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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Les Laboratoires Servier & Anor v Apotex Inc & Ors [2008] EWHC 2347 (Ch) (9 October 2008) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2008/2347.html Cite as: [2008] EWHC 2347 (Ch), [2009] FSR 3 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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LES LABORATOIRES  SERVIER(a company incorporated in France) (2) SERVIER LABORATORIES LIMITED |
Claimant |
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APOTEX INC APOTEX PHARMACHEM INC APOTEX EUROPE LIMITED APOTEX UK LIMITED |
Defendant |
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Antony Watson QC and Colin Birss QC (instructed by Taylor Wessing) for the Defendant
Hearing dates: 9 -12 and16 June, 28 July 2008.
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Crown Copyright ©
Mr Justice Norris.
Mr Justice Norris :
Servier (Servier) developed and patented a pharmaceutical known as Perindopril which it sold under the trade mark "Coversyl". It is an ACE inhibitor which is used to treat hypertension and is a prescription medicine. It obtained patent protection for the original compound in France in 1980, and subsequently patented the process for the industrial synthesis of the product ("the 341 patent"). In July 2000 Servier applied for a further patent covering an allegedly new form of Perindopril described as "Form Alpha" ("the 947 patent"). By 2006 the basic protection for Perindopril had expired, and the 947 patent was a second generation patent the object of which was to enable Servier to maintain its monopoly in Perindopril. The 947 patent was sought in the European Patent Office and was the subject of opposition proceedings (one of the grounds of which was that Form Alpha would inevitably result from practising the prior art 341 patent). On 27 July 2006 the European Patent Office dismissed this opposition and held the 947 patent valid despite the earlier 341 patent. Servier was thereby placed in a position in which it could continue to assert its monopoly.
Servier issued a claim form against Apotex, knowing that there would be a battle over the latter's generic product: but it was surprised to find that sales were already under way and therefore made an application on 3 August 2006 for an immediate interim injunction. The principles upon which the court acts in those circumstances are, of course, those established in American Cyanamid [1975] AC 396, adapted to the circumstances of the launch of a pharmaceutical in an "at risk" period by the decision of the Court of Appeal in SmithKline Beecham v Apotex Europe [2003] FSR 31 at 559. Consistently with those principles Servier submitted to Mann J (both at the emergency hearing on 3 August and at the "on notice" hearing on 7 August) that if Apotex was permitted to enter the market "Servier [would] suffer irreparable and unquantifiable harm". In paragraph 21 of its skeleton argument for the latter hearing Servier explained:-
"In practice, once the NHS reimbursement price has been adjusted to account for the cheaper generic product, it is not possible for the originating manufacturer to raise the price to its pre-generic level, even if successful in obtaining a permanent injunction after trial. The market structure is irreversibly altered for the life of the patent, which in this case runs until 2021. This is in contrast to the potential damage to Apotex should the interim injunction turn out to be wrongly granted, which damage will be incurred over the relatively short period leading up to trial."
It was Servier's evidence (see paragraph 32 of the witness statement of Eric Falcand) that:-
"In contrast, if Apotex are prevented from continuing to supply the market but are ultimately successful at trial, I believe that the damage suffered by Apotex could be adequately compensated by damages."
Mann J accepted Servier's submission that Apotex damages were more easily capable of calculation than its own, and he granted an injunction permitting Apotex to fulfil its existing contractually binding orders for Perindopril taken before 3 August 2006 but otherwise restraining Apotex from selling Perindopril until trial. His Order provided that that trial should be a speedy trial starting on the first open day after 1 February 2007: in accordance with the usual practice the Order contained an undertaking by Servier in these terms:-
"If the court later finds that this Order has caused loss to [Apotex]…… and decides that [Apotex] should be compensated for that loss, [
Servier asked for an extension of the injunction which the judge refused. Undaunted Servier applied to the Court of Appeal for an extension of the injunction. That extension was refused on the ground that there did not seem to be a serious issue capable of argument on the appeal and that "given that deep down what [the court is] trying to do is to avoid an injustice, much the safest way of doing that is to refuse an injunction from now on." The appeal was duly heard on 28 April 2008 and was dismissed: [2008] EWCA Civ 445. In giving judgment Jacob LJ held:-
"…were the patent valid,
(a) The undertaking is to be enforced according to its terms. In the instant case (as in many others) it is that(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 [1975] 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 [1911] 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
"…. 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 all 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 [2007] PNLR 570.
