Recent Patent Damages Decision of the Madrid Court of Appeal

A few weeks back Adrián Crespo published a short post on the Kluwer Patent Blog titled Patent case: Judgment no. 18/2023 of Madrid Court of Appeals (Section32) of 23 June 2023, Spain.  The author writes that, as a result of the decision, “generic companies wishing to launch at risk” should be aware that “the first mover(s) will be held liable for triggering regulatory price reduction and thus for the damages arising from the price gap between the innovator and the generic, even if other third parties have launched at a later point in time.”  The post references a longer summary of the decision on Kluwer IP Law, to which I do not have access, but I was able to obtain a copy of the decision itself and will note a few things about it below.  (Here is a link to the decision in the original Spanish, and here is a link to a machine translation.)

The facts of the case, in brief, are as follows.  Eli Lilly and Company was the owner of ES 2 102 602, the Spanish validation of a European patent, covering the active ingredient Raloxifene, as well as a SPC 009900002.  These rights expired on August 5, 2013.  Daiichi Sankyo Europe GmbH was Eli Lilly’s exclusive licensee, and marketed the brand-name drug Evista in Spain through a Spanish subsidiary, Daiichi Sankyo España.  (Eli Lilly also marketed some amount of its own Raloxifene product under the brand name Optrumar, however, through a Spanish distributor, Esteve.) Teva launched-at-risk a generic version of the drug in Spain in May 2011.  Prior to launch of the generic product, the Spanish Ministry of Health set the price of the Teva product at €13.22 and included both the brand name and generic drug in a “homogeneous grouping.”  Under Spanish law, pharmacists are required to dispense the lowest priced drug in the group, so as a result Daiichi had to lower its price by 40%.  Meanwhile, another company, Laboratorios Cinfa, S.A., also obtained permission to market a generic version of the drug and began doing so in January 2012.  Thereafter several other generic firms entered the market as well.

Eli Lilly and Daiichi filed suit against Teva and Cinfa.  The court of first instance entered judgment for the plaintiffs, and the defendants appealed.  I’ll just note that the court affirms on liability, and focus on the damages issues.  The appeals court holds as follows:

First, Daiichi is entitled to recover its lost profit from sales of Evista that it would have made, but for the defendants’ infringement, through the term of SPC expiration in 2013.  The court rejects Cinfa’s argument that its liability should be reduced to take into account sales made by other generic firms from June 12, 2012 through August 5, 2013 (heading 7, para. 2).  (If I understand correctly, the plaintiffs didn’t sue these other companies to avoid having to defend the patent’s validity against them.  Cinfa had already lost on the validity issue in a different Spanish proceeding and was estopped from raising other grounds for invalidity in this case.)  

Second, Daiichi also is entitled to recover price erosion damages caused by the reduction in its profit margin caused by the infringement through August 5, 2013.  The appeals court holds that the party responsible for the drop is Teva, the first firm to launch at-risk, since it was Teva’s entry into the market that caused the Spanish Ministry to bring about the 40% reduction in the price of Raloxifene drugs (heading 12).  

Third, Daiichi is entitled to recover compensation for the reduction in the net operating profit after tax suffered by its Spanish subsidiary as a result of the infringement, which reduction in turn reduced the consolidated profit of Daiichi.

Fourth, Eli Lilly is entitled to an award of the profits Teva and Cinfa made on additional sales of the drug at the lower price, which sales displaced sales that Eli Lilly would have made through the distributor (but which did not displace existing sales from Daiichi).  Cinfa does not get to deduct costs it incurred to bring its product to market, because these costs would have been incurred anyway after the expiration of the SPC and thus are not directly related to the infringing activity (heading 15).

Going back to the beginning, Mr. Crespo asserts that the final damages award will be in the seven-figure range, which would be quite high for a European country.