H Lundbeck A/S v Sandoz Pty Ltd

1. The parties confer and file agreed or competing proposed orders finalising the matter, including as to costs, within 14 days of the date of these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JAGOT J: 1 One outstanding issue in this matter concerns an aspect of the discount I concluded should be applied to the assessment of damages. 2 In my principal reasons for judgment, H Lundbeck A/S v Sandoz Pty Ltd [2018] FCA 1797, I said this: 419 The overall effect of this evidence is this. Doctors prescribe the antidepressant that they think will be clinically appropriate for the particular patient. In practice, provided the antidepressant is PBS listed (which Lexapro was), cost is not an issue. This is so whether or not there is a generic equivalent product. 420 For these reasons, Sandoz's submissions are over-stated. If escitalopram is not or proves not to be the right antidepressant for the patient, it will not be prescribed or will cease being prescribed. Such a patient, accordingly, would either never be prescribed Sandoz's escitalopram products or will have ceased being prescribed Sandoz's escitalopram products. As a result, the starting point must be that every sale of Sandoz's escitalopram products is a lost sale of a Lundbeck escitalopram product. 421 The reason I say that in this case 1:1 substitution is the starting point is that, as we know, Sandoz's escitalopram products were not the only generic equivalent escitalopram products on the market. As Sandoz identified, from mid-2009 there were multiple generic equivalent escitalopram products available. The fact that Lundbeck settled its claims against these generics does not mean that their products may be disregarded. While I would accept that there is a very high probability (approaching a certainty) that every sale of any one of these generic equivalent escitalopram products must represent a lost sale of Lundbeck's escitalopram products, I do not accept that every sale of Sandoz's escitalopram products involves a near certainty of representing a lost sale of Lundbeck's escitalopram products. In a crowded market of multiple generic equivalent escitalopram products from mid-June 2009 onwards, some sales of Sandoz's escitalopram products must represent lost sales not of Lundbeck's escitalopram products but of other generics' escitalopram products. 422 The fact that those other generics were in the market cannot be ignored. Sandoz is not responsible for the conduct of those other generics and cannot be held liable for it. This indicates that Sandoz must be right, albeit not for the reasons it gave, that there should be a material discount to account for the probability that some Sandoz sales otherwise would have been sales of other generics' escitalopram products rather than Lundbeck's products. The materiality of this necessary adjustment is to be assessed having regard to the other factor which I noted above, that Lundbeck has approached the matter on the basis that every lost sale is a sale of the cheapest product offered by CNS Pharma (Esipram) rather than the more expensive product offered by Lundbeck AU (Lexapro). There is a very high likelihood that some sales of Sandoz's escitalopram products would represent lost sales of Lexapro rather than of Esipram… … 424 In my view, while it is preferable as a matter of principle to make one overall adjustment for risk at the end of the damages assessment process, this issue is likely to be the most material factor to take into account in deciding the size of the adjustment which should be made. There is little evidence to assist in resolving what size of adjustment would be appropriate to account for the fact that some sales of Sandoz's escitalopram products must represent lost sales not of Lundbeck's escitalopram products but of other generics' escitalopram products… 425 The result is that, doing the best I can on the evidence, I consider that a material discount from the assumed substitution rate of 1:1 is required. Resolving remaining doubts in Lundbeck's favour to reflect the general principle that a liberal approach to damages is required and having regard to the fact that Lundbeck's approach excludes any claims for lost sales of Lexapro, I consider that a deduction of 25% is required to account for the fact that it is likely that some sales of Sandoz's escitalopram products must represent lost sales not of Lundbeck's escitalopram products but of other generics' escitalopram products. 3 Otherwise, I concluded that a general discount for risk of 5% should be applied, resulting in an overall discount to Lundbeck's claims for damages of 30%: [523]. 4 Lundbeck sought and obtained leave to make further submissions about the 25% discount. The parties also filed further accounting evidence to deal with the issue of quantification. 