England and Wales High Court (Patents Court) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT

		Royal Courts of Justice The Rolls Building 7 Rolls Buildings London, EC4A 1NL
		12th September 2013

MR. JUSTICE BIRSS:

1. This action concerns pendimethalin. It is a herbicide used in agriculture applied to fields which grow wheat and barley. There are problems with pendimethalin and one particular problem relates to staining.
2. The invention is a method of making an encapsulated formulation. The patent in question is European Patent (UK) 0 747 116. The known method was to make an oil and water emulsion, add a further component to make the edges of the oil droplets form into walls and thereby encapsulate the herbicide. After that salt was added to the formulation for various reasons. The invention is based on what the patent says is a surprising discovery, that you can add salt at the beginning of the process before the walls are formed. The relevant claim is to a process of making the emulsion with the herbicide and including salt and then adding the wall forming agent afterwards. The advantages are said to be better encapsulation, reducing the staining problem; a higher concentration of active ingredient; and less crystallisation. I gather the crystallisation happens when some pendimethalin is in the aqueous phase and there is less of it when the formulation is made this way.
3. BASF sell a product of this process under the brand Stomp Aqua CS (CS stands for capsule suspension). It is not the only pendimethalin product on the market; in fact, the compound itself is off patent. There is also a formulation called EC which is not made by this process. Also, there was an SC formulation which is also not made about the patented process but that has now been replaced by the CS formulation. Mr. Gladwin, the marketing manager for the agricultural division of BASF plc in the United Kingdom, says that the CS is a better product.
4. Stomp Aqua CS was launched in the UK in about 2009. There was a competitive product called Cinder in 2010 which BASF believed infringed the patent; that was the taken off the market after a settlement with BASF.
5. Sipcam (UK) Limited is part of the Sipcam group owned by Sipcam SpA. It is an Italian private company with a minority stake held by Sumitomo and another Japanese chemical company. It also sells agricultural chemicals and has a long previous trading relationship with BASF. Unless it is necessary for me to distinguish, I will refer to the defendant and the group as Sipcam.
6. In 2001 Sipcam SpA started selling a CS formulation of pendimethalin in Italy and a few other states called Most Micro. In fact, Italy, I gather, is a small market for this product. The active ingredient, the pendimethalin, was supplied to Sipcam by BASF.
7. In 2009 Sipcam asked BASF to supply pendimethalin for them to sell Most Micro in the United Kingdom; BASF refused. However, at that time BASF did not say to Sipcam that BASF would contend that the sales infringed the UK patent.
8. In January 2013 Sipcam (UK) obtained an authorisation from MAPP, the relevant authority, to launch a CS formulation of pendimethalin under the name Most Micro in the UK. Correspondence with BASF ensued. BASF contends that the product infringes the UK patent and Sipcam contend it does not.
9. Sipcam say the only salt is salt added after the walls have been formed and not before. If that is true, then, as far as I can see, there can be no infringement; but BASF do not accept this. They have analysed the product. The salt in question is calcium nitrate. Their analysis looked at the behaviour of calcium in the product. The results are said to show that calcium behaved in a way not like a formulation in which the salt is added after the walls are formed, but more like a formulation in which the salt is added before. In effect, the analysis is saying that the calcium is present inside the microcapsules or at least in the walls of the microcapsules in a way which only makes sense if it was there when the walls were being formed. I will return to these discussions later on.
10. In any case, the parties could not agree. Sipcam are now in the process of launching Most Micro in the United Kingdom. BASF seeks an interim injunction restraining those sales pending trial.
11. Following the principles in the American Cyanamid case, BASF submits that it has an arguable case of patent infringement. It accepts that Sipcam have an arguable defence to the infringement claim. On the balance of convenience, BASF submits that the injunction should be granted.
12. Sipcam accept there is an arguable case of infringement but argues that the case is weak; their defence, they say, is much stronger and is supported by clear evidence in witness statements that salt is added after the walls and, therefore, the process does not infringe. Sipcam submit, following American Cyanamid, that once one has considered the various factors, this may be a case for taking the strength of the case into account and, if so, it favours the defendant.
13. Sipcam also contend that the balance of convenience favours no injunction and at the forefront of their case Sipcam say that BASF has delayed in seeking this injunction. They refer to the correspondence which has been going on since March, which I will return to later.
14. The matter came before me first last Thursday with an estimate of one hour. There was not enough time to hear it. I could have heard it on the Friday and offered to do so but Sipcam's counsel was not available, so it would not have been fair. On the basis of undertakings not to sell in the meantime, the case was adjourned to yesterday and I am giving judgment today.
15. Before me are Dr. Heather Lawrence, instructed by Kempner & Partners LLP, who appears for the claimant and Ms. Denise McFarland, instructed by Mills & Reeve LLP, who appears for the defendant.

