England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th March 2008

1. The Claimant, Eli Lilly and Company ("Eli Lilly"), is the registered proprietor of European Patent (UK) No 0 454 436 B1 (the Patent) covering the compound olanzapine which Eli Lilly manufactures and markets throughout the United Kingdom and the rest of Europe as ZYPREXA. By an Application Notice dated 18^th February 2008 Eli Lilly sought an interim injunction to restrain the First Defendant, at that time the only defendant to the action, from infringing the Patent and also sought an order that the Defendant disclose the names and addresses of all persons to whom it has supplied "Olanzapine Neopharma" and any other products containing olanzapine and the dates and quantities of each supply.
2. The application came before Floyd J on 20^th February. The Defendant consented to the addition of the Second Defendant to the action and the two defendants gave undertakings substantially in the form requested for the injunctive relief with the Claimant giving the usual cross-undertaking in damages. The Defendants (hereafter "Neolab") resisted the disclosure application which was adjourned with a very tight timetable for evidence and came on before me on the 28^th February.
3. The evidence on this application consists of two witness statements from Mr Hiscock of Eli Lilly, the second in reply to the Neopharma/Neolab evidence, and a witness statement of Mr Hopkins of Neolab and a witness statement of Mr Wain, a chartered patent attorney, on behalf of Neolab.

The Facts

4. Olanzapine is an anti-psychotic drug used for the treatment of schizophrenia, bipolar disorder and acute mania. Eli Lilly obtained a European marketing authorisation for ZYPREXA on 27^th September 1996. ZYPREXA has enjoyed tremendous worldwide commercial success since its launch. By 2006, annual worldwide sales for ZYPREXA were approximately £2.2 billion. The revenue generated by sales of ZYPREXA for Eli Lilly in the UK was £140 million, which accounts for approximately 50% of Eli Lilly's revenue in the UK.
5. Mr Hopkins' evidence is that the First Defendant, Neopharma, is a non-trading company based in the UK and is the holder of a variety of EU marketing authorisations. The major marketing authorisation held by Neopharma is the Olanzapine Neopharma authorisation. The exclusive distributor of the product in the UK is the Second Defendant, Neolab. Although Neolab and Neopharma have the same address and have a commercial relationship, they have different ownership.
6. Neolab is a privately owned, UK based company that markets generic pharmaceuticals in the domestic market through its own distribution outlets and in major EU markets (France, Germany etc.) through selected, major national generic companies. In the UK the sales and marketing strategy of Neolab has been to focus on the leading multiple/key accounts.
7. Neolab also enjoys a strategic alliance with Cipla Limited of Mumbai, India. Cipla is the largest pharmaceutical company on the domestic Indian market, a major developer of active product ingredients and the operator of numerous approved Medicines and Healthcare products Regulatory Agency (MHRA) manufacturing facilities in India. Neolab is the exclusive distributor of finished dosage forms for Cipla in the UK market.
8. Neolab now has over 90 marketing authorisations for 37 different molecules in its current portfolio. The audit of the accounts to 30^th June 2007 has not yet been finalised but the earnings before interest, taxes, depreciation and amortisation (EBITDA) are expected to be £1.1 million. Ignoring sales of Olanzapine Neopharma, sales for Neolab's financial year to 30^th June 2008 based on the current rate of performance are anticipated to exceed £20 million with EBITDA of between £3 million and £4 million. A large number of new product introductions are planned in the UK from 2008 onwards (over 40 in all) and the sales forecasts for the financial year to 30^th June 2009 are circa £45 million. I would note that Neolab achieved rapid growth from its start in 2000 with a turnover of £1.3 million rising to £13.8 million in 2004, from 2004 to 2007 the turnover has not increased significantly, being only £14.1 million in 2007.
9. Mr Hiscock, on behalf of Eli Lilly, points out that according to the unaudited accounts for the year to 30^th June 2007 Neolab had total assets of £11 million and total liabilities of £14 million.
10. Neolab filed a revocation action against the corresponding patent in Germany in May 2006 and this resulted in the revocation of that patent. This decision is under appeal.
11. In the UK Dr Reddy Laboratories (UK) Ltd and Actavis Ltd both launched revocation actions against the Patent in 2007 and the hearing of those actions is scheduled to start on 7^th July 2008. Neither of the Defendants in this action is involved in those proceedings.
12. There have been various actions in respect of equivalent patents in various countries. There have been decisions for and against Eli Lilly, with more for than against.

