2010] FCA 1258 

REASONS FOR JUDGMENT

Introduction

1                     I have before me a notice of motion dated 9 November 2010 filed by Sigma Pharmaceuticals (Australia) Pty Limited (“Sigma”) which seeks, inter alia, a stay of order 7 made by the primary judge, Jagot J, on 8 November 2010. 

2                     The effect of the order which is sought is that there be a stay of order 7 pending the receipt by the Court of an undertaking as to damages from Wyeth, which was the successful party in the proceeding before her Honour.

Background 

3                     The background to the notice of motion may be found in the reasons for judgment given by her Honour on 8 November 2010; see Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth (No 2) [2010] FCA 1212.

4                     There were three sets of proceedings heard before her Honour.  Sigma was a party to one of the proceedings.  The second set of proceedings involved Alphapharm Pty Limited.  In the third set of proceedings, Generic Health Pty Limited, was the applicant.  Wyeth was the respondent and cross-claimant in each of the proceedings.

5                     Wyeth succeeded in its cross-claims against Sigma, Alphapharm and Generic Health for threatened infringement of Wyeth’s patent in respect of venlafaxine hydrochloride, which is marketed under the name Efexor XR.  Sigma is concerned that prior to the appeal from her Honour’s orders, Wyeth may launch its own generic venlafaxine product or licence another generic to do so. 

6                     Sigma’s concerns are based on earlier threatened conduct by Wyeth, which is referred to in the affidavit of Mr Robert Ellis made on 20 October 2010. 

7                     It is desirable that I give my reasons for judgment on this application as a matter of some urgency.  The reasons accordingly, may not be as comprehensive as they would be if I were to reserve judgment and deal at length with the submissions which were put in some detail this morning by counsel for the parties.  Nevertheless, I am in a position to deal with the matter today and I will endeavour to express my reasons as shortly as possible. 

8                     Sigma’s concern is that if it is successful in its appeal it will be confronted with a market in which another generic supplier of venlafaxine has already been supplying for some time and in which it has thereby established a substantial market share.  This is to be contrasted with the state of the market at the time when Sigma contends that it was ready to launch its generic prior to the grant to Wyeth of interlocutory injunctive relief.  The injunction was granted by Sundberg J in June 2009.

9                     Sigma points to two different categories of damage which it claims it will suffer.  The first is sales lost during the period from June 2009 to the date of her Honour’s orders in the proceeding at first instance. 

10                  The second is the loss which will be suffered during the period between the filing of the notice of appeal and the hearing and the determination of the appeal. 

Legal Principles

11                  The present application is brought under Order 52, rule 17(3) of the Federal Court Rules.  That rule permits this application to be brought in the court’s appellant jurisdiction even though a similar application was refused by Jagot J on 8 November 2010.  Her Honour refused to grant a stay sought by Sigma or to order any of the other forms of protective regime which were sought by Sigma or Alphapharm at the time when her Honour was considering the terms of the final orders in the proceedings.

12                  The principles relevant to the exercise of the court’s discretion to grant a stay are well established.  They were set out by Jagot J at [15] of her reasons, and need not be repeated.  It is sufficient to say that an applicant for a stay has the burden of persuading the court that it should be granted but it is not necessary to show special or exceptional circumstances.  What is required is that the party seeking a stay, needs to show some reason why it should be granted.  Stays are commonly granted where, for example, an appeal would prove abortive or the fruits of the appeal would be rendered nugatory in the absence of a stay. 

13                  Jagot J accepted that the complexity of the proceeding is such that Sigma’s appeal may be said to be based on reasonable grounds.  That is, merely to say that the appeal is genuine. 

14                  The authorities suggest that it is unnecessary for me to consider what the precise prospects are. 

Sigma’s Submissions

15                  Sigma submits that the orders which it seeks are designed to do justice between the parties, whatever the outcome of the appeal may be.  Sigma submits that if it is successful on the appeal it will be protected by the undertaking as to any damage that it may suffer in the period up to the date on which the appeal is determined.  Sigma also submits that there is no detriment to Wyeth in proffering an undertaking in circumstances where Wyeth ought to be able to assess its own prospects of success on the appeal. 

16                  Sigma relies, in particular, upon the principles discussed by Buckley LJ in Minnesota Mining and Manufacturing Company v Johnson and Johnson Limited (No 3) [1976] RPC 671 (“Minnesota Mining”).  The relevant passage was set out in the reasons for judgment of Jagot J and I will not repeat it.  In summary, if a defendant in good faith proposes to appeal, challenging the trial judge’s findings and has a genuine chance of success on the appeal, according to the approach stated by Buckley LJ the plaintiff’s entitlement to a remedy cannot be regarded as certain until the appeal has been disposed of. 

17                  Buckley LJ went on to say that it may be possible to do justice by staying an injunction pending the appeal.  His Lordship also said, on the other hand, that it may, in some circumstances, be fair to allow the injunction to operate on condition that the plaintiff gives an undertaking as to damages or otherwise protects the defendant’s rights should the defendant succeed on appeal. 

