1 PATENT AND PHARMA UPDATE Welcome to our new bi-monthly patent and pharma update in which we aim to alert you to significant recent developments in patent law and practice. This first edition highlights cases and developments over September and October 2014. 1. 17th draft of the UPC Rules of Procedure published Clarifications to opt-out and bifurcation. Oral hearing 26 November. Read more 2. UK Supreme Court finds Servier liable under cross-undertaking despite Apotex infringing Canadian patent to market generic Coversyl in the UK • The Supreme Court has held that patentee Servier is liable for damages suffered by Apotex while Apotex was enjoined from marketing its generic Coversyl in the UK, despite the fact that Apotex would have been infringing a Canadian patent to manufacture the generic tablets (Les Laboratoires Servier & Anor v Apotex Inc & Ors, 29 October 2014). • While the circumstances of the case are unusual, the Supreme Court's reasoning is in accordance with a long history of case law in which the so-called 'illegality defence' has applied to bar recovery only in relation to criminal or quasi-criminal acts which engage the public interest, and not in relation to acts such as patent infringement, which breach private rights only. • Despite the UK judgment in Apotex's favour, depending on the outcome of the Canadian damages assessment, Apotex may not be able to establish any loss in the UK resulting from the injunction. This is because Apotex has agreed that its loss must be offset by the damages it would have had to pay in Canada for manufacturing tablets it would have sold in the UK, and for the cost of manufacturing those tablets. Servier owned a UK patent for a crystalline form of perindopril erbumine, which it claimed covered its COVERSYL tablets for treatment of high blood pressure. Servier claimed that Apotex's generic tablets infringed the patent and was granted an interlocutory injunction restraining Apotex from marketing in the UK. The injunction was obtained upon Servier giving the usual cross-undertaking that it would compensate Apotex for loss suffered by reason of the injunction if Apotex was eventually successful in defending Servier's claim. At trial and on appeal Apotex was successful. Servier's patent was found to be infringed but invalid, and the injunction was discharged. However in parallel Canadian proceedings, Apotex was found liable for infringement of Servier's Canadian patent for the same chemical compound. The quantum of the damages Apotex must pay in the Canadian proceeding is yet to be assessed. 11 NOVEMBER 2014 London Table of Contents 1. 17th draft of the UPC Rules of Procedure published 1 2. UK Supreme Court finds Servier liable under cross-undertaking despite Apotex infringing Canadian patent to market generic Coversyl in the UK 1 3. Advocate General delivers opinion on the 'Specific Mechanism' (by Merck) to restrict parallel importation of patented pharmaceuticals (by Sigma) 2 4. AstraZeneca's asthma combination patent invalid for obviousness 3 5. No inventive step in Leo Pharma's combination patents for psoriasis ointment 4 6. Velocys allowed to amend patents to correct error and avoid invalidity 5 7. Broad account of profits payable for infringement of shop display patent 5 8. Key points from featured decisions 7 9. Contacts 8 RELATED LINKS > Herbert Smith Freehills > The Unified Patent Court and the Unitary Patent 2 The parties agreed that but for the injunction, Apotex would have sold in the UK an additional 3.6 million packs of tablets, however the tablets would have been manufactured in Canada in breach of the Canadian patent. Apotex accepted that in calculating its damages from lost UK sales, it needed to offset the amount which it would have had to pay in the Canadian proceeding as damages for manufacturing the tablets along with the costs of manufacture. Servier argued that it should not be ordered to pay damages at all, as it was contrary to public policy for Apotex to receive compensation for being prevented from selling tablets in the UK whose manufacture in Canada would have been illegal. Before the matter came before the Supreme Court, it was heard by Arnold J, who had decided in favour of Servier, and by the Court of Appeal, who decided in favour of Apotex. In the Supreme Court, Lord Sumption, who gave the leading judgment, identified the correct approach as to start by asking whether the infringement of a foreign patent right constitutes a relevant illegality, or 'turpitude', for the purpose of the defence on which Servier sought to rely. In Lord Sumption's view, both courts below had acted contrary to established legal principle by assessing the question based on largely subjective, discretionary factors, including the character of the illegality and how badly Apotex had behaved. After analysing the cases in the long and much-litigated history of the illegality defence, Lord Sumption concluded that the illegality defence arises only in the public interest. What constitutes