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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> AstraZeneca AB & Anor v KRKA dd Novo Mesto & Anor  EWCA Civ 484 (21 May 2015)
Cite as:  EWCA Civ 484
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
The Hon Mr Justice Sales
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE KITCHIN
LORD JUSTICE FLOYD
| AstraZeneca AB
AstraZeneca UK Ltd
|- and -
|KRKA dd Novo Mesto
Consilient Health Ltd
(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
for the Appellants
Bernard Livesey QC, Andrew Lykiardopoulos QC and Thomas Jones
(instructed by Innovate Legal) for the Respondents
Hearing dates: 24/25/26 February 2015
Crown Copyright ©
Lord Justice Kitchin:
The relevant principles
"5. The principles of law sufficient to enable me to quantify compensation in this case may be shortly stated:-
(a) The undertaking is to be enforced according to its terms. In the instant case (as in many others) it is that Servier will comply with any order the court may make "if the court…finds that this Order has caused loss to the defendants." The question for me is therefore: what loss did the making of the Order and its continuation until discharge cause to Apotex?
(b) The approach is therefore essentially compensatory and not punitive;
(c) The approach to assessment is generally regarded as that set out in the obiter observation of Lord Diplock in Hoffmann-La Roche v Secretary of State for Trade  AC 295 at 361E namely:-
"The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction: see Smith v Day (1882) 21 Ch D 421 per Brett LJ at p427."
(d) What Apotex was trying to do (and what the Order restrained it from doing) was to enter a new market for the sale of generic perindopril. It was denied exploitation of this opportunity. The outcome of such exploitation is attended by many contingencies but Chaplin v Hicks  2 KB 786 establishes (per Vaughan Williams LJ at p.791) that whilst "the presence of all the contingencies on which the gaining of the prize might depend makes the calculation not only difficult but incapable of being carried out with certainty or precision" damages for the lost opportunity are assessable.
(e) The fact that certainty or precision is not possible does not mean that a principled approach cannot be attempted. The profits that Apotex would have made from its exploitation of the opportunity to sell generic perindopril depend in part upon the hypothetical actions of third parties (other potential market participants) and in part upon Servier's response to them. A principled approach in such circumstances requires Apotex first to establish on the balance of probabilities that the chance of making a profit was real and not fanciful: if that threshold is crossed then the second stage of the inquiry is to evaluate that substantial chance (see Allied Maples v Simmons & Simmons  1 WLR 1602). As Lord Diplock explained in Mallett v McMonagle  AC 166 at 176E-G
"…. in assessing damages which depend on its view as to what…. would have happened in the future if something had not happened in the past, the Court must make an estimate as to what are the chances that a particular thing….. would have happened and reflect those chances, whether they are more or less than even, in the amount of damages it awards…"
(f) The conventional method of undertaking this exercise is to assess damages on a particular hypothesis and then to adjust the award by reference to the percentage chance of the hypothesis occurring. In many cases it is sufficient to postulate one hypothesis and make one discount: but there is no reason in principle why one should not say that either Scenario 1 or Scenario 2 would have occurred and to discount them by different percentages. That is the course which Mr Watson QC urged in the present case: and I note that it has some support in Earl of Malmesbury v Strutt & Parker  PNLR 570."
"The parties also largely agreed on the approach to be adopted to assessing the value of the loss of the chance for Consilient to enter the market in October 2010 under the approach set out in Allied Maples Group Ltd v Simmons & Simmons  1 WLR 1602, CA, and as explained by the House of Lords in Transport for London (London Underground Ltd) v Spirerose Ltd  UKHL 44, at , and by the Court of Appeal in Vasiliou v Hajigeorgiou  EWCA Civ 1475, -. By the end of the hearing and closing submissions, AZ accepted that Consilient and Krka had shown on the balance of probabilities that but for the grant of the interim injunction they would have sought to enter the market from October 2010 with full force and effect, seeking to win as much market share for Emozul as they could using the marketing resources Consilient had put in place. No distinct assessment was required of what might have happened in a different counterfactual scenario, if Consilient and Krka had limited their marketing efforts, out of fear of the damages they might have to pay AZ if it later transpired that they acted in infringement of AZ's patent in respect of Nexium."
