Federal Court of Australia

Abbey Laboratories Pty Ltd v Virbac (Australia) Pty Ltd [2024] FCA 1488

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application dated 10 December 2024 be dismissed.

2.    Virbac pay Abbey’s costs of and incidental to the interlocutory application.

THE COURT NOTES THAT:

3.    Abbey undertakes to Virbac and to the Court to keep a full account of all sales of Levamox Duo occurring in Australia from the date of these orders to the date of the final determination of this proceeding by recording the following information in respect of each sale:

(a)    the customer name;

(b)    the date of invoice;

(c)    the quantity sold;

(d)    the unit price including any rebates, incentives or other discounts; and

(e)    Abbey’s profit and the manner of calculating the profit.

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

REASONS FOR JUDGMENT

Delivered ex tempore, revised from transcript

JACKMAN J:

1    The respondent in the proceedings (Virbac) is the patentee of Standard Patent No. 2012227241, entitled “Veterinary Topical Formulation” (Patent). It sells a product within the claims of the Patent called “Cydectin Platinum”. The applicant in the proceedings (Abbey) seeks orders for the revocation of the Patent. Virbac seeks remedies for infringement of the Patent if it is found to be valid. Abbey has recently launched a product called Levamox Duo. Virbac seeks an interlocutory injunction to restrain Abbey from, among other things, selling and marketing its product. The final hearing of the proceedings has been fixed to commence on 12 May 2025.

2    There was considerable debate before me as to the principles applicable to whether there is a serious question to be tried in relation to the validity of the Patent in the circumstances and the significance of the evidence filed by Abbey in relation to its claim for revocation of the Patent. Virbac has not yet filed its evidence in response and is not due to do so until 14 February 2025. In view of the conclusion which I have formed in relation to the balance of convenience, it is not necessary for me to consider those matters in these reasons. Rather, I will assume that there is a serious question to be tried as to the validity of the Patent without deciding that issue, and will proceed directly to consider whether the balance of convenience favours the grant of an injunction.

3    The salient facts are as follows. On 12 July 2023, Abbey applied for registration of Levamox Duo with the Australian Pesticides and Veterinary Medicines Authority (APVMA). On about 26 September 2023, Virbac wrote to Abbey indicating, among other things, that Virbac was aware of Abbey’s application for registration.

4    On 5 February 2024, Mr Findlay, the managing director of Abbey, wrote to Mr Embling of Virbac, in response to his letter of 26 September 2023, informing Mr Embling that the application would proceed to registration shortly (I note that, in fact, registration was granted the following day) and that Abbey was “in the process of getting ready to launch Levamox Duo onto the Australian market.” Mr Findlay says in his affidavit that that statement reflected his intention and that the decision to launch Levamox Duo was solely his to be made. Mr Findlay says that he had formed the view in 2023 that the claims of the Patent were not valid and that Abbey should proceed with launching Levamox once the APVMA registration was complete. Mr Findlay proves that, from the time that Levamox Duo was registered in early February 2024, Abbey has taken steps to prepare it for launch. On 20 February 2024, Mr Embling of Virbac responded to Mr Findlay’s letter of 5 February 2024, saying that Virbac reserved its right to take all steps necessary to prevent Abbey’s proposed launch of the Levamox Duo product stock. However, Mr Embling did not seek any undertaking from Abbey not to proceed with its launch, nor did it threaten any interlocutory injunction application if any such undertaking were not given.

5    On 26 February 2024, Abbey’s solicitors, Bird & Bird, wrote to Mr Embling, explaining that they had undertaken a review of the Patent, so that Abbey could be assured when undertaking its intended launch of Levamox Duo that it would not be infringing any valid intellectual property rights. The letter said that Abbey was satisfied that, in launching Levamox Duo, it would not infringe any valid patent rights. Further, the letter said that if Virbac sought to assert the Patent against Abbey when Abbey launched Levamox Duo then they were instructed to seek to revoke the Patent, and they expressed confidence that their action would be successful.

6    Virbac did not respond to that letter until 15 April 2024 when Mr Embling sent an email to Mr Findlay, saying that Virbac reserved the right to issue infringement proceedings without further notice should Abbey launch the Levamox Duo product in Australia. Mr Findlay says that, in view of that response together with Abbey progressing the launch of Levamox Duo, he decided to commence proceedings to revoke the Patent, which Abbey did on 29 May 2024 in commencing the present proceedings. Accordingly, Abbey is the applicant in the proceedings.

7    It was submitted for Virbac at the hearing before me that Virbac was justified in thinking that Abbey would not launch Levamox Duo until the proceedings had been finally determined, but I cannot see that Abbey ever conveyed that proposition by any express language. To the contrary, on 12 June 2024 the solicitors for Virbac wrote to the solicitors for Abbey, saying that, in the event that Abbey were to launch the Levamox Duo product ahead of a final hearing in these proceedings, then they were instructed that Virbac would file a cross-claim for infringement and apply to the court, seeking to have the matter dealt with and heard on an expedited basis. That obviously contemplated a scenario in which Abbey would launch its product before the present proceedings were finally determined. Again, there was no request or demand for any undertaking on the part of Abbey not to launch its product, and no reference to any threatened application for an interlocutory injunction.