a relevant turpitude depends on the legal character of the acts, which must be criminal or quasi-criminal (non-criminal acts involving dishonesty or corruption). Torts (other than those involving dishonesty), breaches of contract, statutory and other civil wrongs, offend private interests so there is no reason for the law to withhold damages in such cases. While a patent is a public grant of the state, it does not follow that the public interest is engaged by a breach of a patentee’s rights. In the present case, the only interest affected was Servier's. That interest would be sufficiently vindicated by the availability of damages for the infringements in Canada, which Apotex agreed should be deducted from any recovery under Servier’s undertaking in the UK. 3. Advocate General delivers opinion on use of the 'Specific Mechanism' (by Merck) to restrict parallel importation of patented pharmaceuticals (by Sigma) • Advocate General Jääskinen of the Court of Justice of the European Union (CJEU) has delivered his opinion that in order to rely on the Specific Mechanism to prevent parallel importation of patented pharmaceuticals, a patentee must demonstrate an intention to rely on the Specific Mechanism upon receiving notification of another party's plan to parallel import those products (Merck Canada Inc & Anor v Sigma Pharmaceuticals plc, Case C-539/13, AG's Opinion, 23 October 2014). • The Specific Mechanism allows patent owners to rely on their rights with respect to imports from new Member States (joining the EU) even after accession, even if the product in question was put on the market in that new Member State for the first time by the patent owner or with his consent. Without this Specific Mechanism the patent rights would be normally be exhausted in such a situation. However, this only applies where patent rights, or SPC rights in this case, were not available in this new Member State at the time of filing of the SPC or patent in original EU Member States. • Under the Acts of Accession of 1985 and 2003, any party proposing to parallel import must demonstrate to the relevant regulatory authorities that one month's prior notice of such importation has been given to the patent or SPC holder. • In the proceeding in the UK between patentee Merck and parallel importer Sigma, the Court of Appeal referred a number of questions to the CJEU regarding the requirement of notification of importation and the necessary response by the patentee. • AG's suggested approach (inter alia: any person can notify but notification must be to a person entitled to enforce the patent who must respond within a month) appears to be in accordance purpose of the Specific Mechanism which is to balance the free movement of goods within Europe with the protection of patent owners' rights obtained prior to accession of certain countries. Merck owned a European (UK) patent (EP (UK) No. 0 480 717) and supplementary protection certificate (SPC) for montelukast sodium, the active ingredient in its SINGULAIR product for treatment of asthma. Pharma XL, a company related to Sigma, gave notice to MSD BV, a company in the Merck group, that it intended to import Singular from Poland to the UK. Merck did not express any objection and Sigma began importing and selling repackaged Singulair in the UK. Merck and MSD, who by that time was the exclusive licensee of the patent and SPC, then sued Sigma for patent infringement, relying on the Specific Mechanism in the Treaty of Accession. The Specific Mechanism allows the holder of a patent right to a pharmaceutical product in particular European countries, including the UK, to prevent import and marketing of the product in that country if the product was sourced from specified Eastern European countries, where equivalent patent rights could not be obtained at the time the original patent right was granted. 3 Sigma argued that Merck was not permitted to rely on the Specific Mechanism as Merck had failed to respond to the notification from Pharma XL and had failed to express its intention to rely on the Mechanism. Merck contended that it was not required to respond as the notice did not accord with the Specific Mechanism, having been sent by Pharma XL and not by Sigma, the importer, and having been sent to MSD and not to Merck, the patent holder. In the UK Patents County Court, HHJ Birss QC decided the matter in favour of Merck and awarded damages for infringement (Merck Canada Inc & Anor v Sigma Pharmaceuticals plc, 27 April 2012). Sigma appealed. The Court of Appeal was not able to reach a decision on a number of issues relating to interpretation of the Specific Mechanism and referred these issues to the CJEU on the basis that the CJEU has not considered the Specific Mechanism before (Merck Canada Inc & Anor v Sigma Pharmaceuticals plc, 18 April 2013). While the CJEU has not yet delivered its final response, Advocate General Jääskinen's proposed answers can be summarised as follows: • To be entitled to rely on the Specific Mechanism to