England and Wales High Court (Patents Court) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT

		The Rolls Building 7 Rolls Buildings Fetter Lane London, EC4A 1NL
		13th January 2017

MR. JUSTICE HENRY CARR:

1. The first application that I need to consider is made by the defendant (referred to at the hearing by the name of its parent, Pfizer) which is the patentee in this case, for determination of the basis upon which damages or, alternatively, an account of profits can be allowed to proceed in the present case.
2. The matter has come before me in a slightly unusual way, but it has been clarified by the parties that they wish me to treat certain points as preliminary issues in order to save what will undoubtedly be an expensive inquiry going off on the wrong foot, with the risk that a great deal of evidence will be served which is subsequently held to be, as a matter of law, inadmissible and irrelevant. Therefore, I am prepared to consider this application on that basis.
3. The issues which have been helpfully set out by Mr. Mitcheson QC in GSK UK's skeleton argument are as follows: first, whether it is open to Pfizer to claim an account of profits at all, whether for past or future infringements; second, whether there is a juridical basis for Pfizer to claim an account of profits in lieu of an injunction with respect to future infringements; third, whether it is open to Pfizer to claim on its pleadings an account of profits in lieu of an injunction with respect to future infringements; fourth, whether Pfizer may elect for a basis for pecuniary relief for future infringements that is different from the basis for pecuniary relief sought in relation to past infringements, and whether it is proportionate for GSK UK or the court to have to deal with an award made on two different bases; and, fifth, in respect of any future relief, whether any award to Pfizer may be by way of (a) lump sum payment to cover future acts of infringement, (b) periodical payments of damages or profits, (c) deferred retrospective award of damages or profits, or (d) another mechanism at the discretion of the judge.
4. Whilst I have said that I am prepared to deal with this application on the basis of preliminary issues, that does not mean that I consider it necessary or even appropriate to decide all these points. That depends upon whether, for example, an account of future profits is precluded by the fact that it has not been pleaded, or as a matter of discretion.
5. Mr. Mitcheson on behalf of GSK UK concedes that, as to past acts of infringement, there is jurisdiction for me to grant an account of profits, but contends I should not do so as a matter of discretion. That concession is inevitable in the light of section 61 of the Patents Act 1977, which expressly provides for an account of profits as an option. On the other hand, he says that, in respect of future infringements, in circumstances where an injunction has not been sought by Pfizer, there is no jurisdiction to grant an account of profits, but, even if there is, I should not do so in the present case as a matter of discretion.
6. The way that I propose to approach this judgment is to begin by considering whether it is open to Pfizer to seek an account of profits for future infringements in the present case and, if so, whether as a matter of discretion I ought to make such an order. For this purpose, I will assume that there is jurisdiction to make an order for an account of profits in lieu of an injunction without deciding that question. If I decide that an order ought in principle to be made, then I will go on to consider whether there is jurisdiction to do so.
7. Before turning to these issues, I should set out something of the background to this case. GSK UK markets in the United Kingdom a meningitis B vaccine under the name Bexsero. Between 2nd March 2015 and 29th February 2016, Novartis Vaccines & Diagnostics UK Ltd sold Bexsero in the UK market on behalf of GSK UK. GSK UK took over sales in the UK market on 1st March 2016.
8. At the present date, Pfizer itself does not market a meningitis B vaccine in the UK. Its own Trumenba vaccine has not yet been authorised in Europe and will be aimed at individuals aged 10 years and older as opposed to infants, for whom Bexsero is available.
9. The patent in suit relates to vaccines against bacterial meningitis and was granted on 18th February 2015. In this action, GSK UK sought revocation and a declaration of non-infringement of the patent. Pfizer counterclaimed, alleging infringement by virtue of GSK UK's dealings in its Bexsero vaccine product.
10. At the trial of liability in March 2016 I held that the patent was valid and had been infringed. The appeal from my decision is due to be heard in December 2017.
11. The patent covers a product, namely Bexsero, which is important for public health in the United Kingdom. Pfizer decided not to seek an injunction in its counterclaim in these proceedings. It explained that it did not seek an injunction in the UK proceedings, recognising the public health requirements for vaccines against meningitis B. That is a matter which was drawn to my attention and was referred to in my judgment on liability at [3].
12. I turn now to the question of Pfizer's pleadings at trial. In its prayer for relief in the counterclaim, Pfizer sought: (1) a declaration that the patent is valid; (2) a declaration that the importation into the UK and the keeping, offering for disposal and disposal of the claimant's Bexsero vaccine in the UK constitute infringements of certain claims of the patent; (3) an inquiry as to damages for the claimant's infringements of the patent or, at the defendant's election, an account of profits; (4) an inquiry as to damages in lieu of a final injunction; (5) an order for payment of all sums found due to the defendant on such inquiries or account; (6) costs; and (7) further or other relief.
13. Mr. Mitcheson submits that the prayer for relief, on its face, is perfectly clear. No injunction was sought and the inquiry as to damages or account of profits in paragraph 3 is directed towards past infringements. The reason for separating out paragraph 4 and asking for an inquiry as to damages in lieu of a final injunction may be because it was recognised at the time by those pleading the case that an account of profits was not available where an injunction was not being sought. Whatever the reason, Mr. Mitcheson submits that it is clear, on an objective assessment, that an account of profits was not sought in lieu of an injunction because it is not mentioned in paragraph 4 of the prayer for relief.
14. By contrast, Mr. Boulton QC, for Pfizer, submits that the pleading of an account in paragraph 3 of the prayer for relief is sufficient to cover all profits that GSK is due to pay over to Pfizer, including future profits. He says that the pleading on its face needs no amendment and is sufficient to cover an account of future profits in lieu of an injunction.
15. I do not agree. I consider that the only purpose of splitting out paragraph 4 and limiting it to damages, as opposed to an account of profits, is because that was the only relief that was being sought in lieu of an injunction.
16. However, Mr. Boulton goes on to say that the pleading of "further or other relief" should be sufficient to cover what is now sought, relying in particular on the judgment of Neuberger J in Kirin-Amgen Inc. v Transkaryotic Therapies Inc. (No. 2) [2002] RPC 3.
17. The learned judge considered whether it was necessary to amend pleadings to include additional forms of relief in circumstances where the pleadings had also sought "further or other relief" and decided that this was required. The principles that he applied are set out [26] – [31] as follows. First, the relief now sought must be consistent with that specifically claimed, as well as with the overall case pleaded; secondly, the facts pleaded must support the relief now sought; thirdly, relief will not normally be awarded in respect of a claim of a type not pleaded; and fourth, the relief must not take the defendant by surprise.
18. At [34] of his judgment, Neuberger J said:

