Intellectual Property

This article appeared in Life Sciences Law & Business August/September 2004 – Volume 1 – Issue 3.

Multi-party Actions - who pays the costs?

Generic pharmaceutical companies successfully defend an infringement action, revoke a patent. Who pays the costs?

It may be a surprise to companies considering marketing in the face of patents which they believe to be invalid or irrelevant that they may have to bear the costs of any litigation they instigate or defend.

In this article I consider in particular the position of generic pharma companies involved in patent litigation. Similar issues will apply to different kinds of multiparty action.

It is useful to remember the nature of the pharmaceutical marketplace. These are basic facts, but may be lost in legal considerations.

R & D based companies spend very large amounts of money developing new products. They protect their new developments through patents - patents on the molecule, patents on the formulation, patents on excipients, patents on delivery systems and medical use. Those patents last for 20 years, plus the life of any SPC, and once basic patents have expired, others are free to use the information which was protected by those patents to develop and sell generic versions of the patentee's product. Those generic products must avoid other, extant, patents. Generally, prices fall dramatically once generic versions of a product come onto the market. They tend to stabilise, after a while, at around 10% of the price of the originator's product, although clearly, there are great variations. Generic companies tend to make their profits on a small number of products - essentially, those which have recently come off-patent, whilst offering, because of the exigencies of the market, a wide range of products. In order to maximise their profits, generic companies have to be quick onto the market following patent expiry. A generic company which is able to sell products before its competitors (for example because it revokes an invalid blocking patent and markets products before others are ready to do so) has a market advantage over those competitors.

In the past, generic companies wanting to market a product which was covered by patents they believed to be invalid could choose to market the product, informing the patentee of their plans or not, as they wished, and risking injunctive proceedings, which were determined on the basis of convenience (economic) arguments. With SkB v Generics UK, and SkB v Apotex, that changed. Jacob J summarised the position in the latter case when he said, commenting on the argument that a party should not be blamed for not starting litigation 'that is wholly uncommercial….There was bound to be litigation…Where litigation is bound to ensue if the defendant introduces the product he can avoid all the problems of an interlocutory injunction if he clears the way first. That is what the procedures for revocation and declaration for non-infringement are for.' The Court of Appeal endorsed the judge's findings : 'the judge was entitled to take into account that Apotex walked into the situation with their eyes open to the risk that they were taking.'

In short, if 'litigation is bound to ensue', then a generic company must be proactive or it is likely to be injuncted. The fact that it has not taken steps will weigh heavily against it. It must seek confirmation from the patentee that it does not infringe any valid claims, and if it does not get this, if litigation seems likely, then it must take action to revoke the blocking patent, or apply for a declaration of non infringement. Both of those courses of action are expensive, but to delay, even if others take similar action, may have dire commercial consequences. No generic company can rely on any other company concluding an action which will be to its benefit. Patent actions are expensive, and the outcome of any action is uncertain. In the interests of saving costs, speed, or certainty, parties may settle with the patentee, take a licence or enter into a supply agreement. There are many examples of this, e.g. in the BASF v GSK case concerning paroxetine, Generics UK settled with the patentee just before trial, and GSK came to a supply arrangement with IVAX.

Costs are bound to be a major factor for the generic company. Its potential gains are far less than the potential loss of the originator - prices will be much lower, product lifetime is likely to be much shorter, there will be competitors. The costs of patent action, whether application for declarations of non-infringement or for revocation, are high, especially where they involve experiments, or inspections. Even relatively simple actions are expensive. By way of example, in one of the cases I will consider below, that of Cipla, Neolabs, Generics UK, Ivax, and Arrow v Glaxo, a fairly simple case involving arguments of obviousness relating to Glaxo's Seretide combination product in which there were neither experiments nor inspection. The claimants costs ranged from £218,000 (IVAX) to £787,000 (Cipla). The patentee's costs were £1.7million. The issue of costs is highly material for generic companies, in particular. It is highly important to them whether or not they stand a chance of being able to recover their costs, and how much of them.

Under CPRr44.3 the court has discretion as to whether costs are payable by one party to another, and the amount of those costs. The general rule, under 44.3(2) is that the unsuccessful party will be ordered to pay the costs of the successful party; but the court may make a different order.

Two cases are particularly interesting. The first of these was considered at first instance by Mr Justice Jacob : Bristol Myers Squibb v.. Baker Norton Pharmaceuticals Inc and Napro Biotherapeutics Inc.. BMS sued Baker Norton and Napro for infringement of its patent and Baker Norton and Napro counterclaimed for revocation. The patent was revoked and issues arose as to the basis on which costs might be paid to the two defendants. Napro and Baker Norton were potential competitors in the market and had, upto the trial, different arguments on infringement. Each briefed junior council, and separate firms of solicitors, and jointly briefed Leading Counsel.

At first instance Jacob J. ordered that the first and second defendants be entitled to certain separate costs (preparation of expert evidence, preparation of pleadings), and that otherwise, they should recover only one set of costs between them, "to be taxed as if only one firm of solicitors were acting for both parties, and the parties were represented by one leading and one junior council, and that how that one set of costs is split between the first and second defendants is a matter for them".