prevent importation and marketing of pharmaceutical products, the owner of a patent or SPC, or its beneficiary, who is notified of another party's intention to import or market relevant pharmaceutical products, must respond within one month so as to demonstrate an intention to oppose the proposed importation and placing on the market. • A holder of a patent or SPC, or its beneficiary, is precluded from relying upon the Specific Mechanism to enforce rights in respect of import and marketing of the product that occurred prior to the demonstration of its intention to rely upon those rights. (i.e. If a holder initially fails to respond to a notification within the time limit and acquiesces to the parallel import, then he cannot rely on the Specific Mechanism to seek redress in the form of damages or other relief in relation to acts already taken place. However, the holder may withdraw such acquiescence to parallel imports, but only with regard to the period after which the importer was duly informed of such withdrawal.) • Notification under the Specific Mechanism of an intention to import or market may be carried out by someone other than the potential importer or marketer, provided that their identity is clearly identified by the notifying entity. • Notification under the Specific Mechanism of an intention to import or market must be given to a person who has a legal right under national law to bring proceedings to enforce the patent or SPC. 4. AstraZeneca's asthma combination patent invalid for obviousness • The Patents Court has held that there was no inventive step in the purported invention claimed by AstraZeneca's patent for an asthma inhaler containing a combination of formoterol and budesonide for both regular maintenance and for relief from acute attacks (Teva UK Limited & Anor v AstraZeneca AB, 2 September 2014). The patent in suit was European patent (UK) No. 1 085 877. • While the prior art did not explicitly disclose use of the combination treatment for relief as well as maintenance, this gap was bridged by the common general knowledge. • The common general knowledge can, in certain circumstances, include the results of searches of databases, as such searches are 'part and parcel of the routine sharing of information in the scientific community.' • The UK Court's conclusion that the patent is invalid is the same as that reached by the European Patent Office in March 2012, a decision which is currently the subject of an appeal to the Technical Boards of Appeal. AstraZeneca sells combined formoterol and budesonide inhalers under the name SYMBICORT and claimed that the idea of a single asthma inhaler for both maintenance and relief was novel and inventive at the 1998 priority date of the patent in suit. This indication is known as the SMART indication (Single inhaler Maintenance And Reliever Therapy). Teva obtained marketing approval for two products falling within the patent claims and sought revocation of the patent to clear the way. Teva contended that in light of disclosures in an earlier patent from 1993 (PCT application WO 93/11773) that the patent in suit was not novel and lacked an inventive step when read together with the common general knowledge. Sales J rejected Teva's submission that the 1993 patent anticipated the patent in suit, as there was no clear and unambiguous statement in the 1993 patent that formoterol and budesonide should be used in combination for both maintenance and relief. Certain statements in the 1993 patent were clearly references to use of the combination for maintenance therapy, not relief therapy. However Sales J accepted Teva's contention that the patent in suit was obvious by reference to the 1993 patent read in the light of the common general knowledge. While the 1993 patent did not constitute an item of prior art which in itself invalidated the patent in suit, it did disclose that formoterol and an inhaled corticosteroid (a class of chemicals including budesonide) could be used in combination, including in a single inhaler, for maintenance therapy, and that there could be a relief effect. The significant difference between the disclosure in the 1993 patent and in the patent in suit was the use of such a combination for relief therapy at other times, and the common general knowledge bridged this gap. 4 In concluding that the patent was obvious, Sales J made statements that may suggest that to address an obviousness attack phase 3 safety trials should be conducted before applying for patent protection in order to establish that the level of safety of the invented product goes beyond what would be expected based on the common general knowledge. However this approach should be balanced against the risks of intervening prior art. In this case, Sales J pointed out that AstraZeneca had not carried out phase 3 trials to establish safety beyond what the common general knowledge would have led the skilled person to believe. While AstraZeneca did not wish to incur the costs of safety trials unless it had