8    In the course of preparing to launch Levamox Duo, Abbey had several trial batches of the product produced to establish a manufacturing method for the product and ensure that the product met the specification according to the registration, such work having being done by Abbey’s formulation chemist on 19 June 2024, 22 July 2024 and 20 August 2024. In preparing the product for launch, Abbey experienced several issues that delayed having a commercial product ready for market. Abbey’s regulatory team uncovered an error in Abbey’s product label concerning the dosing table, which required a regulatory application with the APVMA, and caused a delay of between eight and ten weeks, through to mid-September 2024. In addition, Abbey had difficulty sourcing one of the active constituents of the formulation, which only has two production runs a year by the manufacturer, and Abbey had missed the earlier manufacturing run. Ultimately, on 26 September 2024, Abbey committed to its first volume of Levamox Duo from its commercial manufacturer. That order was in production as of two days ago, and Mr Findlay expects to receive the batch imminently.

9    On 8 November 2024, Levamox Duo was marketed to existing Abbey customers at an Abbey customer conference in Bangkok in Thailand, with about 60 people and 30 stores represented. In the period 4 to 10 December 2024, members of Abbey’s sales team promoted the launch of Levamox Duo at five different conferences or trade fairs of retailers of agricultural products. Mr Findlay says the promotion of Levamox Duo in December at those conferences will be critical to the success of Levamox Duo, referring to the fact that it is at this time of year when all agricultural conferences occur and when the majority of buyers (in terms of retailers which stock these types of products) come together in one central location and order the majority of their stock of product for the coming year, and also get a reduced price or improved terms from the manufacturer.

10    Mr Findlay says that if Abbey had not launched Levamox Duo in time for the 2024 conference season, Abbey’s prospect of achieving sales for the coming year would have been significantly reduced, and would have been very low for the 2025 calendar year. Mr Findlay also says that if he is unable to continue to take and fulfil orders during the 2024 December conference period, Abbey is highly likely to have very few sales for the whole of the 2025 calendar year, even if it could commence selling from, say, June 2025. Mr Findlay says that not only will Abbey have missed the conference window, but it will also have missed the usual use period for this type of product.

11    Mr Findlay proves that since the commencement of marketing in early November 2024, Abbey has been taking orders for Levamox Duo, and is still receiving orders, which Mr Findlay expects will accelerate in number up to the close of the conference order window this coming Friday. The evidence of orders placed to date shows that such orders are in relatively small amounts, at least up to the end of last week.

12    Mr Findlay says that Abbey’s decision to proceed with the launch of Levamox Duo was based on his strong view that the Patent is invalid. Mr Findlay says that he also believed that Virbac was not confident in its position and did not intend to attempt to restrain any launch. Mr Findlay says he held this belief because after Abbey told Virbac it was launching Levamox Duo on 5 February 2024, Virbac did not demand that Abbey not launch, and accordingly, while he thought Abbey would commence proceedings for patent infringement, he did not expect it to try to prevent Abbey’s launch.

13    Mr Findlay says that if Abbey is now restrained from selling Levamox Duo until these proceedings are finally determined, then Abbey will suffer loss and damage, which in his view is not easily quantifiable. First, Mr Findlay says that Abbey will need to notify all its customers, including those that have placed orders with Abbey for Levamox Duo and who are anticipating supply in 2025, that the Levamox Duo product is now unavailable, and that Abbey will not be able to fulfil any order for the foreseeable future. Mr Findlay says that the withdrawal of Levamox Duo from the market will cause reputational damage to Abbey, not only in terms of Abbey’s relationship with its over the counter customers who have placed orders for product, but also amongst farmers who were expecting to receive the product and use it during the course of the 2025 year. Mr Findlay says that this will cause damage to Abbey’s reputation in the livestock industry, as Abbey will likely be viewed as an unreliable source of product. Mr Findlay expresses the view that the consequences of the withdrawal of a product after launch will extend beyond Levamox Duo and into other Abbey product ranges. Mr Findlay also says that the reputational damage would be extremely difficult to quantify.

14    Further, Mr Findlay says that if Abbey is now restrained, it will very likely be deprived of the benefit of being the first generic to launch. Mr Findlay says it is difficult, if not impossible, to predict with any level of accuracy the amount of the market that a generic may take up after product launch and how that market share may grow over time, because there is no information about the actual size of the market, there being no market statistics or audit figures which could be obtained that include all products that are offered to the market. Mr Findlay says that Abbey needs to rely on what he calls “gut feel” to gauge what it thinks will be the size of the market, and that exercise becomes even more difficult if there are additional generic entrants.

15    Mr Rose, who is the marketing manager for the livestock business unit of Virbac, gives evidence that Virbac will have to reduce the price of Cydectin Platinum in response to the launch of Levamox Duo into the market. He says that the launch is also likely to cause Virbac to lose a portion of its market share such that its volume of sales will fall below its projected sales figures. In Mr Rose’s experience it is very difficult for Virbac to recover from a reduction in price, because retailers who possess existing stock which was purchased at the higher price must be compensated for the price reduction.

