England and Wales High Court (Patents Court) Decisions

IN THE HTGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT

		Royal Courts of Justice Strand. London. WC2A 2LL
		27/06/2007

MR. JUSTICE KITCHIN:

1. I must now decide who must pay the costs of these actions. They are, not surprisingly, very substantial. I say not surprisingly because escitalopram is a product of enormous commercial significance. As I explained in my judgment, it accounts for 60% of Lundbeck's turnover. Moreover, the issues were complex, the parties prepared their cases with great care and the trial was hard-fought. As for the claimants, GUK's costs are estimated at about £886,000, those of Arrow at about £554,000 and those of Teva at about £624,000.
2. I should also mention that Arrow conducted the case on the basis of a conditional fee agreement ("CFA") from the 31 March 2006. The parties are agreed that any points to be taken on the uplift should be argued at a later stage.
3. As for Lundbeck, its costs are estimated at about £1,815,000. These costs are of the same order as those incurred by the claimants taken together and as a broad proposition I accept Lundbeck's submission that it cannot be said by the claimants that the costs incurred by Lundbeck in defending the patent are disproportionate or unreasonable.
4. The question of costs first came before me on 23 May but was adjourned to allow the parties time to consider a late flurry of witness statements and costs schedules and to prepare their submissions in relation to the various matters that arise for consideration.
5. In the meantime, Lundbeck and Teva have now agreed to settle the issue of costs of the Teva action (HC 06C02767) as between them on the basis that there be no order as to costs. No such agreement has been reached between the other claimants and Lundbeck and they remain a good distance apart.
6. GUK and Arrow submit that they are entitled to all their costs of their respective actions, subject perhaps to a small discount. Lundbeck submits the appropriate order is almost exactly the opposite and that I should award it about 75% of its costs of the GUK and Arrow actions, which equates to about 57% of its overall costs of all three actions. It estimates that 23% of its total costs of £1,815,000 can be attributed to Teva and that the remaining 77% can be attributed to GUK and Arrow in the ratio 45:32 respectively. It arrives at those figures by taking into account the different dates on which the actions by GUK and Arrow began.
7. The general principles which must guide me are set out in CPR 44.3, which provides, so far as material:

44.3(1) The court has a discretion as to -

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid. (2) If the court decides to make an order about costs -

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order ...

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including -

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful;

(5) The conduct of the parties includes -

(a) conduct before, as well as during, the proceedings, ...

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(6) The orders which the court may make under this rule include an order that a party must pay -

(a) a proportion of another party's costs;

(b) a stated amount in respect of another party's costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; ...

(7) Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraph (6)(a) or (c)."

8. The relevance of all these matters to patent actions was affirmed by the Court of Appeal in SmithKlme Beecham v Apotex [2005] FSR 24, as Jacob LJ explained at [24] to [28]:

"[24] In respect of all intellectual property matters the general rule is that the CPR and associated practice directions apply, unless a rule in Pt 63 or its practice directions provides otherwise (CPR 63.2). There is no such rule. So, subject to the two statutory provisions discussed above, the general rules apply as much to patent actions as to any other action.

[25] It follows that all the factors set forth in CPR 44.3 apply to how the court should exercise its discretion as to costs. Prior to the CPR a party who was successful overall was not normally deprived of its costs of an issue it took unsuccessfully unless it has done so unreasonable, see Re Elgindata (No. 2)[1992] 1 W.L.R. 1207. But since the CPR a more issue-by-issue approach is appropriate, see Summit Property v Pitmans [2001] EWCA Civ 2020, applied in a patent action, Stena Irish Ferries [2003] EWCA Civ 214. Even before the CPR an issue-by-issue approach was, as an exception to the Elgindata approach, applied in patent actions because of the 'large number of issues and the very extensive costs that can be incurred' per Aldous J. in Rediffusion v Link-Miles [1993] F.S.R. 369 at 410.

