While AC says BC, CD beats AB: no interim order to stop fatal termination of IP licence

When announcing the composition of the blogging team for the coming six months, the IPKat discreetly mentioned that we'd be getting some support from Paul England, particularly with anything a bit patent-y. Well, here's a helpful note from Paul on a curious case that has the "p" word in it. Let him tell you in his own words:
American Cyanamid: now history in the US,
but the name lives on in British IP litigation
AB v CD [2014] EWHC 1 (QB) is an application for an interim injunction to prevent the termination of a licensing agreement concerning an eMarketplace, pending the resolution of arbitration proceedings under that agreement. An eMarketplace is described as an internet-based electronic platform used internationally to buy and sell goods and services by entities involved in the mining, metals and other natural resources businesses. While there is IP in the service, the actual interest in the case lies not so much in any aspect of IP law but rather in the approach taken to injunctive relief under the American Cyanamid principle [adds Merpel: while American Cyanamid is a famous House of Lords ruling on when to grant interim injunctive relief in pretty well every area of law, it is actually a patent infringement case. You can check it out here].

Balance is everything -- for
cats but not for courts ..
The claimant applicant's business relied wholly on the licence. But, despite the risk that the applicant's business would close if the termination went ahead, an injunction to prevent the termination of the licensing agreement (applied for under the Arbitration Act 1996 s.44) was refused by Mr Justice Stuart-Smith. The reason was that the applicant failed to show that damages were not an adequate remedy. However, given the risk to the applicant, the judge acknowledged that, if damages had not been an adequate remedy, the balance of convenience would have weighed heavily in favour of the applicant, because of the greater harm that would result to them if the injunction were not allowed.

Although this is a Queen's Bench Division ruling, made in the context of a licence dispute rather than an IP infringement action, it remains a curious and thought-provoking decision for the purpose of patent and other IP cases. This is because of the apparently step-wise application made of the American Cyanamid factors: having discussed whether there is a serious issue to be tried, then ask whether damages are an adequate remedy. Only if they are not an adequate remedy, then ask if the balance of convenience is in favour of the injunction. Both these last two factors are dealt with distinctly under different headings. As the judge, Stuart-Smith J said:
"I would accept that, if damages were an inadequate remedy, the fact that the termination would cause irremediable damage by the destruction of the business would be a relevant matter when considering the balance of convenience, but that is a different question" (emphases added).
Note the judge's reference to "irremediable damage" quite separately from the issue of adequacy of damages and apparently without fear of inconsistency in finding that damages were an adequate remedy. Indeed the judge goes on to say, under the "Balance of Convenience" heading, that had he not considered damages to be an adequate remedy, he would have held that the balance of convenience clearly favoured the granting of an injunction since any damage to the defendant [respondent] would be relatively minor in comparison with the potential effect upon the claimant [applicant] of implementing the termination.

It is true that judges must often make very quick decisions indeed in interim injunction applications, very often on the basis of slim evidence and having to lean on their instincts to get the just result. However, the case nonetheless illustrates the difficulty in trying to treat the American Cyanamid factors in a step-wise and rigorous fashion. The judge himself admitted in a "Postscript" to a "degree of unease at the result" and granted leave to appeal.

The distinction between adequacy of damages and balance of convenience is not always so clear-cut in the Patents Court; nor is it clear that it is desirable for it to be so. Take for example, the pharmaceuticals case of Cephalon Inc v Orchid Europe Ltd [2010] EWHC 2945 (Pat) [briefly noted on PatLit here] in which Floyd J (as he was) treated the issue of who is likely to suffer the most irreparable harm as the key factor in the balance of convenience assessment itself:
"Balance of convenience

There is no dispute as to the approach which I should apply. I must weigh the likely injustice of granting an injunction which it later turns out should not have been granted against the injustice of withholding one which should. 
Both sides accept that the other has the ability to pay any likely award of damages. So the case turns on which side, on the evidence before me, is likely to suffer the most irreparable harm."
This seems to be the more realistic approach, because the adequacy of damages is a question of the likely injustice caused by the decision to grant or not to grant. And, there must be room for other factors to be weighed up against it. Indeed American Cyanamid is not a statute and injunctions are an equitable remedy, and Stuart-Smith J does acknowledge that the case "provides guidance to the exercise of a discretionary equitable jurisdiction rather than a straightjacket of rigid criteria". It therefore seems reasonable to suggest that American Cyanamid should never be followed so methodically that it produces a result so apparently inequitable.
If you've not yet worked out the title, "While AC says BC, CD beats AB" means "When American Cyanamid says 'Balance of Convenience', CD (the anonymised respondent) beats AB (the anonymised applicant).  Easy, really ...

