Dutch Court of Appeal - Patentee not liable against health insurer for patent enforcement against generic

Background

AZ markets its product Seroquel® (quetiapine) in immediate release (IR) and delayed release (XR) dosage forms. Both of these forms were covered by the compound patent protecting quetiapine. Prior to expiry of the compound patent, AZ obtained a patent protecting the XR formulation of quetiapine (“XR patent”).

Generic launches of quetiapine IR took place after expiry of the compound patent. Health insurer Menzis adopted Accord’s generic quetiapine IR in its preference policy (i.e. the policy indicating that only one or certain products within a specific group of medicines will be covered by the insurer’s basic health insurance).

Sandoz initiated revocation proceedings against AZ for revocation of the Dutch part of the XR patent. The District Court of The Hague in first instance upheld the validity of the XR patent. Sandoz lodged an appeal against the decision of the District Court.

Pending the appeal, AZ initiated preliminary injunction proceedings against Sandoz for infringement of the XR patent because Sandoz threatened to put generic quetiapine XR on the market. Sandoz indicated that the Provisions Judge should not follow the validity decision on the merits, because that decision would contain manifest errors and the only reason for AZ to initiate preliminary injunction proceedings would be to cause harm to Sandoz. The Provisions Judge denied Sandoz’ defence and enjoined Sandoz from marketing its generic quetiapine XR product in the Netherlands, subject to penalty payments. AZ enforced the preliminary injunction by serving the decision on Sandoz.

About ten months later, the Court of Appeal of The Hague revoked the Dutch part of the XR patent for lack of inventive step. Following the revocation decision, generic launches of quetiapine XR took place and Menzis decided to adopt Accord’s generic quetiapine XR in its preference policy. Menzis subsequently held AZ liable for damages resulting from the alleged unlawful enforcement of the XR patent or at least for preventing generics from entering the market with generic quetiapine XR.

The first instance decision

The District Court considered in its decision of 14 October 2020 that there can be a case of tort in the event that the patentee asserts a patent while he knows or should know that the there is a serious, non-negligible chance that the patent will be held invalid. Although this test was developed in case law in relation to the assertion of a patent against a competitor, the District Court considered that the same test would apply in relation to a third party such as a health insurer.

The District Court then considered that AZ would be liable for damages against Sandoz in relation to the enforcement of the preliminary injunction decision, as the injunction decision was later overturned and the patentee carries the risk of enforcement of an injunction decision that is not yet final and conclusive. The District Court further held that AZ had been unjustifiably enriched at the expense of health insurer Menzis by enforcing the preliminary injunction decision against Sandoz. The District Court considered that the enforcement precluded Menzis from designating a generic quetiapine XR product as ‘preferred product’ under its preference policy, so that Menzis had to reimburse the price of the originator product instead of a cheaper generic product. Meanwhile, AZ enjoyed an exclusive position and was able to charge the higher price. The District Court considered that this meant that AZ was unjustifiably enriched at the expense of Menzis.

The appeal decision

In its decision of 28 December 2021, the Court of Appeal held that AZ had not acted unlawfully against Menzis by asserting the compound patent and enforcing the preliminary injunction decision against Sandoz.

It was not in dispute between the parties that a patentee is not subject to strict liability vis-à-vis its competitors for asserting a patent that is subsequently revoked. In order for liability to arise, there must be some form of culpability on the part of the patentee. The Court of Appeal held that likewise there is no strict liability vis-à-vis third parties that are not competitors, such as Menzis. This is further supported by the fact that Menzis does not produce or distribute any medicines and that AZ had not asserted the patent against Menzis. The fact that the case relates to a medicinal product does not change this situation.  Although on the one hand good and affordable health care is in the public interest, on the other hand a strict liability could decrease the incentive to develop innovative medicines.

Menzis’ analogy with case law concerning liability of a party that threatens to enforce a court decision that is later overturned was held not to apply in this case, because Menzis was not a party to the proceedings and Menzis thus was not at risk of forfeiting any penalty payments. The Court of Appeal further rejected Menzis’ position that the granting of a patent would merely be a preliminary measure that could be undone in opposition or national court proceedings.

The Court of Appeal did not need to answer the question whether AZ would be liable towards Menzis if AZ knew or should have known that there was a serious chance that the patent would be revoked in opposition or national court proceedings, as the Court of Appeal considered that AZ in any event neither knew nor should have known this. The mere fact that the patent was ultimately revoked due to lack of inventive step did not mean that AZ previously knew that the patent was invalid.  This is supported by the fact that the District Court of The Hague previously upheld the patent. The fact that the Court of Appeal subsequently decided differently on validity does not mean that AZ should have known that the patent was invalid.

Menzis’ argument that AZ would have abused a dominant position was also rejected. Menzis acknowledged that the market did not merely consist of quetiapine XR and that the physician had the opportunity to choose between medicines in a broader product range. Menzis had not taken the position that AZ had a dominant position on this broader market. Furthermore, AZ had not acted in a culpable manner.

The Court of Appeal also rejected Menzis’ claim based on unjustified enrichment. As AZ had not acted unlawfully by asserting the patent against third parties, the alleged enrichment did not have an unjustified nature. The profits that AZ gained with quetiapine XR were considered to be the justified result of sales agreements with respect to these products. The Dutch Patent Act provides that the retroactive effect of the revocation does not affect agreements entered into and executed prior to the revocation, although reimbursement can be claimed to the extent justified by the circumstances. With the last part of this provision, the legislator had in mind the situation that a licensee paid a licensee fee for an upcoming period and the patent would subsequently be revoked. The Court of Appeal considered that such situation did not arise in this case and that there were also no other circumstances that would justify an exception, especially since AZ was not culpable for asserting the patent. 

The Court of Appeal therefore overturned the first instance decision and rejected Menzis claims.

Comment

The Court of Appeal did not answer the question whether the patentee would have been liable against the health insurer if the patentee had known or should have known that there was a serious chance that the patent would be revoked in opposition or national court proceedings. The legal test for establishing liability of a patentee against a third party, such as a health insurer, for enforcement of an injunction decision against another party, such as a generic company, thus remains unclear. Nevertheless, it follows from the Court of Appeal’s decision that liability against a third party is not easily accepted. The Court of Appeal’s decision is open to Supreme Court appeal.

Authored by Ruud van der Velden and Dirk-Jan Ridderinkhof