Correspondence Between the Parties

13. On the 2^nd November 2007 Eli Lilly wrote to Neopharma noting that the Committee for Medicinal Products for Human Use had recommended the grant to Neopharma of marketing authorisations for Olanzapine Neopharma in a range of doses for the treatment of schizophrenia. The letter refers to Eli Lilly's portfolio of patents in Europe and particularly the Patent which it said in the large majority of European jurisdictions was enforceable and would serve to prevent any form of marketing of generic olanzapine. It asked for certain information including "full details of when (by individual country) you intend to launch Olanzapine Neopharma in Europe". It asked for the provision of samples of each of the presentations of which regulatory approval has provisionally been granted and it asked for "your undertaking not to take any steps to market Olanzapine Neopharma in any European country where the '436 patent or a national equivalent thereof remains in force". Finally, it stated "Pending our hearing from you all of our rights, to include the right to seek appropriate interim relief, are expressly reserved".
14. This was replied to by solicitors acting for Neolab on 13^th November. That letter asked for information concerning the portfolio of patents in Europe. With regard to the request for an undertaking not to take any steps to market Olanzapine Neopharma it referred to the successful challenge to the validity of the Patent in Germany and the fact that it was subject to validity challenges in Spain and the UK and said "Therefore, so that we can properly consider your request for an undertaking, please confirm that you would in return provide a cross-undertaking to compensate our client for any and all consequential losses in any and all jurisdictions where the '436 patent or the national equivalent is ultimately revoked."
15. On 26^th November Eli Lilly wrote back with a list of the relevant European patents. In response to the request for the cross-undertaking it said:

"The provision of some form of cross-undertaking to your client at some point is not ruled out but the request gives rise to various factors, including:-

(a) Will your client provide an undertaking not to market generic olanzapine in jurisdictions where the '436 patent (or a national equivalent) is in force?

(b) The validity of the '436 patent is not under challenge in the large majority of its designated jurisdictions so there is no question of possible revocation in those countries.

(c) Apart from the grant of regulatory approval on 14 November, what additional evidence can your client point to so as to establish that it has both the intention and readiness to market its generic olanzapine in all of the jurisdictions to which you refer?"

16. Following a chasing letter, Neolab's solicitors sent a substantive response on 21^st December. For present purposes the last three paragraphs are relevant:

"... we anticipate that Lilly will still press its requests for both samples of Neopharma Olanzapine and a Process Description. As regards the former, Neolab/Neopharma do not have samples but these have been requested and should be available in January. ...

"As to the cross-undertaking, this was in response to your request that Neolab/Neopharma undertake not to take steps to market olanzapine in any European country where the '436 EP or national equivalent remains in force. If the undertaking requested is to be provided it should be against the usual cross-undertaking from Eli Lilly, which should have the same territorial scope. Intention and readiness to market generic olanzapine are only material if, in due course, one or more of the '436 EPs or national equivalents is revoked (which may be the result of revocation proceedings which are brought in the future). At that time, Neolab/Neopharma would need to substantiate damage. The question you ask does not arise at this stage.

"As to the undertaking you request from Neolab/Neopharma, please provide a draft, together with a draft of the cross-undertakings you would offer in return."

17. On 11^th January 2008 Eli Lilly replied sending a draft confidentiality undertaking that it would find acceptable to cover the samples and Product Description it had requested and concluding:

"3. Undertaking/Cross-Undertaking

We understand from your letter that in return for your client undertaking not to infringe our patent rights you expect a cross-undertaking covering all countries where the relevant patents are in force. Our position remains that we cannot be expected to offer such a cross-undertaking without a clear and justified indication that your client is able to launch in all of those countries. Put another way, what evidence does your client have to show that, absent the patent rights in question, your client would proceed with the marketing of Neopharma Olanzapine? Should your client need to provide any such evidence under suitable terms of confidentiality then this can of course be arranged.

"Please may we have your client's answer by no later than 18 January 2008."

18. On 17^th January Neolab's solicitors replied. The relevant parts of that letter are:

"As to the samples ... we are instructed that these are not yet available but that we should be in a position to provide you with samples of at least some of these strengths in the course of next week, once the Confidentiality Agreement has been executed.

...

"(The Process Description) is being prepared and we anticipate should be provided along with the initial samples during the week beginning 21 January, once the Confidentiality Agreement has been executed.

...