"7. First, I am following the obiter guidance contained in the opinion of Lord Diplock in Hoffmann-La Roche because, on the evidence and argument presented at trial, it is sufficient to enable me to determine the issues that arise. For my own part, I think it should be recognised that the award is of equitable compensation (not of damages strictly so called) and that there may be occasion to examine whether such equitable compensation should be fettered by rigid adherence to common law rules; and further, that if common law rules are to be applied, whether those relating to contract are more appropriate than those relating to tort or some other breach of duty (in which connection it will be noted that the judgment of Brett LJ upon which Lord Diplock founded his view referred to "[a] contract with or duty to the opposite party"). The difference between the two sets of common law rules would be important, for example, in the context of aggravated or exemplary damages for a blatant or cynical interference with a defendant's right to enter a pharmaceutical market with a generic drug by means of a second generation patent that is a "try on" (to adopt the language of Jacob LJ).
8. Second, proceeding on the footing that the enquiry on the cross undertaking is to be conducted according to the principles applicable to contractual damages, I should record that the form of the case before me has meant that I have not been called upon to consider whether it is appropriate to depart from the conventional contractual basis of assessment and instead to apply the exceptional "restitutionary" basis of assessment in contract considered in Attorney General v Blake  1 AC 268. Where what is found to be a wrongful extension of patent protection results in a benefit to the patent holder which exceeds and outstrips the loss which is occasioned to the generic company whose market entry is delayed then it seems to me that "restitutionary damages" might be called for (notwithstanding the rejection by the Court of Appeal in Smithkline Beecham v Apotex  EWCA Civ 658 of the argument for a general restitutionary claim based on unjust enrichment and enforceable by parties and non-parties alike). In the present case I know only (because it was accepted in argument) that the profits made by Servier from the sale of perindopril during the period of the wrongfully granted injunction "significantly exceed" the maximum sum which it can be called upon to pay on the present enquiry.
9. Third, whilst it is for Apotex to establish its loss by adducing the relevant evidence, I do not think I should be over eager in my scrutiny of that evidence or too ready to subject Apotex' methodology to minute criticism. That is so for two reasons, quite apart from an acceptance of the proposition that the very nature of the exercise renders precision impossible. (a) Whilst, in order to obtain interlocutory relief, Servier will not have had to persuade Mann J that it was easy to calculate Apotex' loss in the event of the injunction being wrongly granted, it will have had to persuade him that that task was easier than the calculation of its own loss in the event that the injunction was withheld. The passages I have cited from its skeleton argument and evidence show that it did so. Having obtained the injunction on that footing it does not now lie in Servier's mouth to say that the task is one of extreme complexity and that the court should adopt a cautious approach. Having emphasised at the interlocutory stage the relative ease of the process, it should not at the final stage emphasise the difficulty. (b) In the analogous context of the assessment of damages for patent infringement, in General Tyre  RPC 197 at 212 Lord Wilberforce said:-
"There are two essential principles in valuing the claim: first, that the plaintiffs have the burden of proving their loss: second, that the defendants being wrongdoers, damages should be liberally assessed but that the object is to compensate the plaintiffs and not to punish the defendants."
The principle of "liberal assessment" seems to me equally applicable in the present context. Although a party who is granted interim relief but fails to establish it at trial is not strictly a "wrongdoer", but rather one who has obtained an advantage upon consideration of a necessarily incomplete picture, he is to be treated as if he had made a promise not to prevent that which the injunction in fact prevents. There should as a matter of principle be a degree of symmetry between the process by which he obtained his relief (an approximate answer involving a limited consideration of the detailed merits) and that by which he compensates the subject of the injunction for having done so without legal right (especially where, as here, the paying party has declined to provide the fullest details of the sales and profits which it made during the period for which the injunction was in force)."
