FEDERAL COURT OF AUSTRALIA

Apotex Pty Ltd v Warner-Lambert Company LLC (No 3) [2017] FCA 94

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant’s Originating Application dated 8 May 2013 be dismissed.

2.    A certificate be issued pursuant to section 19 of the Patents Act 1990 (Cth) to certify that the validity of each of claims 1 to 32 of Australian Patent No. 714980 (“the Patent”) was questioned in this proceeding.

3.    Order 1 of the orders of Griffiths J dated 14 March 2014 in Federal Court of Australia Proceeding No. NSD 199 of 2014 (“the interlocutory proceeding”) and order 3 of the orders of the Full Court of the Federal Court of Australia (Allsop CJ, Jagot and Nicholas JJ) dated 19 May 2014 in Federal Court of Australia Proceeding No. NSD 287 of 2014 (“the interlocutory appeal”) be discharged.

4.    The Cross-Claimants be released from undertaking (c) given to Griffiths J in the interlocutory proceeding on 14 March 2014 as set out in his Honour’s orders of that date and to the Full Court in the interlocutory appeal on 19 May 2014 as set out in the Full Court’s orders of that date.

5.    The Applicant/Cross-Respondent, whether by itself, its directors, officers, servants or agents or otherwise, be restrained from, in the patent area (as defined in Schedule 1 to the Patents Act 1990 (Cth)) (“the patent area”), during the term of the Patent, and without the licence or authority of the Respondent/Cross-Claimants: – infringing any of claims 1 to 31 inclusive of the Patent including, in particular, by importing, making, selling, supplying or otherwise disposing of, or offering to import, make, sell, supply or otherwise dispose of, or using or keeping in the patent area, for the purpose of doing any of the foregoing acts, any product containing pregabalin, including, without limitation, any of the products listed in Annexure A to these orders (collectively, the Apotex Generic Pregabalin Products), other than as permitted by section 119A or 119C of the Patents Act 1990 (Cth).

6.    For the avoidance of doubt, the terms of the injunction imposed by order 5 do not prevent the Applicant/Cross-Respondent from taking any steps required to obtain listing of the Apotex Generic Pregabalin Products under the pharmaceutical benefits scheme (“PBS”) maintained by the Australian Government Department of Health under the National Health Act 1953 (Cth).

7.    Within 2 days of the date of these orders, the Applicant must notify the Australian Government Department of Health of the granting of the permanent injunction in order 5 and of its terms.

8.    The Cross-Claimants’ Notice of Cross-Claim dated 30 April 2014 be otherwise dismissed.

9.    The Applicant/Cross-Respondent pay the Respondent’s/Cross-claimants’ costs of the proceeding, including any reserved costs, but excluding any costs the subject of any other previous costs order, as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    The Cross-Claimant’s Notice of Cross-Claim dated 6 May 2014 be dismissed.

2.    A certificate be issued pursuant to section 19 of the Patents Act 1990 (Cth) to certify that the validity of each of claims 1 to 30 of Australian Patent No. 714980 (“the Patent”) was questioned in this proceeding.

3.    Order 1 of the orders of Yates J dated 7 April 2014 and order 2 of the orders of Nicholas J dated 23 May 2014 be discharged.

4.    The applicants be released from undertaking (c) given to Yates J on 7 April 2014 as set out in Honour’s orders of that date and undertaking (c) given to Nicholas J on 23 May 2014 as set out in his Honour’s orders of that date.

5.    The Respondent/Cross-Claimant, whether by itself, its directors, officers, servants or agents or otherwise, be restrained from, in the patent area (as defined in Schedule 1 to the Patents Act 1990 (Cth)) (“the patent area”), during the term of the Patent, and without the licence or authority of the Applicants/Cross-Respondents: – infringing any of claims 1 to 30 inclusive of the Patent, including, in particular, by importing, making, selling, supplying or otherwise disposing of, or offering to import, make, sell, supply or otherwise dispose of, or using or keeping in the patent area, for the purpose of doing any of the foregoing acts, any product containing pregabalin, including, without limitation, any of the products listed in Annexure A to these orders (collectively, the Generic Partners Generic Pregabalin Products), other than as permitted by section 119A or 119C of the Patents Act 1990 (Cth).

