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||Neutral Citation Number:  EWCA Civ 924
||Case No: A3/2013/1002
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION, PATENTS COURT
The Hon Mr Justice Arnold
 EWHC 739 (Pat)
||Royal Courts of Justice
Strand, London, WC2A 2LL
||29th July 2013
B e f o r e :
LORD JUSTICE LONGMORE
LORD JUSTICE MOORE BICK
LORD JUSTICE FLOYD
(Transcript of the Handed Down Judgment of
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Andrew Waugh QC and Miles Copeland (instructed by Wragge & Co. LLP) for the Appellant
Michael Tappin QC and Mark Chacksfield (instructed by Olswang LLP) for the Respondent
HTML VERSION OF JUDGMENT
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Lord Justice Floyd :
- European Patent (UK) No. 0 347 066 ("the Patent") and its foreign counterparts have been extensively litigated all over the world, including in this country. The Patent is now the subject of a supplementary protection certificate (SPC/GB02/049) ("the SPC"). The Patent and SPC relate to escitalopram, a single enantiomer of the compound citalopram, a drug used for the treatment of depression. The proprietor of the Patent is H. Lundbeck A/S ("Lundbeck"), a Danish pharmaceutical company. The UK counterpart of the Patent was ultimately held valid in revocation proceedings in the UK commenced in December 2005 by Generics (UK) Limited and later joined by a number of other generic pharmaceutical companies including, in February 2006, Arrow Generics Limited ("Arrow") ("the 2005 proceedings"). Before and at the time of the final judgment in the 2005 proceedings the claimant in the present revocation action ("Resolution") was part of the same group of companies as Arrow. Resolution is now an independent company and, in this action, has launched its own attack on the SPC relying on invalidity of the Patent, claiming that it has better evidence than Arrow had, and new prior art. Lundbeck contends that Resolution is precluded from bringing the action because it is in privity of interest with Arrow, which is in turn estopped from bringing a similar action as a result of the judgment in the 2005 proceedings. Whether Resolution was precluded in this way was the subject of a preliminary issue tried by Arnold J in this action. By his order of 12 April 2013, Arnold J held that Resolution was not precluded from challenging the validity of the Patent or the SPC. Lundbeck appeals with the judge's permission. Mr Waugh QC and Mr Copeland presented Lundbeck's case. Mr Tappin QC and Mr Chacksfield did so for Resolution.
- In addition to its contention that Resolution was precluded from bringing its claim by privity of interest with Arrow, Lundbeck originally sought summary judgment on the ground that Resolution's claim had no prospect of success. That application was ordered to be determined at the same time as the preliminary issue. Arnold J dismissed that application and there is no appeal from his judgment and order in that respect. A claim that Resolution was precluded from bringing the claim by reason of privity of interest with companies in the Teva group who were also parties to the previous revocation action is also not pursued on appeal.
- The judge recorded that it was common ground that "Arrow Generics would be precluded by issue estoppel and the doctrine of abuse of process from challenging the validity of the SPC on the ground that the Patent is invalid." There was some debate before us about the precise terms of the concession, in particular as to whether Arrow would be precluded on both grounds or just one or the other without specifying which. The debate as to which type of estoppel bound Arrow might be of significance, as I explain further below.
- The judge made detailed findings of fact, having received written evidence and heard live witnesses. What follows is a summary of his principal findings which remain relevant in the light of the more limited issues before us.
Resolution, and its involvement with citalopram and escitalopram
- Resolution was established in 1986 as a manufacturer of active pharmaceutical ingredients ("APIs"). At that time it was part of the Amerpharm Group. It came under a succession of different owners, but in 2001 it was sold to Arrow Group ApS, a holding company for a new group of companies founded by Anthony Tabatznik ("Mr Tabatznik"). Between 2001 and 2009 the Arrow Group grew rapidly. Arrow was another English company in the Arrow Group throughout this period. Resolution and Arrow were therefore sister companies within the Arrow Group.
- The business model for most companies in the group other than Resolution was to buy in marketing authorisations ("MAs") for products. For such products, the MA would stipulate the manufacturer of the API and details of the manufacturing method. It would not have been possible for Resolution to take over the manufacture of such APIs. Resolution continued to sell four APIs to Merck Generics (one of its previous owners) and sold two APIs to companies in the Arrow Group, but those intra-Group sales amounted to only about 4% of its sales during the period it was part of the Arrow Group. Conversely, while Resolution was part of the Arrow Group, companies in that group launched over 400 products, but only two contained APIs sourced from Resolution.
- In 2009 the Arrow Group was purchased by Watson Pharmaceuticals Inc, which hived off Resolution in order to meet requirements imposed by the United States Federal Trade Commission. Since December 2009 Resolution has been an independent company, majority owned by a US investment bank. Under its new ownership, Resolution has adopted a new business model which is more akin to that of a generic pharmaceutical supplier than that of an API manufacturer.