The market for prescription drugs
"… the Department of Health ("DH") has set up a scheme known as the Pharmaceutical Price Regulation Scheme ("the PPRS" or "the Drug Tariff") which sets out the prices of drugs which the NHS will pay by way of reimbursement to local pharmacies and dispensing doctors who provide prescribed drugs against prescriptions presented by patients. The DH engages in periodic negotiations with the Association of the British Pharmaceutical Industry and pharmaceutical companies which sell branded drugs to set the relevant reimbursement prices in the PPRS. In effect, in most cases it is the prices in the PPRS which represent the prices at which pharmaceutical companies sell their products to the NHS. In some cases pharmaceutical companies may supply their products to pharmacies (or dispensing doctors) at prices lower than shown in the PPRS, while the pharmacies (or dispensing doctors) can recover the PPRS prices from the PCTs, so as to provide an incentive to pharmacies (or dispensing doctors) to encourage prescribing of those products in their local areas; but where such discounting occurs there are mechanisms in the operation of the PPRS whereby after a period the PPRS prices are brought into line with the lower discounted prices in fact being used to supply those products."
"…The Medicine Managers and their teams seek to foster close relationships with GP practices to gain their trust and willingness to follow their advice regarding prescribing practices. The teams also provide direct support to GP practices to effect any switches in drugs being prescribed. They do this by going into the practices and reviewing their computerised patient records to identify patients who might be eligible for a particular switch in the drugs being prescribed for them in order to save money, and then supporting the GPs in reviewing whether a switch is indeed justified in the case of those patients and, if it is, assisting the GPs in contacting patients to explain why a switch is being proposed in their cases."
"As regards the general approach of Medicine Managers when deciding whether to adopt a particular switch and promote it with GPs in their area, there was a striking consistency in the evidence of the Medicine Managers who appeared as witnesses. It is, unsurprisingly, a question of cost-benefit analysis. A Medicine Manager contemplating a potential switch has to consider the costs for their team of promoting the switch and assisting GPs to implement it, the opportunity cost in terms of losing other possible costs-saving switches of other drugs as a result of deploying their limited resources to promote this switch and the potential savings for the PCT to be derived from the switch. There is a broad consensus among Medicine Managers, which is well understood in the industry (for example, AZ's industry expert, Mr Carlisle, confirmed it), that a costs saving of the order of £50,000 will generally trigger serious consideration of implementation of a switch. In addition, in the highly straitened financial circumstances of PCTs after the financial crash of 2008 and public austerity measures after that, many PCTs were concerned to try to achieve costs savings of much less than this by promoting switches."
"As part of their job, Medicine Managers engage in what was termed "horizon scanning", looking for indications of new generic drugs about to enter the market in the foreseeable future to which switching might be possible to save money. If new, cheap drugs are about to enter the market, that will affect the cost-benefit analysis referred to above. It may not be cost-effective for Medicine Managers to devote a lot of effort to effecting a switch in prescribing behaviour to one drug, if it can be seen that another, cheaper drug is just about to come onto the market and further effort will be required to effect switching to that drug. In those circumstances, it may make more sense to wait a bit and then organise switching to the newer, cheaper drug."
Preparations for the launch in October 2010
"… It is true that PCTs wished to encourage the use of low cost PPIs wherever possible, but they had been actively campaigning to achieve this for some considerable time before October 2010 and are likely to have assessed that they had probably achieved as much as could reasonably be expected to deter prescribing of esomeprazole PPIs by GPs. Experience showed that there was a small rump of patients (about 5% of those using PPIs) for whom use of esomeprazole PPIs had been found still to be necessary or unavoidable. By October 2010, therefore, the practical issue was whether there was some attractive way in which the drugs cost in relation to this rump of patients who were being prescribed esomeprazole PPIs could be reduced. A switch to Emozul represented a way (in practice at the time, the only way) in which this could be achieved. Moreover, the reaction of the pharmacists at the advisory board and the strong consensus among the Medicine Managers who gave evidence was that this would be an easy switch to implement."