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.
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 [1976] 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).
Servier damages of £10 per unit. Entering a market "at risk" thus requires (a) a high degree of confidence in the accuracy of the "judgment call" on the validity of the patent, (b) a company capitalised at a sufficient level to secure that any misjudgement on that validity question can be survived and will not lead to the destruction of the company (which may have a range of other profitable generic products not "at risk"); and (c) experience both of the market into which the competing products are being sold and the strengths and weaknesses of the brand leader with whom the fight will have to be conducted or a deal struck.
Servier explained in its argument in support of interim relief) downward price movements are irreversible if the NHS reimbursement price has been adjusted. (The pharmaceutical company sells its drugs to the pharmacist who then provides those drugs to the patient upon prescription by the doctor, but instead of the patient paying the pharmacist for the drug, the pharmacist is "reimbursed" by the NHS. The reimbursement is not at the price which the pharmacist has actually paid the pharmaceutical company but at some other (invariably higher) price fixed by the NHS; if the NHS becomes aware that it is paying £11 per unit for Perindopril but the pharmacist is only paying £1.50 per unit because of a number of competing suppliers it will (eventually) adjust its reimbursement price. The procedure for doing so categorises drugs. "Category C" is where there is only a branded product on the market: the Category C listing persists for some while after a single generic competitor enters the market, so that the NHS will reimburse pharmacists at the premium branded price even though a generic is present on the market. This is very satisfactory to suppliers and purchasers. But once there are several generics on the market the drug technically moves to another category, probably "Category M", which warrants an immediate refixing of the reimbursement price determined by a volume weighted average of selling prices of the various suppliers). It is not in the interests of anyone in the pharmaceutical industry to bring about blatant circumstances in which the NHS re-pricing machinery might be invoked. That is as true of the new entrant generic drug supplier as it is of the patent holder. It is in everyone's interests to keep the price as high as is compatible with their obtaining or retaining market share and generating the maximum profit.
(a) Apotex says that it was kept out of the market for the entirety of the "at risk" period from the beginning of August 2006 until the beginning of July 2007 when the patent was declared invalid. It says that that period would have been a "plateau period" with the market divided between(b)
Servier and without objection by Apotex some of Servier's evidence was delivered on a confidential basis and parts of the hearing were conducted in private. I indicated that I was content to adopt this course for the purpose of getting on with the hearing, but that when I delivered judgement I would need to give a coherent public explanation of my reasons. In so doing, whilst it will be necessary for me to refer to specific commercial arrangements, the identity of the parties is not material. I will refer to the relevant true generic companies (i.e. those who manufactured and sold their own perindopril formulations) as "TG1"etc; to authorised generic companies (i.e. those whose sold perindopril manufactured by Servier) as "AG1", "AG2" etc; and to those generic companies who sold perindopril manufactured elsewhere as "G1", "G2" etc.
Servier simply standing idly by. It is simplest to look at the intending market participants in turn and to adopt a thematic approach, even though this involves overlapping chronologies.
Servier on notice that it might launch generic perindopril in the UK at any time after the expiration of 14 days. It did not in fact do so. On 28 June 2006 (the outcome of the EPO challenge being still unknown) TG1 then put Servier on notice that it intended to launch perindopril in the course of July. It did not in fact do so. On 28 July 2006 Servier commenced proceedings against TG1 for infringement of the 947 patent. TG1 opposed the injunction sought and filed evidence in those proceedings in which its witness professed that TG1 was "ready to launch" and had already begun taking orders ("pre-selling"). That evidence (filed in Servier's proceedings against TG1) was simply produced as part of Servier's disclosure in the enquiry. No Civil Evidence Act notice was served in respect of it, and the witness himself was not called or made available for cross-examination. In the circumstances I attach relatively little weight to the material so far as it relates to TG1's intentions.
