This Article appears in the August 2005 issue of Generics Web
Injunctions and Cross-Undertakings – Look out!SKB/GSK v Apotex (Seroxat)
On July 26 2005, Mr. Justice Lewison gave his judgment in relation to applications made by Apotex Europe Limited in connection with the SKB/GSK -v- Apotex, Neolab and Waymade case relating to Seroxat 1.
Background to the Case
Apotex, Neolab and Waymade had applied to revoke GSK's patent relating to a process for producting paroxetine hydrochloride anhydrate substantially free of bound organic solvent. GSK applied for injunctions. The paroxetine which Apotex, Neolab and Waymade wanted to sell was made in Canada by Brantford Chemicals Inc.. This company was part of the Apotex Group. Some finished product was to be supplied by Apotex Inc. (another part of the Apotex Group) to Neolab. The terms of the supply price to Neolab were such that Neolab was to pay Apotex Inc. a fixed price plus a percentage share of profit.
Neither Brantford Chemicals nor Apotex Inc ("the Canadian companies") were claimants in the revocation proceedings or formal defendants in the infringement proceedings. The interim injunction did not prohibit the manufacture of paroxetine in Canada, or its import into the UK (so long as it was not disposed of or offered for disposal).
As is customary when an injunction is sought, GSK gave cross-undertakings (often called "cross-undertakings in damages"). Cross-undertakings are regarded as the "price" of obtaining an injunction. Without a cross undertaking, an injunction will not generally be granted.
There were various cross-undertakings as the litigation progressed. All of these were in broadly similar terms. In 2003, Pumphrey J gave judgment for Apotex et al, dismissing the action and revoking the patent. He also continued the injunction until the hearing of an application for permission to appeal. That application was due to be heard on 18th December 2003, and on the 16th December 2003 GSK wrote to say that it would not seek to maintain the interim injunction whilst an appeal was pending. It therefore became inevitable that the injunction would be discharged on the 18th December, and on the 17th, the Canadian companies applied to be joined as defendants in the action, the purpose being to obtain the benefit of the cross-undertaking with retrospective effect. Those applications were heard in July.
The wording of the cross-undertaking granted by Pumphrey on judgment was as follows:
"And upon the SmithKline Beecham parties undertaking to comply with any Order this court may make, if the court later finds that the order for an injunction… has caused loss to the Apotex Parties and decides that the Apotex Parties should be compensated for that loss".
The defendants claimed that the cross-undertaking should be amended under the "slip" rule so that it conformed with practice direction to the CPR Part 25. They also claimed that GSK was estopped from denying that the Canadian companies were entitled to claim their own losses under the cross-undertakings, and that Apotex Europe was entitled to claim the loss of the Canadian companies as "third party" losses recoverable by them.
The Slip Rule
The "slip rule" is set out in CPR Part 40.12 (1). This says:
"The Court may at any time correct an accidental slip or admission in a judgment or order".
Practice Direction 25A Para 5.1, dealing with the grant of interim injunctions says that :
"Any order for an injunction, unless the court orders otherwise, must contain:
(1) An undertaking by the applicant to the court to pay any damages which the respondent(s) (or any party served with or notified of the order) sustain which the court considers the applicant should pay…"
The cross-undertakings given by GSK did not, on their face, extend beyond the defendants to the action. The reason for this was that the Judge's attention was not brought to the Practice Direction, and it was overlooked by both solicitors and counsel for both sides.
Apotex argued that no express order of the Court preventing the application of the Practice Direction had been made, and that the cross-undertaking should have extended to anyone, and therefore could be amended under the Slip Rule.
Mr. Justice Lewison stated that there are two reasons why the Court requires cross-undertaking in damages to be given as a price for interim applications. The first is that at the time that it grants the injunction the Court has not finally determined the rights of the parties. (At an injunction hearing the Court first decides whether there is a serious issue to be tried. If there is, and damages would not be an adequate remedy, it then proceeds to determine the balance of convenience. When facts are finally investigated, the claim may fail, and the defendant may have been stopped from doing something he was entitled to do all along).The second reason is that if an injunction is discharged at trial, the Court has no power (without a cross-undertaking) to award damages to the successful defendant for any loss he may have suffered whilst it was in force.
