Virgin v Zodiac – what implications for the pharma sector?

Could the Supreme Court’s judgment lead to preliminary injunctions becoming a routine feature of UK litigation?

An important issue for patentees is the speedy enforcement of their patents. This issue is particularly critical in the pharma sector where the losses caused by infringement, of even a short duration, are potentially huge yet difficult to quantify precisely.

National courts face a dilemma as to what to do when a European patent subject to ongoing opposition proceedings is litigated: whilst only the national court can determine whether the national portion of the patent is infringed, the national court and the EPO share a concurrent power to revoke or amend that patent. Proceeding to trial brings about the risk that the national court rules that the national portion of the patent is valid and infringed, only for the EPO to later determine the patent as granted was invalid or should be limited by amendment. On the other hand staying the case pending completion of EPO proceedings could create immense delay – opposition proceedings of 3 to 5 years’ duration are not uncommon, and many last longer than a decade. A patentee can be seriously prejudiced by such delay.

In recent years the English Courts have in general exercised their discretion to refuse stays pending the outcome of opposition proceedings. A principle, relying on a line of cases stretching back to 1908, established that a patentee could recover damages for infringement, even if the patent was subsequently revoked. The principle forbade the party who lost the infringement case from seeking to re-litigate issues that it had already argued and lost. The practical advantage of the principle, as Jacob LJ put it in Unilin v Berry, was that it was not necessary to wait for the “slowest horse in the race” to finish to find out who had won. However, the principle was controversial and arguably unfair to a defendant if it ultimately won in the EPO. It was therefore unsurprising that the UK Supreme Court agreed to examine this issue further when this situation arose in the long running Virgin v Zodiac dispute.

The Supreme Court gave judgment on 3 July 2013, reversing Unilin. It ruled that Zodiac was entitled to rely on the revocation in the damages assessment: this was a new fact, not an attempt to re-litigate validity. The Supreme Court ruled that: “the effect of the revocation was that everyone was entitled to conduct their affairs as if the patent never existed”. Importantly, the Supreme Court also invited the Patents Court and Court of Appeal to reconsider their guidance on the question of stays pending opposition proceedings.

How the Court of Appeal will approach future cases in the light of the Supreme Court’s decision remains to be seen. In the future, stays may become easier to obtain where opposition proceedings are ongoing. However, other consequences may also follow. Preliminary injunctions are at present relatively rare because the Patents Court is a relatively swift forum. First instance judgments usually arrive within 12-18 months, plus another year for any appeal. Urgent cases can be expedited and proceed much more quickly. If the Patents Court were to stay litigation more readily, patentees might react by seeking preliminary injunctions, and/or security for damages as a condition of any stay.

The Court will no doubt wish to look into other options: patentees may increasingly be required to consider conditional amendments to their patents so that the UK Court rules on more than one possible form of claim so as to cover reasonably possible outcomes in the EPO. The Court might even wish to consider in such cases, adopting the German practice of bifurcating cases – with decisions on infringement typically being reached first with the decision on validity being postponed until after the conclusion of EPO proceedings.

No matter what practice develops, the case highlights the urgent need for the EPO to reform its cumbersome opposition practice. These questions will also need to be addressed in the context of the Unified Patents Court. The English Courts will also need to decide what should happen where damages case has concluded and monies have been paid, but the patent is then revoked. This issue did not arise in Virgin v Zodiac as damages had not yet been assessed at the time of revocation. This may be the topic of another dispute.

See: “Virgin v Zodiac – what implications for the Pharma sector?”, On the Pulse, October 2013

David George and Alan Johnson

Alleged refusal to supply – when are measures against parallel trade abusive?

A recent High Court decision clarifies the circumstances in which the Court will compel pharmaceutical companies to supply third parties.  Cases of this sort are likely to become more frequent when government proposals for ‘fast track’ injunctive relief in competition cases are enacted.

