England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
PATENTS COURT
(MR JUSTICE MANN)

		Royal Courts of Justice Strand, London, WC2A 2LL
		25th June 2008

Lord Justice Jacob:

1. This is an appeal from a decision of Mann J given on 17 March 2008 (EWHC 541 (Pat)). He granted Leo, the patentee/claimant, an interim injunction restraining the sale of a particular pharmaceutical cream.
2. The patent covers a particular crystalline form, the monohydrate of a vitamin D analogue called calcipotriol. The chemical substance itself is old and out of patent. The present patent claims that the monohydrate is new and has particular advantages. Leo sell the patented product in the form of a cream and an ointment under the trademark Dovonex. Since April 2007 the ointment form has been gradually replaced with a combination product, which contains calcipotriol monohydrate with a steroid. This goes under the trademark Dovobet. The Dovonex cream remains on the market.
3. The two products form an important part of Leo's business. Dovonex and Dovobet form 45% of Leo UK's turnover. The UK market is also to some extent met by parallel imports from other parts of Europe, so the actual portion of Leo's UK business taken by these products is rather higher than the 45%. Leo have plans, which they are implementing at the moment, to launch a new combination product containing the patented product, specifically for psoriasis.
4. The defendant, Sandoz, is a substantial player in the generic pharmaceutical market. It has over a hundred products. It launched a generic calcipotriol cream in October 2007. The launch was limited in scope and the judge dealt with the initial launch from paragraphs 45-87, and how Leo came to find out about it in paragraphs 45-87. It is not a satisfactory story. The judge concluded at paragraph 88, saying:

"I think that what all that evidence shows is that Sandoz embarked on a deliberate tactic to try to obstruct Leo, so far as it could, insofar as Leo might otherwise seek to stop the launch of its product."

Certain matters in correspondence that had been advanced on behalf of Sandoz were not in fact true.

5. The scale of the launch was unusually small for a generic company. We have got the figures for sales, which are annexed in a confidential exhibit to the witness statement of Dr Heidemann. It is common ground that to the end of February, that is to say over a four-month period, the sales were comparatively modest. There is no breakdown of how the sales went in the four months; only a total figure is given. Comparing those figures with the figures obtained by an organisation called IMS (which show sales to the pharmacists, whereas Dr Heidemann's figures are sales to wholesalers), it would appear that quite a lot is still lying with the wholesalers. This is perhaps not surprising because the price at which Sandoz had been selling was of the order of Leo's price.
6. The judge reasoned that Leo could not be "entirely adequately compensated in damages because of the uncertainties to which I have referred." (Paragraph 38) He then considered the position of Sandoz if an injunction were granted and came to the conclusion that they too cannot entirely be adequately be compensated by virtue of the cross-undertaking in damages (Paragraph 41). He then went on to say:

"My conclusion, therefore, on those two limbs of American Cyanamid is that both parties have a case for saying they could not fairly be left to the financial compensations that arise from damages and the cross-undertaking as to damages, although if one is balancing the factors the impact of the uncertainty is probably greater as far as Sandoz is concerned, than it is for Leo. Nevertheless, one cannot say that either party is entirely adequately compensated merely by a monetary remedy at the end of the day."

7. The judge then went to consider the balance of convenience. This approach seems to me to be entirely orthodox; that which is called for by American Cyanamid v Ethicon Ltd [1975] AC 396. The judge had previously considered whether there was a serious issue to be tried. He had come to the conclusion that there was and there is no challenge to that before us. He then went to consider whether damages would be an adequate remedy for Leo. He came to the conclusion there were not and then went on to exercise the balance of convenience, which is exactly the route prescribed in Cynamid at page 541 of 1975 Reports of Patent Cases.
8. In giving permission to appeal, I said this:

"In particular, it is arguable that the judge made an error of principle in that there was no likelihood of a serious price drop before trial. If that is so and there is no real likelihood of other generic competition it is difficult to see why damages would not be an adequate remedy for the patentee."