[26] An issue-by-issue approach is therefore one that should be applied in so far as it reasonably can. On the other hand such an approach is not the be-all and end-all. Whether or not 'it was reasonable for a party to raise, pursue or contest a particular allegation' remains a relevant factor to be taken into account as part of the conduct of the parties (see CPR 44 r.(4)(a) and (5)(b)).

[27] Before turning to this particular case I should say something about this. Although an issue-by-issue approach is likely to produce a 'fairer' answer and is likely to make parties consider carefully before advancing or disputing a particular issue, it should not be though that it is capable of achieving a 'precise' answer. The estimation of costs, like that of valuation of property, is more of an art than a science. True it is that one can measure certain things (such as pages of witness statements or transcripts devoted to a particular issue) but they can only be indicia to be taken into account. It would be dangerous to rely upon them as absolutes. Indeed brevity of a document, or a cross-examination, may be the result of great care: was it Hazlitt who apologised for the length of a letter, excusing himself on the grounds that he had not enough time to compose it?

[28] It follows that there is no 'precise' figure of costs which, in theory with perfect measurement tools, one could reach. The best that can be achieved is an estimate which is necessarily going to be somewhat crude. The costs in this case are very great, reflecting the much larger sums at stake. We were told the total figure is about £8m for both sides all in (trial, appeal, interlocutory matters). This reflects the much bigger sums at stake for a top-selling pharmaceutical. Mr. Watson pointed out that a 1 per cent difference given to one side or the other could amount alone to £80,000. He is right, but that does not mean that anything like an accuracy of 1 per cent can be achieved."