Assessment

Arguable case

16. Clearly the way to resolve this dispute is for a proper unfettered inspection of the process in question by an independent expert or experts. They should be able to take samples and, if necessary, to analysis them. One of the points which obviously arises is that even if some salt is added after encapsulation, it may be that salt is present in one of the ingredients added at an earlier stage. The information from Sipcam so far does not allow one to tell if that is the explanation for BASF's analytical data.
17. In my judgment, there is a proper arguable case of infringement and, equally, a proper arguable defence of non-infringement. No issue of validity has been raised, although I note there is an oblique suggestion that Sipcam's process may be a prior art method, but there has been no attempt to address that before me. I will therefore turn to consider the balance of the other factors under American Cyanamid.

Irreparable harm to BASF

18. Stomp Aqua CS is one of BASF's most important products in the United Kingdom. One of the first matters they are concerned about is that the sales by Sipcam will cause the market price to fall. BASF rely on a quote from one of their distributors that Sipcam's price is at a "ridiculously low level". Sipcam deny that their prices are that low. I have evidence from Mr. Gladwin of BASF and from Mr. Hunter of Sipcam (UK). They disagree about the magnitude of the difference in price between Sipcam's and BASF's prices, but one thing is clear: Sipcam's price is lower. I will not try to resolve whether Sipcam's price is 30% lower (as BASF contend) or 12% lower (as Sipcam contend). The market is also quite complex with various formulations available. It is clear that Stomp Aqua and Most Micro sell at a premium price. In my judgment, whosever's numbers are right, the differences are appreciable. Sipcam are trying to take market share by selling at a lower price. That is a natural thing for a competitor like Sipcam to do but it will, in my judgment, have an inevitable effect on BASF and on BASF's price.
19. Although there was a question at one stage as to whether Sipcam (UK) would have had assets to pay damages if it turned out they were infringing, that is not a point I need to deal with because there has been an undertaking on the point offered to the court in an e-mail I received this morning from Sipcam SpA, the Italian parent company, who clearly have enough assets to fortify any such undertaking.
20. There is also a suggestion in the evidence that the size of the Most Micro sales relative to the market as a whole are very small, but I do not accept it is that simple. They may well be small relative to the pendimethalin market as a whole, but on the evidence I have seen Most Micro would represent a significant part of the relevant market which, in my judgment, is the market for Stomp Aqua CS.
21. Another factor which BASF rely on is that they are concerned about what they describe as irreversible price depression. BASF says that once the prices have been lowered to deal with the competition, they will find it difficult to return prices to the previous level and so lower price sales by Sipcam will cause a permanent change to the market. Sipcam say this is overblown. I do not accept that. I think BASF are entitled to be concerned about this. It seems to me there is a tangible risk this will happen. Once distributors are used to one price, why should they accept a higher one especially in a complex market where other products are available? In my judgment, this means that if Sipcam sell for this season there is a risk of a permanent change to the market. The patent, I note, still has two years, nine months or so to run.
22. There was some suggestion that the episode with the Cinder product was evidence against this. I do not agree. The Cinder product was not being sold at a reduced price and was not being sold into an established market for the CS product.
23. Another factor which has been argued is reputational damage. Each side says they will suffer damage to their reputation if they lose this application. I suspect that is probably true on both sides and I am not persuaded that this factor is a factor which would allow me to distinguish between the harm to BASF and the harm to Sipcam.
24. I should also note that Sipcam say that their product is as good quality as the BASF product and so quality is not a point which they say BASF could rely on to argue, for example, that Most Micro might damage the market. I accept that. It is not a point that BASF are taking.

