Federal Court of Australia

Neurim Pharmaceuticals (1991) Ltd v Generic Partners Pty Ltd (No 6) [2024] FCA 480

ORDERS

THE COURT DECLARES THAT:

1.    The respondents, acting in concert and pursuant to a common design, infringed claims 4-7 of Australian Patent No. 2002326114 entitled “Method for treating primary insomnia” (“the Patent”):

(a)    Pursuant to s 117(2)(b) of the Patents Act 1990 (Cth) (“the Act”), by the supply of Melotin where the respondents had reason to believe that it would be prescribed by a not insignificant number of psychiatrists as a treatment for primary insomnia where the patient complained of non-restorative (or unrefreshing) sleep; and

(b)    Pursuant to s 13(1) of the Act, by authorisation of medical practitioners whom the respondents had reason to believe would use Melotin as a treatment for primary insomnia characterised by non-restorative sleep and to improve the restorative quality of sleep in patients aged 55 and over.

THE COURT ORDERS THAT:

2.    The cross-claims be dismissed.

3.    There be an inquiry as to the quantum of any damages to which the applicant is entitled pursuant to ss 122(1) and 122(1A) of the Act, or, at the election of the applicant, an account of profits in respect of the supply by the respondents during the term of the Patent of any Generic Partners Products or Apotex Products as defined in [5] and [6] of Neurim Pharmaceuticals (1991) Ltd v Generic Partners Pty Ltd (No 5) [2024] FCA 360.

4.    The respondents are granted leave to appeal the declaration and orders in paras 1-3 hereof.

5.    Any notice of appeal that is to be filed pursuant to order 4 hereof be filed and served within 28 days.

6.    Order 3 be stayed until the later of:

(a)    28 days from the date of these orders; or

(b)    if a notice of appeal is filed within 28 days, until the final determination of any appeal (including any application for special leave to appeal to the High Court of Australia).

7.    If no notice of appeal is filed within 28 days from the date of these orders, there be a further directions hearing in relation to the matters referred to in order 3 of these orders on a date to be fixed.

8.    The applicant’s undertaking to the Court given on 9 May 2017, and noted in paragraph 4 of the Orders dated 18 July 2017, be discharged.

9.    The applicant’s provision of security for the respondents’ costs of and incidental to these proceedings and the respondents’ damages pursuant to the applicant’s undertaking to the Court be released.

10.    The applicant be granted leave to file and serve its Further Amended Statement of Claim including para 45A subject to the deletions referred to in [14] of the reasons published today being made.

11.    The respondents pay the applicant’s costs of the proceeding (including the costs of the cross-claims and any costs reserved) to date save for:

(a)    the costs reserved on 11 December 2020 which are to be determined at the same time as the applicant’s claim for pecuniary relief is determined; and

(b)    the costs of the hearing on 2 May 2024 as to which there will be no order as to costs.

AND THE COURT CERTIFIES:

12.    Pursuant to s 19(1) of the Act, the validity of each of claims 1 to 7 of the Patent was questioned unsuccessfully in this proceeding.

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

REASONS FOR JUDGMENT

NICHOLAS J:

1    On 12 April 2024 I published my reasons (“R5”) finding that the relevant claims of the patent in suit (“the Patent”) were valid and that some of those claims were infringed by the respondents (Neurim Pharmaceuticals (1991) Ltd v Generic Partners Pty Ltd (No 5) [2024] FCA 360). The parties were directed to submit proposed short minutes of order which they have done. There are a number of matters on which the parties disagree about which it is necessary to rule. The matters in issue include the appropriate form of declaratory relief, the status of the applicant’s claim for additional damages, and costs. I will deal with each of these matters in turn.

Declaratory Relief

2    There is disagreement between the parties in relation to the declaratory relief and degree of specificity with which the declaration should identify the infringing conduct. The differences between the parties’ proposed declarations are apparent from the draft short minutes of order prepared by the applicant and marked up against the respondents’ draft short minutes of order.

3    The respondents submitted that the declaration should refer only to “Melotin” being one of the Generic Partners Products that were referred to and defined in R5 at [5]. Although the evidence focused on Melotin, the findings of infringement would equally apply to any of the other Generic Partners Products or Apotex Products that were referred to and defined in R5 at [5]-[6], that were supplied by the respondents during the term of the Patent. I will confine the terms of the declaration to Melotin but make clear in the order for the inquiry that the inquiry will also encompass the supply by the respondents during the term of the Patent of other Generic Partners Products and Apotex Products.