Servier not to launch its product in the UK in return for a cross undertaking in damages from Servier. On 1 September 2006 TG1 then made a defendant's application for summary judgement in respect of the claim by Servier, seeking revocation of patent 947. TG1 failed to achieve certainty by this means, and the action was ordered to proceed to trial. The action was then compromised on the 27 October 2006. The essence of the compromise was that TG1 withdrew its challenge to patent 947 and agreed not to sell in the UK in return for being permitted to market its generic perindopril in certain designated Central and Eastern European countries. In cross-examination Mr Langourieux of Servier acknowledged that TG1 was aware that it had "a lot of risk" in relation to a UK launch of perindopril and that they were more interested in countries where they did not have this risk.
Servier itself was also putting arrangements in place. I find that the context in which it was doing so was the pending decision of the EPO on the substantial objections to the validity of the 947 patent (not the anticipated immediate commencement of the sales of generic product by Apotex, which came as a surprise). The arrangements were to supply perindopril manufactured by Servier to two authorised generics.
Servier had entered into a licence agreement with AG1 relating to the supply of 2 mg and 4 mg doses of perindopril (so again excluding the 8 mg dosage). The date of the agreement shows that this was not a considered response to the particular threat posed by Apotex but rather an attempt to regulate the open market that would develop in the event that patent 947 should be declared invalid by the EPO: this much was acknowledged by Mr Langourieux in cross-examination. The agreement granted AG1 a licence for the commercialisation of a generic version of perindopril and bound AG1 to obtain its supplies from Servier. Under the pricing arrangements in the agreement perindopril was not supplied at a fixed price, but at a price which guaranteed AG1 a margin on the actual selling price, but subject to a floor price per unit. The agreement imposed no specific obligations upon Servier to supply perindopril: that was to be the subject of a separate supply contract. No supply contract effective as at August 2006 was in evidence: the evidence suggested that none was in place until February 2007 (and it then took effect only from a date ascertained by reference to the revocation of the 947 patent or the final determination of the proceedings between Servier and Apotex). Although there was no supply contract in place arrangements were under way to make limited supplies to AG1 at the time when the outcome of the EPO proceedings became known, whereupon those provisional arrangements were immediately terminated. Servier did not at the time it terminated the provisional arrangements know of any sales by Apotex. The termination of the arrangements was caused by the success in seeing off the challenge to patent 947.
Servier entered into an agreement with AG2 for the supply of 2 mg and 4 mg dosages of perindopril (and eventual supplies of the 8 mg formulation) of in excess of 200,000 units per month. The arrangement was thus directed at Servier's participation in the generic market in the event that the EPO invalidated the 947 patent. Under the terms of the agreement AG2 agreed not to challenge Servier's patent in the United Kingdom and not to import or sell generic perindopril. In return Servier agreed to provide stated quantities of perindopril by 1st August 2006 at a guaranteed margin (subject to a floor price): but crucially Servier had the option to pay liquidated damages instead of actually effecting supply, and if it exercised that option then AG2 had "no other right or remedy (including any right of termination) in respect of a failure by Servier to supply…". Because the agreement bound AG2 not to sell perindopril manufactured other than by Servier, but did not bind Servier to supply perindopril to AG2, it gave Servier the right to exclude AG2 from the market. Servier obtained this right by agreeing to pay AG2 £5 million, and further to pay £500,000 per month for each month of non-supply (irrespective of the amount of perindopril that AG2 would have ordered in that month). Servier was initially preparing to supply AG2 in anticipation of the revocation of patent 947 on the 27th of July 2006. But then in August 2006 Servier exercised the option not to supply, and continued to do so throughout the period for which the injunction against Apotex was in force. Servier thus paid AG2 approximately £10 million to keep it out of the market.
Servier with G3 and G4: but Servier has refused to produce copies of those agreements (and an application to procure their production failed). Mr Langourieux would say only that they complied with competition law, that the G3 agreement included terms relating to the UK market and that G4 covered markets where Servier had a valid patent. In these circumstances I will assume that they were substantially in the same terms as that relating to AG2: if their terms reflected upon Servier's case in some way more favourably than the terms of the agreement with AG2 I am sure I would have been shown the agreements. There was unchallenged evidence that G3 had been paid £10 million by Servier not to enter the perindopril market, and that G4 had been paid $20 million.
