In the recent English case of Cephalon Inc. and others v Orchid Europe Ltd and others (2010), Mr Justice Floyd of the Patents Court revisited the “clearing the way” principle in cases where there is a threatened launch of a generic product onto the marketplace. Historically, the courts in both England and Ireland grant preliminary injunctions in accordance with the principles set out by the UK House of Lords in American Cyanamid Co v Ethicon Ltd (1975). However, over the last 10 years or so in England, the “clearing the way” principle was developed in pharmaceutical patent matters and enabled many innovator companies to successfully obtain a preliminary injunction to prevent the launch of generic products. In Ireland, however, whilst the “clearing the way” principle has been acknowledged by the judiciary, the courts primarily focus on the issue of irreparable harm. Following the Cephalon Case in England, it appears that the position in both jurisdictions may be nearing re-alignment once more.
What is the “clearing the way” principle?
The “clearing the way” principle was first espoused by Mr Justice Jacob (as he then was) in the case of Smithkline Beecham plc v Generics (UK) Ltd (2001). That case concerned the drug SEROXAT and Mr Justice Jacob, having held that both the respective innovator and generic companies would suffer irreparable harm, granted the preliminary injunction against any product launch based on the following consideration:
“As between the two, I will put it this way, the claimant's damage is more unquantifiable than that of the defendant's but both are unquantifiable. There are degrees of unquantifiability, just as there are degrees of infinity. I turn to another factor which, to my mind, indicates that the injunction should be granted. It is this. The defendants have known for a long time about this patent. You would have to be very naive in the pharmaceutical industry to think that the patentee, with a product as important as this, would not, if it had anything other than a frivolous chance of success, take action. So the defendants knew, when they set out upon this project in 1997 that if the patentees would cause trouble they would.
The defendants could, so soon as they settled upon the product they were intending to sell, have caused the litigation to start. They could have done a number of things: First, they could have launched a petition for the revocation of the patent and started a claim for a declaration of non-infringement. Or, since there are certain difficulties with the latter (for example onus of proof goes the other way round), they could simply have said to the patentees, “We intend (we are not saying when but it is a settled intention) to launch our product within the next five years. If you intend to sue us, sue us now”. If they had taken such a course, having settled upon the product they intended to sell, the whole of this dispute would have been got out of the way before their date of intended launch……..
…..I see no question of principle involved here of any sort. It is purely commercial common sense. If there may be an obstacle in your way, clear it out. To my mind, this is a case where the retention of the status quo is a rational thing to do. It was something that could have been avoided by the defendants; they chose not to do it.”
In the subsequent preliminary injunction case of Smithkline Beecham plc v. Apotex Europe Ltd (2002), Mr Justice Jacob stated:
“I remain of the same opinion that I was in the Generics case. Where litigation is bound to ensue if the defendant introduces his product, he can avoid all the problems of an interim injunction if he clears the way first. That is what the procedures for revocation and declaration of non-infringement are for.”
This approach was upheld by Lord Justice Aldous in the Court of Appeal, wherein he stated:
“The factors in favour of granting an injunction and of refusing one were evenly balanced. I find no error of principle in the way that the judge exercised his discretion. The judge was, in my view entitled to take into account when deciding to maintain the status quo that Apotex walked into the situation that they find themselves in with their eyes open to the risk that they were taking. They knew the risk and decided that it was best not to remove it.”
From these statements, the “clearing the way” principle became the kingpin argument for preliminary injunction applications by innovator companies against the launch of generic products onto the marketplace. The “clearing the way” principle convinced courts that the balance of convenience favoured the granting of a preliminary injunction restraining a generic product launch, the court having regard to the generic company’s prior knowledge of relevant patent infringement issues and its failure to bring forward pre-emptive litigation in order to facilitate a resolution of such issues before the planned product launch. Preliminary injunctions were starting to become par for the course in England and were granted based on the “clearing the way” principle in subsequent cases such as Les Laboratoires Servier v KRKA (2006), Leo Pharma v Sandoz (2008) and Novartis v Dexcel-Pharma (2008).