Irreparable harm to Sipcam

25. Sipcam point out that if an injunction takes them off the market and it turns out that they should not have been taken off the market, their lost sales will be very hard to quantify. They say it would be easier to assess Sipcam's losses based on known sales by the defendant rather than based on a hypothetical market share. They refer also to the judgment of the Court of Appeal in Brupat v Sandford Marine [1983] RPC 61 case at page 64.
26. I do not see that as a strong point in this case. It seems to me that it is possible to calculated such sales and I refer to the judgment of Norris J in Les Laboratoires Servier v Apotex [2008] EWHC 2347 (Ch). I accept there is some uncertainty but I do not think the uncertainty itself is any more uncertain than the problems that would be caused by irredeemable price depression. I have mentioned reputational damage already.

Balancing these factors

27. It is quite clear to me that whatever I do will cause harm to either side if I take the other course. It is hard to quantify what the effect will be on both sides. However, I think there will be a more severe harm to BASF due to the real risk of permanent price depression if I refuse the injunction, than if I grant the injunction and cause harm which I should not have done to Sipcam.

The status quo

28. The defendants say that the claimant has delayed and so the court should not grant an injunction: either because there is no real urgency looking at the way BASF conducted themselves in correspondence; or, looking at the same thing in a slightly different way but coming from the same end point, that the relevant status quo is now that Sipcam are selling in the UK market and so an injunction should not take them off that market.
29. To resolve that dispute I need to go through the correspondence, it starts in March 2013 after the MAPP approval. There was a telephone call before that, I should say, but nothing turns on that. At an early stage Sipcam indicated that they would not launch in the spring market but only launch in the autumn market (that was something said in a phone call). The correspondence ensued and there was a suggestion of an inspection. BASF suggested that Mr. Jackson (their UK solicitor who also has a chemistry degree) should be someone who can inspect the plant, but that was not accepted by Sipcam. As a result, BASF suggested that an independent firm of Italian patent attorneys should carry out the inspection.
30. On 7th June 2013 there was an important letter from Sipcam. In that letter Sipcam indicated that they would impose limits on the inspection which would take place. They may have seemed reasonable limits from Sipcam's point of view but, in my judgment, it was not reasonable to expect BASF to accept them. Among the statements in that letter is one that Sipcam will not accept an inspection of the plant in operation. It was clearly not reasonable to expect BASF to accept an inspection of something other than the plant when in operation. The purpose of the exercise is to inspect the plant when it is making the product in question. Limits were also placed on what the independent expert could see. In essence, what was proposed seems to be addressed to show that salt is being added after encapsulation. However even if some salt is added after encapsulation, that does not deal with the issue because the question is: what was there before encapsulation? The proposal seemed to be seeking to limit the independent expert's ability to see that element of the process.
31. As I have indicated, Sipcam's stance about the inspection in this letter was not helpful. There is and always has been a simple way to resolve this case, which is to allow a proper inspection.
32. Ms. McFarland submits that BASF should at this stage have realised that they needed to seek an interim injunction, since it is clear that Sipcam are saying in this letter that they are going to sell in the autumn. I do not accept that it is fair to criticise BASF for not doing that at this stage. They were trying to resolve the issue by discussion. As Sipcam themselves have pointed out, the two companies had cordial relations hitherto and it was reasonable to try and resolve the matter. In fact, BASF had issued proceedings in April but had held off from service in order to try and resolve this and Sipcam were not aware of it. BASF at that stage were still trying to resolve the matter amicably.
33. As I said, at this stage Sipcam had made it clear to BASF that Sipcam would not sell in the spring market in the United Kingdom and indeed they did not; but they had said they would launch in the autumn market. As far as that is concerned, BASF's evidence is that the bulk of autumn sales are in late September and into October; although no doubt discussions will start earlier and there are might be some early sales in early September. Although there was some evidence from Sipcam to suggest that that is not right and that sales would have started earlier, I do not accept that and I prefer BASF's evidence on this point.
34. On this basis, standing back and looking at the letter on 7th June, there was no reason, in my judgment, for BASF to seek an interim injunction at that stage. As far as BASF were concerned, it was still possible to resolve this dispute amicably without court proceedings and there was still time to do so before the autumn sales started.
