One of the most effective litigation remedies is the interim injunction preserving the current status pending trial. Viewed as a first strike weapon, it can make or break a case. A vexed question is what should happen where a defendant is prevented by injunction from entering the marketplace but is later vindicated in the litigation.

At the first hearing a Court has to make a decision on necessarily limited evidence. The circumstances are often urgent. The Judge does not hear or see the witnesses as evidence is presented in affidavit form. At trial, once all the evidence is available and tested by cross examination, it is conceivable that the Court's initial view is reversed. What does this mean for the parties?

There are a number of pointers for New Zealand litigants in a recent UK judgment which explored just this question. The judgment underscores litigation risk at the interim injunction stage. There are two reasons:

  • The Court advocated a "liberal assessment" to compensation for a defendant who has been injuncted at the interim stage - in other words a generous approach.
  • In limited circumstances, there is even the potential for stripping profit from the successful applicant for interim relief which adds a new dimension. [1]

This decision is a good primer. It provides real and much needed insight into what a Court finds persuasive. It also provides a firm reminder of the potential implications of seeking an interim injunction.

Interim Injunctions and IP

A classic example of using interim junctions in the IP environment is when an IP owner wants an interim injunction to stop a potential infringer entering the market. The argument usually made is that damage to the IP owner's goodwill and market share would not be adequately compensated for in money. If infringement is seriously arguable, the "balance of convenience" favours the IP owner and the overall justice requires it, a Court will grant an interim injunction. In plain language, "balance of convenience" means whether the risk of injustice to the IP owner outweighs the risk of injustice to the alleged infringer. One of the considerations in this assessment is relative merits of the case, in so far as merits can be ascertained at such an early stage.

Undertakings as to damages

Here, the undertaking as to damages (or cross-undertaking) required of every applicant for an interim injunction comes into play. It is the "quid pro quo" - an enforceable promise to pay damages sustained by the other party through the granting of the interim injunction in whatever sum the Court decides the applicant ought to pay.[2]

An example from the English High Court

Given that the financial stakes in IP litigation are so high, it is not surprising that the most useful guidance is a recent English High Court judgment in a pharmaceutical patent dispute.[3] The guidance is not specific to patent or even IP litigation but has wider application to all commercial litigation, including litigation in the New Zealand Courts.

The case was about a patent for a proton pump inhibitor (PPI) branded NEXIUM, used to treat a range of gastric conditions. The patent holder applied for an interim injunction to prevent launch of a branded generic product called EMOZUL. The manufacturer of EMOZUL claimed that it had side-stepped the patent so there was no infringement.

To get the injunction, the patent holder provided a cross undertaking as to damages. Nine months later, before the case reached trial, another generic company successfully demonstrated to a Court non-infringement of the patent. As a result, the patent holder applied to discharge the interim injunction, recognising that it would not succeed at trial against EMOZUL either.

This meant the defendants were free to launch EMOZUL. By then, the commercial market had fundamentally changed. The defendants had lost "first mover advantage" and had to compete with other generic companies. This included the patent holder which launched its own generic product within 2 days of its litigation loss (reflecting perhaps a lack of confidence in the scope of the monopoly and ability to stop new entrants).

To assess compensation for the defendants, the Court compared the extent to which they actually succeeded in penetrating the market with the relevant counter-factual, namely the extent to which they would have penetrated the market but for the injunction.

The Court pointed out that:

  • Compensation drives the approach and the object is not to punish the patent holder.
  • The assessment must be flexible. Justice might require stripping the patent holder of the profits it obtained through stopping the competitor's launch. For instance, a cynical interference with a defendant's right to enter a market with a generic drug by relying on a second generation patent. [4] If that attempt is a mere try-on, it might justify redistributing the patent holder's profits if they outstrip the loss to the new entrant.
  • It should not over-scrutinise the evidence of loss put up by the defendants. Rather, damages should be liberally assessed. After all, the patent holder had to successfully argue at the interim injunction stage that the defendants' losses would be easy to calculate while their own losses were not so easy to calculate. The patent holder could not now argue the converse; that the defendants' asserted losses were too speculative.

The assessment exercise in this case had some unique factors because of a sophisticated and regulated pharmaceutical market which the Court carefully analysed. It focused on the principal levers which would influence switch over to the new entrant and the relevant purchasing decision makers. It found compelling the evidence of a representative cross-section of those decision makers particularly as there was a broad consensus among them, enhancing their credibility.

Another influential factor in the decision was the patent holder's failure to give detailed evidence on a critical dimension of the dispute, namely whether it would have dropped its price for NEXIUM in response to inroads into its market share. What emerged from the evidence was that dropping the price would have a knock-on effect in other European markets so it was by no means clear that this was the likely response. The patent holder did not expand on this in its evidence. The Court considered it was therefore entitled to draw an adverse inference against the patent holder. It therefore assumed for its purposes that the incumbent would not have dropped the price to compete.

In each of the markets for PPIs, the Court assessed the predicted level of uptake by the end of the first year (substantial in a cost sensitive market) and then reduced this by 20% to take into account market uncertainties. The final amount was to be determined by the parties' accounting experts based on the formula established by the Court but looks to be much closer to the GBP32M claimed by the defendants than the GBP6M submitted by the patent holder.

Lessons

Although the Court stressed that the measure of relief for the vindicated defendants is compensatory and not punitive, the Court was obviously alive to the commercial benefits an applicant can unjustly obtain when it succeeds in an interim injunction. The quality and nature of the evidence and witnesses is key despite the statement that an over-analysis is to be avoided. Having the right number of relevant and most representative witnesses, in proportion to the significance of the issue, ensures recovery for the delay in getting to market.