On 21 May 2015 the Court of Appeal upheld a judgment awarding two pharmaceutical companies £27 million for losses they suffered due to an injunction preventing them from benefitting as a “first mover” in the generic pharmaceuticals market.
Krka and Consilient, the Defendants, originally sought to bring Emozul® to the market in September 2010. AstraZeneca, the Claimants, issued proceedings for infringement of their patent for Nexium® and sought an injunction to prevent the Defendants marketing their product pending the outcome of the litigation. Both Nexium and Emozul are esomeprazole-based pharmaceuticals used in the treatment of ulcers and other gastric conditions. The Defendants were ordered not to market Emozul in the UK pending trial.
It is usual in injunction applications for the applicant to provide a cross-undertaking in damages, where the applicant promises to compensate the defendant for losses it suffers if the injunction is subsequently discharged or found to have been wrongly granted.
In this case, the Claimants discharged the injunction and the Defendants sought £32 million in damages to compensate them for having been prevented from launching Emozul until September 2011. The Claimants argued that losses of only £3-6 million should be awarded.
A key part of the Defendants’ case was that they lost the opportunity to be the “first mover” as the only supplier of generic esomeprazole products. By the time Emozul went to market in September 2011, various generic esomeprazole products had become available. This had the predictable consequence of driving the price down and had a significant impact upon the success of Emozul’s launch.
The Defendants used the evidence of Medicine Managers (experienced pharmacists employed by Primary Care Trusts (PCTs) or equivalent bodies) who were spending relatively large sums each year on Nexium and which were therefore likely to make relatively greater savings switching to Emozul.
The Claimants focussed on what actually happened when Emozul was eventually brought to market in September 2011, ascertaining the market share that was secured at that time and then carrying it back to 2010 and adjusting it upwards to take account of the loss of the “first mover” advantage. The Claimants also relied on expert evidence on the likelihood of bias in people to exaggerate the impact of monetary incentives in certain circumstances.
On the facts, the Judge concluded that if the injunction had not been in place, a high level of switching to Emozul would have taken place after October 2010. This would have created a market for Emozul which the Defendants would have been better able to protect against the later launch by other companies of generic esomeprazole products. To accommodate any tendencies to underestimate any ‘drag factors’, allow for variation within the PCTs in their ability to take up costs savings by arranging for prompt switching, and to take account of likely inaccuracies, the Judge allowed for an ‘uncertainty discount’ of 20% to the damages awarded and awarded £27 million.
Objections were raised on appeal about the weight the Judge had placed on the Defendants’ witness evidence and on the ‘uncertainty discount’ that he had applied.
Findings by the Court of Appeal
The Court of Appeal noted that this was not a case in which the Judge was faced with conflicting evidence – on the contrary, the witnesses had painted a consistent picture, and the Court of Appeal found that the Judge had had careful regard to all of the evidence before him. Whilst it noted that the Judge’s reasoning on the ‘uncertainty discount’ had been “concise”, the Court of Appeal was satisfied that it was adequate. The Judge had made an assessment of the likely speed and degree of penetration of the market by Emozul that would have taken place had the injunction not been granted, and it was appropriate for the Judge to have estimated the discount that he should apply for any uncertainties that he might not otherwise have adequately taken into account. The Judge’s decision at First Instance was upheld.
The Court of Appeal noted that the ‘uncertainty discount’, if any, which it is appropriate to apply in any particular case must be determined on the facts and that there is not and cannot be any benchmark or yardstick. Despite this, it appears that sizeable damages could still be awarded if you can convince the court of the damaging effects a wrongly-granted injunction has had on your business.
This case highlights the potential ramifications of giving a cross-undertaking in damages, which can lead to serious financial consequences depending upon the nature of the injunction sought. Whilst this case is a relatively extreme example, businesses and their legal teams will need to be very careful when assessing the potential commercial and legal risks and benefits of applying for interim injunctions.