16    In addition, Mr Rose says that he expects that the launch of Levamox Duo would affect the long-term profitability of Cydectin Platinum. Mr Rose says that is because in the animal health industry, the most profitable period for a new product is generally the first 10 to 15 years. If a generic product is introduced into the market in the early years of a product being launched, it has a greater impact on immediate sales and market share, as well as long-term effects in terms of the product’s life cycle.

17    Another reason given by Mr Rose is that if the Cydectin Platinum brand becomes less profitable it is possible that the amount of investment that was originally planned to be invested in the product is affected, which in turn also affects long-term growth. In other words, Mr Rose would expect that the launch of Levamox Duo would cause Virbac to adopt an entirely different strategy in relation to Cydectin Platinum, which would involve reductions in price and allocation of resources. Mr Rose says that strategies that Virbac would have adopted in the less profitable period (after around 15 years) would need to be adopted during what would usually be the most profitable period in the product’s life (being the first 10 to 15 years) and so the strategy relating to the life cycle of Cydectin Platinum would be significantly altered. Mr Rose says that once these changes are made, it is extremely difficult to revert back to the original strategies, even if Levamox Duo were to be withdrawn from the market, and it is very likely that those changes would be permanent.

18    Mr Rose gives evidence based on his experience that the consequence of Levamox Duo as a generic version of Cydectin Platinum entering the market would be a permanent reduction in both the selling price of the Cydectin Platinum product, and the product share of the market, even if Levamox Duo were subsequently to be withdrawn from the market. If the price were to be increased to its previous pricing point it would erode consumer trust in the Cydectin Platinum brand, as consumers would find it difficult to justify a price increase. Based on Mr Rose’s experience, he believes that rather than accepting a subsequent price increase in the Cydectin Platinum product in the absence of the withdrawn generic, consumers would rather purchase a cheaper but less effective alternative.

19    Mr Rose says that the precise magnitude of the price reduction and the degree of loss of market share is hard to predict, particularly in the event that Levamox Duo’s entry into the market precipitates other generic versions of the Cydectin Platinum product to be launched, which he considers to be a highly likely outcome. Mr Rose considers that if Levamox Duo were to remain in the market, within around three to six months from the launch of Levamox Duo other competitors would likely register and launch their own generic product.

20    Against that background, in my view there are two reasons why the balance of convenience does not favour the grant of an interlocutory injunction.

21    In the first place, there has been very substantial delay on the part of Virbac. Virbac has known since at least 5 February 2024 (that is, over 10 months ago) that Abbey intended to launch Levamox Duo in Australia. That could have been inferred since September 2023 when Virbac knew of Abbey’s application to register that product with the APVMA, but it is not necessary for me to go that far to find that there is inordinate delay on Virbac’s part. Virbac has never sought an undertaking that Abbey not launch Levamox Duo and had never threatened an interlocutory injunction application until very recently.

22    The commencement of proceedings by Abbey seeking revocation of the Patent did not objectively convey any assurance that Abbey would not launch its product until the final determination of the proceedings. Indeed, as I have indicated above, Virbac’s solicitors’ email of 12 June 2024 expressly contemplated the scenario in which Abbey launched Levamox Duo before a final hearing had occurred. There was still no demand for an undertaking not to launch, nor any application for an interlocutory injunction.

23    In my view, Mr Findlay was fully justified in thinking that no such application for an interlocutory injunction would be made. Abbey thus continued to prepare for the launch of Levamox Duo throughout 2024.

24    Second, the detriment to Virbac if the injunction is not granted is much more readily quantifiable in damages than the detriment to Abbey if the injunction is granted. Mr Rose’s evidence does demonstrate a real prospect of Virbac reducing its price and suffering lower sales. As Mr Rose says, those effects may turn out to be permanent, noting that the Patent does not expire until 2032. However, Virbac has an established track record of sales and of market share since 2020. Some aspects of its damages claim may be more readily established than others, but on the whole I do not regard the difficulties as being insurmountable. On the limited material available to me, it appears that there are various ways in which Virbac will be able reasonably to estimate the loss which it would suffer if the injunction is not granted.

25    On the other hand, if the injunction is granted, Abbey would be entitled to enforce Virbac’s undertaking as to damages in the event that Abbey is ultimately successful in the proceedings, but it seems to me that Abbey would face real problems in quantifying those damages. It is inherently difficult and speculative to prove the extent of lost sales and lost profits from sales in circumstances where there is little or no actual market experience involving Abbey’s product. Similar observations were made by Burley J in Sanofi-Aventis Deutschland GmbH v Alphapharm Pty Ltd (No 3) [2018] FCA 2060; (2018) 138 IPR 242 at [163]–[167].

26    In those circumstances, I regard it as much more difficult and speculative for Abbey to quantify its debt detriment by way of damages than it would be for Virbac to do so.

27    I note that Abbey has appropriately proferred an undertaking to keep detailed accounts of its sales pending the final determination of the proceedings. The interlocutory application should be dismissed.

Associate:

Dated:    18 December 2024