- Throughout the period 2001 to 2009 the ultimate beneficial owner of the Arrow Group, and hence of both Resolution and Arrow, was Mr Tabatznik. Mr Tabatznik was the Chief Executive Officer of the Arrow Group and one of the directors of Resolution. There was some dispute at the trial over the extent of Mr Tabatznik's control over the day to day affairs of Resolution. The dispute arose in the light of an apparent conflict between the evidence given by Mr Greenwood for Resolution and some statements made to the European Commission in connection with an inquiry by the Commission into agreements between Lundbeck, Arrow and Resolution. The judge concluded at :
"I think the position is reasonably clear. Mr Tabatznik controlled the Arrow Group, including Resolution. Accordingly he had control of Resolution's activities in the sense that, if he wanted Resolution to do something, Resolution would do it (or try to do so). That included manufacturing citalopram or escitalopram (as to which, see below). As Mr Greenwood put it, "it was his chemistry set". Thus Mr Tabatznik set the strategic direction for Resolution. He would also intervene if he was not satisfied with Resolution's progress (as he did in July 2004, as discussed below). Nevertheless, most of the time, Mr Tabatznik left Mr Greenwood and his colleagues alone. It was Mr Greenwood and his colleagues who decided how to pursue Resolution's projects, who to employ, what commercial partners to work with, budgets and so on. Mr Greenwood met Mr Tabatznik just three or four times a year to discuss how Resolution's projects were progressing, particularly the THC project which Mr Tabatznik was most interested in. There were also occasional telephone calls, usually from Mr Greenwood to Mr Tabatznik rather than the other way around. Thus on a day-to-day basis Resolution was essentially independently managed."
- Mr Waugh complained that the judge was prepared to accept that Mr Greenwood's evidence could be reconciled with the statements to the Commission. Nevertheless he did not quarrel with the findings which the judge actually made in the passage I have quoted above. In those circumstances the question of whether the judge should have been so generous to Mr Greenwood is academic, and it is not necessary to say any more about it.
- The judge did hold that Mr Tabatznik took charge of major patent matters affecting companies within the Arrow Group with the assistance of Dr Andrew Lowrie, who was the Group's Head of European Patent Litigation.
- Between 1998 and 2004 Resolution worked on the development of citalopram, the racemic (mixed enantiomer) compound of which escitalopram is a single enantiomer component. Resolution developed a process which it believed would not infringe Lundbeck's patents. For part of that time it worked on the practical development of this process in co-operation with a company called Neuland, an API manufacturer in India. Although Neuland made 10 large laboratory scale batches, it was not able to get the process to work. The batches were destroyed and the patent applications and patents allowed to lapse, ultimately, by 2005.
- In January 2002 there was a meeting between Mr Tabatznik, on behalf of the Arrow Group, and representatives of Lundbeck to discuss the Arrow Group's interest in citalopram. Following the meeting Lundbeck wrote to "Arrow Resolution" seeking undertakings not to infringe the patents. Mr Tabatznik replied on Resolution notepaper suggesting a meeting. On 24 January 2002 Lundbeck on the one hand and Arrow and Resolution on the other entered into a settlement agreement. The agreement was signed by Mr Tabatznik on behalf of both Arrow and Resolution. Some litigation for infringement of a patent relating to citalopram ensued but did not proceed beyond February 2002. The judge said it was unclear why Mr Tabatznik involved Resolution in this litigation, since it was unable to manufacture citalopram at the time. Arrow did launch a citalopram product some time in 2004. The API was not supplied by Resolution.
- None of the above had anything to do with escitalopram. This history was relied on by Lundbeck to show what might happen if Arrow became involved in escitalopram.
- In early November 2001 escitalopram was amongst a list of drugs which Resolution identified as representing generic opportunities. During one of the meetings in January 2002 to discuss the citalopram litigation, Mr Tabatznik asked representatives of Lundbeck whether Lundbeck would give a licence under the escitalopram patents. The judge concluded that it was possible that Mr Tabatznik was considering asking Resolution to make escitalopram at that time.
- In early September 2002 Mr Tabatznik asked Resolution to review routes for the synthesis of escitalopram. In September 2002 Dr McHattie recorded in a memo that he had found and reviewed the Patent and noted a couple of ideas for synthesis. In October 2002 Mr Greenwood told Mr Tabatznik that, if Mr Tabatznik still wanted him to look at escitalopram, he could make some after the receipt of the 50 kg of citalopram which was then being manufactured for it by Neuland. No more was done for over 10 months.
