How illegal is illegality? Supreme Court dismisses appeal in Servier v Apotex

Les Laboratoires Servier & Another v Apotex Inc & Others [2014] UKSC 55 is a shorter and less formidable UK Supreme Court decision than this Kat initially feared. This ruling addressed a point of principle that is academically most interesting even though it doesn't crop up in court on a daily basis: does the defence of illegality bar a claim on a cross-undertaking in damages given by a patent owner in order to obtain an interim injunction where his UK patent is held to be invalid but his corresponding Canadian patent is held to be infringed?

Servier made a pharmaceutical product, perindopril erbumine, for which it held a European patent. Apotex imported perindopril erbumine which it made in its Canadian plant. In an action for patent infringement, Servier secured an interim injunction against Apotex and gave a cross-undertaking in damages, in the event that its action should fail and Apotex would suffer lost sales. At trial the Patents Court (Pumfrey J at [2007] EWHC 1538 (Pat) held that Apotex's activities fell within the scope of patent infringement but that the patent itself was invalid both for lack of novelty and obviousness. In parallel Canadian proceedings, Apotex was held to have infringed Servier's Canadian patent. An interlocutory injunction was refused and damages in the Canadian proceedings remained to be assessed.

At this point Apotex claimed lost profits on products it would have sold in the UK but for the interim injunction. Mr Justice Arnold at first instance [[2011] EWHC 730 (pat), noted by Matt the Kat here] found that the ex turpi causa principle applied and that Apotex's claim -- being based on its unlawful manufacture in Canada -- had to fail as being contrary to public policy. The Court of Appeal reversed this decision [[2012] ECWA Civ 593, noted by guest Kat Norman Siebrasse on the IPKat here], with Apotex conceding that credit was to be given for any damages payable in the Canadian proceedings for the infringements committed there.

Servier then appealed against the decision that the infringement of its Canadian patent by Apotex was not a relevant illegality for the purposes of the ex turpi causa defence.

Yesterday the Supreme Court (Lords Neuberger, Mance, Clarke, Sumption and Toulson) dismissed the appeal. In its view:

* The defence of illegality is a rule of law and not a mere discretionary power. What's more, it is based on public policy not on the merits of the respective claims of parties to a dispute.

* Both Arnold J and the Court of Appeal rejected the illegality defence, but both relied on largely subjective judgments about how badly Apotex had behaved, and how much it mattered. This approach was discretionary and thus contrary to established legal principle [Lord Toulson took a rather different view of the Court of Appeal's approach which, he felt, was supported by Hounga v Allen [2014] UKSC 47]. What the court should to is to determine what acts constitute "turpitude" for the purpose of the defence, "turpitude" for this purpose meaning criminal and quasi-criminal acts because those acts alone engage the public interest. Other wrongs -- torts other than those of which dishonesty was an essential element, breaches of contract, and statutory civil wrongs --  offended against private, rather than public interests and there was no reason to depart from ordinary remedies of corrective justice when taking account of them.

It is difficult to fault the Supreme Court's reasoning, says this Kat, and this decision appears to be well founded on the case law cited. A bigger question is whether the decision is a good one in terms of getting the right balance between the sector of the pharma industry that invests in new products and the sector that focuses on the manufacture of generic products. Servier must be feeling more than a bit miffed by the outcome -- but is that sufficient reason for indulging in a little law reform? Readers' thoughts are, as ever, appreciated.