The decision examines whether patent holders can be liable for damages where they keep competitors off the market with invalid patents. 

In July 2021, the UK Supreme Court upheld a decision striking out a claim against a pharmaceutical company (‘Servier’) for causing loss to the NHS by unlawful means, where the claim was based on alleged misrepresentations to the European Patent Office (‘EPO’). It raised the interesting prospect of cases against patent holders where they kept competitors off market by virtue of invalid patents.

The NHS argued that the obtaining and enforcing of a patent for a blood pressure drug where they said there had been fraudulent misrepresentations to the EPO, should be actionable in the English court, because it delayed the entry onto the market of generic versions of the drug, which meant that the NHS had to pay higher prices. The key issue in the appeal was whether a necessary element of the ‘unlawful means tort’* is that the unlawful means should have affected the third party’s freedom to deal with the NHS. At trial and in the Court of Appeal it was held that the House of Lords decision in OBG Ltd v Allan [2007] UKHL 21 was binding on them, and that it was a necessary element of the tort. The NHS appealed arguing that the dealing requirement should not be treated as forming part of the ratio of OBG. In this case, the Supreme Court held there was no good or sufficient reason why it should depart from that decision.

Background

In 2001 Servier made an application to the EPO for a patent in respect of the alpha crystalline form of the tert-butylamine salt of perindopril. The patent was granted in 2004, with a UK designation. Opposition proceedings were commenced by ten companies and pursued by nine to a hearing before the Opposition Division of the EPO in July 2006, following which the patent was upheld. Also in 2006, Servier obtained an interim injunction from the English court preventing the sale of generic perindopril, but in the subsequent trial the patent was held to be invalid for lack of novelty and lack of inventive step. That decision was upheld in the Court of Appeal in 2008, and in 2009 the EPO revoked the patent.

The NHS brought a claim against Servier for the unlawful means tort, with a damages estimate of hundreds of millions of pounds. They alleged that, in obtaining, defending and enforcing the patent, the third respondent practised deceit on the EPO and/or the courts, with the intention of profiting at the expense of others. They argued that this entitled the NHS to recover the additional costs it had incurred by paying for a patented product instead of a cheaper generic.

The tort was defined by the House of Lords in the OBG case mainly by Lord Hoffman, who inter alia  explained that ‘unlawful,’ requires actionability by the third party, subject to the qualification that it includes cases where the only reason that it is not actionable is that the third party has suffered no loss. This means (see Lord Hoffman’s speech at para 51 of OBG) that to find the tort the “acts [must be] intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant.”

Lord Hoffman was at pains to explain that the tort should be restricted, and he said in para 56: “The common law has traditionally been reluctant to become involved in devising rules of fair competition… It has largely left such rules to be laid down by Parliament. In my opinion the courts should be similarly cautious in extending a tort which was designed only to enforce basic standards of civilised behaviour in economic competition, between traders or between employers and labour. Otherwise there is a danger that it will provide a cause of action based on acts which are wrongful only in the irrelevant sense that a third party has a right to complain if he chooses to do so.”

He went on to say: “The way to keep the tort within reasonable bounds is to restrict the concept of unlawful means to what was contemplated in Allen v Flood [1898] AC 1. …It is not, I think, sufficient to say that there must be a causal connection between the wrongful nature of the conduct and the loss which has been caused. If a trader secures a competitive advantage over another trader by marketing a product which infringes someone else’s patent, there is a causal relationship between the wrongful act and the loss which the rival has suffered. But there is surely no doubt that such conduct is actionable only by the patentee.”

The basis for the NHS’s claim was that, in obtaining, defending and enforcing its patent, Servier had practised deceit on the EPO and/or the courts in relation to the novelty and/or lack of obviousness of the drug, with the intention of profiting at the expense of the NHS. Servier denied these allegations but they were assumed to be true for the purpose of the strike out application. The NHS further alleged that, as a result of Servier’s deceit, manufacturers of generic perindopril did not enter the market as early as they otherwise would have done, and therefore the NHS had to pay higher prices for the drug.

The essential issue in the appeal was whether it was a necessary element of the unlawful means tort, that the unlawful means should have affected the third party’s freedom to deal with the claimant; referred to in the judgment as ‘the dealing requirement’. It was common ground that the relevant third parties in this case (the EPO and/or the courts) had no dealings with the NHS and so if the dealing requirement was a necessary element of the unlawful means tort then the claim had been properly struck out.

Decision

The NHS contended on appeal that the finding of the majority of the House of Lords in OBG that the dealing requirement was a necessary element of the unlawful means tort was not part of the binding ratio of that decision. However, the Supreme Court disagreed and confirmed that the dealing requirement was part of the ratio of OBG. The NHS argued that as a matter of justice, if a defendant obtains patent protection by deceit practised on the EPO, so as to profit at the expense of the NHS, redress should be available and not denied merely because the EPO does not trade with the NHS. It is a good emotive point, but the ramifications of it could go far further, and could catch the honest patent holder who believes the patent valid and asserts it, but later finds their submissions to obtain a patent are considered deceitful resulting in invalidation.

To avoid the broad risks the tort must be narrowly construed, and as Lord Hamblen stated:

The dealing requirement performs the valuable function of delineating the degree of connection which is required between the unlawful means used and the damage suffered. This is particularly important in relation to a tort which permits recovery for pure economic loss and, moreover, by persons other than the immediate victim of the wrongful act.”

This is most reassuring because to find otherwise could have opened up considerable risk to businesses asserting patents. Had the NHS’s case been successful then potential claimants could have then included the myriad parts of the NHS to generic competitors, private medical insurers, and possibly individual patients who had to pay more for perindopril. Lord Hamblen helpfully recognised that: “In the economic context of the unlawful means tort this may operate very broadly. Competition is the essence of trade and it involves gain at the expense of others. Keeping the law as stated in OBG but dispensing with the dealing requirement would mean losing an important counterbalancing factor to the broader test of intention adopted in that case.”

Ultimately, the NHS case was that harm had been caused to the NHS as a means to an end, but they did not have the evidence to support that, and it was not a finding of the court. The court rejected the NHS’s submission that the dealing requirement was an undesirable and unnecessary addition to the essential elements of the unlawful means tort, and unanimously dismissed the appeal, agreeing with the courts below.

Comment

The potential ramifications if this decision had gone against the patentee would have been huge. If a third party can claim compensation from a patentee who asserts a patent that results in other businesses staying away from a market (and losing opportunity), where the patent in question is later found to be invalid, that would create considerable risk and uncertainty for business. How that risk could be addressed economically in the supply chain is unknown, and could have far reaching consequences. Indeed, the impact on business risk and decision making is hard to quantify. We are pleased to see in this decision a practical and pragmatic recognition by the courts that the rights arising from the ‘economic torts’ should be given a narrow scope to avoid unintended economic uncertainty.

The judgment can be found here – Secretary of State for Health v Servier Laboratories Ltd  [2021] UKSC 24.

* Explanatory note

A tort is a ‘civil wrong’ in English law, that occurs where someone unfairly causes another person to suffer loss or harm. Negligence is one of the most common torts, while the ‘unlawful means’ tort considered here is one of the ‘economic torts.’