9. The first matter I must therefore have regard to is whether GUK and Arrow on the one hand, or Lundbeck on the other, can properly be described as a successful party. I have found that claims 1 and 3 of the patent are invalid but that the attack on claim 6 has failed. Both sides have therefore achieved a measure of success and, as Lundbeck submits, with some justification, it is not open to GUK and Arrow to say that claim 6 is of no interest to them, having chosen to attack it for what were no doubt well thought-out reasons.
10. Nevertheless, I believe that to treat these proceedings as, so to speak, a "draw" would not be a fair reflection of the reality. GUK and Arrow have succeeded in having the main product claims revoked. As a result, they are free to make and sell escitalopram provided they do not use the particular method the subject of claim 6.
11. The position in relation to GUK is, I think, particularly clear. It has a product which it wishes to import. Lundbeck pursued a positive case of infringement against GUK by way of a Part 20 claim. Originally it sought to assert infringement of claims 1,3,5 and 6. However, on 3 April 2006 Pumfrey J decided there was no reasonable prospect of success on claim 6, a decision upheld by the Court of Appeal on 3 August 2006. A restricted counterclaim for infringement against GUK was eventually served on 5 February 2007 alleging infringement of only claims 1, 3 and 5. Claim 5 was not asserted to be independently valid and accordingly, as a result of my finding in relation to validity, the claim for infringement has necessarily now failed in its entirety. GUK's main commercial purpose has been achieved.
12. So far as Arrow is concerned, it too claims a commercial victory. Mr. Forsyth, a solicitor acting for Arrow, has said in a witness statement dated 21 May 2007 that the purpose of these proceedings was to clear the way for any generic escitalopram product. Had Lundbeck conceded the invalidity of claims 1 and 3 at any time during the course of the proceedings, Arrow would have withdrawn its claim.
13. I accept that GUK and Arrow have by no means been wholly successful but I have reached the conclusion that they have achieved a significant success overall in having the broad product claims revoked and that this is a matter which should be reflected in my approach to the issue of costs.
14. The next matter to be considered is the extent to which it is appropriate to consider an apportionment of costs by reference to issues. I have found claims 1 and 3 to be invalid for insufficiency but that the attack of lack of novelty against claims 1 and 3 and the attacks of obviousness against claims 1, 3 and 6 all failed. The obviousness attacks were undoubtedly very heavy and comprised two limbs. First, that all three claims were invalid because it was obvious to carry out the process of claim 6; and second, that claims 1 and 3 were invalid because it was obvious to resolve the enantiomers of citalopram by using preparative chiral HPLC.
15. GUK and Arrow have urged upon me that there was a great deal of overlap of evidence between the obviousness and insufficiency attacks and that it would be wrong to make any variation to the normal order that the successful party should have its costs.
16. I accept the submission to a point. There was undoubtedly a degree of overlap; for example, the extent of the common general knowledge and whether there was a motive to resolve were common to both attacks. Further, I am of the view that both limbs of the obviousness attack were reasonable ones to pursue. It is also right to acknowledge that the claimants were successful on other aspects of the obviousness case such as the irrelevance of commercial success. Nevertheless, I have no doubt that very substantial costs have been incurred in relation to the novelty and obviousness attacks which would not have been incurred had the only attack been one of insufficiency.
17. Mr. Inman, a solicitor acting for Lundbeck, has attempted to produce a breakdown of the costs incurred by Lundbeck. His starting point is to divide the costs into sections, representing three different time periods. The first relates to costs incurred in the period before the insufficiency case was raised or pleaded; the second relates to costs incurred after that date and until trial and the third relates to the trial itself.
18. As for the first period, Mr. Inman has assessed the costs on two bases depending on whether the date is taken as 13th October 2006, when the insufficiency plea was first raised, or 27th November 2006, when it was introduced into the pleading by amendment.
19. In the former case he estimates the costs incurred in relation to validity at £697,000, representing about 38% of Lundbeck's total costs and in the latter case he estimates those costs at £887,000, representing about 49% of Lundbeck's total costs. Lundbeck says it is entitled to all of these costs because they necessarily relate to issues on which GUK and Arrow lost. As Mr. Waugh QC, who appeared on behalf of Lundbeck, put it, the acid test is what was in issue and at that stage it was only obviousness and novelty.
20. As for the second period, Mr. Inman has sought to identify the costs incurred in relation to the issues upon which Lundbeck lost; namely, insufficiency, motive to resolve, commercial success and availability of Chiracel OD. He has done so by assessing the time he personally spent on those issues and assuming it is representative of the rest of the Lundbeck team. His assessment is that, at most, about 10% of his time can be attributed to those issues upon which Lundbeck lost and, accordingly, 90% is attributable to those issues on which Lundbeck won. If the starting date for this period is taken as 13 October, he assesses Lundbeck's costs for this second period at about £611,000 and if it is taken at 27 November, he assesses Lundbeck's costs at about £417,000.
21. As for the final period, that of the trial, Mr. Inman has reviewed the transcripts of oral evidence, the closing submissions and the judgment and has again sought to estimate the time attributable to the various issues on which Lundbeck lost. His conclusion is that 66% of the costs were incurred in relation to issues on which Lundbeck won and 34% to issues on which it lost. Lundbeck's costs for this period were in the region of £453,000.
