Jgm_article_aug_2003_v2_1.doc

UK Case Report – Granting Emergency Interim Injunction Pending Trial in the GSK Generic Patent Litigation Article for Journal of Generic Medicines, August 2003
Michael Burdon and Kristie Sloper, Olswang
(1) SmithKline Beecham PLC & (2) GlaxoSmithKline UK Ltd v (1) Apotex Europe Ltd (2) Neolab Ltd
(3) Waymade Healthcare PLC
[2002] EWHC 2556; [2003] EWCA (Civ) 137
Patents Court, Jacob J. 28 November 2002; Court of Appeal 14 February 2003
Introduction
There have been a number of recent cases involving patents concerned with GSK's antidepressant product paroxetine, which is marketed in the UK as Seroxat®. Seroxat® is one of the company's leading products and therefore highly valuable to GSK. As the market for Seroxat® is extremely lucrative, it is a prime target for generic competition and a number of generics companies have attempted to enter this market. This has resulted in a great deal of litigation as GSK have attempted to utilise their extensive portfolio of patents to keep generic products off the market. Patent protection on the basic compound paroxetine hydrochloride (for which a Supplementary Protection Certificate was obtained on the expiry of the basic patent in the UK) expired in the UK in January 1999. However, GSK have a number of secondary patents relating to this product. The patent in issue in many of the recent disputes in the UK was GB 2,297,550 which relates to the anhydrous form of paroxetine hydrochloride, its preparation and its use as a therapeutic agent. The specification describes the invention as "paroxetine hydrochloride anhydrate substantially free of bound organic solvent". GSK's Seroxat® product is in fact produced from a different form of paroxetine hydrochloride, the hemihydrate. However, due to the existence of further patent protection on the hemihydrate and other hydrated forms, a number of generic companies have sought to develop paroxetine hydrochloride products which utilise the anhydrate form. In two highly significant recent decisions of the UK courts, SmithKline Beecham PLC and GlaxoSmithKline (UK) Limited (together "GSK") were granted interim injunctions (sometimes known as "interlocutory injunctions") restraining infringement of GB 2,297,550 pending trial. The first of these was the decision of Mr Justice Jacob of 23 October 2001 in proceedings brought by GSK against Generics (UK) Ltd1. This was a highly significant decision. In reaching his decision to grant an interim injunction in that case, the judge took into account the fact that the defendant had known about the patent for a long time and therefore could have taken steps (by e.g. applying for a declaration of non-infringement, launching a petition to revoke or inviting the claimant to sue) to clear its position prior to the intended launch of its product. It was felt by many commentators that this decision placed a high burden 1 SmithKline Beecham v Generics UK Ltd (2002) IPD January 25005 on a generic company planning to launch a product where that company was aware of a competitor's patent and the possibility of infringement. On 28 November 2002, GSK were granted a second interim injunction on the same patent, against Apotex and others2. In granting this injunction, Jacob J followed his earlier decision in GSK v Generics. He reiterated his comments in GSK v Generics that the fact that the defendant had known about the patent for a long time and therefore could have taken steps to clear its position was a relevant factor to take into consideration when deciding whether the grant of an interim injunction was appropriate. He further stated: "Where litigation is bound to ensue if the defendant introduces his product he can avoid all the problems of an interlocutory injunction if he clears the way first. That is what the procedures for revocation and declaration for non-infringement are for." The defendants appealed and the case came before the Court of Appeal in early 2003. On 14 February the Court of Appeal upheld the decision of Mr Justice Jacob and dismissed the appeal3. This article looks at the criteria that the Court will apply when looking at whether or not to grant an interim injunction in the light of the recent GSK decisions and considers the significance of these recent decisions to research-based pharmaceutical companies and to generics companies when considering their commercial strategies. Interim injunctions
The Court has a discretionary power to grant an interim injunction to restrain infringement pending trial where it appears to the Court to be just and convenient to do so. An interim injunction is a draconian remedy which is not easily obtained. The Court will weigh up the potential damage which would be caused to the claimant if the defendant is not prevented from selling his product pending trial against the damage which would be caused to the defendant if he is wrongly injuncted from selling his product pending trial and later is successful at trial. It is a difficult balancing exercise, particularly in pharmaceutical patent litigation where the stakes for either party are invariably high. The general guidelines the Court will follow when considering whether or not to exercise its discretion to grant interim injunctive relief were set out in a leading House of Lords decision (American Cyanamid Co -v- Ethicon Limited4). In essence these were as follows: The Court must be satisfied that there is a serious question to be tried, i.e. it must be satisfied that the claim is not frivolous or vexatious. If this first hurdle is satisfied the Court will need to consider the "balance of convenience" test which is broken down