In the Court of Appeal's judgment on costs, Lord Justice Aldous, commenting on BMS's argument that " the appellants should only be liable to pay only one set of costs as that was the amount that it was reasonable for a claimant to pay", stated, " a losing claimant should only be required to pay the costs reasonably incurred by the parties that it takes proceedings against. What costs are reasonably incurred by one or more defendants should be ascertained by the costs judge who carries out the assessment. Upon such an assessment duplication and failure to co-operate can be seen and adjustments made accordingly. To decide what costs were reasonably incurred by defendants in considering what a losing claimant should pay, amounts to pre-judging the results of a detailed assessment without considering the facts. The judge's conclusion involved, by implication, a decision that the costs of one or both of the respondents had been unreasonably incurred. That could not have been inferred from the fact that they had separate solicitors and counsel and he had no evidence before him to enable him to reach that decision.. No such conclusion should have been reached without looking at the full picture which of course would be done by the costs judge on a detailed assessment"

In the recent case of Cipla and Neolabs, Generics Uk, IVAX and Arrow v Glaxo Group limited several parties took action against Glaxo to revoke a patent on its leading product, Seretide. Each of the generic companies concerned wished to launch the product and for the kind of commercial reasons alluded to above each wanted to be involved in the litigation. There were four actions which were never consolidated, although there were various orders and agreements that the actions should be heard together, and that evidence in any one of the actions should stand as evidence in the others. The application by Arrow, the last company to join in the litigation, was opposed by each of the other claimants. The claimants were commercial competitors and their solicitors possessed confidential information relating to plans for the market which they did not want to share.

Glaxo argued that it was inevitable that a final decision of the Court of Appeal in respect of the patent would be received before the expiry date of the patent, that it was unnecessary for there to be four sets of proceedings, that there was unnecessary duplication, that there should be just one set of costs available to the claimants, and that these should be the costs of Cipla, to be awarded solely to Cipla, or distributed amongst the claimants in the proportion which they the claimants costs bore to each other.

Pumphrey, giving a judgement on costs, stated that no distinction should be drawn between this case and the BMS v Baker Norton case on the basis that the BMS v Baker Norton case case was a case in which the patentee had picked the defendants, whereas in this case the unsuccessful defendant was the patentee and had to take the claimants as it found them. He directed, that ' the fairest way of approach ..[was to direct] the costs judge that he or she is free to consider the four actions as if they had been consolidated.. to have regard to the reasonableness of the claimant maintaining separate representation and separate expert witnesses' He accepted that this would not be an easy task and said that he was 'satisfied that I cannot deprive the claimants of their making an order for one set of costs.. too coarse a manner of disposing of the problem as it presents itself in the present case and, moreover, in all probability.. inconsistent with the statement of principle articulated by the Court of Appeal in the Court of Appeal in BMS v Baker Norton.'

So when will it be reasonable for parties to have separate representation, bearing in mind that they will be commercial competitors?

It presents professional difficulties for one firm of solicitors to act for two clients who are commercial competitors with a common purpose. Each client will have information in relation to its marketing which it will wish its solicitors to keep secret. Under the Guide to Professional Conduct of Solicitors principle 16.01 a firm of solicitors owes a duty of confidentiality to its clients. Under 16.06 it has a duty of disclosure to pass on all information which is relevant to its retainer to each client regardless of the source of that information. That is because it is regarded as the agent of its client. Accordingly, acting for two clients, there is a conflict between the duty of disclosure to one and the duty of confidentiality owed to another. It seems that applying the professional rules of conduct it would not be possible for firms of solicitors to act for more than one claimant as to do so would inevitably give rise to a conflict of duties. This is a factor which the costs judge should take into account when considering the reasonableness of separate representation. In certain circumstances difficulties might be overcome in the solicitor had each party's consent to disclose but there will always be an issue where parties have confidential information which they do not wish to be disclosed. In patent actions generally, it would be hard for a client to keep information it did not want disclosed away from its solicitors, and in any action involving a potential injunction, surely impossible, since balance of convenience is determined on the basis of economic arguments. These matters are of enormous importance to generic companies whose strategy on launch can make all the difference to their success in a highly competitive market.

The decision of the costs judge in Cipla v Glaxo is important, with big commercial consequences. It will affect parties' decisions as to whether to attack blocking patents and may lead to some generic companies having to delay their entry to the market. In the meantime, and always, of course it makes absolute sense for all parties to litigation to seek to minimise their costs, working together wherever possible and agreeing, by contract, to provisions which reduce the danger of prejudice should one party settle. And it is interesting to note that in Cipla v Glaxo, Glaxo's costs exceeded those of all of the claimants put together.

Anna McKay

Anna McKay is a consultant to Roiter Zucker, which acted for Baker Norton in BMS v Baker Norton and IVAX in Cipla v Glaxo.

Case references

Bristol-Myers Squibb Co v Baker Norton Pharmaceuticals Inc and Napro Biotherapeutics Inc [1999] RPC 253 (HC)
[2001] EWCA Civ 414 (CA)

SmithKline Beecham plc v Generics UK Limited [2002] 25(1) I.P.D. 25005

SmithKline Beecham plc v Apotex Europe Limited [2003] WL 933395 (HC) [2003] WL 1202563 (CA)

BASF v SmithKline Beecham Plc [2003] EWCA Civ 872

Cipla Limited ors v Glaxo Group Limited [2004] EWHC 819(Pat)

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