4    The respondents also submitted that the declaration should identify the basis on which the respondents were found to have the requisite “reason to believe” for the purposes of s 117(2)(b) of the Patents Act 1990 (Cth) (“the Act”). They say that, consistent with my reasons, the declaration should state that “the [r]espondents had reason to believe that it [i.e. Melotin] would be prescribed by a not insignificant number of psychiatrists as a treatment for primary insomnia where the patient complained of non-restorative (or unrefreshing) sleep”. I accept that this reflects the critical finding in R5 at [258]. It is the basis on which I found infringement under s 117(1) when read with s 117(2)(b). I do not accept the applicant’s submission that the finding under s 117(2)(b) went beyond this or that it extended to what Senior Counsel for the applicant, Mr Shavin KC, referred to as “health practitioners” (an expression not used anywhere in R5). So far as s 13(1) is concerned, the authorisation finding made by me was expressly confined to “medical practitioners”. In this regard, the critical finding is in R5 at [303]. Once again, there is no basis for extending the declaratory relief to “health practitioners” which the applicant would say includes pharmacists.

Additional Damages

5    The respondents submitted that there should be an order made dismissing the applicant’s claim for additional damages. I do not propose to make such order.

6    Prior to the commencement of the trial an application was made by the applicant to amend its pleaded claim for additional damages. The applicant’s amended claim for additional damages abandoned reliance on (inter alia) an allegation of flagrancy. The claim as articulated in the newly inserted para 45A focused on benefits allegedly obtained by the respondents that may not be captured by an award of compensatory damages.

7    The application for leave to amend was the subject of a judgment (“R4”) delivered on the last day of the trial (Neurim Pharmaceuticals (1991) Ltd v Generic Partners Pty Ltd (No 4) [2020] FCA 1776). According to R4 at [17]-[20]:

[17]    If the applicant is permitted to maintain a claim for additional damages based on the matters relied on in the applicant’s proposed para 45A and it obtains an order for an enquiry, then it will be necessary for all questions relevant to the additional damages claim to be dealt with at a later hearing after discovery has been provided. The respondents say that, given the applicant’s delay in advancing its reformulated additional damages claim, the respondents should not be put to the inconvenience or expense of having to address such a claim.

[18]    I have had regard to the respondents’ complaints about delay, what is said to be the absence of any satisfactory explanation for the withdrawal of para 45, and the applicant’s desire to reformulate the additional damages case, which was a matter first communicated by the applicant to the respondents when the hearing was less than six weeks away.

[19]    A matter of considerable significance in the exercise of the discretion in relation to the proposed amendment is the fact that, in the event the applicant establishes that the respondents have infringed, there will need to be a further hearing to determine the quantum of any pecuniary relief to which the applicant is entitled under s 122(1) of the Act.

[20]    In my view the applicant should be permitted to amend in order to rely on matters that are arguably capable of justifying an award of additional damages. However, I will not permit an amendment which is likely to require a potentially time consuming and costly exploration of matters by way of discovery and evidence which I consider are not reasonably capable of justifying an award of additional damages.

8    I went on to make some express findings as to matters which I would not permit the applicant to rely on in support of its claim for additional damages. These included “non-arms length transactions” (R4 at [29]-[30]), timing of the respondents’ product launch (R4 at [31]) and deterrence (R4 at [34]). What would be allowed was dealt with as follows in R4 at [35]-[36]:

[35]    I accept that it may be open to the Court to award additional damages having regard to benefits obtained by an infringer that are in excess of the damages that may be payable by way of compensation for the loss suffered by the plaintiff under s 122(1) of the Act. I note that the Full Court in [Aristocrat Technologies Australia Pty Ltd v D.A.P. Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564] referred, with apparent approval, to the observation of Brightman J in Ravenscroft v Herbert [1980] RPC 193 at 208 who, referring to s 17(3) of the now repealed Copyright Act 1956 (UK), appears to have accepted that an award of additional damages under that provision may be open where the defendant has reaped a pecuniary advantage in excess of the damages that he or she would otherwise have to pay to the plaintiff. It is not necessary or appropriate to consider the merits of such an argument further except to say that the breadth of the language in which the discretion to award additional damages is expressed in s 122(1A) of the Act appears to permit the making of an award of additional damages in favour of the patentee by reference to benefits obtained by the infringer which the patentee may be otherwise unable to recover under s 122(1) because it has not suffered or cannot prove that it has suffered any corresponding loss.