under the various headings below. The Court has to consider whether, if the claimant were to succeed at trial he could be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's activities. If the Court considers that damages would be an adequate 2 SmithKline Beecham PLC& another v Apotex Europe Ltd & others (2003) 26 IPD 26005 3 SmithKline Beecham PLC& another v Apotex Europe Ltd & others (2003) 26 IPD 26020 4 American Cyanamid Co -v- Ethicon Limited [1975] AC 396 remedy and the defendant is capable of paying such damages then an injunction will not be granted. In order to convince the Court that damages would not be an adequate remedy it is necessary to show that the defendant's activities will lead to some sort of intangible and irreparable damage e.g. a loss of business, reputation or disruption to business, or dilution of the claimant's goodwill. Adequacy of the undertaking in damages as protection for the Defendant If the Court decides that damages would not provide an adequate remedy for the claimant and is minded to grant an injunction it must then consider whether, if the defendant were to succeed at trial, he could be adequately compensated in damages for the loss he has sustained by reason of the interim injunction. If the Court considers that damages would be an adequate remedy for the defendant and the claimant is able to pay such damages then the Court can grant the injunction. In these circumstances the Court must then consider the factors set out below. The Court will consider the extent to which each party would be disadvantaged by the granting or non granting of an interim injunction and the extent to which damages would be an inadequate remedy i.e. would it cause greater hardship (financial or otherwise) to grant or refuse the injunction? If the respective disadvantages to both parties appear to be equally balanced then the Court should take action to preserve the "status quo". This means that the Court should try and preserve the state of affairs as it was immediately before the issue of the claim form. Finally, if the different factors that the Court has to consider do not differ widely then it must go on to consider the respective merits of each party's case. The Court will look carefully at any significant delay in bringing the application. In the event there has been delay than this will be a strong factor weighing against the application. As referred to in 2.2 above, if an injunction is granted and subsequently the defendant is successful at trial the claimant will be required to pay damages to the defendant to compensate him for the loss suffered due to the interim injunction. If the Court decides to grant an interim injunction it will require the claimant to give an undertaking in damages. This is a legally enforceable promise whereby the claimant undertakes to pay compensation to the defendant if the interim injunction is granted but the claimant then fails to establish his right to the injunction at the full trial. The loss suffered by the defendant on an injunction may be substantial as an injunction may well result in a loss of business or other damages. Therefore the undertaking in damages should not be given without careful consideration. Prior to 2001 there had not been an interim injunction awarded in a patent case for a number of years. The introduction of the Civil Procedure Rules in 1999 shortened the timetable to trial of cases with the result that many patent cases were reaching trial within 12 months from issue of proceedings, which was far faster than previously. Taken together, these facts led to a situation in which very few patent holders were seeking interim injunctions to restrain infringement of their patents. However, in October 2001 the situation changed with the grant by Mr Justice Jacob of an interim injunction restraining infringement pending trial in proceedings brought by GSK against Generics (UK) Ltd involving GSK's antidepressant product, Seroxat®. This was a highly significant victory for the patentee. The proceedings between GSK and Generics subsequently settled before the matter came to a full trial and therefore there was no reconsideration of Mr Justice Jacob's decision by the higher courts in this case. The next case involving an interim injunction application was therefore eagerly awaited by those interested in this area of the law. The next case came in November 2002. GSK, no doubt emboldened by their success against Generics (UK), brought an application for an interim injunction restraining infringement pending trial against Apotex Europe Ltd and others. GSK v Apotex & Others – Decision of Mr Justice Jacob
This case concerned UK patent number 2,297,550 relating to crystalline paroxetine hydrochloride, its preparation and its use as a therapeutic agent. This patent was challenged by a third party (BASF) earlier in 2002. At that hearing, Mr Justice Pumfrey held the patent to be only partially valid5. The one claim that was held valid (Claim 11) related to preparations of the therapeutic agent paroxetine hydrochloride anhydrate substantially free of organic solvent by displacing the solvents from a solvate using a displacing agent. GSK alleged that the defendants' process infringed this claim. Pumfrey J's decision was under appeal by both parties and the appeal was due to be heard in May 20036. Following Pumfrey J's decision, GSK had launched an application for amendment of the patent which was due to be heard in July 20037. Jacob J applied the general principles set out in the American Cyanamid case8 in order to determine whether an injunction should be granted. Is there a serious issue to be tried?