5 Lundbeck contended that applying the 25% discount involved an error of principle. Lundbeck submitted: (1) Although I had not found that sales of escitalopram products by Apotex, Alphapharm and Aspen Pharma infringed the 144 patent, the evidence to support that finding is before the Court. (2) Once this finding is made (as it should be), it is apparent that all sales by those generics and Sandoz represent lost sales to Lundbeck. (3) Lundbeck is entitled to damages which will put it in the position it would have been in but for the sales by each generic including Sandoz. (4) As the person who caused the loss, Sandoz cannot avoid damages by relying on the infringing conduct of the other generics. (5) The effect of the 25% discount is that no-one would be legally responsible for those lost sales. Lundbeck could not recover for those lost sales from any other generic as the other generic's answer would be that it is not responsible as it did not make those sales. (6) "To illustrate, assume that there were three generics (A, B and C) in the market and that Lundbeck sued each of them. Applying the Court's reasoning, each of A, B and C would have won some sales from each other (rather than from Lundbeck directly) and each of A, B and C would be entitled to a discount akin to the 25% Discount. This form of reasoning would create a closed loop, with the damages payable by each generic being reduced to reflect its success in winning sales from other generics, rather than from Lundbeck directly. The effect of this would be that Lundbeck could only obtain materially discounted compensation across the total pool of infringements and, relevantly, as against each infringer (here, reduced by 25%, leaving aside the 5% discount for the general uncertainties in the assessment of damages). As a matter of general principle, this is inconsistent with placing Lundbeck in the position it would have been in had the infringements not occurred and assessing damages liberally as against the wrongdoer". (7) Further, if "the reasoning which underpins the 25% Discount stands, it would also have consequences in the context of interlocutory injunction applications. A patentee would be obliged to seek an interlocutory injunction to restrain patent infringement because damages would never be an adequate remedy in any case where there is a risk of more than one infringer entering the market (which is almost always the norm in pharmaceutical patent cases). Damages will not be an adequate remedy because the 25% Discount reasoning will apply in all such cases and the black hole of lost irrecoverable sales will always arise, such that the patentee can only be protected by injunction". 6 In response, Sandoz submitted: (1) Lundbeck bore the onus of establishing its loss and was on notice of the issue of some lost sales being sales not of Lundbeck but of another generic as I had raised this during the hearing. Despite this, Lundbeck did not advance a case dealing with this issue during the hearing. (2) Lundbeck settled its claims against Apotex, Alphapharm and Aspen Pharma, as a result of which the proceedings involving these parties were discontinued by consent and without admissions. (3) Lundbeck also commenced two other proceedings against different generics which were discontinued. (4) Lundbeck did not commence proceedings against yet other generics which also sold escitalopram products during the relevant period. (5) There are no findings that the sales of the other escitalopram products during the relevant period infringed the 144 patent. No such findings should be made now as against Apotex, Alphapharm and Aspen Pharma because the proceedings against them have been discontinued. No such findings could be made against the other generics selling escitalopram products during the relevant period. (6) The assessment of damages includes the "springboard period", after the expiry of the 144 patent, in which other non-parties sold escitalopram products, and some of Sandoz's sales during that period may well have been lost sales of these generics which only launched their products after the expiry of the patent. (7) Further, "Lundbeck is not entitled to be put in the position it would have been in but for the conduct of Sandoz and the Other Generics…in particular in the absence of any findings of infringement against such other generics". (8) Similarly, Lundbeck's submission that the 25% discount must be wrong in principle because it could not recover those lost sales in any circumstances is incorrect and "ignores the facts that Lundbeck did take proceedings against Alphapharm, Apotex and Aspen, settled those proceedings and discontinued them with no admissions as to infringement by those generics, that it neither pleaded nor sought findings of infringement by those parties in the present proceeding, nor joined them as parties to it; that it never took proceedings against certain other generics in the market, and did not and does not now assert that they were infringing". 7 I accept Sandoz's submissions. I did not find any infringement of the 144 patent by Apotex, Alphapharm and Aspen Pharma. I do not accept that I may find any such infringement in circumstances where Lundbeck discontinued its claims against each of these parties. Even if I could make such findings, the evidence discloses the availability of other generic escitalopram products at various times relevant to Lundbeck's damages claims which, it must be inferred, would have been substitutable for Lundbeck's products and Sandoz's products. The status of these products, whether they infringed the 144 patent or not, is unknown. As a matter of principle, Lundbeck is entitled to damages for the proved infringement by Sandoz, not the proved infringement by Sandoz and assumed infringements by non-parties. My inference that a material proportion of Sandoz's sales must have been lost sales not of Lundbeck's products but of the products of these other non-parties demonstrates that the relevant loss is loss of those non-parties, not Lundbeck. If Lundbeck had a claim against those parties, made that claim and proved infringement, so be it. The loss would then be Lundbeck's, but it did not do so and, indeed, the basis upon which it did not do so, remains unknown. The possibilities are endless. Lundbeck may have negotiated any one of a number of deals with those other non-parties, the details of which are unknown. All that is known is that it has not proved any infringement of the 144 patent by those non-parties. 