The Irish position
In Ireland the situation became somewhat different. The leading Irish case on preliminary injunctions in pharmaceutical patent matters is Smithkline Beecham plc v Genthon BV (2003), which, similar to the Generics Case in England, concerned the launch of a generic version of the drug SEROXAT. The judge in the case, Mr Justice Kelly, endorsed the principles for the granting of preliminary injunctions set out by the House of Lords in American Cyanamid v Ethicon Limited (1975) as applicable to patent disputes in Ireland.
In relation to the “clearing the way” principle, Mr Justice Kelly stated that whilst there was much to be said in favour of the above-mentioned expressions of opinion both at first instance and on appeal in England, it seemed to the judge that they were relevant to the question of balance of convenience rather than irreparable loss being sustained by either party. Mr Justice Kelly then went on to refuse the preliminary injunction sought because, in the judge’s view, damages would be an adequate remedy for the innovator company in circumstances where an inquiry as to damages could be made, if necessary, based on the innovator’s historic market penetration figures and the generic’s actual sales figures after launch together with an undertaking to the Court from the generic company to record all sales of the product.
Following the Smithkline Beecham Case in Ireland, it was widely considered that the balance of obtaining or not obtaining a preliminary injunction against a generic product launch was tipped in favour of the generic company, rather than the innovator company as was the position in England, if sufficient evidence could be produced by the generic company on the issue of damages being an adequate remedy. This uncertainty of success for innovator companies subsequently led to a dearth of such preliminary injunction applications in Ireland, contrary to the position in England.
The Cephalon Case
The recent decision of Mr Justice Floyd in the Cephalon Case appears to also refocus more on the issue of irreparable harm rather than a necessity for “clearing the way”. That case concerned a patent for modafinil tablets with a defined particle size and the publicised launch by Mylan of a generic version in the UK. Whilst Mr Justice Floyd believed the claimants’ case for patent infringement was weak, based on the evidence presented, it was considered to just pass the test for a serious question to be tried. The issue then arose as to where the balance of convenience lay. Mr Justice Floyd held that issues such as the “clearing the way” principle was certainly a consideration which, depending on the evidence, may be material in particular cases. However, the judge further held that there was a danger in treating such a concept as a principle of law.
Mr Justice Floyd held that the defendants had failed to “clear the way” or give any evidence as to why they had not done so and, as such, this was a factor to be taken into account by the judge but not to the extent of necessarily swamping all other relevant factors. Both sides were considered by the judge to potentially suffer unquantifiable loss if the injunction was granted or not granted as the case may be: the claimants through loss of customer goodwill for increasing prices to former levels after the generic competition is removed (the judge was not prepared to accept a risk of irreversible price erosion) and the defendants losing a unique market opportunity to be first to launch a generic product.
Mr Justice Floyd held that as the market for modafinil was a relatively mature one, it would be easier to make an inquiry as to damages on what profits the claimants would have made absent generic competition. This was considered an easier task than assessing what market share the defendants would have achieved if they were allowed to compete rather than be enjoined.
On the evidence, whilst Mr Justice Floyd did not dismiss the “clearing the way” principle, he considered that the evidence established that the loss to the defendants was more likely to occur, would be more substantial and more difficult to quantify than that which the claimants might suffer. Accordingly, injunctive relief was therefore refused.
As a quid pro quo for not granting the preliminary injunction, Mr Justice Floyd gave directions for an expedited trial of the action in less than 6 months. Such a procedure is also possible with Ireland’s Commercial Court and this was also previously considered a factor against innovator companies applying for preliminary injunctions in this jurisdiction.
As the “clearing the way” principle was endorsed by the English Court of Appeal it is too early to say for sure that the position in England over the last 10 years or so will change going forward based on the recent Patents Court decision in the Cephalon Case. However, the judgment does provide a renewed sense of optimism for generic companies in England and Wales trying to resist preliminary injunction applications to stop a product launch by putting forward evidence of irreparable harm and making a request for an expedited trial, if feasible and desirable. To that extent the position in England and Ireland seems to have re-aligned itself as pharmaceutical companies will have to pay closer attention to the adequacy of damages issue in both jurisdictions when dealing with preliminary injunction applications.