- In September 2003 Dr McHattie asked Dr Lowrie to look for patents and patent applications for escitalopram. Dr Lowrie replied attaching copies of four patents and applications, including the Patent. This led to requests for copies of more patents, which Dr Lowrie sent in October and November 2003. In about October 2003 Dr McHattie and his colleagues produced a document entitled "Routes for the Preparation or Resolution of Escitalopram". This set out a number of routes covered by Lundbeck patents and applications and some possible routes not covered by existing patents. The purpose of this was to enable Resolution or a subcontractor to manufacture escitalopram. Nothing further was done to that end. No laboratory work was done. There was no prospect of Resolution being able to make escitalopram on a commercial scale, or at acceptable purity and cost when it had been unable to achieve that with citalopram. The cost of this work was £1,155.20 in internal costs in 2003.
- In July 2004 Mr Greenwood sent Mr Tabatznik an email dated 22 July 2004 in which he identified four generic suppliers of escitalopram and continued:
"Dick [Binnington, API sourcing manager for the Arrow Group] to look and see if we can get a supply. Failing that, I will look to Neuland."
- The judge accepted Mr Greenwood's evidence that he was trying to be helpful to other companies in the Arrow Group by identifying suppliers of escitalopram and by offering to try to get it manufactured by Neuland if Mr Binnington was unable to source it, but that he did not expect Mr Binnington to be unsuccessful. He maintained that Resolution was unable to make citalopram, let alone escitalopram, at that time and that he would have had no confidence in Neuland's ability to do so. In the event Mr Binnington was successful in sourcing escitalopram for Arrow.
- The judge found that these events marked the end of Resolution's involvement with escitalopram while it was a member of the Arrow Group. Resolution's costs incurred in connection with this project in 2004 amounted to just £64.95.
- Arrow was in due course granted marketing authorisations for escitalopram. However it did not name Resolution as the source of such escitalopram. It would not have been possible for Resolution to supply escitalopram to Arrow under those MAs even if Resolution was able to manufacture escitalopram at that time, which it was not. By 6 February 2006, the date when Arrow joined the 2005 proceedings, there were already seven different manufacturers of escitalopram oxalate who had submitted Drug Master Files to the US Food and Drug Administration.
The 2005 proceedings
- The 2005 proceedings were concluded when the House of Lords dismissed the claimants' (including Arrow's) appeals on 25 February 2009. There were also separate proceedings brought by all the claimants for revocation of the SPC on grounds independent of validity of the Patent, commenced in March 2007. In May 2009 Arrow discontinued their claim for revocation of the SPC. Resolution was not at any stage a party to any of the claims. The judge found that Resolution was not asked whether it could or would supply Arrow (or any other company in the Arrow Group) with escitalopram at the time of the escitalopram litigation. Nor was it asked to assist in the manufacture or supply of escitalopram at that time. Mr Greenwood was unaware of the litigation. However, it is fair to point out that Mr Tabatznik, as a director of Resolution, was.
The law on privity of interest
- Privity of interest provides an exception to the general principle of the law of estoppel that the estoppel binds only the parties to the previous litigation. The rules of law compendiously described as estoppels are very broadly based on the principle that nobody should be vexed twice in the same cause. Thus, in cause of action estoppel, party A will not be allowed to litigate the question of whether a cause of action exists with a counterparty B more than once. The successful litigant and the public have an interest in this being the law. The litigant has an interest in not being vexed twice in the same cause. The public also has an interest in ensuring that the scarce resources available for resolving disputes are used efficiently. There is however no reason in principle why a different party, C, who has the same complaint against B should not be free to litigate the same question. Notwithstanding, for example, the fact that A may have lost a first action, fairness normally demands that C should not be precluded by the manner in which A conducted the first action from bringing his own action, calling his own evidence and challenging the evidence called by B.
- These principles apply to actions for revocation of patents as they do to any other type of action. Whilst the final revocation of a patent is a judgment in rem and therefore can be relied on by the world at large, a judgment that a patent is valid determines issues only between the parties to the revocation action. Third parties may launch second and subsequent attacks on the patent. It is not necessary for any such party attacking a patent to show any particular interest: the cause of action is vested in "any person": see Patents Act 1977 section 72. The patentee does, however, receive some protection from successive, unsuccessful attacks in terms of the costs order the court may make, but that is all: see Patents Act 1977 section 65.
- The law recognises that there are some classes of case where fairness demands that party C should be precluded from re-litigating a matter even although he was not a party to the previous proceedings between A and B. One of these is where party C is in "privity of interest" with A. Privity of interest has been said to be a "somewhat narrow" doctrine: see per Sir Robert Megarry V-C in Gleeson v J Wippell & Co  1 WLR 510 at 515 A. That case concerned clerical shirts. Denne had manufactured shirts which were designed by Wippell. Miss Gleeson contended that Wippell had copied her shirt. She first sued Denne (and not Wippell) and lost on the ground that Wippell had not copied her shirt. In the later, separate action against Wippell it was contended by Wippell that Miss Gleeson was estopped from raising the same complaint against Wippell. Wippell was thus seeking to take advantage of privity of interest with Denne. Its design of shirt, which it had supplied to Denne had been held not to infringe in the previous action. Sir Robert Megarry dealt with the principles to be applied in this way at pages 515-6:
"First, I do not think that in the phrase 'privity of interest' the word 'interest' can be used in the sense of mere curiosity or concern. Many matters that are litigated are of concern to many other persons than the parties to the litigation, in that the result of a case will at least suggest that the position of others in like case is as good or as bad as, or better or worse than, they believed it to be. Furthermore, it is a commonplace for litigation to require decisions to be made about the propriety or otherwise of acts done by those who are not litigants. Many a witness feels aggrieved by a decision in a case to which he is not party without it being suggested that the decision is binding upon him.
Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest'. Thus in relation to trust property I think there will normally be a sufficient privity between the trustees and their beneficiaries to make a decision that is binding on the trustees also binding on the beneficiaries, and vice versa.
Third, in the present case, I think that the matter may be tested by a question that I put to Mr. Skone James in opening. Suppose that in the Denne action the plaintiff, Miss Gleeson, had succeeded, instead of failing. Would the decision in that action that Wippell had indirectly copied the Gleeson drawings be binding on Wippell, so that if sued by Miss Gleeson, Wippell would be estopped by the Denne decision from denying liability? Mr. Skone James felt constrained to answer Yes to that question. I say "constrained" because it appears that for privity with a party to the proceedings to take effect, it must take effect whether that party wins or loses. … In such a case, Wippell would be unable to deny liability to Miss Gleeson by reason of a decision reached in a case to which Wippell was not a party, and in which Wippell had no voice. Such a result would clearly be most unjust. Any contention which leads to the conclusion that a person is liable to be condemned unheard is plainly open to the gravest of suspicions. A defendant ought to be able to put his own defence in his own way, and to call his own evidence. He ought not to be concluded by the failure of the defence and evidence adduced by another defendant in other proceedings unless his standing in those other proceedings justifies the conclusion that a decision against the defendant in them ought fairly and truly to be said to be in substance a decision against him."
- Sir Robert Megarry's second principle carries the approval of Lord Bingham in Johnson v Gore Wood  2 AC 1.
- One type of case where privity is recognised is where C knows of proceedings between A and B in which his rights are being tested but stands back and does nothing. An example of such a case was House of Spring Gardens Ltd v Waite  QB 241. In that case a joint tortfeasor had, in full knowledge of the circumstances, declined to participate in an unsuccessful action by his co-tortfeasors to set aside (on the grounds of fraud) a judgment against them all. When it was sought to enforce the original judgment against him he sought to raise the fraud allegation, claiming that he was not a party to the action to set aside. Stuart-Smith LJ said at page 254AB:
" ... he was content to sit back and leave others to fight his battle, at no expense to himself. In my judgment that is sufficient to make him privy to the estoppel…"
- Stuart-Smith LJ derived this principle from the judgment of Lord Penzance in Wytcherley v Andrews (1871) LR 2 P&M 327 at page 328:
"There is a practice in this court, by which any person having an interest may make himself a party to the suit by intervening, and it was because of the existence of this practice that the judges of the Prerogative Court held, that if a person, knowing what was passing, was content to stand by and see his battle fought by someone else in the same interest, he should be bound by the result, and not be allowed to re-open the case. That principle is founded on justice and common sense, and is acted upon in courts of equity where, if the persons interested are too numerous to be all made parties to the suit, one or two of the class are allowed to represent them; and if it appears to the court that everything has been done bona fide in the interests of the parties seeking to disturb the arrangement, it will not allow the matter to be re-opened."
- That statement had been approved by Lord Denning giving the judgment of the Privy Council in Nana Ofori Atta II v Nanu Aba Bonsra II  AC 58 at pages 102-3. It is clear that the principle derives from what we would now call class or representative actions, where an action is brought in the name of one party as representative of a class of persons with an identical interest. It is not open to a represented party subsequently to launch fresh proceedings of his own.
- It can be seen that Sir Robert Megarry's test: "having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two" embraces two concepts. The first is concerned with the interest which the subsequent litigant, C, has in the subject matter of the first action. In Gleeson, Wippell was very interested, in one sense, in the subject matter of the action against Denne, as its design of shirt was impugned in that action. But that was not a sufficient interest in circumstances where there was what Sir Robert Megarry described as "a trade relationship between the two, in the course of which Denne, at Wippell's request, copied a Wippell shirt: but that is all". The second concept concerns the identity of the parties. Thus in Zeiss No 2  1 AC 853 at pages 911-2 Lord Reid suggested:
"A party against whom a previous decision was pronounced may employ a servant or engage a third party to do something which infringes the right established in the earlier litigation and so raise the whole matter again in his interest. Then, if the other party to the earlier litigation brings an action against the servant or agent, the real defendant could be said to be the employer, who alone has the real interest, and it might well be thought unjust if he could vex his opponent by relitigating the original question by means of the device of putting forward his servant."