Servier also entered into agreements in direct response to Apotex' entering the market. These were the brand equalisation or rebate agreements. On 2 August 2006 Servier entered into a rebate agreement with P to supply Coversyl at a headline price of £10.95 but an effective price after rebate of £7. On 4 August 2006 Servier entered into a rebate agreements with Q and with R to supply Coversyl at a headline price of £10.95 but an effective price after rebate of £6.25. On an unknown date in August 2006 Servier entered into an agreement with S to supply Coversyl at an effective price after rebate of £7.50. It was a feature of each of these agreements that it did not have immediate effect: it was for Servier to bring the discount into play when it chose, and likewise for Servier to terminate the arrangement. None of the agreements was actually brought into play.
Servier obtained interim relief as from 3 August 2006 but effectively on terms that orders already taken by Apotex could be fulfilled. In the 6 days between 28 July 2006 and 3 August 2006 Apotex sold 529,751 units at an average price of £7.79 yielding total net revenue of £4,128,788. It is the evidence of Mr Darroch (who has 30 years experience of assessing the market) that his company's sales amounted to a 60% market share. This is not accepted by Servier. They make two principal points. First, when a generic drug first enters the market there is a rush to purchase. The fact that a drug has in its first week gained a 60% market share does not mean that over the month it will have achieved a 60% penetration. Second, when a generic drug first enters the market there is a tendency to "stock fill" in order to build up inventories: the order placed is not for one month's supply, but perhaps six or eight weeks'. Mr Darroch accepted that both of these points were theoretical possibilities, as did Apotex' expert Mr Bezant. Servier could have adduced and put to Mr Darroch actual evidence to establish both points. It could have analysed its actual sales figures for July, August and September 2006 and made an accurate calculation of the size of the market (in which it was the only other participant), and computed Apotex' actual market share. It could have produced the sales data for the customers supplied by Apotex but previously and subsequently supplied by Servier so that a comparison could have been made between the orders actually placed by such customers with Apotex and those ordinarily placed with Servier in a typical month. But it did not volunteer to do so and successfully resisted an application that it should. There is thus no evidence before me demonstrating that Mr Darroch's assumptions are actually wrong in this case, though there is a theoretical possibility that they might be. In these circumstances I shall accept as a starting point Mr Darroch's estimate of an initial 60% market share but in my overall assessment bear in mind that this is probably a generous estimate of the maintainable market share.
Servier itself was doing or preparing to do there is little documentary evidence: in particular there are no internal management reports or board papers which set out an analysis of the position, advance options for consideration, and record courses of action decided upon. The only document I found afforded an insight was an e-mail dated the 10 August 2006 by Patrick Lenoir (Mr Langourieux's deputy). This of course was after the outcome of the EPO proceedings and of the injunction proceedings against Apotex was known. He wrote:-
"… even and if the EPO decision may further prevent other generic companies to market their perindopril, I think that we have to keep in our warehouse a certain volume of perindopril enabling us to react quickly if needed….. therefore I would suggest to keep the bulk tablets available, and pack them later if unfortunately needed, knowing that in the future, we made directly put on the market some perindopril with both [AG1] and [AG2] livery (once again, the later the better)…"
It seems to me both that Servier was prepared to react (rather than to make pre-emptive moves), and that it regarded any postponement of its participation in the generic market as good.
Servier's intentions in August 2006 is therefore to be found in the evidence of Mr Langourieux as to what was going on in his mind. This evidence was not entirely consistent. At some points he said in his evidence that in the event that Servier had failed to restrain Apotex by injunction then
"… we would have supplied the product once the generic came on the market. We would have supplied [AG1] and [AG2] and "short line" wholesalers. We would have supplied all customers willing to buy our generic…"
And again
" it was clear for us, and we were ready for that, if [
But at another point he assented to the propositions that if the English court ruled the 947 patent to be valid then Servier would be able to maintain its monopoly and its premium price until 2020, that in the event of such a court victory Servier could remove any generic that had come on the market in the interim, and that if Servier had supplied AG1 and AG2 with authorised generic material its inevitable effect would be to reduce the price for perindopril. He then gave the following answer:-
"Q. .. do you agree with me.. that looked at from an economic point of view, standing in August 2006 looking forward, the value to you of the perindopril market if you do not supply [AG1] and [AG2] and the patent is valid is higher in the future than the value to you of the perindopril market if you do supply [AG1] and [AG2] and the patent is valid: correct?