6.    For the avoidance of doubt, the terms of the injunction imposed by order 5 do not prevent the Respondent/Cross-Claimant from taking any steps required to obtain listing of the Generic Partners Generic Pregabalin Products under the pharmaceutical benefits scheme (“PBS”) maintained under the National Health Act 1953 (Cth).

7.    Within 2 days of the date of these orders, the Respondent/Cross-Claimant must notify the Australian Government Department of Health of the granting of the permanent injunction in order 5 and of its terms.

8.    The Applicants’ Originating Application dated 7 March 2014 be otherwise dismissed.

9.    The Respondent/Cross-Claimant pay the Applicants’/Cross-Respondents’ costs of the proceeding, including any reserved costs, but excluding any costs the subject of any other previous costs order, as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

NICHOLAS J:

Background

1    On 21 October 2016 I delivered my reasons for judgment in two proceedings. The first proceeding (“the Pfizer proceeding”) was brought by Apotex Pty Ltd (“Apotex”) against Warner-Lambert Company LLC and four related entities that form part of the Pfizer group of companies (together “Pfizer”). The second proceeding was brought by Pfizer against Generic Partners Pty Ltd (“GPPL”).

2    I rejected the challenges to the validity of claims 1 to 32 of Australian Standard Patent 714980 (“the Patent”) and held that Pfizer is entitled to quia timet injunctive relief against Apotex for threatened infringement of claims 1 to 31 and against GPPL for threatened infringement of claims 1 to 30: see Apotex Pty Ltd v Warner-Lambert Company LLC (No 2) [2016] FCA 1238 at [305] (“Apotex No. 2”) The Patent is due to expire on 16 July 2017.

3    There are a number of issues that I must now resolve which relate to the form of injunctive relief. It is accepted by Apotex and GPPL that Pfizer is entitled to injunctive relief, but not in the particular terms sought by Pfizer. There is also an issue as to whether Pfizer should be released from its undertakings as to damages. Finally, there is also an issue in relation to the costs of the proceeding between Pfizer and Apotex. Pfizer seeks an order that Apotex pay the costs incurred by Pfizer after a certain date on an indemnity basis.

The Form of the Restraint

4    Pfizer submitted that by applying for a Pharmaceutical Benefits Scheme listing (“PBS listing”) of Apotex’s range of pregabalin products (“the products”) Apotex will offer to supply or otherwise dispose of products of the claimed invention, or otherwise exploit it, and thereby infringe the Patent. Pfizer therefore seeks an injunction the terms of which would expressly prevent Apotex from applying for a PBS listing.

5    Apotex opposes the making of an injunction that would prevent it from applying for a PBS listing of the products before the Patent expires. Apotex contends that it cannot be an infringement of the Patent to apply for a PBS listing and that the injunction should not prevent it from applying for a PBS listing. Apotex submitted that I should make a specific order that makes clear that any injunction granted against it does not prevent Apotex from taking steps to obtain a PBS listing of the products.

Relevant statutory provisions

6    Section 13(1) of the Patents Act 1990 (Cth) (“the Act”) provides that, subject to the Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention.

7    The word “exploit” is defined in Schedule 1 of the Act as follows:

exploit , in relation to an invention, includes:

(a)    where the invention is a product--make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or

(b)    where the invention is a method or process--use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.

8    Section 117(1) of the Act provides that if the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the patent. Section 117(2) specifies the kinds of use referred to in s 117(1).