22. Mr. Marshall, a solicitor acting for GUK, has challenged Mr. Inman's figures. In relation to the first period, he points out (in my judgment with considerable justification) that much of the work carried out at this time would have been required in relation to the allegation of insufficiency in any event. By way of example, he highlights the issue of disclosure. It seems to me that a good deal of the other work done at this time must also have been relevant to the issues on which Lundbeck ultimately lost, or which have resulted in further general costs of the action. The artificiality of attempting to draw a line in the sand between the first and the second periods is also illustrated, as Mr. Speck, who appeared on behalf of GUK, pointed out, by considering the figures in table 2 of Mr. Inman's second witness statement. If the relevant date is taken as 13 October, then 3.34% of the time is estimated to have been spent on sufficiency; whereas, if it is taken as 27 November, then that is reduced to about 1.9%.
23. As for the second period, Mr. Marshall levelled a number of criticisms at Mr. Inman's evidence. In my judgment, the main problem with Mr Inman's categorisation is once again that it fails to take full and proper account of the general costs. The categories are very precisely defined. The costs directly attributable to the issues in those categories have been assessed and all other costs have apparently been put aside.
24. For his part, Mr. Marshall has estimated that 40-45% of GUK's pre-trial costs were incurred on issues which related exclusively to obviousness and lack of novelty, even though those issues included sub-issues on which the claimants may fairly claim to have succeeded.
25. Mr. Forsyth has estimated that 25-30%) of Arrow's pre-trial costs were incurred in relation to issues concerned exclusively with obviousness and lack of novelty. This difference between GUK and Arrow is attributable to the way the claimants chose to divide the issues between them, rather than to how they have approached the assessment of costs.
26. As a result, I think it is appropriate to take a composite figure derived from Mr. Marshall and Mr. Forsyth's evidence. In my judgment, a reasonable figure to adopt is 40%), which is at the bottom of the range estimated by GUK.
27. As for the third period, that of the trial, Mr. Marshall estimates that GUK and Arrow won on 34%o of the issues, that Lundbeck won on 25% and that there was no clear winner on 41%.
28. To my mind, it emerges quite clearly from this evidence that on any basis very substantial costs have been incurred in dealing with the issues of obviousness and lack of novelty. I have accepted that these allegations were reasonable ones to raise. However, they have added so much to the weight of the case that I have reached the conclusion it would not be right simply to award GUK and Arrow the bulk of their costs on the basis they have emerged from this litigation having achieved their primary commercial objectives. On the contrary, the costs were so substantial and the issues were, at least in part, sufficiently self-contained that I think justice requires that GUK and Arrow pay a contribution to Lundbeck in respect of the additional costs which I am satisfied Lundbeck has had to incur as a result of the introduction of these attacks into the proceedings.
29. That brings me to the estimate itself. As Jacob LJ observed in Apotex, precision is impossible. Estimation is more of an art than a science and is necessarily crude. The various matters to which Mr. Inman, Mr. Marshall and Mr Forsyth have referred are indicia to be taken into account. I cannot rely upon them as absolutes. I must also take into account my own impressions of the case. I would, however, make the following observations.
30. First, I think it is right that GUK and Arrow should have the general costs of their actions in addition to the costs incurred specifically in relation to the allegations of infringement and insufficiency. In so far as there were issues on which there was no clear winner, then I think GUK and Arrow should have their costs.
31. Second, I am satisfied that GUK and Arrow should also have all their costs attributable to the issues of commercial success, motive to resolve and Chiracel OD.
32. Third, in the light of the foregoing I believe that justice would be better served by adopting as a starting point Mr. Marshall's and Mr. Forsyth's estimates of the costs incurred exclusively in relation to the issue of obviousness and lack of novelty.
33. Doing the best I can, I arrive at the following conclusions. In respect of the pre-trial period and in the light of my earlier observations, I believe a fair result would be achieved by ordering Lundbeck to pay to GUK and Arrow 60% of their costs and for GUK and Arrow to pay to Lundbeck 40% of its costs. That is, of course, 40% of the costs of Lundbeck which are properly attributable to these two actions. Despite the submissions of Mr. Waugh, I believe that those costs should be considered to be two thirds of their costs as a whole.
34. In the case of GUK, I would have been minded simply to set off the two figures and order Lundbeck to pay to GUK 20% of its costs but I was urged by Mr Speck not to do so because this would load too great a share of Lundbeck's costs onto GUK and they should rather be equally divided between GUK and Arrow. Nevertheless, l anticipate that a relatively simple calculation will reveal that Lundbeck should pay a certain percentage of GUK's pre-trial costs when the appropriate two figures are set off the one against the other. In the case of Arrow, it is not possible to arrive at such a net figure because the CFA raises issues which have not yet been determined.
35. In respect of the trial itself, I have once again reached the conclusion that Mr. Inman's figures do not reflect the general costs but, equally, I think that a composite of Mr. Marshall's figures of 34% for the issues on which GUK and Arrow won and 41% unattributable costs would be too generous and would not be fair to Lundbeck.
36. In the light of my own assessment, and taking into account the submissions advanced today by Mr. Waugh and the points made by Mr. Inman, I conclude that Lundbeck should once again pay to GUK and Arrow 60% of their costs of the trial and that they should pay to Lundbeck 40% of its costs. As before, a relatively simple calculation should reveal a net figure which Lundbeck should pay to GUK. That will not, however, be possible in relation to Arrow, as a result of the CFA.
37. Stepping back and looking at the matter in the round, bearing in mind the reasonable nature of the obviousness and lack of novelty allegations, the manner in which they were pursued and the ultimate outcome, I think an order that Lundbeck should pay to GUK and to Arrow 60% of their costs as a whole but that they should pay to Lundbeck 40%) of its costs of these two actions is fair and just.

