Apotex Inc. v Les Laboratoires Servier

This article was included in our Spring/Summer 2011 edition of Inside IP magazine.

Summary

In a significant ruling at the High Court on 29 March 2011, Mr Justice Arnold applied the principle of ex turpi causa non oritur actio (no action can arise from an illegal or immoral act), to determine that Apotex Inc. should not be able to recover damages under a cross-undertaking given by Les Laboratoires Servier.  Servier had given the undertaking in order to obtain an interim injunction restraining Apotex from the importation and sale in the United Kingdom of perindopril erbumine tablets, the manufacture of which was found to infringe a valid Canadian patent.  In his decision, Arnold J rejected Apotex’s argument that the claimant’s cross-undertaking constituted an unqualified commitment to pay damages that estopped the Claimant from raising illegality as a bar to the recovery of loss.  Apotex were thus ordered to repay a £17.5 million damages award, with interest, to Servier.

Background

Les Laboratories Servier is a French pharmaceutical company and the proprietor of a number of patents covering perindopril erbumine, a long lasting ACE (Angiotensin-Converting Enzyme) inhibitor used for treating hypertension and cardiac insufficiency. 

The original patent covering perindopril erbumine, EP0049658, which had a priority date of 2 October 1980, expired on 29 September 2001.  A supplementary protection certificate extended the protection conferred by the patent in respect of perindopril until 21 June 2003.  Servier also obtained a number of further patents relating to perindopril erbumine, including EP0380341, relating to a method of its preparation.

On 6 July 2000 Servier filed priority applications for three patents covering the α-, β- and γ-crystalline polymorphic forms of perindopril erbumine.  The patent at issue in this case, EP1296947, was granted on 4 February 2004 in respect of the α-crystalline form.  This patent was subsequently opposed by ten opponents at the European Patent Office, but notably not by the defendant in this case, Apotex.  Following opposition proceedings on 27 July 2006, the patent was maintained by the opposition division.  However, a number of the opponents appealed and the patent was later revoked in a decision of 6 May 2009 (T1753/06).

In the intervening period, however, Apotex, a Canadian generics pharmaceutical company, had obtained marketing authorisations for tablets containing 2 mg, 4 mg and 8 mg of perindopril erbumine, and began importing these tablets from Canada, commencing sales in the United Kingdom on 28 July 2006.  As the first generics supplier of perindopril erbumine tablets in the United Kingdom, Apotex had generated over £4.1 million in revenue by 3 August 2006.

On 1 August 2006, Servier initiated proceedings against Apotex for infringement of EP1296947 by importing, keeping, offering to dispose of and disposing of the tablets in the United Kingdom.  On 2 August 2006, they applied without notice for an interim injunction to restrain Apotex from marketing perindopril erbumine in the United Kingdom.  However, the application was declined.  On 3 August 2006, Servier renewed its application, on notice to Apotex, and Justice Mann granted a short-term injunction until a hearing on 7 August 2006.  Following the hearing on 7 August 2006, Mann J granted an interim injunction until trial ([2006] EWHC 2137 (Pat)).  As part of his decision, Mann J noted Servier’s submission that “Apotex would be adequately compensated on the cross-undertaking in damage[s]”.

The case proceeded to trial and, in a judgement dated 11 July 2007 ([2007] EWHC 1538 (Pat)), Pumfrey J held that Apotex had infringed the European patent but that the patent was invalid for lack of novelty over their earlier process patent (EP0380341). 

On this basis, Pumfrey J discharged the injunction and ordered an inquiry as todamages pursuant to the cross-undertaking given by Servier.  Although Servier appealed this decision, it was conclusively upheld by the Court of Appeal with Jacob LJ noting that the European patent “is invalid.  And very plainly so.  It is the sort of patent which can give the patent system a bad name” ([2008] EWCA Civ 445).

Meanwhile, on 25 August 2006, Servier had initiated proceedings in Canada, where the perindopril erbumine tablets were being manufactured, for infringement of their Canadian patent
CA 1,134,196.  This patent, which covered perindopril erbumine (and was therefore equivalent to the basic European patent 0049658) was filed on 1 October 1981, when the Canadian patent system still operated under a “first to invent” system.  The application was subject to conflict proceedings (similar to ‘interference’ proceedings in the United States) and therefore did not issue until 6 March 2001.  Under old Canadian law, the term of a granted Canadian patent was 17 years from issue, giving the Canadian patent an expiry date of 6 March 2018.

On 2 July 2008 ([2008] FC 825, (2008) 67 CPR (4th) 241), the Canadian patent was found to be valid and infringed.  This decision was upheld by the Federal Court of Appeal on 30 June 2009 ([2009] FCA 222), and on 25 March 2010 the Supreme Court refused Apotex leave to appeal the Federal Court of Appeal judgement.

Notably, Justice Snider when determining whether an account of profits should be available to Servier, remarked before the Federal Court that Apotex “must bear the consequences of their choices where they are perfectly aware that a patent will be infringed…”.

The Inquiry

In June 2008, the inquiry as to damages under the cross-undertaking by Servier was held before Mann J.  Forensic accountants quantified Apotex’s lost profits in the amounts of £17.6 million or £26 million for the period of the injunction, based on postulated market share (60% or 100%, respectively).  At this point, Servier sought to re-amend its defence in light of the decision by Snider J before the Federal Court in Canada, to submit that Apotex should not be able to claim damages for being prevented from selling an infringing article (i.e. the perindopril erbumine tablets manufactured in Canada) and that any damages should in any event be reduced to reflect profits that would have been payable by Apotex to Servier in respect of the infringing  Canadian products.  Norris J refused Servier permission to re-amend their defence and gave judgement for Apotex in an amount of £17.5 million ([2008] EWHC 2347 (Ch), (2009) FSR 3). 