assurance that it would have a patent monopoly, in order to justify being granted a patent monopoly AstraZeneca had to produce a novel and non-obvious idea. The Judge's view was that AstraZeneca had failed to do this. Of wider interest is Sales J's comment on the scope of the common general knowledge. The Judge thought that the UK approach to common general knowledge should be adapted and kept appropriately up to date in the age of the internet and digital databases. He added that searches of databases are 'part and parcel of the routine sharing of information in the scientific community and are an ordinary research technique', and that if there was a sufficient basis in the common general knowledge to make it obvious to the skilled person that there is likely to be relevant published material bearing directly on an issue, the relevant common general knowledge will include material that would be readily identified by such a search. 5. No inventive step in Leo Pharma's combination patents for psoriasis ointment • The Patents Court has found that two of Leo Pharma's patents covering a psoriasis ointment combining a corticosteroid (such as betamethasone) and a vitamin D analogue (such as calcipotriol) are invalid for obviousness where the two medicaments had previously been applied separately to treat the same condition (Teva UK Limited & Anor v Leo Pharma A/S, 6 October 2014). The patents in suit were European patent (UK) No. 1 178 808 and a divisional of that patent, European Patent (UK) No. 2 455 083. • The key issue was whether the particular solvent used would have been obvious to the skilled formulator, and the Court found that it would have been because of teachings in an earlier patent. • Commercial considerations that may have discouraged the skilled formulator from using that particular solvent did not outweigh the technical considerations, which indicated that it would have been obvious to try the solvent in routine screening tests. Leo Pharma sells its combined betamethasone and calcipotriol ointment under the name DOVOBET. Teva wished to market a generic version and contended that Leo Pharma's patents were invalid for obviousness, insufficiency and added matter. Teva's obviousness attack was based on the common general knowledge and a prior US patent (US patent No. 4 083 974). Birss J identified that the skilled person in this case was a team comprising a clinician and a formulator. The Judge agreed with Teva that, at the 1999 priority date, a skilled clinician would have viewed as desirable a single formulation combining betamethasone and calcipotriol to treat psoriasis because it would help patient compliance and would be more effective than the monotherapy. The skilled clinician would already have been familiar with the advantages of co-prescribing the medicaments separately. Contrary to Leo Pharma's submission, the pH incompatibility of the two medicaments was not a reason for a clinician not to combine them, as it was not part of the skilled clinician's common general knowledge. To the skilled formulator, while the pH incompatibility would have been an issue, the way forward was a matter of common general knowledge. The real issue for the formulator would be the appropriate solvent, which would not be within the formulator's common general knowledge. However the cited prior art disclosed the use of Arlamol E (polyoxypropylene-15-stearyl ether) as a solvent in a topical non-aqueous formulation of a corticosteroid, such as betamethasone. Birss J found that, while there was evidence supporting each parties' position, ultimately it would have been obvious to a skilled formulator, formulating a combined betamethasone and calcipotriol product, to test Arlamol E as part of a routine screening test for an appropriate solvent in light of the teachings in the prior art. The Judge rejected Leo Pharma's argument that it was not obvious to use Arlamol E because the skilled formulator would know that the compound had not been used widely in pharmaceutical formulations before and would be discouraged from using it due to the potential cost, time and uncertainty involved in the regulatory process. As a matter of principle, commercial considerations are capable of playing a role in the thinking of the notional skilled person, however their significance will vary from case to case and such considerations are unlikely to outweigh technical considerations. Birss J also confirmed that his obviousness analysis was not an example of an unfair step by step approach (see Technograph v Mills and Rockley [1972] RPC 346). The steps here were the normal steps in the development of a pharmaceutical product, derived from the common general knowledge alone and to consider the steps in this way was not an impermissible exercise in hindsight. 