"It is true that on an inquiry as to remedies the court is often invited to go wider than the pleading indicates. However, in light of the CPR, the Practice Direction and the principles which I have suggested, it seems to me that it is the duty of a claimant to plead his case on liability and remedies in advance, so that if he succeeds on validity and infringement, the defendant has a fair idea of the possible consequences and risks so far as the inquiry as to remedies is concerned. It is a fundamental principle of justice that a party should not be taken unfairly by surprise."

19. I am in no doubt that, reading the relief sought in the counterclaim, GSK UK could not have been alerted to the fact that an account of profits in lieu of an injunction for future infringements, would be sought. Therefore, I am satisfied that for this claim to be allowed to proceed there would need to be an amendment to the pleadings.
20. There is no application to amend the pleadings before me in spite of the fact that this hearing has been adjourned from a previous hearing in December 2016. GSK UK makes the point that, had there been such an application, it would have needed to be supported by evidence explaining why the original decision was made to limit the pleading to an inquiry as to damages in lieu of a final injunction and why the position has now changed. There is no such application and I do not consider it would be appropriate for me to allow an inquiry as to future profits to proceed on the basis of a hypothetical application which has not been made. Nor do I think it appropriate to allow a further adjournment of this case to enable such application to be made.
21. In any event, considering the principles set out by Neuberger J as to the circumstances in which such amendment would be allowed, the relief now sought, in my judgment is not consistent with that specifically claimed. The court will not normally award relief in respect of a claim of a type not pleaded, and a claim for future profits was not pleaded; and an objective assessment supports the conclusion that the relief now sought has taken GSK UK by surprise.
22. Furthermore, even if the point were open to Pfizer to take, I would not, as a matter of discretion, allow an account of profits in respect of future infringements to proceed.
23. My reasons for reaching that conclusion are as follows. A basic principle of accounts of profits is that there should be some unconscionable or improper conduct by the defendant. In particular, in Spring Form Inc. v Toy Brokers Ltd [2002] FSR 17, at [7] Pumfrey J said:

"I can summarise the main features of the remedy so far as it relates to infringement of intellectual property rights as follows. An account of profits in this context is a restitutionary remedy whose purpose is to deprive the defendant of the profits which he has improperly made by wrongful acts committed in breach of the plaintiff's rights and to transfer those profits to the plaintiffs …."

24. Similarly, Windeyer J in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd [1972] RPC 303, stated:

"… the account of profits retains the characteristics of its origin in the Court of Chancery. By it a defendant is made to account for, and is then stripped of, profits he has made which it would be unconscionable that he retain. These are profits made by him dishonestly, that is by his knowingly infringing the rights of the proprietor of the trade mark."

25. I consider that Windeyer J gave knowing infringement as an example of unconscionable conduct, and whether such a conclusion is justified depends on all the circumstances of the case in which the account is sought.
26. In the present case, Pfizer recognises that GSK UK should be allowed to continue to supply the Bexsero vaccine because it is in the interests of public health to do so. In those circumstances, in my judgment, there is nothing unconscionable in GSK UK continuing to supply Bexsero. On the contrary, it would be unacceptable for it to cease doing so. In those circumstances, it does not seem to me to be appropriate to order an account of profits for the future, since the continuation of infringement would not be unconscionable.
27. In addition, the starting point for an account of profits for the future would be that GSK UK would have to pay over all profits made by reason of the infringement. Mr. Boulton questioned whether this would be the case, and relied on GSK UK's submissions to say that there would be an apportionment, but he does not accept that any profit should be reduced. It is Pfizer's case that, all, or a substantial proportion, of GSK UK's profits arise from infringement. If all profits, or a substantial proportion of those profits, have to be paid over, the result of ordering an account of profits for the future will be essentially the same as an injunction. Either GSK UK will need to continue to supply the product without making a profit, or they will cease to do so. If that was to be Pfizer's position, the court, when it was told that no injunction was being sought, should have been told that nonetheless an account of profits for future infringements, which might well have the same effect, was part of the relief which Pfizer was pursuing.
28. For those reasons, I refuse to grant the option of an account of profits in respect of future infringements.
29. That renders it unnecessary for me to decide the interesting and difficult question of whether, as a matter of principle, there is jurisdiction to grant such relief. I have heard powerful arguments on each side as to why such jurisdiction does or does not exist. However, it seems to me that that is an important question which it is only appropriate to decide in a case where the decision actually matters to the result.
30. Turning then to the question of whether, as a matter of discretion, I should allow an account of profits in respect of past infringements (by which I mean infringements which have occurred prior to the date of the inquiry in the present case) Mr. Mitcheson's case is that I should not do so because it would be disproportionate, extending the length and complexity of the inquiry significantly. In particular, given that I have decided that an account of profits for the future is not available, Mr. Mitcheson says it would be too complex, on the one hand, to have an account of profits for the past and, on the other hand, to have an inquiry as to damages for the future. Mr Mitcheson submits that the remedies should not be mixed in that way.
31. I do not agree. I consider that it would be wrong to deprive Pfizer of its election, if it makes it, for an account of profits in the past by reason of its decision, in the interests of public health, not to seek an injunction to prevent the supply of Bexsero. In spite of its complexity, it is standard to allow the successful patentee to elect for either an inquiry as to damages or an account of profits for past infringements. In this particular case, I believe that those options for past infringements should be available to Pfizer.
32. Furthermore, I have already made an order allowing for this election to be made. By my order of 15th June 2016, I ordered at paragraph 4(a) that there should be an assessment of the financial relief payable to the defendant to include "an inquiry as to the damages suffered by the Defendant by reason of the infringements of EP (UK) No. 2,343,308 by the importation, keeping, offering to dispose and disposal of the Claimant's product Bexsero or, at the Defendant's option, an account of the profits made by the importation, keeping, offering to dispose and disposal of the Claimant's product Bexsero". That order left open the issues in relation to future infringements, but provided for the election for past infringements.
33. Mr. Mitcheson says that that order is inchoate because the election has not yet been made. I do not agree. Pfizer needs no further relief from the court in order to make its election as the order has already been made. Had the point been sought to be made that an account of profits for past infringements should not be ordered, the time to do it was before this order was made. Now it would require an application to vary the order, which has not been made. Even if such an application were made, as I have made clear, I would not grant it.
34. Furthermore, although I recognise that accounts of profits are inherently complex, nonetheless there is an overlap between damages inquiries and accounts of profits. In many cases, when assessing a reasonable royalty for damages, the court considers what profits have been made by the defendant and apportions what it regards as a fair share by way of royalty. Therefore, damages inquiries already involve, to some extent, the complexity that also occurs in the case of accounts of profits. I also bear in mind that in the present case it may be that very considerable sums are likely to be sought by Pfizer and, therefore, proportionality has to be considered by reference to what is at stake.
35. My decision in the present case is to allow Pfizer to elect between an account of profits and a damages inquiry in respect of past infringements, but not to grant its application that such election can also be made in respect of future infringements. In relation to future infringements, it is only entitled to pursue a damages inquiry.
36. I now consider whether Pfizer is entitled to pursue (a) a lump sum payment to cover future acts of infringement, (b) periodical payments (c) a deferred retrospective award, or (d) another mechanism at the discretion of the judge. This seems to me to be entirely a matter for the discretion of the judge at the hearing of the inquiry, once the case has been properly pleaded. I should make clear that I do not consider that Pfizer is precluded from asking for any such relief, nor do I consider that it will necessarily be granted, but it is not a decision that I need to make today.
37. I now turn to a further application by Pfizer in respect of Island Records disclosure. In his confidential witness statement dated 21st November 2016, at paragraph 5(i), Mr. Jay Wade Green, on behalf of GSK UK, referred to figures set out in schedule 1 to the statement of Mr Lucas and said:

"Regrettably, there was a mathematical error in the projected direct costs set out in Schedule 1 to the Lucas Statement. This was caused by a mistake in the mechanics of the spreadsheet that was used to calculate the direct costs; the cell that was summing up the costs in the spreadsheet was pointing to the wrong cell in the supporting workings causing an incorrect figure to appear in the spreadsheet. This error resulted in the direct costs being understated".

He has corrected this error.

38. By my order dated 1st December 2016, at paragraph 2(b), I ordered that the spreadsheet and supporting workings referred to in paragraph 5(i) of the witness statement of Mr Green should be disclosed on the basis that it was not onerous to disclose this document and it might, although I did not decide that it would, be of some assistance to Pfizer in making the election.
39. That document has now been disclosed and a witness statement confirms that it is the document to which Mr. Green referred. In addition, the document enables, on its face, the error to be identified.
40. Pfizer contends that the document that has been disclosed does not comply with my order on the basis that an electronic version should have been disclosed. I do not agree. I did not refer to an electronic version, and I do not believe that it was argued that the electronic version should be disclosed. I had in mind disclosure of the document to which Mr. Green had referred. My order has been complied with.
41. Furthermore, I consider it important to emphasise, as I have previously done, that Island Records disclosure is ordered to enable an election to take place. It is not an excuse for some long hunt for further information involving repeated applications to the court. In my judgment, Pfizer has enough, on what has already been disclosed, to enable it to make the election, which I suspect will not be a difficult task, and I would strongly discourage further applications for disclosure in order to enable this to be done.
42. I now turn to the question of costs. In respect of the disclosure applications, I am going to order that Pfizer pays GSK's costs. They were discrete issues on which GSK UK has won.
43. On the questions raised in respect of accounts of profits, I do not consider that either side has won. On the one hand, in respect of an account of profits for future infringements in lieu of an injunction, Pfizer has lost. On the other hand, on the ability to elect for an account of profits for past infringements and to pursue, if it wishes, an inquiry on a different basis for past and future infringements, Pfizer has won.
44. The aspects on which each side has succeeded could be very significant for each of them. I consider that in the particular circumstances of this case the fair order to make, given what has been described as a "score draw" on that application, is no order as to costs.