The recent judgment by the Supreme Court in Les Laboratories Servier and another v Apotex Inc and others is a rare example of the defence of illegality being examined. The Supreme Court held that the defence of illegality only extends to claims founded on acts which engage the public interest – not private wrongs. Specifically, the Court found that the defence did not cover the infringement of a foreign patent. This case is also a firm reminder of the risks associated with progressing an interim injunction.
Servier is a French pharmaceutical company which developed the compound, perindopril erbumine, for use in treating hypertension and cardiac insufficiency. Servier has a Canadian patent for that compound, which expires in 2018 (the Canadian Patent), and was also granted a UK patent for a specific crystalline form of the compound (the UK Patent). Apotex Group is a Canadian pharmaceutical group specialising in the marketing and manufacture of generic pharmaceutical products. Apotex Group includes Apotex Pharmachem Inc in Canada, Apotex Inc also in Canada and Apotex UK Limited in the UK, but for the purposes of proceedings it was agreed that Apotex Group could be treated as one entity.
In July 2006 Apotex began marketing a generic perindopril erbumine in the UK. On 1 August 2006 Servier issued proceedings against Apotex for infringement of the UK Patent and in the following week obtained an interim injunction restraining sales in the UK by Apotex of its generic product. In obtaining the interim injunction, Servier gave the usual cross undertaking in damages, meaning that if the court later found that the injunction had been wrongly granted, then Apotex would be entitled to be compensated for the loss caused to it by reason of it being incorrectly restrained from selling its generic product. In the event, this is exactly what happened. On 11 July 2007, the UK Patent was held to have been infringed but was invalid. As such, the original injunction had to be discharged and Apotex was entitled to damages for its lost sales during the period that the injunction was in place.
In June 2008, the court held an enquiry relating to the damages sustained by Apotex which would flow from the cross undertaking. Apotex submitted that Apotex Pharmachem Inc in Canada would have manufactured the active ingredient for the generic perindopril erbumine and sold it to Apotex Inc for a 30% mark up. Apotex Inc would have formulated this into tablets in Canada and sold them to Apotex UK Limited, who would sell them in the UK, at a volume of 3.6 million packets of the tablets. Judgment was reserved.
However, in the meantime, Servier had also brought proceedings in Canada for infringement of the Canadian Patent. On 2 July 2008 the Canadian court found that the Canadian Patent was valid and infringed. Damages are due to be assessed in November 2014.
Before the judgment in the UK proceedings was handed down, Servier amended its defence. In particular, it sought to argue that it was contrary to public policy for Apotex to recover damages for being restrained from selling its generic product, when that product was being illegally manufactured and produced in Canada (Apotex's product being an infringement of the Canadian Patent). Servier also argued that Apotex should be required to deduct the damages awarded in the Canadian proceedings from its gross profit in the UK, thereby reducing Apotex’s net profit and therefore the level of its damages claim in the UK - Apotex later conceded this point.
UK High Court
Mr Justice Arnold sitting in the UK High Court held that the whole of Apotex's damages claim was barred - it was not entitled to any payment as a result of the cross undertaking in damages given by Servier, Servier having successfully argued the defence of illegality. Apotex appealed the decision. The Court of Appeal allowed the appeal holding, after taking into account a wide range of considerations, that to withhold the damages to Apotex was not a just and proportionate response to the illegality involved. Servier appealed to the Supreme Court.
The Supreme Court dismissed the appeal but for differing reasons to the Court of Appeal. Following Tinsley v Milligan, Lord Sumption held that, whilst the judges in that case were divided upon the correct test for the defence of illegality, neither test made “the application of the illegality defence based on value judgment about the significance of the illegality or the consequences for the parties of barring the claim". Lord Sumption felt that the Court of Appeal had done just that, proceeding with a process which was "discretionary in all but name, whose outcome would have been exceptionally difficult for either party's advisers to predict in advance".
Lord Sumption went on to consider what is "turpitude" or illegality, for the purposes of the defence. He said that the clear case of an illegal act, was a criminal act, but it may also apply to those acts which affect the public interest because "the public has its own interest in conduct giving rise to the illegality defence, which the judge may be bound to take the point of his own motion, contrary to the ordinary principle of adversarial litigation". He went on to note that despite the long line of cases, save for a handful of cited cases which he did not find applicable in this case, the were no examples of the illegality defence being used beyond criminal and quasi-criminal acts. He explained that this was due to the fact that it is these acts which engage the public interest; torts, breaches of contract and statutory and other civil wrongs, offend against interest which are essentially private, not public.
Whilst achieving an interim injunction will likely be celebrated as a victory, this case emphasises that it is by no means the end of the story. If the injunction is later found to have been wrongly granted, the court will be very slow to find a reason not to enforce the cross undertaking in damages, which the court clearly sees as an important tool in civil litigation . The case also re-emphasises that the defence of illegality presents a test with a high bar – one which will be extremely hard to overcome in circumstances of civil, as opposed to criminal, wrongs.