Servier appealed against the refusal of Norris J to accept the application to amend their case and, on 12 February 2010 the Court of Appeal allowed their appeal ([2010] EWCA Civ 279).  In his judgement, Lord Justice Jacob held that Norris J had not exercised his discretion correctly by failing to consider “what the overall effect of refusing the amendments might well be” and, in particular, the risk of Apotex obtaining a “total windfall” of £17.5 million to which they were not entitled.  By this stage the Canadian court of appeal had upheld the first instance judgement, “making it even more likely than it was before the judge that the Canadian proceedings would mean in the end that Apotex got an unjustified benefit here”.  Servier was ordered to pay the costs of the inquiry to date, with the £17.5 million paid to Apotex to be let stand as an interim payment.  In September 2010, Justice Lewison stayed the determination of the second point, i.e. that any damages should be reduced to reflect profits that would have been payable by Apotex to Servier in respect of the infringing Canadian products, leaving Mr Justice Arnold to decide on the ex turpi causa point in the case in hand.

Ex Turpi Causa Non Oritur Actio

The question remaining before Arnold J therefore was whether Apotex should be granted damages under a cross-undertaking for being prevented from selling a material whose manufacture would have been unlawful because it infringed a foreign patent, or whether, as advanced by Servier, the principle of ex turpi causa could effectively absolve the commitments of the cross-undertaking.  Apotex submitted that the damages should be recoverable on three grounds, namely:

1) that the ex turpi causa rule applies only where the act in question is a criminal offence or involves moral turpitude amounting to dishonesty, and that patent infringement is not a criminal offence in Canada;

2) that the ex turpi causa rule only applies where the claimant’s claim relies to a substantial extent on the illegal or immoral act, which was not the case in the present litigation; and

3) that Servier had given an unqualified cross-undertaking in damages, even though they were aware that Apotex was manufacturing the product in Canada, and that to invoke the ex turpi causa rule would thereby amount to approbating and reprobating.

Following a comprehensive analysis of the case law on ex turpi causa, Arnold J concluded that its application “depends on the circumstances of the case” and that “significant factors include the knowledge of the claimant at the relevant time, whether the illegality involved intentional or negligent conduct on the part of the claimant, and whether the commission of the illegal act was induced by the defendant”.  On Apotex’s claims, Arnold J found as follows:

Apotex’s First Contention

Referring to his earlier judgement in Lilly v 8PM, Arnold J reiterated that, in order to establish whether the principle of ex turpi causa applies, the first qualification is that the unlawfulness must be ‘sufficiently serious’ to engage the rule.  In the case in hand, a number of factors contributed to a determination that the illegal act (i.e. infringement of the Canadian patent) was “sufficiently serious”.  Firstly, Apotex had not been induced or misled by Servier in any way.  Secondly, Apotex was aware of all the material facts and, specifically, was aware of the existence of the Canadian patent.  As noted by Snider J before the Federal court in Canada, Apotex knew that making perindopril erbumine would infringe this patent if valid.  Thirdly, Apotex had committed the infringing acts ‘intentionally’, in that the decision to manufacture in Canada rather than in their other manufacturing facilities represented a ‘commercial risk’ for the company.  Finally, Arnold J noted “a precise symmetry” between Apotex’s claim for compensation and the illegality upon which Servier relied upon.  “But for those injunctions, it (Apotex) would have continued to import into the United Kingdom and sell perindopril erbumine manufactured in Canada… [which act] would have infringed the Canadian patent”.  In these circumstances, therefore, Arnold J determined that the rule of ex turpi causa should apply.

Apotex’s Second Contention

In response to Apotex’s contention that Servier had not established that their damages claim relied “to a substantial effect” on their own illegality, Arnold J found that “Apotex’s claim is predicated upon manufacture of perindopril erbumine in Canada at low cost, export of the tablets to the United Kingdom and sale of those tablets in the United Kingdom at a profit.  It is true that the importation and sale of the tablets in the United Kingdom was perfectly lawful, but those acts were not sufficient to produce the profits which Apotex claims to have lost. The profits depend on Apotex manufacturing the product in, and exporting it from, Canada, which would have been unlawful.  It follows that Apotex does have to rely upon its own illegality to a substantial effect to establish the loss claimed.  To use the language used in a number of the cases, Apotex’s claim is founded upon its own unlawful acts”.

Apotex’s Third Contention

In response to Apotex’s contention that Servier were aware of the Canadian infringement when they gave their cross-undertaking for damages and that, therefore, they were estopped from raising illegality as a bar to the recovery of loss, Arnold J did not accept that this represented an “unqualified” undertaking.  In particular, he found that inconsistencies in Apotex’s account, such as the patient information leaflet (PIL) which accompanied the tablets sold in the United Kingdom and which specified a Dutch manufacturing address, meant that there was ‘no direct evidence’ as to Servier’s state of knowledge at the time.  In addition, he did not accept that Servier’s cross-undertakings were unqualified, noting that “on the contrary, they were undertakings to compensate Apotex only if and in so far as the court decided that Apotex should be compensated”.

On the basis of these reasons Arnold J rejected Apotex’s defence that ex turpi causa did not apply and ordered that Apotex return with interest the interim payment of £17.5 million from Servier which was directed at the original inquiry.  This judgement therefore clarifies that there is no automatic right to damages under a cross-undertaking given in order to obtain an interim injunction and that “the court is concerned to do what is just having regard not only to the fact that the injunction was wrongly granted, but also to wider considerations”.

Eimear Sampson 24 May 2011

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