Comity and ex turpi causa: Servier v Apotex [2012] EWCA Civ 593

How is the national character of patent protection to be reconciled with the transnational reality of patent infringement? The latest (final?) round of the perindopril litigation between Apotex and Servier raises this question in the context of monetary remedies. In Servier v Apotex [2012] EWCA Civ 593 the EWCA held that comity requires that English courts should not reward a litigant for acts that infringe foreign patents. On this central point the Court of Appeal agreed with Arnold J at first instance: [2011] EWHC 730 (Pat) (blogged here and here). Whether the doctrine of ex turpi causa, which was the focus of this litigation, is the appropriate doctrine to forge transnational consistency is a different question, with no clear answer.

Servier obtained a compound patent for perindopril in both Canada and Europe. The European compound patent expired in 2001. The corresponding Canadian patent was not granted until 2001, and will not expire until 2018. (Applicable Canadian law, since amended, provided for a term of 17 years from grant, and the application was delayed in conflict proceedings.) Servier was granted a further European patent for a crystalline form of perindopril in 2004. In 2006 Servier commenced an infringement action against Apotex based on the European crystalline form patent. Servier obtained an interlocutory injunction from Mann J [2006] EWHC 2137 (Pat), subject to the usual undertaking in damages. Servier’s European patent action ultimately failed as the crystalline form patent was declared invalid: [2008] EWCA Civ 445 aff’g [2007] EWHC 1538 (Pat). Apotex sought damages on the undertaking for the loss of UK sales. This was heard in June of 2008 and Norris J held that Servier was liable for £17.5 million: [2008] EWHC 2347 (Ch). Apotex’s loss was calculated on the basis that the perindopril would be manufactured at its facility in Canada and exported to the UK. However, at the same time Servier and Apotex were litigating the compound patent in Canada. On July 2, 2008 Snider J in the Canadian Federal Court held that the Canadian patent was valid and a year later the Canadian Federal Court of Appeal affirmed: aff'g 2008 FC 825 aff'd 2009 FCA 222. Thus it became clear that manufacture in Canada of the product which Apotex would have sold in the UK but for the injunction, would have infringed the Canadian patent.

After its success in the Canadian litigation, Servier sought and ultimately obtained permission to amend its pleading to raise new defences to Apotex’s claim on the undertaking: [2010] EWCA Civ 279. Servier made two arguments [22]:

firstly, that as a matter of public policy Apotex cannot claim damages for being prevented from selling a material whose manufacture would have been unlawful under the law of Canada (the "public policy" point); and secondly, that the damages awarded on the inquiry should be reduced to reflect the damages or profits that would have been payable by Apotex to Servier in Canada in respect of perindopril [] manufactured there (the "cost of manufacture" point).

In September of 2010 Lewison J made an order staying the determination of the "cost of manufacture" point. This led to the present case, in which the only point before Arnold J at first instance was the public policy point, which was treated as an application of the ex turpi causa rule. The arguments provided comprehensive principled analyses of that rule, and after a thorough treatment of the case law, Arnold J held that Apotex’s claim was barred by the ex turpi causa rule. The stage was set for the appeal to be a leading case on ex turpi causa.

This was not to be. The day before the appeal was due to be heard Apotex’s solicitors wrote to Servier’s solicitors accepting in principle that there should be deducted from the damages awarded on the undertaking an amount equal to what the Canadian court would have ordered Apotex to pay Servier in Canada for infringement of the Canadian patent in manufacturing and exporting products for sale in the United Kingdom market had there been no interlocutory injunctions preventing sales in the UK. In effect, before the Court of Appeal, Apotex conceded the “cost of manufacture point” which had not been in issue before Arnold J.

Relying heavily on this concession, referred to as the “paragraph 26 concession,” the Court of Appeal allowed the appeal, and held that ex turpi causa did not bar Apotex’s claim on the undertaking. As the Court explained at [88]:

the effect of the . . . concession 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 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 Norris J’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. . . 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 Norris J even after deduction of an amount reflecting the paragraph 26 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. The result, therefore, would neither be offensive to comity with Canada nor any reason for interference on the ground of English public policy.

Despite the focus on ex turpi causa, this decision is really about the importance of comity. This was the main principle motivating Arnold J’s decision: "the court will not award compensation under a cross-undertaking for the loss sustained by an unlawful business or where the beneficiary of the cross-undertaking has to rely to a substantial extent upon his own illegality in order to establish the loss. As a matter of international comity, it does not matter for this purpose whether the acts in question are unlawful under English law or under foreign law” [47], and the Court of Appeal agreed that “an important policy consideration, and possibly the principal one, is comity, that is to say respect for the law and courts of other countries” [69]. Recognizing Apotex’s liability under Canadian law in the calculation of the damages on the undertaking is simply a more precise way of reflecting comity than using ex turpi causa, because the quantum of liability for the infringement of Canadian law will be measured by Canadian law. To deny the claim entirely as a matter of English law, using ex turpi causa, would entirely respect comity only if the Canadian liability happened to exactly offset the amount owing on the undertaking. It would not be entirely surprising if the offset were exact, as both systems calculate damages on fundamentally the same principle of causation, but there are also significant differences. Canadian courts, for example, are often willing to allow a patentee an election between damages and an accounting of the infringer's profits, and as the Court of Appeal pointed out at [36], there are different Apotex defendants in the English and the Canadian proceedings.

With that said, the case was argued before the Court of Appeal on the basis of ex turpi causa, and the paragraph 26 concession was formally treated as but one factor, albeit an important one, for holding that ex turpi causa was not applicable. Despite the thorough submissions of the parties, the Court declined to provide any principled treatment of the ex turpi causa doctrine, saying such an exercise would “complex, very lengthy, and in large part unrewarding. The decisions inevitably turn on their own particular facts. The statements of law or principle they contain are not all consistent or easily reconciled. The jurisprudence in this area has been an evolving one, but its evolution has not followed a consistent pattern” [63]. On the facts, the Court of Appeal pointed to several factors that established that Apotex’s behaviour “is low on the scale of culpability in terms of the illegality defence” [82]. While that is true enough, in this Kat’s view the discussion of the degree of Apotex’s turpitude unnecessarily muddied the waters. For example, one factor was that the facts established that Apotex had a good faith belief that the Canadian patent might be invalid [81]. Absent such a belief, ex turpi causa might operate to bar a claim in a similar future case, notwithstanding that damages for the foreign (Canadian) infringement were accounted for, thus dragging an element of subjective intent into the damages assessment.

In any event, further development of these questions awaits future cases. For now, the principle of comity has become further established in patent remedies. Moreover, the approach to comity adopted by the Court of Appeal is, in this Kat’s view, the better one, though it was not open to Arnold J at first instance. Whatever the strategic considerations behind Apotex’s concession, it was fortunate for the development of the law.