The fact that a cross-undertaking is described as "the price" of an injunction, does not mean that it can be assumed. Simply, if an Applicant is unwilling to pay the price, he does not get the injunction. However, the Court has no power to compel the giving of cross-undertakings. Its only choice, if no cross-undertaking is given, is to withhold the injunction. Mr. Justice Lewison concluded that "Since a cross-undertaking can not be imposed, it follows that a fortiori it cannot be imposed retrospectively".
Cross-undertakings are not given to parties to the proceedings. They are given to the Court. Non-performance of a cross-undertaking is contempt of court, not a breach of contract, and attracts the remedies available for contempt of court. The court exacts an undertaking for the defendant's benefit. It retains a discretion not to enforce the undertaking if the defendant's conduct in relation to obtaining or continuing the injunction or enforcement of the undertaking makes it inequitable to do so. If the undertaking is enforced, the measure of damages payable under it is not discretionary, but is assessed on normal principles applying to damages (i.e. the same principles as apply to a breach of contract). ( see Hoffmann La Roche 2).
Because a cross-undertaking is given to the Court, it may be enforced by someone who is not a party to the action, if it is given for his benefit. In this case, it was argued that it was obvious that GSK would have given an extensive cross-undertaking, in favour of the Canadian companies, rather than decline the injunction. The Judge stated that it did not seem to him that "the court should embark of a hypothetical enquiry of this kind. The point is that the hypothesis did not arise". He went on to say that the slip rule allows the Court to correct an "accidental" error or omission. Was the form of cross-undertaking an accident or error? He thought not. It was a cross-undertaking deliberately given in the form in which it was intended to be given, and embodied in an order settled by counsel for each party and approved by the judge. It simply did not occur to anyone that this kind of relief might be available. The Practice Direction had not been drawn to the attention of the Judges who granted the injunctions, and Mr. Justice Lewison did not feel able to say with confidence what GSK would have done, if they had been asked to give a cross-undertaking extending to the Canadian companies.
Estoppel by Convention
Apotex argued that GSK was estopped by convention from denying that the Canadian companies were entitled to claim losses under the cross-undertakings, because:
The judge decided that these claims were arguable, and they will go though to trial.
Right to Claim for Third Party Loss
Apotex argued that it was able to recover for the Canadian companies' losses. There are cases relating to breach of contract in which parties have been able to recover for third party loss, but as mentioned before, cross-undertakings do not give parties a contractual right. They are undertakings given to the Court. It was accepted that the law in relation to the kind of damages which are recoverable in respect of breach of contract is developing and the Judge decided that "no amount of development in law relating to the scope of damages that can be awarded for breach of contract can result in a party to a contract recovering damages for something which is not a breach of contract at all".
What Can We Learn?
Generic pharmaceutical companies maximise their profits by being the first on the market with products for which the patents have expired. Often, they market products are when patents relating to certain formulations are in force. They may consider that these patents are invalid, or not infringed. In those circumstances, they may well have to seek to revoke patents, or risk infringement proceedings. In both cases, there is likely to be an application for an injunction, and a cross-undertaking. Without a cross-undertaking, it is unlikely that the patentee will get his injunction. In these circumstances it is very important that generic companies consider who, beyond the parties to the action, will be affected by the injunction. Are there other companies within their group, suppliers, joint venture partners, who will lose financially because of the injunction? If so, then the wording of the cross-undertaking should reflect this. A cross-undertaking in the terms of the Practice Direction is sufficient, but if the cross-undertaking is limited to the defendant(s) in the action, it will be difficult to establish that other parties should be joined to the litigation so that they can take the benefit of the cross-undertaking, or that the cross-undertaking should be construed as extending to losses suffered by those third parties.
Do contact me if you would like advice in relation to the issues discussed above.
Anna McKay, August 2005
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