Answer: Correct"
And again:-
"Q. In other words, on 8 August 2006, if you had not got an injunction, if your patent was still valid in United Kingdom, supplying product to [AG1] and [AG2] was one possible thing you could do, not the only thing you would do?
Answer: We could supply, but we wanted, first of all, to know the decision of the Judge on the validity of our patent.
Q. So let me be clear about that. What you are saying is that you would not have supplied [AG1] and [AG2] until you had a decision from the Judge in United Kingdom on the validity of your United Kingdom patent?
Answer: Yes
Q. You do understand that that decision did not come until 2007?
Answer. Yes"
In re-examination he tried to explain away this latter answer by saying he was confused between getting the injunction and establishing the validity of the patent: but he did not seem to me confused at the time, and appeared to deliberate over his answers.
Servier) and in circumstances in which the entry of other generics (who would not be "at risk" in the same way) was to be anticipated. It was the evidence of Mr Darroch that following the Apotex relaunch in July 2007 upon the revocation of the 947 patent customers were nervous that there would be other entrants to the market at any time, offering lower prices; and on that ground they sought significant discounts. One major customer (Boots) sought such a significant discount that Apotex was unwilling to accept it. It was under these conditions that Apotex achieved sales of 515,996 units between 9 and 31 July 2007 at an average price of £7.20, but falling in August 2007 to 201,726 units at £6.59, in September 2007 to 276,643 units at £6.25, in October 2007 to 285,900 units at £4.49, in November 2007 to 320,889 units at £4.28, in December 2007 to 122,347 units at £4.43, and in January 2008 to 164,544 units at £4.70.
Servier must be taken to have held the view that its patent would eventually be proved good, and its conduct must have been influenced by that consideration. In July 2007 Servier knew that the 947 patent had been declared invalid and it had been refused injunctive relief by the Court of Appeal, and its conduct must then have been influenced by the fact that it was competing in an open market. What Servier actually did in and after July 2007 is not a sound guide to what it would have done in August 2006. Third, in August 2006 only Apotex was in fact selling to real customers: it had secured an actual head start in the race. Its commercial object would be to retain those customers, and any new subsequent entrant would have had to persuade Apotex' customers to change generic supplier. In July 2007 the starting gate rose on all competitors at the same time. Apotex' commercial object was to obtain or regain customers, at the same time as all other entrants were seeking to invite potential customers simply to choose between rivals. The outcome in July 2007 will not provide a guide to what would have happened in August 2006. Fourth, in August 2006 only Apotex had marketing authorisation and was in a position to sell perindopril in all three dosages: all other generic companies were either able to offer only a limited range or were dependent on eventual supply of 8 mg dosages by Servier. In July 2007 Apotex' advantage in being the only alternative supplier of 8 mg dosages to Servier had evaporated.
Servier's witness Mr Falcand (who did not attend the enquiry for cross-examination) stated:-
"I would expect Apotex to gain a major part of the UK market without delay. Apotex is well-positioned to achieve this aim as it is a large, well established generic manufacturer with sufficient capacity to supply the UK market".
An attempt has been made to paint a very different picture on this enquiry. Further, at a time when it was subject to an obligation of full and frank disclosure so that the Court could make a proper assessment of the consequences of granting and of withholding an injunction, Servier's evidence made no mention of the then existing arrangements (whether for the supply to authorised generics or for rebates) which in the enquiry it says so significantly affected the market. It now says that such were the difficulties facing Apotex by reason of these matters that its loss for the entire period of the injunction is only £400,000 (compared to the £10 million which Servier agreed to pay to some of Apotex' competitors as compensation for depriving them of their right to sell perindopril). I think the only explanation for this of which I can properly take account is that in August 2006 Servier did not consider these to be significant elements in the picture which the Court would have to consider before deciding to grant or withhold injunctive relief: and that the present assessment that they are matters of great significance is one made with the benefit of hindsight.