The defendants denied infringement on the grounds that their process commenced with an anhydrate rather than a solvate and therefore did not fall within the claim. This argument was based on the construction of the word "solvate". The claimants argued that it was clear from the patent that a solvate was the material in which the solvent was bound and that this was also the purposive construction of the word, and that, on this construction, the defendants' process fell within the scope of the claim. Jacob J concluded that there was much to be said for the purposive construction and that accordingly there was a seriously arguable case of infringement. The defendants argued that as the claimants did not sell the product of the patent in suit, they were not exploiting the patent in suit and therefore, following General Tire v Firestone9, could not claim by way of damages anything other than a reasonable royalty for infringement. Jacob J. rejected this argument. He 5 BASF AG v SmithKline Beecham PLC [2002] EWHC 1373 (Ch) 6 On 25 June 2003 the Court of Appeal upheld the decision of Pumfrey J and dismissed both the appeal and the cross-appeal – see BASF AG v SmithKline Beecham PLC [2003] EWCA Civ 872 7 At the time of writing the amendment proceedings are still continuing. 9 General Tire v Firestone [1976] RPC 197 found that for all practical purposes the hemihydrate product marketed by the claimants (Seroxat®) and the anhydrous product claimed in the patent were equivalent. If a doctor prescribed "paroxetine" then a pill of either the hemihydrat e or the anhydrate would serve equally well. He therefore concluded that if the defendants were to sell the anhydrate it would be the natural and probable consequence of their act that the claimants would lose sales of Seroxat® on a one-to-one basis. Applying the general rules of tortious damages, the claimants would be entitled to compensation to restore them to the position they would have been in were it not for the infringement. The defendants also argued that the claimants were abusing their monopoly and that a compulsory licence should be available. Jacob J found that none of the grounds for the grant of a compulsory licence in section 48(a) applied and that even if such grounds did apply, there was a discretion to refuse the licence. He considered that if the patentee could prove that he was reasonably supplying the UK market with an exact equivalent of what was covered by his patent, this discretion may well be exercised in order to refuse the grant of a compulsory licence. Jacob J. also found that there was no abuse of monopoly in this instance as the patentee was working an equivalent process to that set out in the patent. 3. Do amendment proceedings preclude the grant of an interim injunction? The defendants argued that the injunction should be refused since the patent had been found only partially valid and therefore required amendment. Jacob J rejected this argument. He found that there was considerable authority to the effect that the Court can enforce a partially valid patent by way of interlocutory injunction where the enforcement is of a claim which has been held valid. This section provides that where an amendment of the specification of a patent has been allowed, no damages shall be awarded in proceedings for an infringement of the patent committed before the decision to allow the amendment unless the Court is satisfied that the specification of the patent as published was framed in good faith and with reasonable skill and knowledge. The defendants relied on this section to argue that no injunction should be awarded, since if no damages would be available, there was no financial damage to protect by way of injunction. The claimants argued that if damages were excluded as a remedy under this section then this in fact would favour the grant of an interim injunction since damages would obviously be an inadequate remedy. Jacob J rejected the defendants' arguments. He noted that section 62(3) did not in any way qualify the Court's general jurisdiction to grant injunctions. All that was removed was the jurisdiction to award damages if good faith and reasonable skill and knowledge could not be shown. He concluded that the possibility of lack of availability of damages in fact supported the grant of an interim injunction. Are damages an adequate remedy?