9    Liability under s 117 of the Act does not depend upon there being any infringement by the supplier of the exclusive rights referred to in s 13. Section 117 may therefore provide a separate and independent basis for holding a supplier of a product liable for patent infringement where the requirements of the section are satisfied. Importantly, however, although s 117 deems the act of supply to be an infringement, it says nothing about importing, offering to supply, or keeping products for the purpose of supply. None of these acts is within the scope of s 117 of the Act though they may be enjoined in an appropriate case by quia timet relief.

10    It is also necessary to refer to the relevant statutory provisions concerned with the establishment and operation of the Pharmaceutical Benefits Scheme (“PBS”). The PBS is the scheme for the supply of pharmaceutical benefits established under Pt VII of the National Health Act 1953 (Cth) (“the NHA”). As Kenny and Nicholas JJ explained in Commonwealth v Sanofi (2015) 237 FCR 483 at [37]:

Broadly speaking, pharmaceutical benefits are drugs or medicinal preparations that are the subject of a relevant declaration or determination under Pt VII of the NHA and listed on the Schedule of Pharmaceutical Benefits (“PBS Schedule”). An eligible person who is receiving treatment by a medical practitioner is entitled to receive pharmaceutical benefits under Pt VII of the NHA. The eligible person is generally required to make a co-payment to the approved pharmacist dispensing the pharmaceutical benefit. The actual cost of the pharmaceutical benefit is often significantly more than the amount of the co-payment. Any difference is paid for by the Commonwealth.

11    The NHA allows the Minister of Health (“the Minister”) to make a declaration by legislative instrument with respect to a drug or medicinal preparation (“drug”) but only on the recommendation of the Pharmaceutical Benefits Advisory Committee. A drug in relation to which a declaration is in force is referred to as a “listed drug”. The Minister may, by legislative instrument, determine the form of a listed drug and the manner of administration in respect of that form. A listed drug that is the subject of a determination as to both form and manner of administration is referred to as a “pharmaceutical item”.

12    Section 85(6) of the NHA allows the Minister to determine, by legislative instrument, a brand of a pharmaceutical item. The “brand” of a pharmaceutical item refers to the trade name under which the person who is or will be the responsible person supplies the pharmaceutical item or, if there is no trade name, the name of the person who is or will be the responsible person. An application for the Minister to determine a brand name for a pharmaceutical item that already has a listed brand must be made in writing in the approved form: the National Health (Pharmaceuticals and Vaccines - Cost Recovery) Regulations (2009) (Cth), Regs 2.1, 2.16 and Sch 1, Part 3.

13    The “responsible person” for a brand of a pharmaceutical item is the person who the Minister determines will be the responsible person pursuant to s 84AF of the NHA. This will usually be the person who is or will be the supplier of the brand of pharmaceutical item to wholesalers or approved pharmacists.

14    The NHA allows for the determination by the Minister of the maximum price at which a brand of pharmaceutical item may be supplied to wholesalers or approved pharmacists, the amount that they may charge for that brand of pharmaceutical item, and the amount that the Commonwealth will reimburse approved pharmacists which supply it to an eligible person.

15    Part VII, Div 3C of the NHA includes provisions aimed at ensuring that the responsible person supplies what is referred to as a “guaranteed brand of a guaranteed item” (“guaranteed brand”) during the “guaranteed period”. In particular, s 99AEB provides that the responsible person for a guaranteed brand must supply it during the guaranteed period.

16    In the case of a guaranteed brand (the generic brand) that is the subject of a determination under s 85(6) that is bioequivalent or biosimilar to an existing brand of the pharmaceutical item (the originator brand) that is already listed in respect of an existing pharmaceutical item, the guaranteed period will commence on the date the Minister makes his or her determination.

17    Part VII Div 3C of the NHA also includes provisions concerned with the failure (s 99AEE) or inability (s 99AEF) of a responsible person to supply a guaranteed brand in accordance with a wholesaler or approved pharmacist request.

