Compensation for Unjust Preliminary Injunctions in Pharmaceutical Patents and Critical Parameters
One of the most complex types of disputes encountered in the field of pharmaceutical patents is compensation lawsuits arising from unjust preliminary injunctions. These compensation lawsuits require meticulous assessment from the perspective of both procedural law and substantive law. Especially, because of the controversies over the nature of fault-based liability arising from the ambiguities in the wording of Article 399 of the Code of Civil Procedure (“CCP”), and where patent law, procedural law, competition law, and economic analyses intersect regarding, the calculation of lost profits suffered by generic pharmaceutical companies, the specific features of the concrete case play a decisive role.
Under Article 399 of the CCP, the party in whose favour the preliminary injunction was granted; in cases where it is understood that the party was unjustified at the time of the requesting the preliminary injunction, or if the injunction order expires automatically, or is set aside upon objection, is liable to compensate the damages suffered by the opposing party due to the unjust preliminary injunction. Although the framework looks like an objective liability regime at first sight, the interpretation of the criterion of “being unjustified at the time the claim is made” is controversial in both doctrine and practice.
According to our view, in the infringement actions based on a pharmaceutical patent, upon the infringement being established at an approximate level of proof through technical expert reports and the preliminary injunction decision granted on the basis of a legally valid patent, subsequent revocation of a patent due to invalidity should not be the only reason render the preliminary injunction unjustified. Therefore, since the element of “unjust” required by law did not occur at the time of the request for the injunction, it would be contrary to the principle of equity to grant the owner of the generic drug the right to compensation.
In this article, the compensation lawsuit to be filed in the situation that the preliminary injunction decision is lifted and the patent infringement action on the merits is concluded against the patent holder, the elements must be proven by the generic firm against whom the injunction order was granted, along with the criteria to be considered in the calculation of compensation, will be examined in light of concrete judicial decisions.
Following the removal of the preliminary injunction, for damages to be awarded in favour of the party against whom the injunction order was granted; it is mandatory to prove, through concrete, objective, and verifiable evidence, the damages incurred due to the “unjust injunction” and the causal link between said damages and the unlawful act (so, the unjust injunction). Because the party claiming compensation bears the burden of proving the potential profit it would have earned had the preliminary injunction not been granted and that it was deprived of this profit due to the injunction.
Another crucial point is the duration of the preliminary injunction alleged to have been unjust. Because this duration should be taken as a basis for calculating the damage. Another point that should be considered is the calculation of the injunction period must be based on the date of actual execution rather than the issuance date of the decision. The damage of the party claiming compensation is deemed to have arisen during the period between the date on which the injunction was actually enforced and the date on which it was lifted.
For calculation of the damages, it is crucial to reconstruct the conditions prevailing during the period when the injunction was in force and to calculate the damage in light above this simulation of the material reality. For example, in case of a pharmaceutical patent, the actual price of the generic product at that date which was excluded from the market due to the injunction order must be taken into consideration. The real price must be calculated by deducting VAT, wholesaler’s margin, pharmacist’s margin, and mandatory Social Security Institution discounts from the retail price. Moreover, to prevent compensation is becoming enrichment technique, production, operation, management, distribution, and other costs should be also taken into account while calculating compensation.
Furthermore, to ensure an objective and equitable assessment of damages based on economic reality, the determination of the actual price must incorporate surplus discounts and discretionary rebates, reflecting the inherent dynamics of the pharmaceutical industry.
It is significant to establish, based on concrete and objective criteria, the extent of market share which a pharmaceutical product could capture for the calculation of lost profits due to unjust preliminary injunction. In this consideration; recognition of the brand and capital strength of the generic firm, the nature and frequency of use of the pharmaceutical subject to the injunction, the prescribing trends of physicians, the number of other generic products in the market, and similar sectoral factors play a direct and decisive role in each specific concrete case. At this point, IQVIA (IMS) data considered to be decisive evidence and must be taken into account in compensation proceedings. Because this data, which reveal the actual sales movements in the market, make it possible to determine the market share objectively rather than abstract admissions. Failure to take into account the sales performance of the generic firm in compensation calculations will render the market share assessment incomplete and inaccurate.
In the first decision dated 2018, which was rendered based on a compensation claim arising from an unjust preliminary injunction in pharmaceutical patents, the fact that the plaintiff generic firm didn’t launch the product even after the injunction was lifted created necessity for calculation of the compensation amount based on a simulation. At the point that the absence of market data, the court relied on a simulation submitted by the originator firm, that was created on the basis of criteria like the features of the market, the pricing and performance of competing generics, the profit distribution in similar markets, and the generic product’s ability to penetrate into the market. Accordingly, the Court held that the market share of the first equivalent product to enter the market would have been 16% had its market entry not been prevented by the preliminary injunction decision. The said judgment was upheld following both appellate and cassation review and has become final.
Exactly 4 years after the first decision, in 2022, another court of first instance issued a new ruling in a case where the generic product was launched after the injunction was lifted. This time, the court calculated the compensation by examining the IMS data as well as the plaintiff’s commercial books and pricing data and ultimately based its assessment on a market share of 33.86%. This decision is currently under appeal review.
In these proceedings, although the generic companies seeking damages claimed exorbitant amounts of profit and market share, it was accepted that these claims were unrealistic and that the amounts of damages sought were excessive.
As it seen, compensation lawsuits arising from unjust preliminary injunctions require a highly complex and multi-layered judicial assessment. Therefore, factors such as the extent of each medicinal product’s indications, pricing, prevailing market conditions, the commercial reputation and brand strength of the original product, and the efficacy and safety of the generic product directly effects competitive environment. Accordingly, each case requires a specific assessment based on each concrete case.