Neurim Pharmaceuticals (1991) Ltd v Generic Partners Pty Ltd

1. Within 7 days the applicant is to file and serve a draft further amended statement of claim that deletes paragraph 45 and includes a new paragraph 45A which confines the claim for additional damages to one based on benefits alleged to have accrued to the respondents because of the respondents' alleged patent infringements and which otherwise conforms with the rulings contained in the reasons for judgment published today.
2. All questions concerning the costs of the applicant's application for leave to amend the amended statement of claim be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

NICHOLAS J: 1 Before me is an application by the applicant ("Neurim") to amend its amended statement of claim. Neurim is the patentee of Australian Patent No 2002326114 entitled "Method for treating primary insomnia" ("the patent") which includes Swiss style claims for the use of melatonin in the manufacture of a medicament for treating "a patient suffering from primary insomnia characterized by non-restorative sleep" and method of treatment claims. The patent was amended by order made on 19 February 2019 pursuant to s 105(1) of the Patents Act 1990 (Cth) ("the Act"): see Neurim Pharmaceuticals (1991) Ltd v Generic Partners Pty Ltd (No 2) [2019] FCA 154; (2019) 139 IPR 424. 2 Neurim seeks relief for patent infringement against the first respondent ("Generic Partners") and the second respondent ("Apotex"). Apotex is currently supplying melatonin products which it acquires from Generic Partners ("the Generic Partners' Products"). The respondents deny infringement and have filed a cross-claim seeking revocation of the claims on which they are sued. The patent will expire on 12 August 2022. 3 On or about 3 April 2017 the Generic Partners' Products were registered on the Australian Register of Therapeutic Goods ("ARTG"). The sole indication in relation to which the Generic Partners' Products were registered on the ARTG was for "monotherapy for the short term treatment of primary insomnia characterized by poor quality of sleep in patients who are aged 55 or over". That is the same indication for which the applicant's melatonin products (with the brand name "Circadin") are also registered. 4 The proceeding was commenced by an originating application and statement of claim filed on 5 May 2017. The case pleaded in the statement of claim alleged that Generic Partners threatened to supply at least some of the Generic Partners' Products to Apotex, and that Apotex threatened to commence marketing those products in Australia. 5 Neurim applied for a quia timet interlocutory injunction which was granted against the respondents on 9 May 2017 to operate until 31 July 2017. This injunction was subsequently continued until further order. 6 On or about 17 July 2018, Generic Partners transferred the sponsorship of the ARTG registrations for at least some of the Generic Partners' Products to Apotex. 7 On 2 November 2018 the interlocutory injunction was discharged. The order discharging the interlocutory injunction was not consented to by the respondents. Rather, they indicated that they did not oppose the discharge of the interlocutory injunction provided that the Court noted certain matters including that Neurim remained bound by the usual undertaking as to damages which Neurim had previously given. 8 The trial was originally fixed to commence on 16 March 2020 but was vacated due to problems in securing the attendance of expert witnesses due to COVID-19 restrictions. It appears that in or about May 2020 Apotex commenced supplying one or more of the Generic Partners' Products. On 22 May 2020, the hearing of the proceeding was re-scheduled to commence on 30 November 2020. The proceeding is now part heard. 9 In para 40(a) of its defence filed on 29 March 2019, Generic Partners admitted that it would earn profits from the supply of the Generic Partners' Products. However, on 10 September 2020 the solicitors for Generic Partners wrote to Neurim's solicitors informing them that Generic Partners and Apotex were now part of the same consolidated group of companies. 10 In their email, the solicitors for Generic Partners raised with Neurim's solicitors the need for Generic Partners to amend its defence to withdraw an admission that Generic Partners expected to earn profits from the supply of its melatonin products. The email stated: Pursuant to paragraph 3 of the orders dated 2 September 2020 in the above proceeding, please find attached by way of service the Second Respondent's Amended Defence. We also attach an unfiled and unsigned copy of the First Respondent's Amended Defence. Paragraph 41(a) of this Amended Defence includes the withdrawal of an admission related to the future earning of profits by the First Respondent from the supply of the Generic Partners Products. We are instructed that as the First and Second Respondents are now part of the same consolidated group of companies, the First Respondent has not earned, and is not expected in future to earn, profits from supply of the Generic Partners Products … 11 The statement of claim filed by Neurim included para 45 which reads as follows: 45. The Respondents have engaged, and will engage, in the conduct pleaded above: a) flagrantly; b) with knowledge of the Patent; c) knowing that the supply of the Generic Partners Products infringes the Patent; d) in reckless disregard of infringement of the Patent; and e) intending that substantial benefit would accrue to each of them by the infringement of the Patent. … 12 The applicant no longer relies on para 45 which it wishes to delete. In its place it proposes to add a new para 45A which relevantly alleges as follows: 45A. An additional amount should be included in an assessment of damages having regard to: a) the need