35. In response to the letter, BASF suggested a meeting and the meeting took place on 4th July; however, no real progress was made. There was a list of questions and Sipcam provided a process outline. However, the process outline does not condescend to details in relation to the ingredients. This is a key problem. Sipcam do point out that BASF had said that they would accept answers in general terms if the matters were confidential but, in my judgment, that does not excuse vagueness on the material ingredients. Clearly there will be some things which BASF did not need anything other than generic information about, but for the key ingredients it must have been plain to Sipcam that detail was necessary. It was not provided.
36. I should say a later response confirms the process outline, as provided, in the same terms. The evidence before me in witness statements from Ms. Cigna and Mr. Dezza again confirms that the process outline is accurate. Ms. McFarland says this is important; but the trouble is that it is conclusory. As I have said already, it does not condescend to details, nor does it attempt to explain the experimental results obtained by BASF. Again, it is plain that an inspection was needed. However, the problem now became, standing at July, that the plant is closed for August. At this stage also Sipcam told BASF that all the pendimethalin for the year had been made.
37. I should also mention a sample. The sample was provided at the end of June and was analysed at the end of July. It is that sample on which BASF put forward their evidence on this application to show why they say there are indications of infringement.
38. The next important step is a letter from BASF on 5th August. This letter shows that BASF clearly understands that Sipcam are saying they will launch in the autumn. BASF asks Sipcam to agree to a stay of the proceedings with Sipcam off the market until the matter is resolved by inspection. It must have been clear to Sipcam that BASF i) understood that Sipcam had not yet launched a product and ii) were seeking undertakings not to sell the product until the problem was resolved. On 9th August there was a reply from Sipcam. No undertakings were offered. The way the letter is put refers to undertakings looking to the future; it refers to BASF not being able to prevent Sipcam from entering the UK market in the autumn. In my judgment, it is written on the basis that entering the market has not yet occurred. The letter also refers to an inspection and says there will be a re-run of the pendimethalin process in September.
39. On 8th August proceedings were served on Sipcam (UK) and in particular on their solicitors. On 13th August BASF's solicitors asked the defendant's solicitors for undertakings not to sell the product, pending discussions continuing. On 22nd August, in response to the letter of 13th August, the defendant's solicitors (no doubt of course on instructions) informed the claimants that their clients (that is to say the defendant) was on holiday and they would take instructions.
40. A few days later BASF discovered that Sipcam (UK) was actually selling in the UK market and so on 29th August BASF launched interlocutory proceedings and it has had come before me. In fact, it turns out that Sipcam (UK) had been taking orders in July and into August. They were not on holiday at all. The suggestion is that the reference to a holiday in the letter of 22nd August was a reference to the Italian company and not the UK company. In my judgment, that will not wash. The United Kingdom company was the company that Mills & Reeve were acting for and the letter would be taken to be understood to be a reference to the UK company.
41. Ms. McFarland submits that BASF always knew that Sipcam would sell into the autumn market and that BASF have delayed bringing this matter to the court. Since they have delayed, it is submitted, that the status quo is today that Sipcam are on the UK market and so the injunction should not take them off because that will cause harm not just to Sipcam but to its UK customers.
42. Having gone through this correspondence, my conclusions are as follows. First, BASF behaved reasonably throughout this correspondence. Second, I am prepared to accept that it may be inadvertent but the effect of the correspondence is that BASF were misled about Sipcam's plans. BASF had no reason to think that Sipcam were going to start selling any time before September. In fact, Sipcam launched in July and in August but there is no reason why BASF should think that that is what Sipcam were going to do. Sales in July are not consistent with the tacit acceptance that Sipcam were not going to sell until autumn and the solicitor's letter in August was materially misleading. I do not accept that it is fair to regard the status quo as one with Sipcam on the UK market. The stance taken by Sipcam in the correspondence means that it is fair to regard the status quo as Sipcam not being on the UK market. Third, Sipcam's position in relation to the inspection was not reasonable. It could and should have accepted an inspection much earlier and all this could have been avoided.
43. In my judgment, there is no basis to say that any delay by BASF has had a material effect on the balance of convenience, in fact the correspondence works the other way and points against Sipcam. In summary on this point, my consideration of the status quo and the history of the way this matter has come to court favours BASF's position on this application and favours the grant of an interlocutory injunction.