MR JUSTICE KITCHIN: That concludes my judgment. In the light of that, Mr. Speck and Mr. Chacksfield, will you consider what you would like to do about the CFA and the further calculation?

MR. SPECK: My Lord, can I just clarify one point. Your Lordship mentioned that the 40% was two thirds of the costs and I understood your Lordship to mean that all the way through, although you did not repeat it.

MR. JUSTICE KITCHIN: Yes.

MR. SPECK: My Lord, I think we can go away and do the calculations. It is a pretty easy pro rata-ing whereby albeit it is eight thirteenths and five thirteenths because of the disparity in the size of our bills. Obviously, my learned friend cannot come up with a total that is payable to him but I can come up with a proportion that would be payable to me as a proportion of my costs on that basis. I think we can do that without troubling your Lordship again.

MR. JUSTICE KITCHIN: I am grateful. Is there anything else can be dealt with this afternoon in short order?

MR. SPECK: Can I just take some instructions?

MR. WAUGH: Whilst he is seeking instructions, there is one very short point. It is from the previous order: the question of the scope of the certificate of contested validity, a very quick point that was canvassed in writing.

MR. JUSTICE KITCHIN: I am against you on this one, Mr. Waugh.

MR. WAUGH: I will not push any harder in that case, my Lord.

MR. JUSTICE KITCHIN: It seems to me it is a matter which you can obviously take in the context of any subsequent proceedings. No doubt my judgment will be well publicised, if it survives the appeal.

MR. WAUGH: It is well publicised already, my Lord. That is good. That clears it out of the way.

MR. JUSTICE KITCHIN: You can make whatever submissions you consider appropriate and the judge will take it into account in deciding the appropriate order as to costs. So that deals with that.

Does that conclude the business for the day?

MR. SPECK: It does, my Lord, yes.

MR. JUSTICE KITCHIN: Mr. Chacksfield?

MR. CHACKSFIELD: Yes, my Lord.

MR. WAUGH: My Lord, I anticipate we really need liberty to restore this, in the light of your Lordship's judgment, to try to sort out ----

MR. JUSTICE KITCHIN: ---- the CFA, if it cannot be agreed.

MR. WAUGH: Yes.

MR. JUSTICE KITCHIN: Indeed. I will give you liberty to restore. Would you please draw up the minute, which will be a final order now, with, of course, liberty to apply contained within it.

MR. SPECK: I am not sure it can be a final order as between my learned friends, but maybe that is a matter for them, because your Lordship actually has to make an order as to costs.

MR. JUSTICE KITCHIN: I see.

MR. SPECK: As for me, I am absolutely with your Lordship.

MR. JUSTICE KITCHIN: You may well be right. I will reserve my position on that, then.

MR. SPECK: Certainly, for my action, your Lordship can make a final order when we have done the sums.

MR. JUSTICE KITCHIN: The appeal is proceeding?

MR. SPECK: Yes. We had the Notice of Appeal the day before yesterday, I think.

MR. JUSTICE KITCHIN: Thank you all very much.