to deter similar infringements of patents under s. 122(1A)(b) of the Act; b) the fact that substantial benefit is likely to be shown, following discovery and inspection of the Respondents' accounts, and the accounts of the Respondents' related entities, to have accrued to the Respondents, and the Respondents' related entities, as a consequence of the infringing conduct pleaded above, which benefits should be stripped from the Respondents and their related entities under s. 122(1A)(d) of the Act; c) further or alternatively to the matters described in sub-paragraphs 45A(a) and (b) above, an additional amount should be included in an assessment of damages pursuant to s. 122(1A)(e) of the Act. Particulars i. The Applicant refers to and relies on: a) paragraphs 1(a), (b), (c) and (g) of the Particulars of claim for additional damages filed by the Applicant on 21 October 2020 as if the same were incorporated seriatum hereunder; and b) the Particulars appended to paragraphs 22, 27 and 29 above. ii. If the Court finds that conduct by the Respondents described in paragraphs 26, 32, 37, 39, and 41 above infringes a claim of the Patent, an award of additional damages under s. 122(1A) (b) and (d) of the Act would deter infringers from projecting pharmaceutical products onto the Australian market on the basis of a registration on the ARTG for an indication that is, or alternatively includes, a use that infringes a patent, and selling the products for use in relation to both the registered indication and other indications, and "strip" from the Respondents the benefits derived thereby. iii. Further, the Applicant should receive additional damages under s. 122(1A) (b), (d) and (e) of the Act to the extent that the Respondents, or related entities, 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, and/or the Respondents' related entities, derive a profit on other products as a result of the sale and/or supply of the Generic Partners Products; b) as a result of profits from the Generic Partners Products being transferred to related entities of the Respondents by pricing inter group transactions on other than an "arms length" basis or by other methods of accounting; and/or c) 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 26, 32, 37, 39, and 41 above. iv. Further, if the profits the Respondents have earned and will earn as a result of their conduct described in paragraphs 26, 32, 37, 39, and 41 above, ascertained during the assessment of quantum of the compensation to which the Applicant is otherwise entitled, are greater than the compensation to which the Court concludes the Applicant is entited [sic] as a consequence of infringement by the Respondents of a claim of the Patent, an award of additional damages under s.122(1A) (b), (d) and (e) of the Act may be necessary to both deter similar infringements of patents by the Respondents and other persons, and to "strip" the Respondents of all pecuniary benefits received as a consequence of the infringing conduct. … 13 The particulars to para 45A refer in sub-para (i) to a statement of particulars ("the Statement of Particulars) filed by Neurim on 21 October 2020. The Statement of Particulars was filed pursuant to an order requiring Neurim to provide further and better particulars of the allegations made in para 45(a) and (d) of what was by then the amended statement of claim. 14 The Statement of Particulars includes the following: (a) Around May 2020, Apotex launched at least one of the Generic Partners Products with an indication for monotherapy for the short term treatment of primary insomnia characterised by poor quality of sleep in patients who are aged 55 or over. (b) The particulars to paragraphs 17 and 20 of the Amended Statement of Claim are repeated [these particulars set out details of the ARTG registrations for the Generic Partners' Products]. (c) Particulars (iii) and (iv) to paragraph 25 of the Amended Statement of Claim are repeated [these particulars identify a number of pharmacies offering to supply Generic Partners' Products]. (d) The conduct referred to in subparagraph (a) above occurred in circumstances in which: (i) the hearing of the matter had been scheduled to commence on 17 March 2020; (ii) the respondents had the whole of the Applicant's evidence filed in the proceedings, the joint expert report, and the Applicant's written opening submissions filed and served on 10 March 2020; and (iii) on 16 March 2020, the hearing due to commence on 17 March 2020 was vacated due to circumstances outside the control of any party. (e) An award of additional damages may be necessary in order to strip the respondents of all of the pecuniary benefits received from the infringing conduct. (f) The Applicant says that each supply of the Generic Partners Products in Australia is an infringing supply. (g) In the event that the Court finds that any instances of supply of the Generic Partners Products in Australia do not infringe the Patent: (i) that non-infringing supply is only possible because the Generic Partners Products have been registered on the ARTG for an indication that is, or alternatively includes, a use that infringes the Patent; and (ii) the profits earned as a result of any instances of non-infringing supply of the Generic Partners Products are a benefit that has accrued to the Respondents because of their infringement of the Patent. (h) In the circumstances, an award of additional damages may be necessary to deter conduct of a similar kind. 15 Neurim no longer alleges that any infringement of the patent by the respondents was flagrant or that the respondents acted with knowledge that the supply of their products would infringe the patent. It expressly disavowed any reliance on any element of flagrancy, wilfulness or recklessness on the part of the respondents. Neurim says that the case for additional damages that it now seeks to rely upon is primarily about ensuring that the respondents do not benefit from any infringement that the Court may find that they committed and stripping the respondents of the benefits that they may enjoy as a result of such infringement. Neurim also says that an amount of additional damages may also be required to deter the respondents and other persons from engaging in similar infringements in the future. 