And before you email to comment, Merpel prefers "straitjacket" too, but "straightjacket" gets more Google hits ...

The cat image, above, comes from the cat-friendly, highly enthusiastic catster.com website, which is well worth a visit ...
While AC says BC, CD beats AB: no interim order to stop fatal termination of IP licence While AC says BC, CD beats AB: no interim order to stop fatal termination of IP licence Reviewed by Jeremy on Monday, January 13, 2014 Rating: 5

1 comment:

  1. The “lower risk of injustice” is more fully elaborated in Hoffmann J’s decision in in Films Rover [1986] 3 All E.R. 772 at 780 (Ch.).

    The principal dilemma about the grant of interlocutory injunctions. . . is that there is by definition a risk that the court may make the ‘wrong’ decision. . . . A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong.’

    In my view this is conceptually correct. The parties are treated symmetrically, and both the likely outcome on the merits and the adequacy of damages, must be taken into account. Adequacy of damages is the difference between damages which would likely be awarded and actual harm to the party in question; that is, it reflects the courts’ confidence that damages will be fully compensatory in fact. If the court cannot form any view on the merits in light of the available evidence (as in Cyanamid itself), then the outcome should favour the party who will suffer the greatest uncompensable harm. But if one party is very likely to prevail, it may succeed even though it will suffer relatively little uncompensable harm. Conversely, if a party is likely to suffer very great uncompensable harm, it may succeed on the injunction even though it is unlikely to ultimately prevail on the merits. The concern over turning application into a mini-trial, that drove the Lords in Cyanamid to resist an assessment of the merits, can be addressed by case management. As I understand it, the Films Rover approach is widely applied in the context of mandatory injunctions in the UK, and I do not understand why it is not equally accepted in the context of prohibitory injunctions, particularly as Hoffman J in Films Rover expressly noted that the distinction between the two is “barren.” But see Laddie J’s decision in Series 5 Software [1996] 1 All ER 853 (Ch.), arriving at essentially the same approach as Films Rover, apparently independently.

    Douglas Laycock, in his 1991 book, The Death of the Irreparable Injury Rule, finished, at 273, by endorsing a rule that is essentially the same as Hoffmann J.’s lower risk principle. A similar approach is advocated by John Leubsdorf, The Standard for Preliminary Injunctions, 91 Harv. L. Rev. 525 (1978) and restated by Posner J, in his characteristically mathematical style, in American Hospital Supply (1986), 780 F.2d 589, 598 (7th Cir.). The difference is that the Leubsdorf-Posner approach draws a difficult distinction between irreparable and reparable harms which Hoffmann J.’s formulation avoids: see generally Laycock, at 118-123.

    I am familiar with this debate because the question of whether “irreparable harm” is a threshold test under Cyanamid has long been a matter of debate in Canadian law. The Federal Court of Canada will never grant an interlocutory injunction in a patent case on the view that any harm is monetary and can be compensated in damages: see Siebrasse, Interlocutory Injunctions and Irreparable Harm in the Federal Courts, (2010) 88 Canadian Bar Review 517. (Though we have a patent linkage system which largely provides a functional substitute for interlocutory injunctions in the patent context.) In contrast, other Canadian courts have now largely rejected any concept of a threshold, in favour of a “risk-balancing” approach that amounts to the same thing as Hoffmann J’s lower risk of injustice approach: see eg Potash Corp. of Saskatchewan 2011 SKCA 120. Justice Sharpe of the Ontario Court of Appeal, who is the author of a masterful treatise on Injunctions and Specific Performance, also endorses the risk-balancing approach.


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