Pharmaceutical firm wins battle for compensation following the lifting of injunction

Out-Law News | 10 May 2012 | 11:56 am | 5 min. read

A pharmaceutical company has won its battle for compensation despite the fact that it was seeking to sell medicine in the UK that was manufactured in breach of Canadian patent law.

The Court of Appeal said that the fact that the medicines' manufacture violated a Canadian patent did not make their sale in the UK unlawful, and that the manufacture was conducted as a result of a good faith belief that the Canadian patent was invalid.

The Court said that a basic legal principle that allows courts to refuse litigants' claims that arise out of their own unlawful actions cannot always be relied upon by companies seeking to avoid paying damages in patent disputes.

The Court said that the 'ex turpi causa' rule could only be relied upon to prevent litigants obtaining damages based on their own unlawful actions where it was a "just and proportionate response to the illegality involved in the light of the policy considerations underlying it."

The Court said that a party to an action would not necessarily be prevented from defending a claim to pay damages, based on their own cross-undertaking to do so, in the event that an injunction is wrongly granted. The Court said this was the case even if that party relied on facts known at the time the injunction was granted.

The Court was ruling in a case involving two pharmaceutical companies, Servier and Apotex, and Servier's patent rights for a "particular crystalline form of perindopril erbumine" – a drug "used for treating hypertension and cardiac insufficiency", according to the Court of Appeal ruling.

Servier had obtained an injunction from the High Court barring Apotex from marketing perindopril erbumine in the UK. At the time Servier pledged to pay Apotex compensation for the damage the company suffered in the event that the injunction it won was later determined to be wrongly granted.

Subsequently the High Court removed the injunction placed on Apotex after ruling that the UK patent itself was invalid on the grounds that it lacked novelty and was obvious. Under patent law inventions must primarily be new, take an inventive step that is not obvious and be useful to industry.

Apotex sought compensation for the damages it had suffered as a result of the injunction. However, Servier argued that "as a matter of public policy" its rival could not claim damages. This was because, Servier had said, Apotex would have manufactured the drug in Canada in breach of Canadian law. Canadian courts have served an injunction on Apotex barring the company from "manufacturing, selling, offering for sale or otherwise dealing in products containing perindopril in Canada".

The Court of Appeal said Servier could not rely on the 'ex turpi causa' rule in order not to have to pay damages to Apotex despite finding that Apotex's claims for compensation were "directly" reliant on infringing Servier's patent rights in Canada. This was down to a number of factors, including because the Court ruled that ordering Servier to pay damages to Apotex would not infringe on Canada's "comity" rights. Comity is another legal principle which ensures courts give consideration to the rights and competencies of other jurisdictions.

Apotex agreed that the Court of Appeal should factor in the amount of money a Canadian court would have ordered it to pay for infringing on Servier's rights in the country in order to manufacture the drugs for sale in the UK during the time that the wrongly-issued injunction was in place in the UK.

"The effect of [Apotex's] concession [on the way damages due to it should account for any Canadian court penalties for infringement] is to place Apotex in precisely the position in which it would have been had there been no interlocutory injunctions in the United Kingdom and without offending comity with Canada," the Court of Appeal ruled.

"The unlawfulness of the breach of the Canadian Patent by the assumed manufacture and export of goods in Canada for lawful importation and sale in the United Kingdom would be marked by deducting from [the High Court's] award an amount equal to Apotex's profits recoverable by Servier under Canadian law for such unlawful manufacture and export. That would reflect the remedy actually imposed in Canada for the manufacture and export by Apotex infringing the Canadian Patent in the period prior to the grant of the final injunction by [the High Court] and in the thirty day period allowed under [High Court's] final order for the sale of infringing items."

"There would be consistency in the law by recognising, in the inquiry as to damages, the illegality in Canada in the same way and to the same extent as the Canadian courts would in fact have done in respect of any unlawful manufacture and export in Canada during the relevant period. Expressed in a different way, if Apotex was left with some of the compensation ordered by [the High Court] even after deduction of an amount reflecting [Apotex's] concession, what would be left is not something that the Canadian courts themselves would regard as properly recoverable under Canadian law for breach of the Canadian Patent," said the ruling.

"The result, therefore, would neither be offensive to comity with Canada nor any reason for interference on the ground of English public policy," the Court said.

As well as the 'comity' issue, Servier's 'ex turpi causa' claims were further rejected on the basis of other factors. The first factor was that patent protection is "territorial". On that basis that the Canadian court injunction banned Apotex from activities only in Canada, Apotex could legitimately make sales in the UK based on a breach of Servier's Canadian patent, the Court said.

"The importation and sales that would have been carried out in the United Kingdom by Apotex, but for the injunctions granted by [the High Court], would have been entirely legal," it said.

Secondly, the Court said that the Canadian court had not issued an injunction barring "manufacture and export in Canada" of the drugs to the UK because at that time there was already an injunction in place in the UK. The judges rejected Servier's claim that this was due to a delay in proceedings and said they were unwilling to determine whether the 'ex turpi causa' rule applied on the basis of "on an unrealistic hypothetical set of facts (namely the grant of an interlocutory or final injunction in Canada)".

In addition, Apotex also "honestly and reasonably believed" that Servier's Canadian patent was invalid, and Apotex's actions in challenging Servier's unjustly gained "monopoly" in the UK drugs market also diminished the effects of its own unlawful activity, the Court said.

"The taking of a commercial risk by a competitor to the patentee by marketing a product in breach of the patent but reasonably believing and in good faith that the patent is invalid is low on the scale of culpability in terms of the illegality defence," the Court said in its ruling.

Patent law expert Camilla Balleny of Pinsent Masons, the law firm behind Out-Law.com, said the Court's findings may not necessarily have a bearing on similar cases in the future.

"This was an interesting and long running case which explored the scope and enforceability of cross-undertakings which are so often provided for in patent disputes such as this one," she said. "The court has made its decision based on a very particular set of facts and it is difficult to see how widely applicable the ruling will be."