FCA clarifies aspects of compensable loss

A recent decision of the Federal Court has given guidance on how damages for loss arising from a wrongly-granted injunction are calculated. The case of Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2018] FCA 1556 belongs to a long running pharmaceutical patent litigation regarding a patent for an extended-release formulation of the medicine venlafaxine. The judgement is important not just in the area of patents, but for any case involving an injunction leading to economic loss such as restraints of trade.

This litigation began in 2009 when the Court granted interlocutory injunctions restraining three generic drug companies from (among other things) supplying their generic brands of venlafaxine in Australia. This decision was confirmed in 2010 by Jagot J who granted final injunctions against the generic manufacturers. This was overturned a year later in 2011 by the Full Federal Court with the High Court refusing any further appeal.

Following the Full Court’s decision, the three manufacturing companies, as well as their upstream suppliers and the Commonwealth of Australia, began proceedings against Wyeth who had sought the injunction in 2009. The claim of the manufacturers and suppliers were based upon economic loss suffered by the manufacturers during the injunction period. The Commonwealth’s claim was based on monopolisation by Wyeth causing the cost of subsidising venlafaxine to rise, however this claim was settled before the judgement was delivered.

In the published reasons for judgement, Jagot J provided an extensive overview of the manner in which damages are to be calculated. In summary there are three key questions to be answered:

  1. What is the loss?
  2. Did the loss flow directly from the order?
  3. Was the loss foreseeable at the time of the order?

In assessing the claims from the remaining parties Jagot J made several important findings:

First, that this principle does not protect a party from the ordinary consequences of litigation, it only protects from those losses arising “from the operation of an order made by a court before the rights of the parties are able to be fully determined” ([128] – [140]). Similarly, anticipatory steps in regard to a pending interlocutory application cannot engage the principle for similar reasons.

Second, simply because an applicant was successful in obtaining an order at first instance does not mean an injunction was not wrongly granted, an assessment of whether an injunction was wrongly granted must be made in reference to the final appeal decision ([234] to [237]).

Third, the discharge of the interlocutory injunctions marked the end of the relevant period for the claimant’s loss, loss suffered as a result of a final injunction does not flow directly from an interlocutory injunction ([238] – [272]).

Fourth, interlocutory injunctions can have a foreseeable and direct adverse effect on a person who is neither a party, nor bound by the injunction ([219]).

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