Having concluded that there was a serious issue to be tried, Jacob J considered whether damages would be an adequate remedy either to the claimants or to the defendants on the claimants' cross undertaking on damages should they lose at trial. The claimants argued that if the defendants were to enter the market with their product, up to 40% of the paroxetine market might be lost to the defendants before trial, and also the claimants' prices would be severely and irreversibly eroded. Damages would therefore not be an adequate remedy. Jacob J found that the position was exactly the same as it was when he granted an interim injunction in the GSK v Generics case in October 2001. He concluded that the damage caused to the claimants by the defendants' entry to the market on a substantial scale would be both very substantial and not adequately quantifiable. He also found that the damage to the defendants if the injunction was wrongly granted would be unquantifiable and yet substantial. Balance of convenience
The defendants referred to Jacob J's arguments in the GSK v Generics case that the defendants could have taken steps to clear their position prior to launch of the product and that this was a consideration to take into account when assessing the balance of convenience. They argued that this was wrong as a matter of policy: the defendant should not have to start the litigation. Jacob J rejected the defendants' argument, stating that he thought it was "wholly uncommercial" in the circumstances of this case. In this case Apotex had been eyeing the UK market for a long time. In November 2001 the second defendants, Apotex's distributors, gave an undertaking to the patentee not to launch a product without giving three weeks' advance notice and stated that they were minded to satisfy the patentee that the product was not infringing. However, they failed to take any further steps and simply gave notice one year later. The judge considered that Apotex could have joined in the revocation proceedings brought by BASF or could have taken steps to prove that the product was non-infringing. They had deliberately refrained from openly disclosing exactly what they were intending to make or making their own application for revocation. They had therefore brought the uncertainty on themselves. Finally, Jacob J considered the question of whether the defendants would be "good for" damages (i.e. whether the defendants had sufficient net current assets within the jurisdiction to meet an award of damages against them). The evidence was not sufficiently clear and the defendants had declined to obtain a bank guarantee to cover potential damages. Jacob J concluded that if a bank would not be prepared to guarantee that sum of money then the claimants should not have a less certain position. Jacob J concluded that an interim injunction should be granted in the circumstances. GSK v Apotex & Others – Decision of the Court of Appeal
The defendants appealed to the Court of Appeal. They agreed with the judge that there was a serious issue to be tried but they argued that Mr Justice Jacob was wrong to grant an interim injunction on a number of grounds: 1. Even if infringement was established at trial, there would be no unquantifiable loss since the only damages that could be recovered would be assessed upon a reasonable royalty basis; 2. GSK had not shown that after trial they would recover any damages. Apotex had two grounds for this assertion. The first was the fact that the patent had been held partially invalid and that amendment had been proposed. Apotex therefore contended that damages would only be recoverable if the specification of the patent, before amendment, was framed with reasonable skill and knowledge (s63(2) Patents Act 1977). A second submission by Apotex was that the damage claimed, namely the damage to GSK's sales, was too remote and therefore unrecoverable. Apotex submitted that as damages would not be recovered by GSK or would only be recovered at a reasonable royalty rate, no interlocutory injunction should be granted as the purpose of an interlocutory injunction was to prevent, pending trial, damage that could not be satisfied by an award of damages; and 3. Apotex contended that the judge had failed to assess the relative injustice to the parties when The Court of Appeal held, dismissing the appeal: 1. A patentee is entitled to recover damages for loss arising from the infringement provided they are not too remote. The extent of recovery depends upon the facts and the normal considerations of causation and remoteness. 2. The Court's jurisdiction to grant interlocutory injunctions is not limited. It would be unusual to grant an interlocutory injunction to protect a property right if no damages for infringement could be recovered, but if the claimant has a cause of action to protect a property right recognised by the Court there is no reason in principle why the Court should not grant an interlocutory injunction to protect that right. 