5 6. Velocys allowed to amend patents to correct error and avoid invalidity • The Patents Court has partially allowed Velocys' application to amend two patents, with almost identical specifications, related to catalysts for use in the Fisher-Tropsch process for gas-to-liquid conversion of hydrocarbons (CompactGTL Ltd v Velocys Plc & Ors, 22 September 2014). The patents in suit were European patent (UK) Nos. 1 206 508 and 1 206 509, owned by Battelle Memorial Institute and exclusively licensed to Velocys Inc. • Amendments to correct an 'obvious mistake' were permitted, while amendments to add restricted, dependent claims were not because the new claims were not necessary given that the independent claims were found to be valid. • On the basis of the granted amendments, the Court found that the claims were not invalid for insufficiency and went on to find the claims novel, inventive and infringed by CompactGTL. It was common ground that both patents would be invalid for insufficiency if Velocys was not allowed to amend certain references to 'residence time' to references to 'contact time'. The insufficiency arose because the specifications did not teach the skilled person, and the skilled person would not know from his common general knowledge, how to achieve the claimed 'residence time' of less than 5 seconds, but did teach how to achieve a contact time of less than 5 seconds. These times were different measures of how long the reagents were in contact with the catalyst, and were not directly comparable. The amendments were only allowable if the references to 'residence time' were an obvious mistake, which required Velocys to demonstrate that a skilled person would immediately appreciate that the patents could not be meant to read as such and would unequivocally ascertain that the patentee meant to refer to 'contact time'.1 On these issues, Arnold J accepted the evidence put forward by Velocys, including that the patents were primarily concerned with contact time, it was more common in the field to use contact time, in practice the claimed 'residence time' of less than 5 seconds would be 'astonishing', and the examples in the patents were 'completely inconsistent' with residence times of less than 5 seconds but did disclose contact times of less than 5 seconds. The Judge concluded that the references to 'residence time' were an obvious error and allowed the amendment to 'contact time'. This finding was not changed by the fact Velocys had only applied for the amendment when the proceedings were well advanced, as the question is whether the mistake would be obvious to the skilled person, not whether it was obvious to Velocys. By a second proposed category of amendments, Velocys sought to introduce new dependent claims into each of the patents specifying more restricted contact times than the independent claim. In accordance with common procedure, the purpose of the new claims was to serve as a fall-back if the independent claims were found invalid. However Velocys submitted that it should be permitted to make these amendments even if the independent claims were found to be valid. Arnold J noted that UK patent legislation requires the Court to have regard to the principles applicable under the European Patent Convention when exercising the discretion to allow an amendment (Patents Act 1977, s 75(5)). In proceedings in the European Patent Office, Velocys would not have been allowed to make the second category of amendments as amendments are only permitted where occasioned by a ground of opposition (European Patent Convention, Implementing Regulations, r 80). Given that the independent claims were valid, Arnold J refused to allow Velocys to add the new dependent claims as the amendments were unnecessary. 7. Broad account of profits payable for infringement of shop display patent • The Intellectual Property Enterprise Court (IPEC) has held Design & Display (D&D) liable for a broad account of profits following an earlier finding that the company had infringed a patent owned by OOO Abbott for aluminium snap-in inserts used with panels for shop displays (OOO Abbott v Design & Display Limited, 4 September 2014). The judgment on validity and infringement was reported as OOO Abbott v Design & Display Limited, 30 May 2013. The patent in suit was European patent (UK) No. 1 816 931. • D&D was required to account for profits generated from the sale of panels as well as from sales of the infringing inserts, as all of these profits were a consequence of the infringement. • The only allowable deduction from D&D's profits was the labour cost of cutting the panels to accommodate the infringing inserts, a cost that was directly attributable to the infringing conduct. • D&D could not rely on the defence that it was not aware of the patent, as it had failed to raise the defence in the substantive proceedings on liability. Part of the difficulty in calculating D&D's profits generated by the infringement arose because D&D sold infringing inserts in a number of different ways. First, it sold pre-assembled displays incorporating the panels with inserts. Secondly, D&D sold panels with inserts separately for subsequent assembly by the customer. In addition, D&D sold some inserts without panels. 