[36]    In the result, I will permit an amendment that supports a claim for additional damages based on the benefits that are alleged to have accrued to the respondents because of the respondents’ alleged infringements. The applicant will be directed to file and serve a draft further amended statement of claim that deletes para 45 and includes a new para 45A and which clearly specifies the benefits alleged to have been derived by the respondents because of their alleged infringements and which the applicant contends warrant an award of additional damages pursuant to s 122(1A) of the Act. The new para 45A should conform with these reasons and, in particular, omit any reference to those matters which I have indicated will be disallowed.

(Emphasis added)

9    The applicant lodged its Further Amended Statement of Claim (“FASC”) with the Court on 18 December 2020 which included a re-drafted para 45A reproduced in Schedule A to these reasons. The FASC was not accepted for filing.

10    The sole basis on which the applicant was granted leave to amend appears in R4 [35]-[36]. The applicant was granted leave to amend to raise a claim for additional damages pursuant to s 122(1A) of the Act, having regard to any benefit shown to have accrued to the respondents because of their infringements which the applicant is unable to recover under s 122(1) because it has not suffered or cannot prove that it has suffered any corresponding loss.

11    The FASC filed by the applicant purported to rely not just on s 122(1A)(d) but also s 122(1A)(e). The applicant also, in the FASC, reserved the right to provide further particulars “of any relevant conduct by the [r]espondents” subsequent to the filing of the FASC. It is clear that the FASC lodged by the applicant included matter outside the terms of the leave granted in accordance with R4 at [35]-[36].

12    In my view subpara (b) of para 45A, which refers to s 122(1A)(e), is outside the leave granted. The reference to s 122(1A)(e) in particular i is also outside the leave granted. As to particulars ii and iii, these are also outside the terms of the leave. They purport to make a claim for additional damages in relation to non-infringing supply. The leave granted was confined to a claim for additional damages based on benefits accrued to the respondents “because of the respondents’ alleged infringements”: R4 at [36].

13    As to particular iv, use in accordance with the registered indication will necessarily include use that is non-infringing use. Here again the applicant is seeking to rely on non-infringing use in support of its additional damages claim. Particular iv is outside the terms of the leave granted. Particular v purports to make a claim for additional damages in respect of benefits “enabled by, but extending beyond [the respondents’] infringing conduct”. That seems to be directed to obtaining an additional award of damages in respect of sales of other products. I consider that is also outside the terms of the leave granted. To the extent subpara (a) of particular v covers benefits obtained by the respondents attributable to the sale of other products in bundles including any of the Generic Partners Products or Apotex Products, then that allegation does not add to particular i. As to subpara (b), R4 [31] makes clear that the timing of the respondents’ product launch (at least in the absence of any allegation that the respondents knew or ought to have known that they would be infringing) cannot provide any arguable basis for an award of additional damages.

14    The applicant having abandoned its pleaded case for additional damages made an application to amend relevant parts of its pleading very late in the proceeding. Rather than filing a document that accords with the limited leave granted, it filed a document that is outside the leave granted. Although it is tempting to reject the applicant’s case for additional damages on the basis that the applicant has had more than sufficient opportunity to properly plead its claim, I will allow the applicant to file its FASC subject to it deleting subpara (b) of para 45A and all particulars to para 45A except for particular i, save for the reference to 122(A)(e) in that particular, which should also be deleted.

Costs

15    The respondents referred to the comments made by me in R5 [68] concerning the written evidence of Dr Krapivensky, Dr Behi and Professor Roth, parts of which I said “were overstated, needlessly tendentious and argumentative and, in that respect, not what the Court expects to see from witnesses presenting themselves as independent experts.” The respondents submitted that the costs of what would otherwise be allowed in respect of the preparation of the written evidence of those witnesses should be reduced by 50% in light of that criticism.

16    The criticisms of the applicant’s written evidence were not made lightly. It was clear to me that there were parts of that evidence that were as I have described. However, the respondents’ submissions did not seek to justify the reduction sought by reference to any particular examples or any broader analysis of the written evidence which would support such a significant reduction. While parts of the applicant’s written evidence was the subject of criticism, much of it was ultimately accepted.

17    In the circumstances, I am not willing to deal with costs in the way suggested by the respondents. However, it does seem to me that this may be a case in which at least some of the costs of preparing the applicant’s written evidence should be disallowed on taxation pursuant to r 40.30 of the Federal Court Rules 2011 (Cth). In particular, and leaving aside the criticisms referred to above, it does appear that a great deal of evidence given by Dr Behi was duplicative of evidence given by Dr Krapivensky and that the costs of preparing large parts of Dr Behi’s written evidence should be disallowed on the basis that such costs were unreasonably or unnecessarily incurred. That is a matter that should be determined by the taxing officer when considering specific objections raised to the applicant’s bill of costs pursuant to r 40.30.