18    Section 99AEG requires a responsible person to notify the Minister if it believes that it will fail to supply, or be unable to supply, the guaranteed brand during the guaranteed period. Failure to provide such a notice constitutes an offence. Section 99AEH enables the Minister to take action in the event that a responsible person fails to supply, or is unable to supply, a guaranteed brand. This includes revoking the Minister’s determination made in respect of the brand and refusing to make any other determination in relation to any brand of any pharmaceutical item of the responsible person.

The relevant claims

19    The various claims which Apotex was found to have threatened to infringe are all either method of treatment claims or Swiss-style claims.

20    In the present case, the method of treatment claims are not methods that result in the making of any product. It follows that the reference in paragraph (b) of the definition of exploit to “any act mentioned in paragraph (a) in respect of a product resulting from [use of the method]” cannot apply to any of the method of treatment claims. To the extent that there will be any exploitation of the invention claimed in any of the method of treatment claims, it will be by medical practitioners or patients who perform the claimed method. Apotex would be liable under s 13 of the Act not because it exploited the invention, but because it authorised medical practitioners and patients supplied with the products to use them to perform the claimed method.

21    However, the position is different in the case of the Swiss-claims. The relevant authorities show that a Swiss-style claim is a claim to a method of manufacture. In the present case, claims 16, 17 and 18 are in the conventional Swiss form that claims the use of relevant compounds in the manufacture of a product, ie. a medicament for the treatment of pain. Claims 19 to 30 are in the same form as claim 16 except they refer to specific types of pain conditions. Each of these claims is directed to the use of a relevant compound in the manufacture of a product rather than the use of a relevant compound in the course of performing a method of treatment.

Offers to supply after patent expiry

22    Apotex submitted that it would not infringe the claims by offering the products for sale during the term of the Patent in circumstances where the products would not be supplied until after the Patent expired. It relied upon the decision of Jacob J (as his Lordship then was) in Gerber Garment Technology Inc. v Lectra Systems Ltd [1995] RPC 383 (“Gerber”).

23    One issue in Gerber was whether an advertisement or negotiation without a firm offer amounted to an “offer to dispose of” a patented product within the meaning of s 60(1)(a) of the Patents Act 1977 (UK). Another issue was whether it was an infringement to, during the term of a patent, offer to supply a patented product where it was intended that supply would occur after expiry of the patent.

24    As to the second issue, adopting what he referred to as a purposive construction of s 60(1)(a), Jacob J concluded that an offer to supply a patented product made during the term of the patent was not within the scope of the patentee’s monopoly if the product was to be supplied after expiry of the patent. His Lordship said at 412:

… A party who approaches potential customers individually or by advertisement saying he is willing to supply a machine, terms to be agreed, is offering it or putting it on the market. If that is to happen during the life of the patent he infringes. He is disturbing the patentee's monopoly which he ought not to do. So I think the early advertisements were infringements, not mere threats.

The position is not the same in relation to the near-expiry negotiations. I see no reason to regard an “offer” to supply purely post-expiry as an infringement in itself, even if made during subsistence. It is not a disturbance of the monopoly. I can, for instance, see no reason why a trader should not say “X’s product is coming off patent at the end of the year. I will take orders now for supply next year.” That is not “offering a product which is the subject-matter of the patent.” The product offered is off patent. If such an activity causes X’s customers not to buy but to wait until next year then X will not like it, but I can see no interference with his monopoly. Even if it causes him to reduce his prices he cannot complain - the cause has been an indication of a willingness to conduct a non-infringing activity, just like an offer of a competing non-infringing product during the life of the patent. So the position is quite different from an advertisement early in the life of the patent indicating a willingness to supply an infringing product in breach of the monopoly.