6 In determining whether to allow OOO Abbott's claim for an account of the profit made from D&D's sale of panels in which infringing inserts were incorporated, HHJ Hacon considered the inventive concept covered by OOO Abbott's patent. The Judge found that the inventive concept was not just the idea of an insert made of a resilient metal, but rather was the composite idea of the insert, its particular shape and its interaction with the slot of the panel in a particular way. This led HHJ Hacon to find that the sale by D&D of infringing inserts embodying the inventive concept resulted in the profits made on the panels as a whole, and that it was foreseeable that such profits would be made as a consequence of the sale of the articles embodying the inventive concept. There was no real doubt that the sale of infringing inserts drove the sale of the compatible panels in which they were incorporated. D&D was not successful in establishing that it was entitled to deduct overheads from its gross profits, as its evidence did not show that the proposed deductions constituted increases in its overheads that occurred solely because of the infringing conduct and would not have occurred but for the infringing conduct. HHJ Hacon did, however, allow a deduction from D&D's profits to reflect the labour cost of cutting slots in the panels to accommodate the infringing inserts, which costs were directly and solely attributable to the infringing business. D&D also failed in its attempt to rely on the statutory defence that no order for an account of profits shall be made against a defendant who proves that it was not aware the patent existed (Patents Act 1977, s 62(1)). HHJ Hacon's primary reason for disallowing the defence was that D&D had raised it only at the case management conference in the account, and not in the substantive proceeding as is required unless there are exceptional circumstances for not doing so. Even if D&D had been entitled to rely on the defence, HHJ Hacon found that the defence would not have been made out. For D&D to establish the defence, it would have had to produce satisfactory evidence that there existed across the company a complete indifference to competition and therefore to any patent protection which the competition held, or alternatively total ignorance of the concept of patent protection. This would have required evidence from the sales department, and not just from management. In the absence of such evidence, the Judge would have inferred that D&D had reasonable grounds to become aware of OOO Abbott's patent rights. 7 8. Key points from featured decisions Patentee / patent no. Other party Product Court Judge Legal issue Outcome Decisions related to pharmaceutical patents Les Laboratoires Servier EP (UK) No. 1 296 947 Apotex Inc COVERSYL (perindopril erbumine tablets to treat high blood pressure) Supreme Court Lords Neuberger (SCPresident), Mance, Clarke, Sumption, and Toulson Illegality as a defence to a patentee's liability under cross-undertaking Patentee liable under cross-undertaking Merck Canada Inc EP (UK) No. 0 480 717 Sigma Pharmaceuticals plc SINGULAIR (montelukast sodium tablets or oral granules to treat asthma) Court of Justice of the European Union Advocate General Jääskinen The 'Specific Mechanism' to prevent parallel importation of patented pharmaceuticals Opinion that a patentee must demonstrate its intention to rely on the 'Specific Mechanism' before it can do so AstraZeneca AB EP (UK) No. 1 085 877 Teva UK Limited SYMBICORT (combined formoterol / budesonide inhalers to treat asthma) Patents Court Sales J Obviousness Patent invalid Leo Pharma A/S EP (UK) Nos. 1 178 808 and 2 455 083 Teva UK Limited DOVOBET (combined betamethasone / calcipotriol ointment to treat psoriasis) Patents Court Birss J Obviousness Patent invalid Decisions related to patents other than pharmaceutical patents Velocys Plc EP (UK) Nos. 1 206 508 and 1 206 509 CompactGTL Ltd Catalysts for use in the Fisher-Tropsch chemical process Patents Court Arnold J Patent amendment to correct error Patent valid after amendment allowed OOO Abbott EP (UK) No. 1 816 931 Design & Display Limited Aluminium snap-in inserts used with panels for shop displays Intellectual Property Enterprise Court HHJ Hacon Calculation of account of profits Broad account of profits payable by infringer 8 9. Contacts Christopher Sharp (Senior associate, London) T +44 20 7466 2591 Christopher.Sharp@hsf.com Grace Pead (Associate, Australia) T +44 20 7466 7518 Grace.Pead@hsf.com Rachel Montagnon (Professional support consultant, London) T +44 20 7466 2217 Rachel.Montagnon@hsf.com If you would like to receive more copies of this briefing, or would like to receive Herbert Smith Freehills briefings from other practice areas, or would like to be taken off the distribution lists for such briefings, please email subscribe@hsf.com. © Herbert Smith Freehills LLP 2014 The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on the information provided herein. 9