16 The respondents oppose the application to amend on the basis that the claim for additional damages based on the allegations in para 45A and the related particulars is weak, speculative, and has insufficient prospects of success. They also say that Neurim has been guilty of undue and unexplained delay in applying to make the amendment. In support of their submissions the respondents relied on s 37M of the Federal Court of Australia Act 1976 (Cth) and made general reference to Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 and Tamaya Resources Ltd (In Liq) v Deloitte Touche Tohmatsu (A Firm) (2016) 332 ALR 199. 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. 21 Given that approach, it is necessary to have regard to the various elements of proposed para 45A with a view to determining whether they are capable of providing (either individually or collectively) any reasonably arguable basis for an award of additional damages. 22 The matters relied on by Neurim in support of its claim for additional damages as pleaded and particularised can be summarised as follows: (1) ARTG Registration - The respondents launched their melatonin products into the Australian market on the basis of an ARTG registration: (a) that mirrors Neurim's ARTG registration for Circadian; (b) for a use that infringes the patent; (c) that permits supply of products which may be prescribed by a medical practitioner for the treatment of the registered indication or "off label" indications. (2) Timing of Product Launch - The respondents launched their product after the affidavit evidence was filed, and after the trial dates had been vacated due to circumstances outside the parties' control. (3) Stripping of Benefits - The respondents have made substantial benefits from their infringements, which have "been enabled by, but extend beyond, their infringing conduct" including: (a) the benefits flowing to the respondents and their related entities due to "bundling deals" or other discounting arrangements; (b) the benefit of the "first mover advantage" arising out of the respondents' entry into the market before expiry of the patent; and (c) by entering into non-arms length transactions and financial arrangements. (4) Deterrence - An award of additional damages is necessary to deter similar infringements of the patents by the respondents and other persons. 23 Section 122(1) and s 122(1A) of the Act provide: (1) The relief which a court may grant for infringement of a patent includes an injunction (subject to such terms, if any, as the court thinks fit) and, at the option of the plaintiff, either damages or an account of profits. (1A) A court may include an additional amount in an assessment of damages for an infringement of a patent, if the court considers it appropriate to do so having regard to: (a) the flagrancy of the infringement; and (b) the need to deter similar infringements of patents; and (c) the conduct of the party that infringed the patent that occurred: (i) after the act constituting the infringement; or (ii) after that party was informed that it had allegedly infringed the patent; and (d) any benefit shown to have accrued to that party because of the infringement; and (e) all other relevant matters. 24 Section 122(1A) of the Act was introduced by the Intellectual Property Laws Amendment Act 2006 (Cth), Schedule 5. 25 However, well before s 122(1A) was introduced, additional damages was a remedy available under the Copyright Act 1968 (Cth) ("the Copyright Act"). Most of the relevant case law relates to the availability of additional damages for copyright infringement. The Copyright Act originally provided in s 115(4): (4) Where, in an action under this section: (a) an infringement of copyright is established; and (b) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; (ii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iii) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances. 26 Section 115(4) was included in the Copyright Act in accordance with the recommendation included in the Report of the Copyright Law Review Committee, 1959 ("the Spicer Committee"). Referring to the power to award additional damages conferred by s 17(3) of the Copyright Act 1956 (UK), the Spicer Committee said at para 309: Section 17 (3) enables a court, in an action for infringement to grant exemplary damages where it thinks such a remedy is appropriate having regard to the flagrancy of the infringement and any benefit accruing to the infringer. We approve of a provision to this effect. It may be particularly useful in the case of the performing right where the event has occurred and the loss is difficult to assess in precise money terms. 