"As to the Cross-Undertaking, you persist in asking for details of Neopharma's ability to market Neopharma Olanzapine. We have already explained why this request is unnecessary. For example, if Lilly were to seek an interim injunction in England and Wales then this would require Lilly to give a cross-undertaking that it would comply with any order the court might make if the court later found that the interim injunction had caused loss to Neolab or Neopharma. The question whether Neolab or Neopharma would proceed with the marketing absent the interim injunction would only be considered in an action under the cross-undertaking. It is not in any way a pre-requisite for the cross-undertaking.

"The same approach must apply to any voluntary undertaking. Therefore, as we have requested since 13 November 2007, please provide us with the terms of the undertaking Lilly is seeking (including the territorial scope, by country) and the terms of the corresponding cross-undertaking which Lilly would provide. We would only add that provision of Samples should be adequate evidence in any event of Neopharma's ability to market Neopharma Olanzapine."

19. The letter of the 17^th January 2008 purported to enclose a copy of the Draft Confidentiality Agreement as amended by Neolab's solicitors however this was inadvertently omitted.
20. In paragraph 24 of his witness statement on behalf of Neolab Mr Hopkins states:

"Neolab had sold and supplied its entire stock of Olanzapine Neopharma tablets in the United Kingdom by the end of 18 January and it has not sold or supplied any Olanzapine Neopharma tablets in the United Kingdom after that date. Neolab has not supplied any other product containing olanzapine in the United Kingdom. Neopharma has never supplied Olanzapine Neopharma tablets or any other product containing olanzapine in the United Kingdom."

21. In paragraph 25 Mr Hopkins states:

"Neolab is not willing to provide details of any recipient of Olanzapine Neopharma tablets or of any of the quantities involved at this interim stage in proceeding. This is because this information is highly confidential to Neolab's business."

22. Neolab say that their customers are large wholesalers who are financially sound.

The Law

23. Mr Miller QC, on behalf of Neolab, accepted that the Court has the power to order disclosure of customer names but that it should be cautious in ordering such disclosure where, as here, it will not help Lilly establish its pleaded case on liability. Mr Miller referred in particular to Jade Engineering v Antiference [1996] FSR 461, Carver v Pinto Leite (1871) 7 L.R. Ch. App. 90 and Sega v Alca Electronics [1982] FSR 516.
24. In Jade, Mr Miller relied on the statement of Jacob J that in Sega "the Court of Appeal had refused discovery of the name of customers because the plaintiffs would have been able to use the information disclosed in a way prejudicial to the defendants even if they failed at trial". Moreover, in Jade, where the disclosure requested was granted it was the names of the suppliers rather than the names of customers. I agree with Mr Miller that the court will be more cautious about ordering the disclosure of names and addresses of customers than it will about ordering the names and addresses of suppliers. However, the jurisdiction to order such disclosure is not limited to cases where the information requested will help the claimant to establish its pleaded case on liability.
25. Mr Waugh QC, on behalf of Eli Lilly, took me to Mitsui & Co Ltd v Nexen Petroleum UK Ltd [2005] EWHC 625 (Ch) where Lightman J was dealing with an application for disclosure pursuant to the principles established in Norwich Pharmacal v Customs & Excise Commissioners [1974] AC 133 ("Norwich Pharmacal"). In paragraph 21 of his judgment Lightman J summarised the conditions to be satisfied for the court to exercise the power to order Norwich Pharmacal relief:

"i) a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;

ii) there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and

iii) the person against whom the order is sought must: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued."

26. It is suggested by Mr Miller that this summary goes too far in saying that it is sufficient if a wrong has "arguably" been carried out by an ultimate wrongdoer. He says that in the Norwich Pharmacal case the House of Lords relied on the fact that it was not in issue that there had been infringement of Norwich Pharmacal's patent. Therefore, it is not accurate to say that the jurisdiction extends to cases where the infringement is only arguable.
27. This point was considered in Carlton Film Distributors Ltd v VCI Plc [2003] EWHC 616 where Jacob J considered the decision of Sir Richard Scott V.C. in P v T Ltd [1997] 1 WLR 1309 and concluded:

"11 So Norwich Pharmacal is not limited simply to the case of finding out the name of a wrong-doer. It also extends to cases where there is a good indication of wrong-doing, but not every piece of what the claimant needs to plead a case is fully in position."