25    I would not apply this reasoning to s 13 of the Act. The patentee’s monopoly is defined by the terms of the Act. Section 13 confers on the patentee the exclusive rights to exploit the invention during the term of the patent. This includes the right to offer the invention for sale. When a person offers a patented product for sale during the term of the patent without the patentee’s consent that person infringes the patent even if no actual sale or delivery of the product occurs before patent expiry. This view is consistent with the approach taken by Flick J in Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd (2015) 323 ALR 429 at [165] with which I respectfully agree.

PBS listing

26    The next question is whether Apotex will infringe the Patent merely by applying for a PBS listing of the products. In answering this question it is necessary to distinguish the method of treatment claims from the Swiss-style claims.

27    There are two short points to make in relation to the method of treatment claims. First, there will be no relevant exploitation of the claimed method unless it is performed during the term of the Patent. Secondly, s 117 cannot apply because it is concerned only with acts of supply. Apotex will be restrained from supplying any of the products during the term of the Patent. Hence, even if it were correct to say that by applying for a PBS listing Apotex will have offered to supply the products, this would not amount to an exploitation of any of the method of treatment claims.

28    In relation to the Swiss-style claims, Pfizer submitted that, by applying for a PBS listing, Apotex will be exploiting the claimed invention by offering to sell or otherwise dispose of products that result from the use of a method of manufacture the subject of those claims. I accept that the products that Apotex intends to supply (after patent expiry) result from the use of such a method and that, therefore, para (b) of the definition of exploit is engaged. The question is whether by applying for a PBS listing, Apotex will be offering to sell or otherwise dispose of the products.

29    In contract law, the exposure of goods for sale in a shop has usually been treated as no more than an indication of a shopkeeper’s willingness to treat rather than an offer to sell although this will not always be the case: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern Ltd) [1952] 2 QB 795 at 801, Reardon v Morley Food Pty Ltd (1980) 33 ALR 417. In the latter case, Smithers J said at 423:

… The display of goods in the shop window or shelf, complete with price markings is usually interpreted as an invitation to treat. Whether it is such an offer depends on the intention of the trader to be gathered from all the circumstances.

An offer may be described as an expression of willingness to contract, made with the intention, actual or apparent, that it shall become binding on the person making it as soon as it is accepted by the person to whom it is addressed. It may be made to an individual, to a specified group of persons or to the world at large. It may be made expressly by words or by conduct …

30    However, the word “offer” in the context of the statutory definition of exploit should not be given a narrow meaning based upon contract law. In Gerber, Jacob J said at 411:

Does advertisement or any negotiation without a firm offer, amount to an “offer to dispose of”[?] Miss Heilbron suggests not, relying on authorities in English law distinguishing between an “offer” and an “invitation to treat”. An offer, in contract, is an indication of terms of an [sic] contract by which the offeror will consider himself bound if the terms are accepted. Anything short of that, in pre-contractual negotiations or an advertisement, will not do. Most advertisements do not constitute that kind of an offer (contrast the classic case of Carlill v Carbolic Smoke Ball Co. [1893] 1 Q.B. 256) …

Mr Floyd suggests that “offer to dispose of” should not be construed so restrictively, that the matter should be looked at as one of commercial substance. “Was the product being made available to the market?” was his way of looking at it.

I have not hesitation in rejecting Miss Heilbron’s legalistic argument. Section 60 is not intended to reflect the English law of contract …

31    I respectfully agree with his Lordship’s approach. I do not think that there is any doubt that what may be characterised for the purposes of contract law as a mere invitation to treat may constitute an “offer to sell or otherwise dispose of” a product within the statutory definition of exploit. In my opinion a display of product for sale in a shop may be within the statutory definition whether or not the display is an offer or an invitation to treat in a contractual sense.

32    The question whether there is an “offer to sell or otherwise dispose of” a product within the statutory definition is to be determined as a matter of substance by asking whether the respondent is expressly or impliedly offering to sell or dispose of the relevant product. In deciding that question, it is necessary to have regard to all the relevant circumstances in which the alleged offer is made. These may include the subjective intention of the party who is alleged to have made the offer.