18    So far as the costs of the hearing on 2 May 2024 relating to the form of orders are concerned, the respondents have been successful on a number of issues. In the circumstances, there should be no order as to costs of that hearing.

19    The only other matter I should mention in relation to costs concerns the matter of reserved costs. Subject to the specific exceptions referred to in R5 [478], the costs order to be made will make clear that the costs awarded to the applicant includes any costs reserved.

Certificate of Validity

20    The applicant seeks, but the respondents oppose, the grant of a certificate under s 19(1) of the Act. The respondents submitted that there is no point granting any such certificate in circumstances where the Patent has expired. Although the Patent has expired, it is still open to the applicant to bring infringement proceedings against other parties for infringements committed during the term of the Patent. It would be open to those parties to bring their own cross-claim for revocation of the Patent. In those circumstances, I do not accept the respondents’ submission. I will grant the certificate sought by the applicant.

Disposition

21    I will make orders in accordance with these reasons. I will also grant the respondents leave to appeal the declaration, the order dismissing the cross-claims, and the order for an inquiry.

22    Orders accordingly.

Associate:

Dated:    10 May 2024

Schedule

45A.    An additional amount should be included in an assessment of damages having regard to:

(a)    the fact that substantial benefit is likely to be shown, following discovery and inspection of the Respondents’ accounts, to have accrued to the Respondents, as a consequence of the alleged infringing conduct pleaded above, which benefits should be stripped from the Respondents under s. 122(1A)(d) of the Act;

(b)    further or alternatively, an additional amount should be included in an assessment of damages pursuant to s. 122(1A)(e) of the Act.

Particulars

    i    An award of additional damages under s. 122(1A)(d) and (e) of the Act, may be necessary in order to strip the Respondents of all of the benefits derived by them as a result of their conduct described in paragraphs 25, 32, 33 to 37 and 38 to 41 above, if those benefits are greater than the compensation to which the Court concludes the Applicant is entitled as a consequence of infringement by the Respondents of any claims of the Patent.

    ii.    The Applicant says that each supply by the Respondents or related entities of the Generic Partners Products in Australia is an infringing supply.

    iii.    In the event that the Court finds that any instances of supply by the Respondents or related entities of the Generic Partners Products in Australia do not infringe the Patent:

        a.    that non-infringing supply is and has been possible only because the Generic Partners Products:

            i.    have been registered on the ARTG for an indication that is, or alternatively includes, a use that infringes one or more claims of the Patent;

            ii.    are and have been necessarily also supplied for the ARTG-registered indication that is, or alternatively includes, a use that infringes one or more claims of the Patent; and

        b.    any benefit that has accrued as a result of that non-infringing supply of the Generic Partners Products is a benefit that has accrued to the Respondents because of their infringement of the Patent.

    iv.    An award of additional damages under s. 122(1A)(d) of the Act may be necessary, if the Court finds that conduct by the Respondents described in paragraphs 25, 32, 33 to 37 and 38 to 41 above infringes any claim of the Patent, and the Respondents or related entities are or have been selling the Generic Partners Products for use in relation to both the registered indication and other indications, to “strip” from the Respondents, the benefits derived thereby.

    v.    Further, the Applicant should receive additional damages under s. 122(1A) (d) and (e) of the Act to the extent that the Respondents have derived benefits enabled by, but extending beyond, their infringing conduct:

        a.    as a result of “bundling deals” or other discounting methods whereby the Respondents, or related entities, derive a benefit on other products as a result of the sale and/or supply of the Generic Partners Products; or

        b.    by creating a “bridgehead” or “springboard” into the Australian market for melatonin by unjustly obtaining a “first mover advantage” to acquire a market share that will be greater on expiry of the Patent than it otherwise would have been if the Respondents had not engaged in the conduct described in paragraphs 25, 32, 33 to 37 and 38 to 41 above.

    vi.    The Applicant reserves the right to provide further particulars of any relevant conduct by the Respondents between the filing of this Further Amended Statement of Claim and the hearing of the Applicant’s claim for damages, an account of profits and/or additional damages, prior to that hearing.

    vii.    The Applicant may seek leave to provide further particulars after:

        a.    the Court publishes its findings on infringement and validity of the Patent; and

        b.    discovery of the Respondents’ accounts, provided in relation to either the enquiries by the Applicant to make its election or following the Applicant’s election, and

        in advance of the hearing of the Applicant’s claim for damages, an account of profits and/or additional damages.