The Supreme Court has held that damages under a cross-undertaking for an interim injunction after the UK patent was later invalidated were not barred by the defence of illegality.
A cross-undertaking in damages is normally required as a condition for an interim injunction to ensure that the party affected by the injunction is compensated if it later turns out that the injunction was wrongly granted.
No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act (the illegality defence) (Holman v Johnson (1775) 1 Cowp 341, 343).
S’s patent for the drug Perindopril had expired in the UK in relation to the compound itself, but not in Canada where it remained protected., S had obtained a European patent (designating the UK) in respect of a crystalline form of the drug (the patent).. S brought proceedings against A in the UK for infringing its patent and applied for an interim injunction.
The High Court granted S the interim injunction, subject to a cross-undertaking in damages. It then held at full trial that the patent was infringed but invalid, and the injunction was discharged. S appealed.
The Court of Appeal refused to restore the injunction and dismissed the appeal. The High Court was asked to assess the damages due to A on the cross-undertaking.
S brought separate proceedings against A in Canada for infringing its Canadian patent by manufacturing Perindopril in Canada. The Canadian court held that the patent was valid and infringed, and S was granted a final injunction.
In the UK proceedings, S then raised an illegality defence on the basis that it was against public policy for A to recover damages for being prevented from selling a product whose manufacture in Canada would have been illegal as an infringement of the Canadian patent.
The High Court held that A’s claim was barred because it could not claim damages without affirming that it would have manufactured the product in Canada where it was illegal to do so. A appealed.
The Court of Appeal allowed the appeal on the basis that the infringement of a foreign patent was not turpitude for the purpose of the illegality defence (www.practicallaw.com/4-520-0191). It based this decision on five important factors:
- A honestly and reasonably believed the Canadian patent was invalid.
- S should, as a matter of principle, pay A when it was found not to be entitled to a monopoly.
- The sale of the product in the UK did not infringe the Canadian patent.
- The Canadian court had refused to restrain manufacture of the active ingredient or the product in Canada.
- Credit would be given for the damages payable in the Canadian proceedings for infringements committed there.
The court dismissed the appeal.
Only one of the factors considered by the Court of Appeal, A’s honest belief in the invalidity of the Canadian patent, was an assessment of the moral culpability of A’s infringement. The others were subjective fact-based evaluations of the effect of applying them to an individual case. This approach was wrong because the illegality defence was a general rule of law based on public policy, not a discretionary process that depended on balancing the merits between the parties to a particular dispute.
Turpitude meant criminal or quasi-criminal acts because only acts in these categories engage the public interest that underlies the illegality defence. Patent infringement was a tort or civil wrong, which offended private interests rather than the public interest. So, here the illegality defence did not apply. Although a patent is a public grant of the state, it did not follow that the public interest is engaged by infringement of a patentee’s rights. The only relevant interest affected was that of S and that was sufficiently vindicated by the availability of damages for the infringement in Canada that would be deducted from any recovery under S’s undertaking in the UK. There was no public policy that could justify the forfeiture of A’s right to be compensated in addition.
The court observed that cross-undertakings are a standard and valuable feature of commercial litigation and there is a public interest in their enforceability in bona fide disputes. The illegality defence could not have been raised if manufacture had taken place in a country where there was no patent.
The court noted that there might, at some later stage, need to be a detailed re-analysis of conflicting case law in the light of the Law Commission’s 2009 Consultative Report on the Illegality Defence (www.practicallaw.com/4-385-4857). This had proposed a public conscience test under which the illegality defence would call for a value judgment about the significance of the illegality and the injustice of barring the claim on account of it. Here, however, the outcome would have been the same, as the Court of Appeal using a more discretionary approach reached the same conclusion as the court.
Case: Les Laboratoires Servier and another v Apotex Inc and others  UKSC 55.
First published in the December 2014 issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200