33    I do not think that every expression of a willingness to sell will amount to an “offer to sell or otherwise dispose of” a product. If a supplier, acting in good faith, merely states that it proposes to offer a product as soon as the relevant patent expires then I do not think that this would constitute an offer. All that the supplier is doing in that case is indicating that it intends to commence offering to supply the product once the relevant patent expires.

34    In the present case, Apotex proposes to seek a PBS listing of the products so that it may commence to offer them for sale at subsidised prices to wholesalers or approved pharmacists once the Patent has expired. I will assume that, in the course of applying for a PBS listing, Apotex will represent to the Minister or his or her delegate (either expressly or by implication) that it intends to make the products available to wholesalers or approved pharmacists during the guaranteed period once a determination is made in respect of the products pursuant to s 85(6) of the NHA.

35    In my view, this would fall short of offering to sell or otherwise dispose of the products. All that Apotex proposes to do by applying for a PBS listing is to engage with the statutory scheme that may enable it to offer the products for sale at subsidised prices once the Patent has expired.

36    It was also submitted by Pfizer that the act of applying for a PBS listing constituted an act of exploitation of the invention even if it did not constitute an offer to sell or otherwise dispose of the products. I do not accept this submission. Apotex will not be taking advantage of the invention by applying for a PBS listing of the products. Such an application would be a mere preparatory step which may enable Apotex to exploit the invention by offering to supply the products at subsidised prices at a later point in time. In an appropriate case the taking of that step may justify the grant of quia timet relief restraining threatened acts of infringement (eg. making, importing or keeping the product for sale in the patent area) but it is not itself an act of infringement.

37    In Sanofi-Aventis v Apotex (No 4) (2011) 202 FCR 56, Jagot J held at [49] that the act of applying for a PBS listing did not constitute an exploitation. For the reasons I have given I respectfully agree with her Honour.

38    There have been numerous interlocutory judgments in which it has been held or accepted that it is reasonably arguable that the act of applying for a PBS listing may constitute an act of patent infringement: see, for example, Otsuka Pharmaceutical Co Ltd v Generic Health Pty Ltd [2012] FCA 239 (Yates J) and Eli Lilly and Company v Generic Health Pty Ltd [2013] FCA 1254 (Nicholas J). In each of these cases the balance of convenience weighed heavily in favour of granting an interlocutory injunction restraining the making of any such application until the determination of the proceeding because of the risk that a PBS listing of the respondent’s product would trigger statutory price reductions and price review mechanisms that may cause irreparable harm to the patentee’s or exclusive licensee’s business. Because I am now concerned with the appropriate form of final relief, Pfizer needs to do more than show that the points which it makes are reasonably arguable.

39    In circumstances where I am satisfied that the taking of steps by Apotex to obtain a PBS listing of the products will not infringe the Patent, I think it is appropriate in this case to make this clear in the orders, though I do not intend to suggest that an express reservation or qualification must always be included. Of course, the injunction will prohibit Apotex from (inter alia) importing or supplying or offering to supply the products during the term of the Patent without Pfizer’s consent. It seems to me unlikely that the Minister would make a determination under s 85(6) of the NHA if the responsible person is restrained from (inter alia) selling or offering to sell the relevant product during the guaranteed period. However, whether or not it is appropriate in a given case to make such a determination is necessarily a matter for the Minister or his or her delegate to decide.

40    Apotex did not oppose an order that would prevent it from applying for a PBS listing where such listing would take effect prior to patent expiry. I do not think I should make that order given the view I have come to. However, it is open to the Court to make an order (which was also not opposed by Apotex) requiring it to notify the Australian Government Department of Health of the granting of the permanent injunction: see r 1.32 of the Federal Court Rules 2011 (Cth) (“the Rules”) and s 23 of the Federal Court of Australia Act 1976 (Cth).