18                  There was some debate before me as to whether the principles stated by Buckley LJ apply in Australia.  Sigma pointed to the decision of Gray J in Westaflex (Aust) Pty Limited v Wood (1990) 18 IPR 168 (“Westaflex”) as support for the proposition that the principles expressed by Buckley LJ represent the law in Australia. 

19                  Reference was also made to the decision of Emmett J in Atlantis Corporation v Schindler (unreported, Federal Court of Australia, 22 May 1997, BC 9702195).  However, it is not entirely clear to me that Emmett J proceeded upon the basis that the principles stated in Minnesota Mining represent the law in Australia.

20                  Whatever be the correct position I am content to proceed on the basis that the principles stated by Buckley LJ are applicable in the present motion. 

21                  Sigma relies upon the fact that Wyeth has refused to proffer the undertaking sought.  Sigma points to the fact that a party’s willingness (or unwillingness) to give an undertaking as to damages is a relevant consideration in the exercise of the court’s discretion.  Hely J in Red Bull Australia Pty Limited v Sydneywide Distributors Pty Limited [2001] FCA 1750 (“Red Bull”) at [10] accepted that this is a relevant factor in the exercise of the discretion, although ultimately his Honour went on to refuse to grant a stay in that matter.

22                  Sigma relied, in particular, upon the proposition that Wyeth, as the sole generic entrant in the market, will be well placed in the absence of any generic competition to build up a large market share and to use its position to build upon what is referred to in this matter as the first mover advantage. 

23                  Sigma submits that during the period pending the determination of the appeal Wyeth would be able to make sales at a higher price than if there were competition in the market.  It submits that these are sales which would have been Sigma’s if no injunction were granted or if the sales had been shared between Sigma and Alphapharm as, according to Sigma, would have been the position if the interlocutory injunction had not been granted.

24                  Sigma also submits that it will face significant difficulties in getting its generic product into the market if Wyeth is able to introduce its generic product prior to the determination of the appeal.  It points to the evidence of Mr Ellis as supporting the proposition that the entry of additional generics has the impact of reducing price as the only way for a late entrant generic to build market share.  That is to say, the later the market entrant the more price discount will need to be offered in order to obtain market share.  According to Sigma this would give Wyeth a significant and irreversible advantage in terms of market share and pharmacy loyalty.

Discussion

Application for stay

25                  Notwithstanding the submissions of Mr Shavin QC, senior counsel for Sigma, and the matters to which he took me in some detail this morning, it seems to me that this is not a case in which I ought to make the order for the stay sought in Sigma’s notice of motion. 

26                  The starting point for consideration, in my opinion, is that which was stated by Hely J in Red Bull at [6].  His Honour observed that prima facie a successful party is entitled to the benefit of the judgment which that party has obtained and is entitled to commence with the presumption that the judgment is correct.  As his Honour observed, the judgment, after a hearing on the merits, is not to be regarded as provisional in character pending the determination of an appeal.

27                  His Honour also observed at [9] that the successful party at the final hearing is not under any obligation to provide an undertaking as to damages as the price for injunctive relief.  The undertaking as to damages is required in the case of an interlocutory injunction, in particular, because interlocutory relief is granted on the basis that there is a triable issue before any determination of the merits. 

28                  It seems to me that the authorities on which Sigma relies are not applicable to the facts of the present case.  This is because in Westaflex and in Minnesota Mining the infringers were already in the market with their products and substantial disruption to their existing position would have been occasioned by the operation of the injunctions.

29                  Indeed, in Westaflex there was evidence that the appellants would lose established customers and that they would be likely to lay off employees and would be unable to fulfil existing contracts with the real risk that the company may not be able to survive and would go into liquidation. 

30                  Moreover, in Minnesota Mining Buckley LJ at 678 made it clear that he would have been disposed to grant a stay had the plaintiff been unwilling to give the undertaking as to damages.  That is not the case here. 

31                  The effect of what Sigma seeks is to obtain an undertaking as to monetary compensation for a perceived disadvantage arising from its failure in the proceedings at first instance.  I do not see that on the evidence before me that Sigma’s position is any different from any other party who has lost at first instance and might suffer some perceived disadvantage as a result of the judgment. 

32                  This seems to me to be quite clear from the reasons for judgment of Jagot J.  Her Honour pointed out that the affidavit of Mr Ellis was expressed at a high level of generality.  The same evidence was relied upon today although the affidavit of Mr Ellis was put in evidence as an exhibit to the affidavit of Ms Mandelbaum filed in support of the notice of motion.

33                  It is true that the primary judge said at [27] that it is obvious that the first generic entrant into a market has an advantage over later entrants simply by reason of the fact that later entrants face more competitors.  It is also true that her Honour accepted that at the time when they were enjoined, Sigma and Alphapharm stood to enter a market with no generic competitor other than themselves. 