Balancing the risk of harm to both sides the correspondence and the status quo

44. I have decided that I should grant an interim injunction in this case essentially for the following reasons. First, it would cause harm to both sides but I think the harm to BASF if I refuse the injunction (when in fact the patent is infringed) will be more significant than the harm to the defendant if I grant the injunction (when in fact they do not infringe). That is because of the irredeemable price depression which will cause a permanent change to the market. If I grant an injunction against Sipcam but, in fact, should not have done because the patent is not infringed, and order a speedy trial as both sides say I should, then they will be kept out of the market for a season or perhaps two. They will be able to sell again and those sales will be a guide as to what would have been sold before. That mitigates any problems of assessment on a cross-undertaking, if that should prove necessary.
45. Second, the correspondence between the parties favours BASF. There is a clear need for inspection. Whether deliberate or not, the effect of the approach in correspondence by Sipcam is prevarication. Once the issue was raised, Sipcam should simply have allowed a simple unfettered inspection by an independent expert. If that had been done in June all this may well have been avoided, so it is fair for Sipcam to bear the risk of waiting for the inspection to take place. I bear in mind that the inspection will or, at least, should now take place in late September. That may bring the entire case to an end one way or the other and so I will grant the injunction.
46. There are two further matters I need to mention. I have not taken into account Dr. Lawrence's argument about "clearing the way" based on the decision of Jacob J in SmithKline Beecham v Apotex [2002] EWHC 2556 (Pat) approved by the Court of Appeal in the same case [2003] EWCA Civ 137. Dr. Lawrence submitted that it was legitimate to take that factor into account in this case. In my judgment, a key thing about clearing the way is consider whether it is fair to say that the defendant must have known that there was bound to be litigation. In this case I reject that. An unusual feature of this case, unlike many others, is that Sipcam were selling the same product in Italy, a state which is covered by the Italian designation of the same European patent. In such a case I do not think it is fair to say that Sipcam must have known, prior to February 2013, that litigation was inevitable. I do not accept that the clearing the way argument is a factor which would have favoured an injunction in this case.
47. Also, I have not taken the strength of the case into account. I do not think the balance is so even that it would have been appropriate to do so following American Cyanamid, nor am I satisfied that the injunction would bring this action to an end. Although Ms. McFarland submitted it would, there is no evidence from Sipcam that that is the case and, in particular, no evidence that the case will not be worth a candle if I grant an interim injunction with a speedy trial. Even if it was, I do not think it would be easy to say who has a stronger case. BASF's evidence does not prove infringement definitively but it raises a technical question relating to the presence of calcium, which so far Sipcam have simply avoided answering. There has been no attempt to explain why their product seems to have calcium in a place it should not be. For that reason also, I will not take the merits of this case into account.
48. There will be need to be a cross-undertaking in favour of Sipcam SpA as well as Sipcam (UK), but my understanding is that is not objected to. I will need to hear the parties to discuss the speedy trial and the extent to which anything in this judgment needs to be kept confidential.
(for proceedings after Judgment please see separate transcript)