New Swedish ruling shows that strict liability (still) applies for losses caused by a preliminary injunction

Setterwalls has successfully represented Orifarm Generics in a lawsuit against Novartis concerning losses caused by a preliminary injunction. A crucial issue in the case has been whether Swedish courts, following the European Court of Justice’s ruling in C-688/17 (“the Bayer Ruling”), still can apply strict liability for damages. The Swedish case shows that the application of strict liability, also when the preliminary injunction is issued in a situation similar to a “launch at risk”, is compliant with the IPR Enforcement Directive.

Updated May 20, 2021

The background to the Swedish case was that Orifarm Generics, for a period of approximately 10 months, was prohibited by a fine from selling the product Orivast transdermal patches on the Swedish market. The product is used to treat Alzheimer’s disease. The preliminary injunction had been granted upon request by the competing company Novartis, because of an alleged patent infringement. The injunction was lifted in March 2016 and Novartis’ patent was later revoked as the EPO (European Patent Office) concluded that it should never have been granted at all. This in turn meant that in retrospect, Novartis had no valid patent right to justify the injunction.

Orifarm Generics estimated that due to the injunction, sales on the Swedish market worth approximately SEK 12 million were lost, the sum for which damages were then claimed in Attunda District Court.

Novartis not only disputed that the total damage suffered by Orifarm Generics amounted to SEK 12 million, but argued also that no liability existed. As grounds for this argument, Novartis invoked the judgment of the European Court of Justice in C-688/17, the so-called Bayer Ruling, which was announced in the autumn of 2019.

In the Bayer Ruling, the European Court of Justice ruled on two questions from the Hungarian national court on the application of Directive 2004/48/ EC of the European Parliament and of the Council, often referred to as the (IPR) Enforcement Directive. The background to the Hungarian case was that two pharmaceutical companies had launched products which infringed a patent which was still valid at the time of the launch, and then suffered preliminary injunctions. As the injunctions were lifted and the patent was revoked, the affected parties sought compensation for, among other things, loss of profit as a result of the injunctions.

Due to regulations of Hungarian national law, the Hungarian court concluded that no compensation could be awarded. When the Hungarian court turned to the European Court of Justice with the question whether this result could be compliant with the Enforcement Directive, the European Court of Justice’s answer was in the affirmative.

The Bayer Ruling and its interpretation have caused heated debates around Europe. In the context of patents in particular, it is common for generic and biosimilar companies to launch products which, on paper, may infringe patents, but which are nevertheless launched because it is assumed that the patents will soon be revoked. A topic of discussion has been whether a possible consequence of the Bayer Ruling is that a so-called “launch at risk” means that the right to indemnification is excluded if the affected party did not first bring an action for the invalidity of the patent, and also awaited the outcome of that action. If such an interpretation became prevalent, the conditions of competition in the pharmaceutical market would change radically.

The reasoning in the Bayer Ruling have also been interpreted by some as establishing that the parties’ intentions and actions exclusively will determine whether any indemnity liability can exist. This in turn would mean that strict liability cannot be applied since it is typically triggered by an event rather than by the actions of a party. In a Swedish legal context, this would mean a departure from the Supreme Court’s previous ruling in NJA 2017 p. 9.

The ruling of Attunda District Court on 23 April 2021 shows that the Bayer Ruling must be read and interpreted in its proper context, i.e. that it concerns specifically the issues of application of Hungarian law in the Hungarian case. This in turn means that the enforcement of Swedish law, with strict liability for losses caused by a preliminary injunction that was subsequently lifted, indeed is compliant with the IPR Enforcement Directive. Orifarm Generics was entitled to damages despite the objections raised by Novartis with reference to the Bayer Ruling.

The ruling was not appealed and gained legal force on May 14, 2021.