34                  However, her Honour pointed out that the evidence of Mr Ellis demonstrates that generic products can readily enter markets after the entry of other generics.  This in my view was graphically borne out in the cross-examination of Mr Ellis before the primary judge.

35                  The evidence appears at pages 38 to 41 of the transcript of the hearing of 28 October 2010.  The effect of it is that Mr Ellis conceded that Sigma was able to achieve significant market share for some of its other drugs, notwithstanding that it was not the first mover in the market.  Indeed, Mr Ellis conceded that in one instance a Sigma product had attained either the highest market share or near enough thereto, even though it was not the first mover. 

36                  It seems to me that the effect of that evidence in cross-examination is to reduce if not remove altogether the evidence to which Mr Shavin pointed in the way of graphs contained in exhibit JDM4 to Ms Mandelbaum’s affidavit.  Those graphs do point to the disadvantages suffered by the manufacturers of generic versions of the drug who enter the market after other entrants.  Nonetheless, as I have said, the concessions made by Mr Ellis seem to me to put the evidence in the graphs in their correct context. 

37                  In any event, as the primary judge observed at [28], despite the weight of the factors to which Sigma pointed, her Honour was unable to conclude that justice required orders to be made as sought by Sigma and Alphapharm.  Sigma bore the persuasive onus and it had not entered the market at the time when it was enjoined. 

38                  Her Honour observed at [29] that the vagueness of the available evidence about harm, and the degree of protection afforded by the undertaking which Wyeth is willing to give that it will not de-list its extended release venlafaxine hydrochloride product, point against the grant of a stay or any other form of protection to Sigma.

39                  This is not a case where the subject matter of the appeal will be destroyed unless the order as sought is made.  I reject the submission made by Mr Shavin that the appeal rights will be rendered “partly nugatory.”  That is not, in my view, a test which has been adopted in the authorities, although as can be seen from the authorities to which I have referred above, in some instances it may be appropriate to mould the terms of relief to meet the justice of the particular case. 

40                  In this case Sigma does not enjoy any known market share.  As Jagot J observed at [30], at its highest Sigma had a capacity to enter a market that was likely to be subject to relatively rapid change having regard to the intentions of other manufacturers.

41                  Importantly, her Honour said at [31] that Sigma did not present evidence enabling any conclusion to be reached about the real extent of the adverse impact upon it. 

42                  The same observation applies with equal force in today’s application.  Essentially for those reasons, I do not consider that relief in the terms sought by Sigma in its notice of motion ought to be granted.

43                  I should add that I have taken into account in the exercise of my discretion to refuse a stay, that I will not make an expedition order in today’s application.

Application for Expedition 

44                  Sigma’s amended notice of motion also seeks an order for expedition for the hearing of the appeal.

45                  Whilst it does seem to me to be likely that this is a matter which should be expedited, in my opinion, an order for expedition ought not to be made today. 

46                  It is important to bear in mind that although Wyeth does not consent to expedition, it has accepted that the appeal should be dealt with as soon as possible and it will cooperate to that end.  Mr Dimitriadis indicated that he would agree to the appeal being listed at the earliest date available to counsel for Wyeth. 

47                  It may be that this is not a case in which the convenience of all counsel can be accommodated.  The matter has considerable commercial ramifications for the parties and as Jagot J stated at [47], it does seem to be a matter which should be expedited.  I endorse that approach. 

48                  The difficulty in making an order this morning is that I am not yet satisfied that the notice of appeal is sufficiently refined in relation to the grounds stated in the notice.

49                  Her Honour’s observations were made in light of the position that Sigma acknowledged that the notice of appeal would be refined to raise only the key issues. 

50                  Mr Shavin told me this morning that there are only four issues raised, even though there are some 29 grounds stated in the notice of appeal. 

51                  There is also to be taken into account the fact that Alphapharm has not yet filed a notice of appeal. 

52                  Whilst, of course, Sigma is entitled to seek the earliest possible hearing of the appeal, the proceeding below was one which was dealt with together with the Alphapharm matter and it is desirable in the interests of justice that the appeals should be heard together.  This is not just a matter of convenience to the Court, it is a matter which is essential to the administration of justice. 

53                  That is not to say that Sigma’s position should be affected by the considerations applicable to Alphapharm’s notice of appeal.  Alphapharm was not a party to today’s application because it has not yet filed a notice of appeal but its solicitor was in Court and indicated that Alphapharm would take whatever steps are necessary to try to have the matter brought on quickly. 

54                  It seems to me that it goes without saying that it is in the interest of both Sigma and Alphapharm to have the proceeding expedited and I act upon the basis that they will do whatever is necessary to have the matter ready. 

55                  Nevertheless, in the present circumstances, I think that what should be done is that the motion for expedition ought to be stood over for a short period to enable Alphapharm to file its notice of appeal and for the parties to give due consideration to that document and to other matters which may affect the hearing of both appeals.

Associate:

Dated:         17 November 2010