- In this example the new party has no interest in the previous litigation, but would be estopped because, in effect, he represents the party in the first action. That party has the identical interest in the previous action. In Gleeson, there was no identity of parties in this sense.
- It is not necessary for the purposes of this appeal to seek to define precisely what interest in the subject matter of the previous litigation is required. The sort of interest dismissed by Sir Robert Megarry in Gleeson in his first principle is clearly inadequate. There are passages in the judgment of Aldous LJ in Kirin-Amgen Inc v Boehringer Mannheim GmbH  FSR 289 which suggest that a legal interest may be necessary in the subject matter of the previous action as opposed to a commercial interest: see pages 307-309. I have not found that a particularly helpful criterion in the present case which is solely concerned with successive revocation actions. At one level Arrow and Resolution had the same legal interest in the revocation of the Patent, but that was a legal interest which they shared with all the world. If Resolution is to be bound, it must I think be possible to identify some more concrete consequence for its business which revocation of the Patent would have achieved. Unless that is so, although it can be said that Resolution could have joined the 2005 proceedings, there is no reason to hold that they should.
- Drawing this together, in my judgment a court which has the task of assessing whether there is privity of interest between a new party and a party to previous proceedings needs to examine (a) the extent to which the new party had an interest in the subject matter of the previous action; (b) the extent to which the new party can be said to be, in reality, the party to the original proceedings by reason of his relationship with that party, and (c) against this background to ask whether it is just that the new party should be bound by the outcome of the previous litigation.
- In Johnson v Gore Wood  2 AC 1, Mr Johnson wished to bring a personal action for negligence against solicitors. A company controlled by Mr Johnson, W, had previously compromised an action against those solicitors based on the same allegations of negligence. One issue in the House of Lords was whether Mr Johnson's claim was an abuse of process of the kind thought to have originated in the speech of Wigram V-C in Henderson v Henderson 3 Hare 100 and developed in later cases such as Yat Tung Investment Co Ltd v Dao Heng Bank Ltd  AC 581. The House of Lords rejected that contention. Lord Bingham of Cornhill warned against the incorporation into that principle of formulaic requirements and presumptions and advocated a broad merits-based approach: see page 31A-F. Lord Bingham also endorsed the approach to privity in Gleeson: see page 32 C-G.
- It has subsequently been argued in this court in Aldi Stores Limited v WSP Group plc and others  EWCA Civ 1260;  1 WLR 748 that, given the approval in the House of Lords of the statement of the law by Sir Robert Megarry as to privity of interest, there is a necessary preliminary question in determining whether there is abuse of process, that there should be a sufficient degree of identification between the respective defendants. Thomas LJ, with whom Wall and Longmore LJJ agreed, rejected that argument at :
"I cannot accept this argument. Lord Bingham made clear in his speech that the approach should be a "broad merits-based judgment" and not formulaic. It is clear he was approving the passage in the judgment of Sir Robert Megarry as the "correct approach" and not as a statement of rigid application. The fact that the Defendants to the original action and to this action are different is a powerful factor in the application of the broad-merits based judgment; it does not operate as a bar to the application of the principle."
- The present case was argued before the judge, in the appeal skeletons and, in the main, orally before us solely on the basis of the requirements of privity as explained in Gleeson. Approaching the case in that way, it made no difference whether Arrow were barred by issue estoppel or by abuse of process estoppel. Neither side referred the judge to Aldi Stores. But if Arrow were only estopped on the basis of abuse of process, the broad merits-based approach would seem to be appropriate. I will deal briefly with the broad merits-based approach at the end of this judgment, in case it leads to a different result.
- At  of his judgment, the judge rejected the notion that the mere fact that Resolution was part of the same group as Arrow was enough to make Resolution a privy of Arrow. He concluded at  that Resolution had no actual interest in escitalopram in 2006. At  he dismissed the relevance of Resolution's earlier interest in citalopram, which had, in any event, ceased by 2004, or at the latest 2005. At  he said:
"Given that Resolution had no interest in escitalopram at the time of the previous proceedings, I conclude that there was no privity of interest between Resolution and Arrow Generics with regard to those proceedings."