Other pregabalin products

41    Apotex submitted that the proposed injunction should be limited to the specific pregabalin products for which Apotex has already obtained entries in the Australian Register of Therapeutic Goods. I think that an order in that form is too narrow. The broader form of order propounded by Pfizer is more appropriate. However, I should make clear that I do not intend the injunction to prevent Apotex from making or keeping the products outside the patent area (as defined in Schedule 1 to the Act) provided that there is no relevant importation, supply or offer to supply in the patent area before the Patent expires.

Release from Undertaking

42    Pfizer seeks an order that it be released from the undertakings as to damages which it gave to Griffiths J on 14 March 2014 and to the Full Court on 19 May 2014 in the appeal from his Honour’s interlocutory judgment. These undertakings were in the form usually required as a condition of obtaining an interlocutory injunction.

43    The question whether a trial judge should make an order releasing a successful applicant from an undertaking given in support of an interlocutory injunction was considered by the Full Court in Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth (No 3) [2011] FCAFC 165 (“Wyeth”). In that case the trial judge found that various patent claims were valid and infringed. The patentee was granted a final injunction restraining infringement together with an order releasing the patentee from the usual undertaking as to damages given in support of interlocutory relief previously granted. On appeal the Full Court held that the relevant claims were invalid. The trial judge’s order releasing the patentee from the undertaking as to damages was set aside. The Full Court said at [10]:

The effect of the primary judge’s orders was to release the respondents from the undertakings as to damages even though the appellants made clear an appeal would be brought and there existed the possibility that the injunctive relief granted by the primary judge might be set aside on appeal. In such circumstances we think it would seldom, if ever, be appropriate to order that a party be released from an undertaking as to damages. The preferable course is for the undertaking to be left in place to operate in accordance with its terms.

44    In Wyeth the patentee submitted to the Full Court that since it had succeeded at the trial it was appropriate it be released from the undertaking irrespective of the outcome of the appeal. It is hardly surprising that this submission was rejected by the Full Court. In its submissions Pfizer sought to distinguish Wyeth on the basis that the order that it seeks is forward looking, ie. it will only operate to release Pfizer from any liability under the relevant undertaking from the date the order is made. Pfizer submitted that it should be given the benefit of such a release because it “… should not be liable under the undertaking in respect of damage flowing from the final decision if that decision is reversed on appeal” (original emphasis).

45    If there was a successful appeal by Apotex, and the injunction that I propose to grant was later set-aside, it would be for the Court hearing any application for the payment of compensation pursuant to the undertaking as to damages to determine whether Pfizer was liable to pay compensation and, if so, in what amount. In my view, the preferable course is to make no order in relation to the undertakings as to damages which should be left in place to operate in accordance with their terms.

46    The orders made by the Full Court on 14 March 2014 also record that Pfizer undertook to notify Apotex’s solicitors if Pfizer Australia Pty Ltd’s net assets fell below a certain amount. It is appropriate to make an order releasing Pfizer from this undertaking.

Costs

47    On 1 July 2015 Pfizer sent to Apotex an Offer of Compromise which offered to compromise the proceeding on terms set out in an attached Deed of Settlement and Release (“the proposed deed”). According to Pfizer, the key terms of the proposed deed were as follows:

(a)    each party bear its own costs of the proceedings;

(b)    the parties file consent orders including permanent injunctions;

(c)    Pfizer grants to Apotex a royalty-free licence with effect from 1 April 2017, to sell products containing pregabalin;

(d)    Apotex may, after 1 November 2016, apply to obtain PBS listing for its pregabalin products, provided such listing will not take effect prior to 1 April 2017;

(e)    Apotex may, after 1 January 2017, advertise, promote for sale and take orders for any product containing pregabalin, provided that shipment of those orders to Apotex’s customers will not occur before 15 March 2017 for dispensing only on and from 1 April 2017; and

(f)    Apotex may, only on or after 1 March 2017, make, import or keep for the purpose of sale or supply any product containing pregabalin in the patent area.

