Israel: Disgorgement of profits as punitive damages for misleading a patent office

by Eran Bareket (Gilat, Bareket & Co., The Reinhold Cohn Group Israel)

Unipharm Ltd. v. Sanofi et al (Tel Aviv Dist. Ct., 2015)

An Israeli court allowed Unipharm, an Israeli generic company, to disgorge a portion of Sanofi’s profits from Plavix® due to a finding of unlawful conduct before the Patent Office.

  • In an action brought by Unipharm, the court ordered Sanofi to account for its revenues in Israel from Plavix® between 2008 and 2010 as a preliminary step for the plaintiff’s disgorging part of Sanofi’s profits. Sanofi elected to pay the amount of the claim in lieu of accounting and appealed to the Supreme Court.

Private Enforcement

The judgment created a private enforcement mechanism in cases of unlawful chilling effect caused by an innovative pharmaceutical company, due to misuse of the patent system. Such disgorgement of profits was deemed a punitive measure, without regard to actual damages to the competitor.

Flawed Determination of Misconduct

Why was Sanofi found to have misused the patent system?

The case involved one of Sanofi’s flagship drugs, Plavix®, an anti-clotting drug whose API is the dextro enantiomer of Clopidogrel.

In 2008, IL 85294 (“IL ‘294“), which protected the dextro enantiomer of Clopidogrel, expired. At that time another Sanofi patent application, IL 139790 (“IL ‘790“), which covered a later found crystalline form of the (bi)sulfate salt of Clopidogrel [“Form 2”], was under opposition (pre-grant) from Teva.

In June 2010, after non-infringing generic versions entered the market (a besylate salt and a Form 1 drug), Sanofi withdrew IL ‘790.

Unipharm filed suit, arguing that because of Sanofi’s alleged wrongful acts, Unipharm refrained from timely entering the Israeli market and thus suffered monetary loss, namely, the lost sales of a generic Clopidogrel between IL ‘294’s expiry and IL ‘790’s withdrawal, a period when launching a Form 2 drug would have been at risk.

What were the alleged wrongful acts?

Weak Patent Application: Unipharm argued that IL ‘790 was a “weak application” and that Sanofi knowingly filed it to deter competition by creating uncertainty in the market at the time of IL ‘294’s expiry. The judge found against Unipharm on the facts, but left open the question of whether, in principle, such a cause of action is available.

Improper Prosecution – Wrong Priority: In the priority application there was exemplified a process for manufacturing Form 2. However, literally following the exemplified process in a sterile environment resulted in Form 1, and Form 2 could only be obtained if seeding occurred. The step of seeding was not mentioned. In the PCT application Sanofi added another example with an added step process enabling manufacturing Form 2 in a sterile environment.

The court held that Sanofi misled the ILPTO by:

    • including erroneous Example 1 in IL ‘790; and
    • claiming priority from the priority application knowing it was “wrong and invalid.”

Take home: If maintained on appeal, the practical implications are clear: Every error in a priority application known to the patent applicant must be rectified prior to filing the national applications, a burden that would also apply to errors a skilled person could easily overcome.

Improper Prosecution – Breach of the Duty of Disclosure: The court further held that Sanofi failed to disclose information to the ILPTO regarding the circumstances in which Form 2 was discovered.

Take home: If maintained on appeal, patent applicants will be subject to the highly broad and vague duty of disclosure, which could in turn lead to increased inequitable conduct litigation. Such duty will include specifying the circumstances leading to the invention.

Unlike most other countries, PTE protection was not available.

The appearance of Form 2 caused “universal seeding” (or “disappearing polymorphs”), a phenomenon whereby the manufacturing process used to create Form 1 will, in the presence of Form 2 seeds, necessarily lead to Form 2 instead of Form 1. Marketing approvals were switched to this form following the discovery.

The court commented that Form 2 is not an “invention” but rather a non-patentable ‘discovery’. It also noted that a discovery made by chance is not patentable (as distinguished from a discovery based on ‘actual R&D actions’).

The court held that Sanofi is not entitled to argue that this error would have been overcome by a person skilled in the art.

The court did not explain the statement that the priority application was “invalid.” In fact, the court did not even hold that the priority claim had any effect on the validity of IL ‘790.

The court held that such information should have been disclosed either by (an expansive reading) of Section 18 to the Patents Act, which imposes duty of prior art disclosure, or by virtue of general duty to act in good faith in prosecution proceedings, which, according to the court imposes a greater duty of disclosure than that set in Section 18.