Chemistree Homecare Ltd v Abbvie Ltd [2013] EWHC 264 (Ch)

Chemistree Homecare Limited (“Chemistree”), the Claimant, runs a pharmacy business and provides a homecare service to NHS hospitals (involving a healthcare professional administering a drug to the patient at home).  One such drug is HIV drug Kaletra, supplied by Abbvie Ltd (“Abbvie”).  Unknown to Abbvie, Chemistree had begun acting as a wholesaler, placing large orders for the drug and exporting to other EU states.  Abbvie became suspicious and requested evidence for the scale of the orders (which Chemistree declined to provide), refusing to meet any orders beyond what was required for the UK homecare service.

Chemistree sought an interim mandatory injunction to compel Abbvie to supply specified quantities of the Kaletra.  Chemistree alleged Abbvie had abused a dominant position by refusing to supply the quantities demanded contrary to Article 102 TFEU.

Judgment

The Court found that there was no serious case to be tried in relation to Dominance.  It reached this decision on the basis of unchallenged evidence from Abbvie that Kaletra was one of eight substitutable alternative agents.

The GSK Greece case establishes the principle that a dominant undertaking’s refusal to supply “ordinary orders” to a wholesale business can potentially constitute an abuse.  However, the Court noted that Abbvie did not operate a wholesale supply model: unlike GSK, Abbvie reserved the supply business to itself and only delegated homecare services to third parties.  Chemistree’s wholesale orders could not be considered “ordinary orders” and there was no relevant refusal to supply.

Comment

This robust decision will be welcomed by innovators.  The decision provides insight into the way the courts will approach interim injunction applications in the Pharma context.  It will also provide guidance on the interpretation of the Court of Justice’s ruling in GSK Greece, which in turn will aid the development of pan-European stock management programmes.

It is worth noting that the UK Government has announced proposals to reform private competition law litigation which may increase the frequency of this sort of litigation.   The Government proposes to give the Competition Appeal Tribunal (CAT) the power to hear stand-alone competition actions and to award injunctions.  A new ‘fast-track regime’ for simpler cases involving injunctive relief with rules imposing costs caps will also be established.  These reforms are intended to improve access to justice by smaller and medium sized entities and it would seem likely that cases such as this one will feature heavily in this new forum if the proposals are enacted.

For full article, see here.

David George

Here cometh the CMA …

The UK’s Competition and Markets Authority (CMA) is now up and running, albeit in ‘shadow form’, and will receive its full powers in April next year, taking over the combined competition powers of the OFT and Competition Commission. This change, brought in through the Enterprise and Regulatory Reform Act 2013, is one of a number of changes to the UK regime.  It is part of the government’s ongoing initiative to enhance the UK's reputation as a premier jurisdiction for competition law enforcement, and to enhance the efficiency and expediency of UK proceedings.

The CMA has already indicated that it is likely to focus its attention in the first few years on, among other things, emerging sectors and business models, including online (no surprises there, given that the OFT has already declared similar goals).  Given that we can expect the CMA to be more interventionist and likely to take on a greater number of investigations, it promises to be an interesting few years for those innovating with online business models.  Helen Hopson and Libby Amos discuss further in "Here cometh the CMA ..."

Helen Hopson

Every little bit helps: with luck, the new groceries code adjudicator will effect real change

Grocery retailing has undergone revolutionary change over the last few decades.  As the traditional quartet of the local butcher, baker, candlestick maker greengrocer and fishmonger has given way to the omnipresent national supermarket chain, retailer buyer power vis-à-vis suppliers has increased tremendously.  Belatedly, the regulation of the groceries sector is catching up.

This year saw the establishment of the Groceries Code Adjudicator, with the aim of effecting real change in the regulation of the sector. Christine Tacon, whose position as the Adjudicator was announced in January this year, formally took up her role in June.  It is hoped this move will enhance levels of compliance with the groceries supply code, which has been in force since February 2010.  Ms Tacon is charged with investigating complaints of breaches of the code, adjudicating in disputes, and providing advice to retailers and suppliers.  Pat Treacy and David George discuss this significant milestone for the sector in their longer article in Competition Law Insight.

Pat Treacy and David George