48    I think it is also important to note that the proposed settlement would have precluded Apotex from making any claim on Pfizer’s undertaking as to damages.

49    On 1 July 2015 Pfizer also sent a Calderbank Offer to Apotex which was to the same effect. Both offers were expressed to be open for a period of 14 days.

50    So far as the Offer of Compromise is concerned, Pfizer relies on r 25.14 of the Rules which provides:

25.14    Costs where offer not accepted

(1)    If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

(3)    If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

51    Pfizer submitted that r 25.14 was to be construed in light of r 15.10 which provides:

15.10    Conduct of proceeding after cross-claim is filed

    (1)    To the extent practicable and not inconsistent with this Part:

(a)    the parties must conduct a cross-claim in the same way as the principal proceeding; and

(b)    these Rules apply to the cross-claim in the same way as they apply to the principal proceeding; and

(c)    the trial or a hearing, or any other step, in relation to the cross-claim is to be carried out at the same time as the trial or hearing, or any other step, in relation to the originating application.

    (2)    For the purpose of giving effect to this rule:

    (a)    a cross-claimant is to be treated as an applicant; and

    (b)    a cross-respondent is to be treated as a respondent.

It is also necessary to refer to the meaning given to “applicant” in the Dictionary to the Rules which relevantly defines an applicant as “a party, other than a cross-claimant, claiming relief”.

52    Pfizer submitted that r 25.14(3) should apply to the infringement proceeding which was brought by Pfizer by way of cross-claim. Rule 15.10 is concerned with the procedures that are to be followed with respect to the conduct of any cross-claim. Middleton J expressed the view (obiter) in Brooke & Mackenzie Pty Ltd v El-Gra Engineering Pty Ltd (2015) 331 ALR 535 at [50] that an offer of compromise made by the cross-claimant in that case was made by a “respondent” for the purposes of r 25.14 of the Rules.

53    One of the difficulties with Pfizer’s submission based upon r 25.14(3) is that the costs order it seeks would require Apotex to pay all costs incurred by Pfizer after 3 July 2015 on an indemnity basis. Although r 25.14(3) might justify an order for indemnity costs in favour of Pfizer in the infringement proceeding, it provides no basis for making such an order in the validity proceeding. So far as the validity proceeding is concerned, it is necessary for Pfizer to rely upon r 25.14(2).

54    It is not necessary to express a view either way as to whether Pfizer is to be treated as an applicant in the infringement proceeding brought by way of cross-claim. The Court has the power under r 1.35 to make an order inconsistent with r 25.14(3) if it is satisfied that a different order to that should be made: see, for example, Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 at [14] and Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [22]-[23]. The preferable course in my view is to consider the costs of the proceedings on a global basis making due allowance when exercising the general discretion for any unreasonable failure to accept a settlement offer.

55    It was submitted by Pfizer that Apotex’s decision not to accept the Offer of Compromise or the Calderbank Offer and instead proceed to trial was unreasonable in the light of the state of the evidence at that time. I do not accept this submission.

56    It seems to me that at least some of the grounds of invalidity relied upon by Apotex were more than reasonably arguable. This is certainly true of the case brought by Apotex based upon the width of the claims covering the “inactive” (R)-enantiomer and treatments for pain that did not involve central sensitisation. I am not persuaded that it was unreasonable for Apotex not to accept an offer that would have required it to consent to a permanent injunction (with or without the proposed licence), pay its own costs, and give up any entitlement it may have had to recover on Pfizer’s undertaking as to damages.

Disposition

57    Pfizer did not seek any order for indemnity costs against GPPL. So far as all other issues are concerned, GPPL’s position mirrored Apotex’s, and GPPL adopted Apotex’s submissions. The orders to be made against GPPL will mirror those that are to be made against Apotex.

58    There will be orders accordingly.

Associate:     

Dated:    15 February 2017

SCHEDULE OF PARTIES