Servier into the commencement of proceedings, and why in those proceedings it sought a summary determination, and why (when certainty could not immediately be achieved) it settled with Servier and withdrew its threat to enter the UK. It was unwilling to enter a market "at risk". Until the Court of Appeal confirmed the revocation of the 947 patent TG1 would have been "at risk", but not well placed to enter the "at risk" market. On the other hand, Servier was always willing to buy off potential entrants (as demonstrated by the deals it did with AG1 and AG2). TG1's market weakness and its unwillingness to carry into effect its threat and Servier's willingness to buy it off mean that the prospect of TG1's actual entry as a market participant is so speculative as to be ignored.
Servier would have competed "head to head" with Apotex in an endeavour to preserve the position pending the establishment of the validity of the 947 patent and the restoration of Servier's monopoly. The second ("Scenario 2") is that if Apotex had not been restrained by injunction Servier would have regarded the cause as essentially lost and would have operated on the footing that there was in practice an open market; it would accordingly not only have competed head-to-head with Apotex but would also have supplied AG1 and AG2, seeking to gain what advantage it could from the generic market.
Servier would certainly have implemented, in my judgment Scenario 1 was twice as likely to have occurred as Scenario 2.
Servier. He also warned of the dangers of making any assessment that might be coloured by hindsight. I have sought to heed both points. But it is plain to me that Servier was a very canny operator: and equally plain to me that Mr Langourieux could offer no rational explanation as to why Servier should (at one and the same time) vigorously pursue its claim to a monopoly against Apotex in the apparent bona fide belief that the 947 patent was valid and seek to flood the "at risk" market with generic perindopril that would have the inevitable effect of destroying the very market that the patent exploited.
Servier's claim against Apotex) and after the trial (when Servier anticipated the establishment of the 947 patent). Servier's preparations with AG1 and AG2 had been intended as a response to the revocation of the 947 patent by the EPO. When the EPO ruled in favour of the patent Servier immediately put those preparations on hold. Apotex then entered the market "at risk" earlier than Servier expected. Servier's immediate response was to prepare "brand equalisation" deals in a price range of £7.50-£6.25, but not in fact to implement them. In my judgment, if no injunction had been granted Servier would first have competed "head to head" with Apotex using those and other brand equalisation deals (which maintained the headline price). Apotex came to market at £7.79 per unit and took 60% in the first 5 days (though that is a generous estimate of maintainable share). That was actually above the discounted price at which Servier was prepared to sell. So by using the brand equalisation deals Servier could have retained about half the market pending the ultimate establishment of its patent and achieved price stability. It could then prove a simple damages claim against Apotex when the 947 patent was ultimately established. It had no interest in driving prices down in the interim. Only one generic needed to be removed from the market if the patent was established. The premium price could easily be restored. Such a duopoly left TG1 exposed as the third participant in an "at risk" market and enhanced the prospects of Servier reaching a settlement with TG1.
Servier and making settlement more difficult. It would have rendered damages claims against Apotex (and TG1) far more complicated (how many of Apotex' sales were taken from Servier and how many from other participants? to what extent had Servier caused its own loss by supplying authorised generics and driving the price down?). It would have invited a re-categorisation of the drug for NHS re-imbursement purposes. It would have made re-establishing the monopoly if the 947 patent was held valid that much more difficult.
Servier was likely to have earned about £25 million during the injunction period (assuming a 40% market share, which I think pessimistic) and could expect to have earned £66 million p.a if its monopoly had been restored. But if it promoted an effective open market by supplying AG1 and AG2 it would have earned only £17 million during the injunction period and (because of the irreversible downward spiral) could expect to have earned £36 million p.a. if its monopoly had been restored. This evidence was not seriously challenged.
