Update: Otsuka Successful in Stay Application: Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd [2015] FCA 848

Further to our post of 7 July 2015, the proceedings brought by Otsuka and Bristol Myers Squibb (the “exclusive licensee” of Otsuka’s patents for aripiprazole) against Generic Health have taken another turn. Justice Nicholas delivered judgment on Friday 14 August in the interlocutory application sought by Otsuka and BMS. The orders and reasons were published on Tuesday 18 August.

The hearing took place on 13 August 2015. The applicants sought interlocutory orders staying the orders resulting from the judgment of Justice Yates in Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd (No 4) [2015] FCA 634. The applicants wished to prevent the respondent from launching its generic aripiprazole drug on the market before the appeal against the decision of Justice Yates had been heard. Their contention was that, should the respondent enter the market with its generic, this would alter the structure of the market, thereby prejudicing the appeal before it began. According to the applicants, while it was true that Generic Health had succeeded in the case before Justice Yates, the granting of the order was necessary to protect Otsuka/BMS’ rights of appeal.

The applicants argued that the balance of convenience favoured the granting of the order and that their case had good prospects on appeal. This, they claimed, was because Justice Yates had erred in his assessment of the relative importance of the scientific debate in construing the patents which he had ultimately held to be invalid. According to the applicants this also affected Yates J’s assessment of obviousness and novelty criteria.

The respondent argued that his Honour’s conclusion regarding the validity of the patents was unlikely to be overturned on appeal. They claimed that Justice Yates rightly determined, as a matter of construction, that the patent’s wording really amounted to an attempt to confer novelty where there was none. The respondents contended that the balance of convenience lay in their favour, not only because they disagreed with the applicants’ assessment of the strength of their appeal, but also because the granting of a stay would mean they lost their “first mover advantage”. The respondent had applied for inclusion on the PBS on 29 June (the day Justice Yates’ decision was handed down). The application had to be filed by 1 July and, as a result, no other companies had filed in time. This meant that on 1 October the respondent would be the only company in a position to enter the generic market on PBS. This, the respondent acknowledged in questioning by Justice Nicholas, was fortuitous. Had the judgment been handed down earlier, it is likely other generic manufacturers would have been in a position to enter the market at the same time. Nevertheless, they argued, now that they had this position (and especially given that they were smaller than the four other major generic manufacturers), the balance of convenience favoured their being allowed to capitalise upon it.

The applicants’ primary response to the respondent’s argument regarding the first mover advantage was to assert that they would naturally seek to restrain any other company that attempted to enter the market, precisely in the way they had the respondent. Added to this, they argued, was the fact that they had given the usual undertaking as to damages such that, in the event they were unsuccessful on appeal, they would compensate the respondent for its loss including any attributable to the first mover advantage (they also denied that the “advantage” was as portrayed by the respondent, though this argument was not viewed favourably by Nicholas J). The applicants had given an undertaking not to enter the generic market themselves in the interim and not to authorise others to do so. Generic Health argued that any loss they suffered would be very difficult to assess and that this rendered the relevant undertaking inadequate.

The Commonwealth had intervened in the proceedings seeking to ensure that its loss would also be covered by the usual undertaking as to damages. It was concerned to show that it was a “person” for the purposes of the usual undertaking. The applicants conceded that it was, though not, of course, that it was a person aggrieved. The applicants indicated that they intended to argue that the Commonwealth’s loss resulted from the relevant statutory scheme (PBS) and not the interlocutory injunction or stay.

While Justice Nicholas considered in detail the evidence of Generic Health regarding its loss should it lose the first mover advantage, his Honour balanced this against the loss that Otsuka would suffer should the stay be refused but their appeal successful. His Honour also observed that there was “real doubt” as to whether Generic Health would be able to satisfy such a judgment.

Justice Nicholas concluded that the balance of convenience favoured the granting of the stay. An important factor in Nicholas J’s reasoning appeared to be that Generic Health would need to make a claim on the usual undertaking, in the event that the appeal was unsuccessful, regardless of whether this stay was granted. This was because the earlier interlocutory injunction restraining them from entering the market had been in place since early 2012. At most, therefore, refusing to grant the stay would mean they did not encounter the difficulty of proving their loss between August 2015 and the first half of next year, when the appeal would be decided. As mentioned above, a further factor in his Honour’s reasoning appears to have been doubt concerning Generic Health’s capacity to meet any damages award against it.

In addition to ordering the stay, his Honour also made orders that the respondent withdraw its PBS application by 16 September; that the first appellant provide the additional security sought by the respondent and the Commonwealth ($8.7m and $6m respectively) by 14 September; for non-publication of agreed confidential material; covering liberty to apply; and reserving the costs of the interlocutory application.

The judgment can be found here.