Be careful for what you wish for when seeking an interim injunction - it may cost you plenty!

Jane Lambert

Whenever a court grants an interim injunction, or a respondent offers an undertaking, to do or refrain from doing something that might infringe a right claimed by the applicant, the applicant has to offer the respondent and in the most cases the court "a cross undertaking as to damages." Wording that is recommended for freezing injunctions but which could be adapted for other orders mutatis mutandis runs as follows:

"If the court later finds that this order has caused loss to the Respondent, and decides that the Respondent should be compensated for that loss, the Applicant will comply with any order the court may make."

The need for such a cross-undertaking was considered by the House of Lords in the landmark case of American Cyanamid Co (No 1) v Ethicon Ltd [1977] FSR 593, [1975] AC 396, [1975] 1 All ER 504, [1975] 2 WLR 316, [1975] UKHL 1. An interim injunction is intended to be a temporary remedy to prevent a fait accompli where an award of damages would probably not put right any wrongdoing. The court does not need to know which side will win in order to grant such an injunction. It is enough for it to know that the applicant can win and if he doesn't the respondent can be compensated adequately by an award of damages.

Such a cross undertaking was offered by AstraZeneca when it sought an interim injunction against KRKA dd Novo Mesto and Consilent Health Ltd to prevent them from importing from Slovenia and distributing to the NHS a generic version of a medicine called esomeprazole which is used to treat ulcers and other illnesses caused by gastric acid secretion. AstraZeneca had a patent for esomeprazole which they said would be infringed by the importation and sale of the generic product. They issued proceedings in the Patents Court and sought an interim injunction. Though they did not believe that their product did infringe the patent KRKA and Consilio submitted to an order by Mr Justice Vos on 8 Oct 2008 not to import or distribute the drug until judgment or further order.

In Ranbaxy (UK) Ltd v AstraZeneca AB [2011] EWHC 1831 (Pat), [2011] FSR 45 which I discussed in Swiss Style Claims: Ranbaxy v AstraZeneca 16 July 2011 Mr Justice Kitchin (as he then was) decided that Ranbaxy's version of esomeprazole did not infringe AstraZeneca's patent. The same judge, who has now been elevated to the Court of Appeal, said at paragraph [6] of his judgment in AstraZeneca AB and Another v KRKA dd Novo Mesto and Another [2015] EWCA Civ 484 (21 May 2015):

"The judgment in the Ranbaxy proceedings had a significant impact upon the market for it opened the door to the marketing of generic esomeprazole products by a series of other companies. Arrow, together with AZ, began to sell a generic tablet in July 2011; the defendants launched Emozul in September; Mylan launched a generic capsule in November; and TEVA launched a generic tablet in December. The introduction of all of these generic esomeprazole products into the market had the predictable consequence of driving the price down and had a significant impact upon the success of the launch of Emozul. Moreover, the defendants lost the opportunity to enjoy almost a year as the only generic available to the market. This loss, described as the loss of the "first mover" advantage, was, so the defendants maintained, of vital importance to the case and it formed the basis for their claim for damages in excess of £32 million in respect of their losses, not just during the period of the injunction but also following the launch of Emozul in 2011."

 Mr Justice Floyd (as he then was) lifted the interim injunction on 29 July 2011 and KRKA and Consilient sought an inquiry as to the damages to which those companies were entitled under AstraZeneca's cross undertaking between 8 Oct 2008 and 29 July 2011. Their application came on before Mr Justice Sales (as he then was) in AstraZeneca AB and Another v KRKA, DD Novo Mesto and Another [2014] EWHC 84 (Pat) and the learned judge awarded them more than £27 million. Lord Justice Kitichin observed at paragraph [1] of his judgment in the above appeal that it is said to be the largest award ever made by the Patents Court upon an inquiry of this kind.

AstraZeneca appealed and the appeal came on before Lords Justices Kitchin, Floyd and Longmore. It was common ground that the general principles to be applied in assessing the damages payable under a cross-undertaking given in respect of the grant of an interim injunction are those explained by Mr Justice Norris at paragraph [5] of his judgment in Les Laboratoires Servier v Apotex Inc. [2008] EWHC 2347 (Ch), [2009] FSR 3:

"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 [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 p 427."

(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 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 [1995] 1 WLR 1602). As Lord Diplock explained in Mallett v McMonagle [1970] 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 [2007] PNLR 570."

AstraZeneca contended that the judge had fallen into error in over 50 different respects though at the hearing they focused on the following submissions. First, the judge had no proper basis for drawing the conclusions he did from the evidence Secondly, the discount that he allowed for uncertainty was wholly inadequate and in arriving at it the judge had failed to take into account a series of obviously relevant matters. Thirdly, the judge has assumed that the NHS would have begun to implement switching immediately after the launch of the respondents' product  but that was contrary to their own pleaded case and had no basis in the evidence. Overall,  the judge awarded a sum that far exceeded Consilient's own contemporary projections and had been arrived at on a basis which was flawed.

The Court of Appeal rejected those contentions. On the first, Lord Justice Kitchin said at paragraph [78]:

"The judge had careful regard to all of the evidence before him but came to the conclusion that there was no expectation that any other generic esomeprazole PPI product would be introduced into the market by any other provider any earlier than in fact occurred. He was fully conscious that the Medicine Managers engage in horizon scanning but in this case there was nothing on the horizon to see. The impediment for other providers was the fear of AZ's patent for Nexium, and it was a fear that was properly founded in AZ's vigorous efforts to reinforce their patent rights until judgment was given against them in the Ranbaxy action."

As for the second he said at paragraph [84]

"the uncertainty discount, if any, which it is appropriate to apply in any particular case must be determined upon the facts of that case and little if any assistance can be derived from looking at the discounts arrived at by other judges in different circumstances. There is not and cannot be any benchmark or yardstick. It follows that the judge cannot be criticised for arriving at a discount which is smaller than that which has been applied in other cases."

As for the final argument Lord Justice Kitchin said at paragraph [86] that "the judge has made findings which are properly founded upon the evidence before him." For all of those reasons he dismissed the appeal and the other two Lords Justices agreed with him.

There was a time when interim injunctions were applied for in intellectual property cases almost as a matter of course. There was every incentive to bring such applications because an injuncted defendant would be forced to negotiate and there was much less risk because the usual order as to costs was that the successful party's costs would be costs in the cause. As most actions were settled after the interlocutory injunction proceedings such costs orders were very often compromised. The Civil Procedure Rules required the courts to assess costs of interlocutory applications summarily. The possibility that they might have to cough up many thousands of pounds within 14 days if their  applications failed made claimants think twice before bringing them. The risk that a claimant may have to pay as much as £27 million if his application fails is likely to have a similarly chilling effect. Interim injunctive relief will now be sought only in very strong cases and in such cases undertakings in terms of the application notice are much more likely to be forthcoming,

Should anyone wish to discuss this case or patent law generally, he or she should call me on 020 7404 5252 during office hours or use my contact form.