Servier would not have regarded the prospect of a duopoly as realistic for two reasons. First, that if Apotex was not restrained by injunction it would itself have used its marketing authorisations (it obtained 15) to supply other generics. Second, that Servier could not be sure TG1 would not launch immediately if Apotex was not injuncted. That being so Servier would have armed itself for an inevitable open market and would have sought to take maximum advantage from the early generic market (even if at some risk to any restored monopoly). Depending upon market share it may indeed have been advantageous to sell heavily through AG1 and AG2 particularly if Servier had come to doubt the strength of its patent position as the case developed. He also submitted that discounting the branded product must be considered not only in the context of the UK market but also in the light of its knock-on effects in other markets (though Mr Langourieux' evidence on this left much unexplained, in particular how confidential rebates that maintain the headline price could have any effect overseas). I cannot dismiss this possibility as so speculative as to be ignored. But I do regard it as improbable. To estimate the probability at 33% is I feel generous to Servier. But I am prepared to be generous on that account having dismissed as entirely speculative the chance of TG1's entry. There is no point in attempting spurious precision.
Servier). Of the two I found Mr Bezant to be the more reliable, his report more coherent and his responses in cross-examination more cogent. By contrast, I consider that Mr Andrews made errors of principle in his efforts to reduce the "lost profits" (for example, an argument – which I need not elaborate – as to "double counting" of profits which ignored the fact that the period of profit earning is finite, and that time lost can never be recovered: and an argument about applying a discount rate to the lost profit calculation). But I do not dismiss Mr Andrew's report (or his contribution to Mr Purvis QC's searching cross-examination of Mr Bezant). Some of the assumptions made by the experts were founded upon material said to be confidential. Much of this material concerned transaction prices. Whilst parties may wish to keep the terms on which they conduct transactions private, pharmaceutical companies stand in this regard in exactly the same position as other litigants. I shall therefore include such information as is necessary to provide a public explanation of my reasons whilst avoiding any unnecessary exposure of business affairs.
Servier would have been prepared to enter brand equalisation deals in the range £7.50 - £6.25. He proffered an alternative calculation founded on a constant unit price of £6.50, which I regard as a fairer assumption.
Servier had not used the means at their disposal to establish another figure. Servier contended that the true market share was only 30-40% (based on theoretical stock-filling). In closing Mr Bezant proffered an alternative calculation based on a 50% market share, and I will take that as a fairer estimate.
Servier as to the total volumes actually sold, I consider this about right. The IMS data suggests that for each quarter that the injunction was in force the total market was slightly less than 2,500,000 units.
Servier's monopoly was followed by a transition). But it makes no sense to proceed on the footing that the commencing price for the transition was £7.20 per unit (the price actually achieved) if one has assumed a preceding plateau price of £6.50 per unit. The transition period must have a different gradient. Once again Mr Bezant proffered a revised calculation to address this problem. Having done so he estimated the lost profits assuming a unit price of £6.50 and a market share of 50% (allowing for the different transition period gradient) at £23,400,000.
Servier had a monopoly its sales amounted to about £74 million, effected at premium prices. A price reduction to £6.50 per unit amounts to roughly a 40% discount to the premium price. That would bring down total sales to approximately £45 million: if Apotex took 50% it would receive £22.5 million gross. This suggests that Mr Bezant's estimate is broadly right, but slightly high. I shall therefore round down the Scenario 1 estimate to £22.5 million. If this scenario has a probability of 67% then the compensation payable for the loss of the chance is £15,075,000.
Servier engineers a controlled generic market which lasts until February 2008 (when Neolab and Somex enter). Apotex is competing against Servier, AG1 and AG2, (which is what actually happened in July 2007) but does so with the benefit of a head start (arising from its July 2006 launch). Mr Bezant approaches this on the footing that the actual pattern of sales made in the period following discharge of the injunction is used as the pattern for the first few months of the injunction period: and these actual figures are then followed by a period of assumed figures until the advent of the truly open market (anticipated in February 2008 and realised in March 2008 with the entry of Neolab). This is agreed. Mr Bezant then goes on to say that sales actually achieved in July 2007 and thereafter have to be adjusted to take account of that headstart and the undoubted advantage conferred by being the first generic on the market. This is not agreed. In his initial calculations Mr Bezant applied to actual sales from July 2007 a factor of 1.5 (based on Mr Darroch's analysis that in July 2006 Apotex had a 60% share but in July only a 40% share of the market). After his cross-examination I am satisfied that this is an excessive uplift, both as a factor and in its application to the whole period.
