When the biter gets bit: Cross-undertakings in damages

The question of how a court will calculate damages upon lifting an interim injunction, when a cross-undertaking has been given by a right holder when obtaining that injunction, is a very relevant factor to the holder of an IP right. It's all very well to get an injunction against an alleged infringer, but how much might it all end up costing if the IP right is invalidated or held not to be infringed?

The IPKat is delighted to provide a guest post from two Katfriends in Wragge Lawrence Graham & Co., Paul Inman and Ailsa Carter, who have summarised a decision from the Court of Appeal yesterday, AstraZeneca AB & Anor v KRKA dd Novo Mesto & Anor [2015] EWCA Civ 484. They write:

The Court of Appeal has confirmed the Patents Court's award of £27million, to Krka and Consilient, in compensation for the delay they incurred to their UK launch of Krka's generic esomeprazole capsules.

The Court of Appeal confirmed the approach taken by Sales J to the assessment of damages payable by AstraZeneca under its cross-undertaking. See Sales J's original judgment here (or the summary on PatLit here).

Background 

In 2009, AstraZeneca was granted European Patent number EP (UK) 1 020 461 (the 'Patent'). The claimed protection was in 'Swiss form', to the use of magnesium esomeprazole with a high optical purity in the manufacture of a medicament for the inhibition of gastric acid secretion. The Patent was due to expire in 2014. AstraZeneca enjoyed the monopoly conferred through the production and sale of a tablet formulation of esomeprazole called Nexium.

In September 2010, the defendants, Krka dd Novo Mesto and Consilient Health Ltd, sought to bring to the market an esomeprazole capsule called Emozul, which was in all material respects bioequivalent (i.e. 'generic') to Nexium.

AstraZeneca issued proceedings for infringement of the Patent and sought an interim injunction to restrain marketing of Emozul pending trial. Krka agreed to submit to AstraZeneca's application, on the basis that AstraZeneca gave the usual cross-undertaking in damages, which it duly did.

However, at around the same time, another generic company, Ranbaxy (UK) Ltd, began proceedings in respect of the same patent, challenging its validity. Unusually, a trial took place limited to the issue of infringement and in July 2011, Kitchin J (as he then was) held that Ranbaxy's product did not infringe. Shortly afterwards, the injunction on Krka was lifted.

The declaration of non-infringement awarded to Ranbaxy opened the door to the marketing of generic esomeprazole products by a series of other companies, including Arrow, Mylan and Teva. Krka and Consilient were therefore deprived of their "first mover" advantage. They claimed damages under the cross undertaking given by AstraZeneca, seeking £32 million in respect of their losses.

The law on the calculation of damages under a cross-undertaking 

In his January 2014 judgment, Sales J referred to the judgment of Norris J in Les Laboratoires Servier v Apotex Inc [2008] EWC 2347, [2009] FSR 3 as explaining the general principles to be applied when assessing the damages payable under a cross-undertaking. The Court of Appeal endorsed this.

The Court of Appeal also made clear that where a claimant has obtained interim relief by persuading the court that it would be easier to calculate the defendant's loss than his own, the claimant should not later say that the task of calculating damages was of such extreme complexity that a cautious approach was justified. There should be 'symmetry'. Giving the only reasoned judgment, Lord Justice Kitchin accepted that evidence of 'true comparables' is likely to be of great assistance to the court in assessing what would have happened but for the grant of an injunction.

Calculation of Krka and Consilient's damage 

Key to the finding of the judge at first instance, and the confirmation by the Court of Appeal, was that in the present dispute, the approach to the calculation of damage contended for by the defendants relied upon comparables that were 'more true' to the counterfactual consideration than those relied upon by AstraZeneca.

AstraZeneca contended that the sales of the defendants' Emozul following its actual launch in September 2011 represented what would have been achieved had the launch occurred as originally planned. Since AstraZeneca's Nexium was sold in tablets, prescribing practice would need to have changed in order for the Emozul capsules to be dispensed, so AstraZeneca contended that market penetration would have been relatively modest. They relied on sales data following the actual launch of Emozul and the behaviour of a market for a different drug, Venlalic (an anti-depressant), where a branded generic tablet was launched into a capsule market. So, contended AstraZeneca, the defendants' loss amounted to £3 to £6 million.

The defendants, however, contended that in the absence of "horizon scanning" indicating imminent launch of other generic esomeprazole medicines, and following the defendants' strategy of marketing Emozul to NHS Medicine Managers, Primary Care Trusts (PCTs) would largely have issued guidance recommending a change to prescribing practice in order to make savings on bills of esomeprazole medicines. This would have led to much larger sales of the defendants' medicines. Evidence was given by a total of 16 medicine managers, which the judge considered formed a good representative sample, and whom he considered convincing.

Nevertheless, recognising a tendency of Medicine Managers to exaggerate their success in 'switching' campaigns, he reduced the sum claimed by the defendants by an 'uncertainty discount' of 20%. The consequent award of £27 million was, according to the Court of Appeal, properly founded upon the evidence.

Comment 

In confirming Sales J's judgment, and endorsing the comments of Norris J in the Servier v Apotex inquiry, the Court of Appeal has made clear that a claimant who obtains interim relief in a process involving a limited consideration of the merits should similarly expect a "liberal assessment" of damages under any cross-undertaking, in the event that it is unsuccessful in its substantive claim.

Further, where any 'wrongful' behaviour is identified in the claimant's enforcement of its patent, restitutionary damages may, potentially, be available.

For several years the courts were relatively sympathetic to requests for interim injunctions in pharmaceutical patent claims, and there seemed relatively little exposure for patentees protecting a monopoly market in a high value pharmaceutical. The law, and the sympathies, have perhaps developed. Patentees can no longer take for granted profits made during the term of interim injunctive relief, irrespective of the outcome of the substantive claim.

More generally, as regards the availability of interim relief against generic pharmaceutical companies where an invention is claimed in Swiss form, the outcome of the appeal of Arnold J's decision in Warner-Lambert v Actavis [2015] EWHC 72 (Pat) is awaited with interest.

Many thanks to both Paul and Ailsa for both the summary and the commentary.