The grounds of appeal
- The following are the principal grounds of appeal:
i) The judge's findings of fact did not justify or support his conclusions in  to  of his judgment. His findings should have led him to the opposite conclusion. The judge made "errors of principle" in his application of the law to the facts.
ii) That this is so can be tested by considering the position if Resolution had remained within the Arrow Group and under Mr Tabatznik's control. In such circumstances Resolution would not have been able "to re-litigate the validity of the Patent simply by designating Resolution the claimant and recommencing proceedings in their name". If that were so it would violate the principle that no person should be twice vexed in the same cause. If Resolution is not estopped in such circumstances, the principle of estoppel in the context of a corporate structure becomes inoperable.
iii) The judgment should have had regard to certain particular matters:
a) The Arrow Group organised itself so that patent litigation was "handled by Mr Tabatznik assisted by Dr Lowrie on behalf of all members of the Group". The judge had so found but had not addressed the consequences.
b) Resolution, through Mr Tabatznik, had knowledge of the earlier proceedings, but elected to stand back and allow the earlier proceedings to be run on its behalf.
c) Resolution was Mr Tabatznik's "chemistry set" and it was he who set Resolution's strategic direction. Resolution and Arrow served and therefore shared the same interests, being those of Mr Tabatznik and the Arrow Group as a whole.
d) Resolution had a direct legal interest in the outcome of the previous litigation in that its "freedom to operate" was not academic given the funding of Resolution by the Arrow Group, the earlier identification of escitalopram as an opportunity, its API manufacturing and sub-contracting activities and its investigations into routes of making escitalopram.
e) The fact that findings of the judge did not support his conclusion that Resolution's interest in escitalopram was at an end in 2006:
i) escitalopram was amongst a list of drugs identified by Resolution as opportunities;
ii) Mr Tabatznik enquired about a licence for escitalopram;
iii) Mr Tabatznik asked for a review of routes to escitalopram;
iv) Resolution investigated those routes;
v) Resolution would if necessary look to sub-contract the manufacture of escitalopram.
Did the judge make an error of principle?
- Although nowhere spelled out in this way in his grounds of appeal, Mr Waugh made a number of points which he said the judge had not had proper regard to. He first suggested that the judge gave insufficient weight to the principle that nobody should be vexed twice in the same cause. I am unable to accept this. The principles which the judge set out and applied are firmly based on that principle. But there is of course an equally important further principle in play, namely that an independent party should be free to bring a separate claim for revocation of the Patent. The principles which have been developed in the cases, and which the judge applied, have regard to these competing principles. Sales J put it very well in Seven Arts Entertainment Ltd v Content Media Corp plc  EWHC 588 (Ch) at :
"As stated above, the basic rule is that, before a person is to be bound by a judgment of a court, fairness requires that he should be joined as a party in the proceedings, and so have the procedural protections that carries with it. This includes the opportunity to call any evidence he can to defend himself, to challenge any evidence called by the claimant and to make any submissions of law he thinks may assist his case. Although there are examples of cases in which a person may be found to be bound by the judgment of a court in litigation in relation to which he stood by without intervening, in my judgment those cases are illustrations of a very narrow exception to the general rule. The importance of the general rule and fundamental importance of the principle of fair treatment to which it gives expression indicate the narrowness of the exception to that rule."
- Next Mr Waugh suggested that, in the context of abuse of process estoppel, a relevant further consideration is exactly how onerous the further litigation will be, and how vexed the defendant has already been. Even if this is correct as a statement of principle, I do not see how it can assist Lundbeck in the present case. If the judge was right that Resolution had no interest in the 2005 proceedings, and is not bound by privity of interest, then it is entitled to bring the proceedings, even if they are burdensome, and even if Lundbeck has previously had to defend proceedings at the suit of Arrow. It might conceivably be relevant on a "broad, merits-based approach". But that was not the basis on which the judge was invited to decide the case. If that approach is to be taken, other considerations, such as the fact that Resolution is now a wholly independent company, come into play.
- Mr Waugh's final point of law was that the principle that nobody should be twice vexed applies more strongly where two related claimants are seeking to bring successive proceedings against the same defendant than it does where the same claimant seeks to bring successive actions against related defendants. No authority was cited for this proposition and I am very doubtful that it is correct. However it is of no relevance here. We are not concerned here, with how strongly the principle should be applied, but whether it applies at all.
- In my judgment, Lundbeck has not established that the judge made any error of law. Except in the limited respect concerning the reconciliation of statements made to the European Commission which I have already dealt with, Mr Waugh makes no criticism of the judge's factual findings. Accordingly success on this appeal has to be on the basis that the facts found by the judge admit of only one possible answer, i.e. that Resolution is bound by the judgment in 2005 proceedings.
Is Lundbeck's test a valid one?
- Lundbeck's ground (ii) is that one can demonstrate that there is a flaw in the judge's approach because it would permit obviously abusive conduct, namely it would allow Mr Tabatznik and Arrow to commence an action immediately after the failure of the 2005 proceedings "by designating Resolution as the claimant and recommencing proceedings in their name". The problem with this demonstrative is that no principle relied on by the judge would permit such conduct. I have already accepted that there is a clear exception recognised in the cases that where a party to previous litigation employs a new party to re-litigate the case on his behalf he will normally be prevented from doing so. That, of course, is not what is or could be alleged here. It is not alleged that there is any subsisting relationship between Arrow and Resolution. No case was sought to be made that Arrow and Resolution were together seeking to undermine the integrity of the estoppel created by the previous decision.