28. Accordingly it is clear that there is the power to order disclosure of the names of customers where those customers are arguably wrong-doers, the order is necessary to enable action to be taken against the wrong-doers and the defendant is mixed up in the wrong-doing and is in a position to give the necessary information. Those requirements are all met here.
29. That is not the end of the matter because, as Mr Miller points out, there is a discretion as to whether the order for disclosure ought to be made. In Sega v Alca Lawton LJ referred to the following passage in the judgment of James LJ in Carver v Pinto Leite:

"Generally speaking, as the Lord Chancellor, if I may venture to say so, well expressed it, the court does not weigh in golden scales the materiality of immateriality of the discovery in considering whether the rule is to be applied - that he who discovers at all must discover fully; but, as he goes on to say, there are cases in which it is important that the court should so weigh it, namely, cases in which the discovery is such as the plaintiff, though failing at the hearing, may afterwards use in a way prejudicial to the defendant. In such cases it is important to consider whether the discovery is material for the purpose of enabling the plaintiff to establish his case at the hearing, or material only for the subsequent purposes of the suit, in case the plaintiff should succeed. I am not at all disposed to grant discovery when I am satisfied that it is likely to be injurious to the defendant, and I am not satisfied that there is any real prospect of its being of material service to the plaintiff at the hearing."

30. The learned Lord Justice then went through the facts and the arguments of the parties and returned to this point:

"It is relevant to point out that the Norwich Pharmacal case, though it decided that the court has jurisdiction to order disclosure of names and addresses, did not in any way question the practice of this court which was established by the case of Carver v Pinto Leite. Indeed there are comment made by their Lordships in the course of their speeches which indicate that the overriding question for consideration when exercising the kind of jurisdiction which was recognised by the court in the Norwich Pharmacal case is the doing of justice to the parties. The rights of the plaintiffs must be safeguarded as far as possible; the rights of the defendants must also be safeguarded as far as possible, and it is a question of balance as to where justice lies."

31. Templeman LJ said:

"I agree with my Lord that orders for discovery such as those which are now sought, although useful, must be regarded with great caution. The power should not be exercised in interlocutory proceedings, and certainly not ex parte, unless the court is reasonably satisfied that the plaintiff will, or probably will, suffer irreparable damage if there is any delay in ordering discovery. Where the court is satisfied – and on ex parte applications the court cannot be certain; it must act on the evidence which is before it – that the plaintiff will or may probably suffer irreparable damage, then the court may act with all the speed with which the court is capable and may impose ex parte orders for discovery. But such orders should never be made as a matter of course – never merely as part and parcel of an Anton Piller order – without investigation of the circumstances of each case and without the court coming to the conclusion that it is necessary for the long-term protection of the plaintiff that such a Draconian course should be taken."

32. On this basis I believe that I must approach the question as to whether to make the Draconian order sought by the Claimant in a similar way to considering the grant of an interim injunction. It is accepted both that there is an arguable case of patent infringement and that there is an arguable defence based on the alleged invalidity of the Patent. I shall, therefore, consider the question of irreparable damage and balance of convenience.