Servier led no evidence to establish that it had in fact occurred to the degree suggested: and the evidence clearly establishes that there was a genuine advantage to be gained from being the first generic on the market. In July 2006 Apotex was definitely the first generic on the market. AG2 could enter rapidly thereafter, and so too could AG1 (subject to agreeing a supply contract). Servier did not disclose its agreements with G3 and G4: and I will therefore make no assumption that they could have entered the market rapidly. This was not the market position which Apotex actually enjoyed in July 2007. If the July 2007 sales figures are taken as the raw data then there must be some uplift to reflect the loss of that "first entrant" advantage. This advantage would diminish with time (as more competitors entered the market). I therefore intend to apply to the actual July 2007 sales figures an uplift of 10% for the first 4 months.
Servier competes with brand equalisation deals, the July 2007 figures are only a starting point. They provide data from July 2007 until February 2008 (when the "Neolab effect" takes hold and the market becomes truly open). But this 7 months data has to be used to estimate the "but for" market for the 18 months from August 2006 (injunction) until February 2008. Both accountants approached this problem in the same way. One must assume a sales volume and a "plateau price" for the 11 month period.
Servier earned during the period of the injunction to which it was found ultimately not entitled, to the £11 million which it paid to AG2 to keep it out of the market, and to the $20 million paid to G4; and I have asked myself whether in the round this sum overcompensates Apotex for the loss that it has suffered, reminding myself that the jurisdiction is compensatory not punitive. The range of figures presented for my consideration went from £400,000 (Servier) to £27 million (Apotex). I am satisfied that my figure is broadly right, though I would propose to round it down to £17.5 million to underline the fact that one can only do broad justice where there are so many significant variables. £17.5 million is accordingly the figure which I award as compensation on the enquiry.
Servier made an application to amend its pleadings. On 2 July 2008 the Federal Court in Canada upheld (in proceedings commenced in November 2006 and to which Servier is not a party) the validity of a Canadian patent for perindopril (different from the 947 patent) held not by Servier but by an associated company. The perindopril which Apotex would have sold if no injunction had been granted would have been manufactured in Canada and would have been an infringement of the associated company's patent. Servier sought permission to plead this fact and to raise the following issues:-
(a) That the Court should decide not to enforce the cross-undertaking in damages;
(b) That Court should dismiss the claim for damages because Apotex cannot found a claim for damages on the proposition that they would have acted unlawfully;
(c) That if the Court was minded to award damages then in estimating lost profit one of the costs that should be taken into account is that Apotex would have had to pay damages or to render an account in Canada assessed by reference to Canadian law (as to which particulars would later be furnished).
Servier say that the days spent on the enquiry so far and the lay and expert evidence filed may indeed prove to be fruitless, but that is simply something that can be compensated in costs. The Canadian judgment could not have been pleaded earlier: and since it establishes (pending appeal) that Apotex must pay somebody (albeit not Servier) damages (or render an account of profits) it would be unjust to award Apotex compensation on a footing which ignores the wrong committed in Canada. A Court of equity should decline to hear someone who has committed a wrong in Canada and is asking to be compensated for something that would not have been legitimate commerce. My attention was drawn to the decision of Scott J in Columbia Pictures v Robinson [1986] 3 WLR 542 in which the judge declined to enforce a cross-undertaking in damages in relation to a business that sold counterfeit tapes. They further submit that if I decide to proceed and to award Apotex compensation it will not be possible later to remedy what Sevier say is an injustice because it is not a party to the Canadian proceedings and because the relief available in Canada to the patent holder compensates it for sales actually made by Apotex, not for sales assumed to have been made for the purpose of assessing compensation for breach of the English cross-undertaking.
Mr Justice Norris………………………………………………………9 October2008