"57. My assessment on the evidence, therefore, is that PCTs' and the NI Board's perceptions in the counterfactual scenario had Emozul been launched in October 2010 would have been that (i) there was a fixed and in practice irreducible rump of patients for whom prescribing of esomeprazole PPIs would be likely to continue indefinitely; (ii) there was no prospect of another, lower cost source of esomeprazole PPIs becoming available on the market in the near future; (iii) a switch to Emozul would represent the only practical way of reducing the substantial cost of esomeprazole PPIs being prescribed for a substantial period of time; and (iv) arranging a switch to prescribe Emozul or esomeprazole PPI capsules would be simple and straightforward and could be expected to encounter little resistance from patients and GPs. Consilient, with Krka standing behind it as supplier of Emozul, would have been regarded as a reliable source of supply for PPIs.
58. Accordingly, in my view, the cost-benefit analysis which Medicine Managers would have carried out for PCTs with potential annual cost savings of £50,000 or more and the NI Board, had Emozul been launched in the counterfactual scenario in October 2010, would have been strongly in favour of promoting the switch with prompt effect. Also, even among those PCTs with potential cost savings of less than £50,000 there would have been a reasonable proportion (representing, in my assessment, about 40% of the esomeprazole PPI market in relation to such PCTs) of Medicine Managers who would similarly have decided that it was appropriate to promote the switch with prompt effect."
The parties' cases at trial and the judgment
"72. No doubt factors other than simple cost savings would operate to varying degrees in different PCTs, introducing a degree of drag into the extent to which Medicine Managers could expect to succeed in their campaigns to promote any switch in prescribing behaviour, including in relation to Nexium and Emozul. This was acknowledged in the evidence of Medicine Managers and in their estimates of the sort of levels of switching they would have expected to achieve, based on their experience of other switching campaigns, at levels which could be of about 70% or so within three months of launch and could reach 80% or higher GP compliance. However, the severe cost pressures on all PCTs in 2010 and the simplicity of promoting a switch in prescribing behaviour in favour of Emozul would, in my judgment, have meant that cost savings associated with that switch would have been the major factor which would have operated in the circumstances of the counterfactual scenario, driving and leading to a high level of switching in the period after October 2010 broadly in line with the estimates given by Consilient and Krka and supported by the Medicine Manager evidence called by them."
"73. To accommodate what may have been a slight tendency to underestimate the drag factor in all of this (a subconscious tendency of Medicine Managers to exaggerate the extent to which they would have been successful in their switching campaigns in the counterfactual scenario), to allow for variation within the overall body of PCTs in their ability effectively to take up cost savings by arranging for prompt switching and to take account of simple, difficult-to-predict vicissitudes in the position which would have applied in the counterfactual scenario (of the unexpected kind which partially affected the effectiveness of Emozul's launch in September 2011: see para.  above), I consider that a reduction in the sums claimed as damages in respect of the PCT market of 20% is appropriate (this also covers such minor factors as the fact that gelatine was used in the Emozul capsules, making them potentially unattractive to vegetarian patients)."
"It is very likely that Consilient would have persuaded the NI Board to promote a switch to Emozul/generic esomeprazole capsules shortly after launch in October 2010, by about the end of October 2010. The NI Board was under considerable pressure to reduce costs, particularly in relation to PPIs. A switch from Nexium to Emozul would have made savings for the NI Board of the order of £1.7 million p.a.. Mr Browne met Ms Lesley Edgar from the NI Board on 3 September 2010, and the NI Board showed a strong interest in switching to Emozul at that stage. That contemporaneous evidence is supported by the evidence of Ms Turner and Mr Brogan at the hearing. I do not consider it at all likely that the NI Board would have been deflected from promoting the switch by the fact that an unusually high proportion of PPI prescribing in Northern Ireland (about 13%) was for esomeprazole PPIs (at the time, Nexium), and the NI Board also wished to promote uptake by GPs of other, low cost PPIs. The high level of esomeprazole PPI prescribing made it particularly important to seek to address the high cost associated with that, and (as with PCTs on the mainland) there would have been no great difficulty about promoting a two-pronged strategy of encouraging switching away from esomeprazole PPIs while also, to the extent that esomeprazole PPIs had to be used, encouraging a switch from Nexium to Emozul/generic esomeprazole capsules. In broad terms, an uptake of 70% in relation to esomeprazole prescribing in Northern Ireland by the end of the first year would have been likely, and would probably have stabilised at about that level. A 20% reduction to allow for possible vicissitudes and uncertainty is appropriate."