9. Mr Richard Miller QC, who appeared for Sandoz, submitted that the judge had made no less than five errors of principle. The more one analysed them, the more one saw that the really important suggested error of principle was about whether or not there might be a price cut before trial which would produce irreparable damage. Before I consider that further, it is worth articulating precisely what the judge had to consider here. He did not have to decide, on the balance of probability, whether or not there would be a price cut if there was no injunction. He was not conducting the exercise of deciding, as one has to when deciding a question of fact at trial, whether a matter is so or not. He was entering a quite different exercise: that is to say, the exercise of considering various possibilities which might happen before trial.
10. It would be right for a judge conducting this exercise to disregard any possibility which is fanciful. But if there is a possibility which is more than fanciful then, as it seems to me, the judge is entitled to go on and say, as Mann J did, that there is doubt as to the adequacy of "the respective remedies and damages" to use Lord Diplock's words. So the question here is whether there is a realistic possibility of there being a price cut.
11. Leo's evidence was that in effect 70% of the market for this cream could be open to generic competition because 70% for prescriptions use in the generic name rather than Leo's trademark. Mr Hill, Leo's witness, asserted that which is probably no more than commercial common sense: that a competitor such as Sandoz, would want, if they could get it, that 70% of the market. Disregarding for the moment what is said in the evidence, common sense also says that the only way they are going get that would be by marketing at a price less than Leo. There is no incentive to a pharmacist to stock the generic product if the price he has to pay for it is the same as the original. Indeed there is every disincentive in doing so, because he would have to stock two products: the trademarked product and the generic product; whereas he could meet all prescriptions with trademarked product alone if the price is the same.
12. Mr Miller says that the judge was wrong in taking such an attitude and the judge made an error of principle. He has to say that an error of principle was made; there is no dispute about that. Mr Carr, in his skeleton argument, refers to other cases involving exercises of discretion by a judge being considered by the Court of Appeal, in particular GSK v Genentech [2008] FSR 18 and Chaplin Patents Holdings Company Inc v Group Lotus Plc (unreported, 17 December 1993). Quite why he went to an unreported case for such a well-known principle, I do not know. In any event, it is not in dispute here.
13. What Mr Miller's first point and first ground of appeal is: "Has the judge made an error of principle in deciding that there was a possibility that Sandoz will to some extent reduce its price, which may drive Leo's price down?" I am quoting from paragraph 31. Mr Miller says that that was fanciful. I think he is driven to say that. Mr Carr responds by saying: "Well, there was material upon which the judge could make that finding". First and perhaps most powerfully is the simple common sense of it. It is, of course, important for a generic company to be first in the field if it can. For if it is first, it can sell its product against the patentee and there is no third party driving the price down faster, each undercutting the other. But even where there is a single generic company unless it sells at a lesser price than the patentee, it is simply unlikely to make significant sales.
14. Mr Miller draws our attention, particularly, to the evidence of Dr Heidemann about the intentions and expectations of Sandoz. A number of figures are given at paragraph 46 of his witness statement, from which a number of calculations have been done. These show that the Sandoz UK anticipated sales are 5,438 packs per month. That, submits Mr Miller, is a small proportion of that which is sold by Leo, who sell over 30,000 packs a month; moreover, it is clearly predicated on a fixed price and that that price is, roughly speaking, the same as Leo's.
15. There is, of course, no undertaking, and cannot be, that Sandoz would keep its price as stated. There is every commercial incentive for lowering the price so as to seize a much greater proportion of the market. Mr Miller, from time to time, said: "But would they lower their price? It would reduce their profit." Well, yes and no. It would reduce the profit per pack, but if the number of packs that were sold went up substantially, the profits would clearly increase. I give credit to Sandoz for being commercial businessmen to this extent, that there is a real commercial incentive to lower their price. Was their material upon which the judge could find that there was a risk of that, a possibility, as he put it, and I take him to mean a non-fanciful possibility? The answer is yes.
16. Then one enters a great field of speculation. What would be the response of Leo? Would they keep their price where it stood or would they find that that made no commercial sense? Mr Hill's witness statement is, perhaps not surprisingly, not entirely clear as to what they would do. He does not know. It would depend how much the price cut was, how much of the market was being taken. One is into an area of "what if?" and "how much?" and a whole series of other uncertainties. Take this as a realistic uncertainty: suppose an initial price reduction of the order of 10%. What if Sandoz started to get a substantial part of the market? Would Leo just stand by and let it get the rest? Who knows?
17. Moreover, there are further heads of uncertain damage such as the effect on the price in Spain, where, curiously, they have a rule that their prices depend upon the price in other countries.
18. So one is simply left in a state of speculation. True, it all depends upon the possibility that there may be a reduction in price, but once one reaches the conclusion that that is a realistic possibility, then one is left in a total field of uncertainty, as it seems to me.
19. Mr Miller made a particular point that even if there is a price cut and Leo cut their prices, one could work out with a pure piece of mathematics what the loss was to Leo by simply looking at combined sales figures of Leo and Sandoz and calculating that against the NHS standard price. I see the force of that, but it seems to me that it overlooks all the other factors which may come into the equation. Could Leo get their price up again afterwards, either here or possibly in Spain if there had been a reduction in Spain? What might happen if another generic company came in?
20. In this connection it would seem that before the judge that that last matter did not play a significant factor as a direct cause of uncertainty. At paragraph 31 the judge records this:

"Mr Mitcheson pointed out that Mr Lykiardopoulos, who appeared for Leo, did not dissent from the fact, that, since there is only one competing product on the market, the price spiral that so often takes place when there are two or more generics coming into a patented field is unlikely to happen."

21. Mr Carr submits that nonetheless the judge took that into account as a possibility when considering the damage Sandoz might suffer because he considered the first generic to market point and Sandoz's stated worry that some generic might come into the market.
22. For myself, I do not think this point matters. The real point is that Leo currently have a monopoly price. If Sandoz come in with their considerable marketing powers, as a substantial company, and were to lower their price, the consequences of working out the financial damage to Leo go beyond merely difficult to being incalculable.
23. Walker J, as he then was, in Peaudouce v Kimberley-Clark [1996] FSR 680, at page 699, said: "The test is whether damages are an adequate remedy, not a perfect remedy." And later on he referred to damages being "as adequate as possible in an imperfect world." But there comes a point when the uncertainty is too great to regard damages as adequate even on that basis.
24. Here Mann J was considering what might happen if there was a price cut. Once he got to the point of considering that was a realistic possibility then one was moving not simply to whether the remedy of damages was adequate but whether damages were reasonably calculable at all.
25. I cannot begin to see that Mann J made any error of principle. On the contrary, I think he followed exactly that which is laid down by American Cyanamid, and in assessing the evidence made no error of principle. Accordingly I would dismiss this appeal.

Lord Justice Wilson:

26. I agree.

Lord Justice Mummery:

27. I agree. I would accept the submission of Mr Henry Carr QC that this exercise of discretion by the judge was entirely justified on the material before him. There were no grounds for this court to interfere with his decision to grant an interim injunction against Sandoz.

Order: Appeal dismissed