3. There is no restriction in s.63 Patents Act 1977 upon the grant of an injunction. Therefore if a final injunction would normally be granted in cases where damages after amendment would not be recoverable, there was no principle that would preclude an interlocutory injunction from being granted in similar circumstances. 4. There was a properly arguable case that the specification in the validity proceedings was framed with reasonable skill and knowledge and therefore it was properly arguable that damages for infringement could be recovered. 5. The judge was entitled to conclude that damages would not be an adequate remedy for GSK nor for Apotex on the cross-undertaking as to damages. There was no evidence to show that it would be easier to assess the damages due to GSK if no injunction was granted than it would be to assess the damages to Apotex under the cross-undertaking if an injunction was wrongly granted. Further, the judge was entitled to protect the status quo and, in so doing, to take into account the fact that Apotex could have resolved the question of infringement and validity if they had acted in a more timely fashion and commenced proceedings for revocation or a declaration of non-infringement. Conclusions
The recent Court of Appeal decision in the case of GSK v Apotex has confirmed that generics companies, when considering the launch of a new product which may potentially infringe another company's patent, ignore the existence of the patent at their peril. The judge will take into account the approach that the generic company has taken to clearing their path when considering whether or not the grant of an interim injunction is appropriate in all the circumstances. These recent decisions have been of much interest to research-based pharmaceuticals and generics companies alike. In the light of these cases, the prudent generic must consider carefully its commercial strategy and weigh up the benefits and potential risks of alerting the patentee to their plans at an early stage against the risk of a late-stage injunction preventing launch. As for the research-based pharmaceutical, these recent decisions have indicated that the Courts are willing to grant interim injunctions in appropriate circumstances. However, in order to obtain an interim injunction it is crucial to act quickly. The Courts will need to be satisfied that the patentee has moved with all possible haste in bringing the application. This means that the patentee must be ready to bring the application within days, or, at the most, weeks of the discovery of the defendant's fixed intention to launch their product. The application must be brought before the potentially infringing product enters the market. Once the potentially infringing product has entered the market the prospects of obtaining an interim injunction are extremely remote. Patentees must therefore ensure that they have an effective intelligence and surveillance network in place in order to monitor the activities of their competitors and an effective legal strategy to allow them to take action with all possible haste in the event that an interim injunction is required. An application for an interim injunction can be made for strategic reasons and to put pressure on the defendant. Faced with such an application, the defendant will be forced to consider whether to enter a costly legal battle or to attempt to negotiate a settlement. The legal costs of defending an application for an interim injunction in the UK courts are likely to be between £25,000 to £50,000. The overall costs of defending infringement proceedings in the UK courts are often between £200,000 and £500,000. The generic company faced with the possibility of such action is therefore forced to undertake a difficult cost-benefit analysis in order to decide how to proceed. In many cases where the Court decides not to grant an interim injunction it will instead order a speedy trial. Under recent amendments to the Civil Procedure Rules which came into force on 1 April 2003, the Courts now have the power to order a trial under a new streamlined procedure10. Under this procedure there is no disclosure and no experiments, all factual and expert evidence is in writing and cross-examination is limited. This new procedure is intended to enable cases to reach trial extremely quickly. Although this procedure is unlikely to be suitable for many complex pharmaceutical cases, in cases involving more straightforward issues it may be suitable and already there are indications that the judges are keen to make use of these new provisions and to order streamlined trials where possible. The message is clear: interim injunctions in patent cases in the UK are back on the menu. Patent holders should therefore in all cases give serious consideration to whether or not an application for an interim injunction is appropriate, and generics should in all cases pay careful consideration to patent protection at an early stage and make a full assessment of the risks and benefits of the various options available. 10 See paragraph 10 of the Patents Court Guide issued 3 March 2003

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