"It is very likely that Consilient would have persuaded PCTs with potential annual savings of £50,000 or more to promote a switch to Emozul/generic esomeprazole capsules shortly after launch in October 2010. Consilient and Krka say that 90% of PCTs with potential annual savings of over £100,000 and at least 75% of PCTs with potential annual savings between £50,000 and £100,000 would have switched. Subject to the adjustment I have mentioned, I agree with those estimates. The evidence indicated that the structures for PCTs to identify and implement prescription switches to save costs were more advanced than in Northern Ireland, where the NI Board was a new body which replaced others in the period 2009/2010. I consider that an uptake of 70% across the board of esomeprazole PPI prescribing within these categories of PCT would have been likely within six months after launch in October 2010 and would have climbed to about 80% after the first year. A reduction of 20% to allow for vicissitudes and uncertainty is appropriate."
"It is likely that Consilient would have persuaded a substantial proportion (which I assess at 40% of this sector of the esomeprazole PPI market) of PCTs with potential annual savings of less than £50,000 to promote a similar switch. This reflects the intense pressure on PCT budgets at all levels and size of PCT to find cost savings in order to protect NHS services generally. A fair assessment of the rate of uptake in this sector of the market is that it would have been somewhat lower (reflecting the different priority level likely to be attached to it), at 50% over 12 months. Again, a further adjustment by way of reduction of 20% is appropriate."
"The limited success of Emozul once it entered the market for esomeprazole PPIs in 2011 is not a good guide to what would have happened if it had been allowed to enter the market in 2010. As mentioned above, by September 2011, other, cheaper generic esomeprazole PPIs either had entered or were about to enter the market, after AZ lost its case against Ranbaxy based on the patent for Nexium, with judgment handed down on 15 July 2011. On 17 July 2011, Arrow launched what was in substance a branded generic esomeprazole PPI capsule in conjunction with AZ; on 5 September 2011 Ranbaxy launched a generic esomeprazole PPI tablet; in November 2011 Mylan launched a generic esomeprazole PPI capsule; in December 2011 Teva launched a generic esomeprazole PPI tablet. In short, by the time Consilient was released from the interim injunction the market for esomeprazole PPIs had been completely transformed by the entry of low cost generics which had not been on the horizon in October 2010. A competitive price war had opened up, and this in turn transformed the cost-benefit analysis for Medicine Managers about whether to put time, effort and resources into promoting a switch from Nexium to Emozul/esomeprazole PPI capsules. The expected operation of the newly highly competitive market for esomeprazole PPIs would produce cost savings by natural general downward pressure on prices without PCTs necessarily having to promote a switch to Emozul. Emozul faced far greater difficulties in taking market share in this competitive environment than it would have done in the much more restricted competitive environment in October 2010, analysed above."
"MR. JUSTICE SALES: All right. I am a little bit concerned that we are talking up time now on cross-examination of material which, strictly, probably is not admissible evidence. I am not going to make a ruling. But witnesses commenting on other evidence is not of assistance to the court, unless they are an expert; and Mr. Crosbie, very frankly, said he is not an expert.
MR. ALEXANDER: My Lord, the only reason I am doing it is because I do not want it to be said at some later stage, "Oh, you did not challenge the witness in relation to the fundamental assumptions that he is putting forward." So, I do feel I need to challenge it, up to a point.
MR. JUSTICE SALES: Well, just on that, I do not consider that it is necessary for you to challenge this witness in relation to assumptions which are sought to be made good by other evidence from witnesses who can speak to the relevant facts where this witness cannot. I make that clear now."
Lord Justice Floyd
Lord Justice Longmore