Did Resolution "stand back and let Arrow fight its battle for it"?
- Lundbeck's ground (iii)(a) and (b) seek to characterise the case as one where the 2005 proceedings were being conducted on Resolution's behalf and with the knowledge of Resolution through Mr Tabatznik. It is also suggested that the judge should have found that this was the case, and also that Resolution stood back and let Arrow fight the battle, and should not now be allowed to take up arms again.
- I think there are a number of answers to this way of looking at the case. Firstly, the judge's finding at  was that Mr Tabatznik took charge of major patent matters affecting companies within the Arrow Group. It was not that Mr Tabatznik conducted all patent matters on behalf of all companies in the Group. So it made sense for Arrow to apply to revoke the Patent as they were the company with an interest in having it revoked. If other companies subsequently acquired an interest in seeing the Patent revoked, there is no reason to treat the earlier litigation as having been conducted on their behalf, when it was commenced at a time when they were not affected by the Patent. Secondly, the notion that Resolution stood back and allowed Arrow to fight its battle simply failed on the facts. Subject to Mr Waugh's argument about Resolution's residual interest in escitalopram, Resolution had no battle to fight in February 2006. It could not make citalopram, let alone escitalopram, and its involvement in any consideration of escitalopram had ceased. Moreover, although Resolution must be taken to have known, through Mr Tabatznik, that the litigation was going on, it had no reason to suppose that it had any further relevance to its business.
- Mr Waugh sought to give this part of the case some impetus by referring to the decision of the Court of Appeal in Special Effects Ltd v L'Oréal SA  EWCA Civ 1,  RPC 15. The claimant in that case was the proprietor of the trade mark SPECIAL EFFECTS. L'Oréal SA had previously opposed the claimant's application for the trade mark, relying upon use of its mark SPECIAL FX by L'Oréal UK. The opposition failed and the claimant then brought proceedings for infringement against both L'Oréal SA and L'Oréal UK in respect of use of the mark SPECIAL FX. The defendants counterclaimed for a declaration that the claimant's trade mark was invalidly registered on the same legal grounds as those which had previously been relied on unsuccessfully in the opposition proceedings. The Chancellor, Sir Andrew Morritt, held that L'Oréal SA was precluded by cause of action estoppel from repeating its challenge to the mark, and that L'Oréal UK was bound by the estoppel as L'Oréal SA's privy. The Court of Appeal allowed the defendants' appeal, holding that L'Oréal SA was not barred by cause of action estoppel, issue estoppel or abuse of process from raising the same challenges again.
- The Court of Appeal went on to make some observations about the privity point, although it was not necessary to decide it as the underlying estoppel was held not to exist. Lloyd LJ delivering the judgment of the court said this:
"81. The Chancellor's decision on the point was expressed as follows, in paragraph 55:
'The principle to be applied is that formulated by Sir Robert Megarry in Gleeson v Wippell and approved by the House of Lords in Johnson v Gore Wood … . What must be ascertained is whether there is a sufficient degree of identity between the First Defendant and the Second Defendant to make it just that the decision in the opposition proceedings should be binding on the Second Defendant in these proceedings. In my judgment the answer to that question is in the affirmative. The Second Defendant could have been joined as a party to the opposition proceedings. In his evidence in the opposition proceedings M. Monteiro evidently regarded the First and the Second Defendants as one person; hence his references to 'my company' in contexts which can now be seen to refer to the Second Defendant alone. Both are concerned with marks which are owned by the First Defendant and used by the Second Defendant in its business in the UK, the former as owner the latter as licensee. The dispute with the claimant concerns the validity and use of their rival marks. Both defendants are members of the same group. Even accepting that the First Defendant is not entitled to give directions to the Second Defendant there is no reason to think that the ultimate holding company cannot give directions to both of them. In my view, prima facie, each company in a group is to be regarded as the privy of every other company in the group unless it demonstrates the contrary. Otherwise the principles of estoppel will become largely inoperable in a corporate structure.'