8 Lundbeck's submission that the discount means that no-one would be "legally responsible" for the lost sales represented by the discount assumes that Lundbeck has proved infringement against those other generics and thus is entitled to be compensated for sales it otherwise would have made. Once it is recognised that Lundbeck has not proved any such infringement, it is apparent that the concept of someone being "legally responsible" to compensate Lundbeck for those sales is inapplicable. 9 Nor is it the case that a discount of this kind would necessarily be applied in the example Lundbeck gave of a market in which three generics sold infringing products and Lundbeck sued all three generics. In such a case, assuming no other product was substitutable, all sales by all three generics would be lost sales to Lundbeck. This is not the present case. Numerous generics entered the market at times relevant to Lundbeck's damages claims. Ultimately, Lundbeck proved infringement by only one generic, Sandoz. It did not prove that any of the other generics infringed the patent. In these circumstances, there is no "closed loop" and, in my view, a material discount to account for those circumstances is required. In particular, it must be recalled that the relevant infringements are those by Sandoz, not Sandoz and every other generic which was selling escitalopram products during the relevant periods. The 25% discount reflects the fact that had Sandoz's infringements not occurred, a material proportion of the sales Sandoz made would have been made by the other generics against whom there has been no finding of infringement. 10 It may be accepted that Lundbeck proved that every sale Sandoz made infringed Lundbeck's patent. But Lundbeck did not prove, and it is not necessarily the case based on the facts it did prove, that every sale of an infringing Sandoz product caused a lost sale of a Lundbeck product. It could have instead caused a lost sale to another generic of a product not proved to be infringing. 11 I do not accept that this approach is inconsistent with the fact that damages should be liberally assessed. Given the number of the other generic escitalopram products on the market, and the significance in the market of some of those generic suppliers, I consider that the discount of 25% accords with the principle that damages should be liberally assessed. 12 Nor do I accept that the 25% discount means that damages will never be an adequate remedy because there will be a "black hole" of "lost irrecoverable sales" whenever more than one generic enters the market. It is for the owner of the patent to decide whether its patent has been infringed and, if so, whether it wishes to take proceedings for infringement. It is fundamental that the assessment of damages relates to losses that are proved to be caused by infringements. If damages are adequate in respect of losses that are proved to be caused by infringements, then they are adequate. 13 For these reasons, I consider the 25% discount I identified in my principal reasons for judgment should be applied. 14 Another issue arose from the further calculations submitted by the accountants. Mr Samuel noted, correctly, that I proposed an overall one-off discount from Lundbeck's damages of 30%, which comprised 25% representing my conclusion that some of Sandoz's sales were not lost sales to Lundbeck but had been captured from other generic suppliers of escitalopram products and 5% representing all other risks. Mr Samuel noted that as the 25% discount related to sales it may be appropriate to apply that discount to the volume of sales rather than the overall lost profits. 15 Consistent with my principal judgment, I remain of the view that a one-off discount to the damages as quantified of 30% is appropriate. I understand the basis for Mr Samuel presenting the two alternative approaches to the 25% discount in his further calculations. Nevertheless, it is well-known that the assessment of damages, at least where material loss has been proved (as it has been in this case), necessarily involves a considerable degree of estimation and even speculation, the requirement being to do the best that can be done on the evidence having regard to the kind of evidence to prove loss that would have been available. In my view, in this case, it better accords with this reality for the hypothetical lost profits to be calculated and for a 30% deduction to be made to that amount on account of the identified risks. 16 I will direct the parties to file final orders reflecting the reasons for judgment within 14 days. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.