27 Section 115(4) was amended by the Copyright Amendment (Parallel Importation) Act 2003 (Cth). These amendments introduced s 115(4)(b)(ia) and (ib) which generally correspond to s 122(1A)(b) and (c) of the Act. 28 The Full Court in Aristocrat Technologies Australia Pty Ltd v D.A.P. Services (Kempsey) Pty Ltd (2007) 157 FCR 564 ("Aristocrat") (Black CJ, Jacobson and Rares JJ) made clear that flagrancy is only one of a number of considerations that may warrant an award of additional damages under s 115(4). Black CJ and Jacobson J said at [41]-[45]: [41] Flagrancy is not an essential prerequisite for an award of additional damages. It is sufficient if the Court is satisfied that any one or more of the circumstances set out in s 115(4)(b) is established: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 93 (Burchett J), 103 (Tamberlin J), 104 (Lehane J); see also Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 76 FCR 565 at 575 (Lockhart J); Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at [158]. [42] Additional damages under s 115(4) may be awarded on principles that correspond to those governing awards of aggravated and exemplary damages at common law: Autodesk Inc v Yee (1996) 68 FCR 391 at 394 (Burchett J). The principle stated in Lamb v Cotogno (1987) 164 CLR 1 at 9-10, cited by Rares J at [114] is therefore applicable. [43] The objectives of an award of additional damages include deterrence: s 115(4)(b)(ia). An element of penalty is an accepted factor in the remedy; Autodesk v Yee 68 FCR at 384. [44] One of the factors referred to in s 115(4)(b) is any benefit shown to have accrued to a defendant by reason of the infringement: see s 115(4)(b)(iii). In construing the English equivalent provision, Brightman J said that "benefit" implies that the defendant has reaped a pecuniary benefit in excess of the damages otherwise payable: Ravenscroft v Herbert [1980] RPC 193 at 208. It is possible, however, that the benefit need not be confined to a pecuniary one: Polygram v Golden Editions 76 FCR at 576. [45] There need not be any proportionality between the amount of compensatory damages awarded under s 115(2) and the amount of additional damages ordered under s 115(4): Raben 75 FCR at 93, 103, 104; see also Microsoft Corporation v PC Club Australia Pty Ltd (2005) 148 FCR 310 at 409-410 (Conti J). 29 The allegations relating to non-arms length transactions and pricing arrangements appear from the evidence to be based on the fact that Generic Partners has supplied the Generic Partners' Product to Apotex at cost price. There is no allegation that the pricing arrangements between the respondents were made other than in the ordinary course of business or that such arrangements are unlawful, improper or otherwise inappropriate. In particular, it is not alleged that they have been entered into for the purpose of defeating or frustrating Neurim's claims for pecuniary relief. 30 Submissions made on behalf of Neurim in support of its amendment application implicitly suggested that there was something improper or inappropriate in Generic Partners supplying products to Apotex (a related corporation) at cost price. However, the proposed amendments do not say anything at all about the respondents' purposes or motives in dealing with each other on those terms. The mere fact that Generic Partners supplies Apotex at cost price is not a matter capable of justifying an award of additional damages. Further, if Generic Partners supplies Apotex at cost price then it is to be expected that Apotex's own profits would be greater than what they would be if Apotex had been supplied on a cost plus basis. In the circumstances, the justification for the proposed amendment is elusive to say the least. The proposed amendment will be disallowed in so far as it seeks to rely on what may be described as non-arms length transactions or financial arrangements. 31 In my view the timing of the respondents' product launch cannot provide any arguable basis for an award of additional damages. As I have explained, it is not alleged that the respondents knew that by supplying their products in the patent area, they would infringe, or even may infringe, the patent or that the affidavit evidence served by the applicant by the time the respondents decided to commence supplying their products should have indicated to them, or reasonable persons in their position, that supply of the products in the patent area without Neurim's permission would, or was likely to, amount to an infringement of the patent. In the absence of any allegation to any such effect, the timing of Apotex's product launch is not a matter capable of justifying an award of additional damages. 32 The fact that the respondents launched their melatonin products on the basis of an ARTG registration that mirrored Neurim's ARTG registration for Circadin is also a matter that, in my view, does not provide any arguable basis for an award of additional damages. Of course, Apotex would not be able to market the Generic Partners' Products in Australia unless they were registered on the ARTG. But the mere act of applying for or obtaining an ARTG registration mirroring Neurim's own ARTG registration is not itself a matter that could be relevant to the exercise of the discretion to award additional damages. 33 It may be inferred that Generic Partners was required to provide a certificate under s 26B of the Therapeutic Goods Act 1989 (Cth) for the purpose of obtaining ARTG registration of the Generic Partners' Products. It is conceivable that the circumstances in which such a certificate was given may be a relevant matter for the purposes of s 122(1A)(d) of the Act if that person lacked any good faith or reasonable belief that the marketing of the relevant product would not infringe a valid claim of a patent. However, the absence of any such belief would be a matter going to the flagrancy of any infringement arising out of the manufacture or supply of the relevant product. 34 Similarly, I do not think there could be any arguable justification for an award of additional damages based on the need to deter "similar infringements" in circumstances where the applicant does not allege that either respondent knew or had any reason to believe that the supply of the Generic Partners' Products would or may infringe the patent. 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 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. 37 Orders accordingly. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Nicholas.