Madrid Court of Appeal rules in landmark damages case
In 2016, the claimants –a patent holder and its exclusive licensee– filed an infringement action on grounds of a supplementary protection certificate (SPC) against defendants Teva Pharma and Laboratorios Cinfa. The same parties were involved in parallel revocation proceedings before the courts of Pamplona, which had commenced in 2009.
When the claimants filed their infringement action, the SPC had already expired. Therefore, the infringement action claimed damages for sales of generic raloxifene drugs carried out until the expiry date (5 October 2013).
One fact was crucial to the proceedings: Teva Pharma had been first to launch its infringing product in May 2011, thereby triggering the price reduction scheme applied by the Spanish Ministry of Health. Thus, from October 2011 onwards, the reimbursement price of raloxifene was drastically reduced. The second defendant, Laboratorios Cinfa, launched in January 2012, once the price reduction had already taken place. A series of third parties also started marketing generic raloxifene drugs from June 2012 onwards. However, those third parties were not sued by the SPC holder.
The plaintiffs claimed damages for the entire period until SPC expiry, including losses resulting from the regulatory price drop. Therefore, a key question arose in the proceedings: if Teva Pharma had triggered the price reduction –since it had been the first mover–, who was liable for the ensuing harm, and for which period?
In addition, the parties disputed a number of other issues.
Madrid Commercial Court no. 7 partially upheld the infringement action. However, it also ruled that the relevant period of lost profit arising from the Ministry of Health's price drop only extended until 31 December 2011 and not, as argued by the claimants, right until SPC expiry on 5 October 2013. Therefore, the quantum was significantly lowered.
All parties appealed the first instance decision. In a Judgment dated 23 June 2023, the Madrid Court of Appeal (Section 32) upheld the claimants' appeal in full. In particular, it found that the losses due to the regulatory price drop extended until 5 October 2023 and that Teva Pharma was solely liable for these damages.
The key findings of the Madrid Court of Appeal
The key finding of the Eli Lilly case is the Court's decision to award damages resulting from the regulatory price drop for the entire period until SPC expiry and, moreover, to hold Teva Pharma solely liable for the ensuing losses, regardless of the fact that both Laboratorios Cinfa and some other companies had also launched infringing products at a later point in time and, therefore, would themselves have triggered the regulatory price drop even if Teva Pharma had not launched. In this regard, the Court held that Laboratorios Cinfa and the other third parties had simply “joined” an ongoing situation caused by Teva Pharma but did not decisively trigger the price reduction scheme. Thus, Teva Pharma was entirely to blame. The court also rejected the notion that the Ministry of Health was responsible for the damages, since price reduction had been an unavoidable and non-discretionary statutory consequence of Teva Pharma's launch. Accordingly, the conduct of Teva Pharma was the sole decisive harmful event.
The judgment in the Eli Lilly case also contains some other relevant findings, inter alia:
i) The Court of Appeal confirmed that an exclusive, non-registered licensee also enjoys active locus standi when litigating as a co-claimant alongside the patent holder.
ii) The Court ruled that the patent holder is entitled to claim damages even if it does not directly market the product on the Spanish market, as long as it does so indirectly via subsidiaries and affiliates down the distribution chain.
iii) The Court found that a patent holder and licensee are also entitled to claim damages suffered by its wholly-owned local subsidiary as a result of infringement, even if the latter is not a co-claimant.
v) The Court found that the principle of res iudicata prevent a defendant from raising revocation grounds which it had failed to raise in previous revocation proceedings. A sudden shift in case law on a particular point of law was not a valid pretext for improvising new arguments in the second proceedings.
Patentees will welcome the judgment in the Eli Lilly case. While not final, it is likely to shape damages claims in Spain for years to come. The Court's bold decision to allocate liability for the regulatory price drop (which is often the lion's share of damages) has important implications for the pharmaceutical industry. In particular, this outcome implies that a "trailblazer" launch at risk is now much riskier, if ultimately the "trailblazer" is found to infringe the patent. Such risk may in fact outweigh the benefit of being a first mover and, conversely, generics also have an incentive now to piggyback on the risk assumed by the first entrant.