82. It seems to us that in the last two sentences of that paragraph the Chancellor went further than was necessary for his decision. With respect, we could not agree with so general a principle. However, it seems to us that the decision may have been justifiable on a more limited and specific basis, which forms part of the Chancellor's reasoning in his paragraph 55. The First Defendant holds such registered trade marks as there are in the L'Oreal group. It was accordingly appropriate that it should have been the party which opposed the application for registration by Mr and Mrs Jones. The Second Defendant is the operating company in the UK for the L'Oreal group; in the course of its business it uses registered marks under licence from the First Defendant. It was, therefore, the company which did such acts as the Claimant complains of. If a corporate group such as L'Oreal chooses to arrange its affairs, no doubt for good reason, in such a way that matters such as trade mark oppositions, as well as applications and the holding of registered trade marks, are conducted by one company, for the benefit of others in the group, and others then use marks of which the first is the registered holder, or other marks, not yet registered, of which the first would be the holder if a registration was obtained, then it seems to us that it might well be consistent with what Sir Robert Megarry V-C said in Gleeson v J Wippell & Co Ltd  1 W.L.R. 510 at 515 (approved by Lord Bingham in Johnson v Gore Wood  2 AC 1 at 32) to regard any constraint on the first, whether by way of cause of action estoppel, issue estoppel or abuse of process, as applying also to the second as its privy. The proposition enunciated by Sir Robert Megarry was that, 'having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was a party should be binding in proceedings to which the other is a party'. It would be relevant to consider the corporate structure adopted by L'Oreal, and the arrangements of which Mr Monteiro gave evidence within the group. The Claimant could reasonably rely on the fact that information was provided by the Second Defendant and used in the course of the opposition proceedings. In Gleeson Sir Robert Megarry said that for employees of one company, not associated with the litigant, to give evidence on behalf of the litigant in the earlier litigation, did not constitute the first a privy of the litigant, but this seems to us a very different relationship, such that the assistance given with the evidence would be relevant. This is also emphasised by the way in which Mr Monteiro spoke of 'my Company' in relation to both the First Defendant and the Second Defendant without distinction. We do not decide the point, but it seems to us that the Claimant's contentions as regards privity might have a substantial basis, even though on less general grounds than those expressed by the Chancellor."
- It seems to me that these observations are of little relevance to the present case. L'Oreal UK had been using the mark in question at the time of the opposition proceedings and plainly intended to continue to do so. There was a real sense therefore in which the opposition proceedings had been conducted on its behalf and for its benefit. The evidence which its witnesses gave in the proceedings was given because it had a real interest in the outcome of the proceedings. They were no doubt following the progress of the proceedings with interest as the outcome would directly affect the legality of its past and future sales. It had a concrete interest in the outcome. Nothing could really be further from the facts of the present case.
Should the judge have concluded that Resolution had an interest in the outcome of proceedings?
- For the reasons identified in his ground (iii) Mr Waugh submits that in 2006 Resolution had a legal interest in the outcome of the 2005 proceedings. He described this as Resolution's freedom to operate created by the revocation of the Patent. The high point of this case was the statement in 2004 that, in the event of failure to obtain a source of supply, Mr Greenwood would "look to Neuland". This meant that there was a contingent possibility that Resolution could be called upon to enter into a development program with Neuland similar to that which it had unsuccessfully undertaken with Neuland in relation to citalopram. If the analogy is pursued, such a project would have involved a route being identified by Resolution and passed on to Neuland to put into practice. Accordingly Resolution had a real reason for obtaining freedom to operate by revoking the Patent.
- I think all this is far too speculative. It is not a sufficiently concrete interest in the outcome of the previous proceedings. The true position was that Resolution was simply not in a position to make or have made citalopram or escitalopram. Its previous efforts had failed and their current efforts had ceased. As to the specific matters relied on in ground (iii)(e)(i) to (vi), the dates on which they occurred are informative. The identification of citalopram as a generic opportunity, for what it is worth, was in 2001. The enquiry about the escitalopram licence, the review of routes for manufacture of escitalopram, and Mr Greenwood's statement that he would if necessary make some escitalopram were all in 2002. The investigation of routes ended in 2004 as did Resolution's interest in escitalopram. Thereafter Resolution's interest was no different from any other company with a general interest in generic products. That cannot be sufficient to make it just to hold Resolution bound by the earlier proceedings.
Conclusion on privity
- The extent of the identity between Arrow and Resolution is that they were part of a group of companies under the common control of Mr Tabatznik. There was no subsisting relationship between them in 2006 pursuant to which the 2005 proceedings were being conducted by Arrow for Resolution's benefit. Resolution was Mr Tabatznik's chemistry set, but he was not playing with it to make escitalopram. Resolution had no concrete interest in the 2005 proceedings. It would be quite unjust to hold Resolution bound by the outcome. The judge was entitled to come to that conclusion.
A broad, merits-based judgment?
- As Lord Millett said in Johnson v Gore Wood, particular care is necessary in the application of the principle of abuse of process estoppel to the case of privies: see page 60C:
"It is likely in practice to be easier for [the privy] to rebut the charge that his proceedings are oppressive or constitute an abuse of process than it would be for the original plaintiff to do so."
- I would not come to any different conclusion applying a broad merits-based approach. Indeed, if anything, the case for Resolution is stronger as it would I think be proper to take into account the fact that Resolution is now independent of the Arrow Group and operating under a different business model. As Lord Millett again points out in Johnson v Gore Wood, the question of whether the new proceedings are abusive has to be determined at the time when those proceedings are brought, in the light of everything that had happened by then: see page 59G.
- For the reasons I have given therefore, I would dismiss this appeal.
Lord Justice Moore-Bick
- I agree.
Lord Justice Longmore
- I agree also.
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