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Principle that profiteering from illegal acts should be prevented does not apply to patent infringements, rules Supreme Court

A legal principle designed to prevent businesses from profiteering from illegal acts does not apply if that profiteering would stem from infringing patent rights, the UK Supreme Court has ruled.

The Court was ruling in a dispute between pharmaceutical giant Les Laboratoires Servier and Apotex, a generic drugs manufacturer.

Servier had obtained an injunction from the High Court barring Apotex from marketing its rival perindopril erbumine product in the UK. At the time Servier pledged to pay Apotex compensation for the damage Apotex would suffer in the event that the injunction it won was later determined to have been wrongly granted.

Servier's UK patent, on which the injunction had been based, was later held to be invalid and Apotex chased payment by Servier of the damages the company had earlier given a cross-undertaking to pay to account for lost profits Apotex sustained as a result of the injunction.

However, Servier claimed that it should not be forced to pay Apotex damages on the basis that Apotex's profits would have been generated on the back of illegal activity. This was because, Servier had said, Apotex would have manufactured the drug in Canada in breach of Servier's patent rights in Canada. The Canadian patent had been held valid in separate legal proceedings between the companies in Canada.

It is a general principle of law that a person ought not to be able to profit from his or her own wrong. This rule is often summarised as 'no action can arise from an illegal or immoral act' and can be called 'the illegality principle'.

However, the Supreme Court ruled that the illegality principle did not apply to the dispute between Servier and Apotex. It said the principle can only be relied upon where profiteering would be made from criminal acts or "quasi-criminal acts".

"Only acts in these categories engage the public interest which is the foundation of the illegality defence," Lord Sumption said in his leading judgment for the Supreme Court. "In my opinion, the illegality defence is not engaged by the consideration that Apotex’s lost profits would have been made by selling product manufactured in Canada in breach of Servier’s Canadian patent. A patent is of course a public grant of the state. But it does not follow that the public interest is engaged by a breach of the patentee’s rights."

"The effect of the grant is simply to give rise to private rights of a character no different in principle from contractual rights or rights founded on breaches of statutory duty or other torts. The only relevant interest affected is that of the patentee, and that is sufficiently vindicated by the availability of damages for the infringements in Canada, which will be deducted from any recovery under Servier’s undertaking in England. There is no public policy which could justify in addition the forfeiture of Apotex’s rights," Lord Sumption said.

Intellectual property law litigation specialist Jim Cormack of Pinsent Masons, the law firm behind Out-Law.com, said the Supreme Court's judge has helped to clarify what acts do or do not engage the illegality principle to the extent that they can be relied on in claims before UK courts.

"The ruling also preserves the integrity of the established law in relation to remedies for patent infringement and leaves those remedies as provided for by that law rather than erecting some form of additional remedy in the form of an illegality remedy striking down other claims of the alleged patent infringer," Cormack said.

According to the judgment, Apotex and Servier have agreed that Apotex would have sold 3.6 million packs of its perindopril erbumine product in the UK had the injunction barring UK sales not been applied.

However, the final calculation of damages owed by Servier must take into account what Apotex would pay to manufacture its drugs and what it would have owed Servier for manufacturing the products in breach of Servier's Canadian patent.

"Apotex will recover whatever sum may be left after deducting, from the proceeds of the lost sales, both the costs of the sales and the amount for which it would have had to account to Servier in the Canadian proceedings by way of damages for patent infringement," Lord Toulson said. "The result may be that Apotex will be unable to establish any loss, after deduction of the damages which it would have had to pay in Canada, but that will depend on the outcome of the Canadian proceedings."

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