Irreparable Damage and Balance of Convenience

33. Eli Lilly claim three types of irreparable damage that they will suffer if they do not get the information that they seek. They say that the situation is similar to how it was when they sought the interim injunction against Neolab. They say that Neolab's customers will be selling into the market in the same way that Neolab were and that this will have the consequence of: (1) encouraging other generic manufacturers to enter the market (there was a conflict between the parties as to how many other companies had marketing authorisation but it was common ground that there are at least two); (2) lowering the reimbursement price; (3) the perception within the UK healthcare sector and patients that olanzapine is ZYPREXA would be diluted.
34. Neolab say that the damage alleged by Eli Lilly is exaggerated and that since Neolab has given an undertaking not to supply in the UK the amount of allegedly infringing product on the market is limited and so won't have the effects suggested. Neolab says that it will suffer irreparable damage to its business through damage to its reputation if it has to disclose the names of its customers and how much it has supplied to them. This, it says, is confidential information that is valuable to a competitor and its value would be destroyed if it were to be disclosed to Eli Lilly.
35. On the evidence both sides have established that they would suffer irreparable damage.
36. Both sides say there are other factors that I should take into account in weighing the balance of convenience. Eli Lilly say that I should take into account the behaviour of Neolab that appears from the pre-action correspondence set out above and the fact that I cannot be certain from Neolab's accounts that they would be good for the substantial damage which Eli Lilly would undoubtedly suffer if the allegedly infringing product is allowed to be sold on by Neolab's customers.
37. Neolab say that I should take into account that Eli Lilly were clearly stalling for time in the pre-action correspondence. They say that Eli Lilly are making something of the order of £2.75 million per week so that they are very happy delaying at every turn. They say that Eli Lilly were delaying in refusing to offer a cross-undertaking in damages in return for any undertaking. Neolab also suggested that I should find that the Patent was weak and I should take that into account. To this end they put in the witness statement of Mr Wain, a chartered patent attorney.
38. On this last point, I indicated during the hearing that I would not make a finding on the strength of the validity case because it was not possible to reach any sort of conclusion on the evidence before me. Mr Miller did not push this issue.
39. In my opinion the balance of convenience is in favour of granting the order for disclosure. The fact that Neolab gave undertakings when sued is relevant. This must amount to an acceptance at that stage that the balance of convenience was in Eli Lilly's favour. In any event, I do not accept that the damage likely to be suffered by Neolab if they are ordered to give the disclosure sought will be as great as they say. Neolab chose not to "clear the way" by attacking the Patent before launching the product. They launched the product at a time when Eli Lilly were asking for undertakings not to do so. I accept that the pre-action correspondence is a relevant factor to take into account and I find that there was a lack of candour on the part of Neolab. Their solicitors' letter of 17^th of January was highly misleading. By this I do not intend to criticise the solicitors since I do not know what information they were given by their clients. However, the clients must have instructed their solicitors to write the letter. The clear implication of the letter was that Neolab had none of the product in their hands and would be receiving samples the following week. That was at a time when Neolab either had the product in stock or must have known that it was about to be released from customs because, on Mr Hopkins' evidence, they had sold all the stock by close of business the following day.
40. I realise that Neolab were under a very tight timetable for preparing their evidence on the application but they chose not to explain the circumstance of the letter of the 17^th January either in the evidence or on instructions to their counsel. In the light of the failure to explain that letter there is a clear inference that Neolab deliberately misled Eli Lilly to give themselves a chance to get the product onto the market quickly before Eli Lilly could stop them.
41. Furthermore, Neolab also chose not to reveal the quantity of product that is at issue. One of their arguments against Eli Lilly's case of irreparable damage was that the limited stock that was in the hands of their customers would not affect Eli Lilly's position to any great extent because it was a limited supply and it had all been sold at a price which was "a high proportion" of the price that was being charged by their customers and their customers were charging slightly more that Eli Lilly. The problem is that I have no evidence as to the size of stock that was sold to Neolab customers nor of the price at which it was sold. That stock may be considerable and, if so, it could cause very substantial damage to Eli Lilly in terms of lost sales, price depression and increased competition from other generic producers. In the circumstances I am not prepared to assume in Neolab's favour that the stock in question is small and would cause little damage to Eli Lilly.
42. Eli Lilly have made out a good case that they are likely to suffer substantial unquantifiable and irreparable damage of the type identified above if they cannot prevent further sales of Olanzapine Neopharma by Neolab's customers.
43. I also take into account that the evidence is that, although Neolab may have good prospects of making substantial profits in the future, the position at the moment is that they would not be in a position to pay substantial damages if Eli Lilly succeed at trial.
44. I do not find that Eli Lilly have been guilty of delay in the pre-action correspondence. Mr Waugh explained that they did not offer a cross-undertaking immediately because they wanted to know what their exposure on such a cross-undertaking might be. They say that Neolab would only be entitled to such a cross-undertaking if they could show that they had the intention and ability to launch in any particular territory. They say that this is the principle when the court is granting an interim injunction. The patentee is only entitled to an injunction when it shows that the defendant has the intention and ability to infringe and so the same applies to a cross-undertaking in damages. That may well be the case but here Eli Lilly were asking for undertakings. On their own case they would only be entitled to those undertakings if Neolab had the ability and intention to do the acts sought to be restrained. Therefore, if they are entitled to the undertakings then Neolab are entitled to commensurate cross-undertakings. However, the disagreement about the cross-undertaking did not cause the delay complained of. On the correspondence it was Eli Lilly who were chasing for replies not Neolab. Neolab could have precipitated matters at any time by telling Eli Lilly that they were about to import the product unless they received an offer of a cross-undertaking. Neolab did the reverse in that they hid the fact of importation from Eli Lilly until they had sold all the stock.
45. Neolab complain that Eli Lilly will sue Neolab's customers if they get the disclosure and that this will cause them damage and a loss of reputation. Neolab have created a situation where the only way in which Eli Lilly can be protected from what appears on the facts to be considerable irreparable damage is by being put in a position where they can take action against Neolab's customers.
46. Accordingly I will exercise my discretion in favour of Eli Lilly and grant the disclosure sought.