Intellectual property - Cross-undertakings - Ex turpi causa - Illegality

(1) Les Laboratoires Servier (2) Servier Laboratories Ltd v (1) Apotex Inc (2) Apotex Pharmachem Inc (3) Apotex Europe Ltd (4) Apotex UK Ltd: Ch D (Patents Ct) (Mr Justice Arnold): 29 March 2011

The claimant pharmaceutical companies (P) claimed compensation under a cross-undertaking for losses incurred as a result of an injunction obtained by the defendant companies (S).

S had obtained a European patent and a Canadian patent for a drug.

P manufactured a generic version of the drug in Canada and sold it in the UK. S began infringement proceedings and were granted an interim injunction restraining P from importing or marketing the drug in the UK.

S gave a cross-undertaking in damages. The infringement claim was ultimately unsuccessful as the European patent was held to be invalid.

The Canadian courts held that the patent there was valid and P had infringed it. P claimed that they had lost profits because of the injunction.

S resisted the claim on the ground of ex turpi causa in that P could not recover damages for being prevented from selling a product whose manufacture infringed a valid foreign patent.

P argued that the ex turpi causa rule: (1) only applied where the act in question was either criminal or involved moral turpitude amounting to dishonesty; (2) only applied where the claimant’s claim relied to a substantial extent on the act; and (3) could not be invoked by S after they had given an unqualified cross-undertaking because that amounted to approbating and reprobating.

Held: (1) The authorities did not establish that the ex turpi causa rule only applied to criminal acts or, where acts were tortious rather than criminal, only applied if the acts involved dishonesty, Burrows v Rhodes [1899] 1 QB 816 QBD, Strongman [1945] v Sincock [1955] 2 QB 525 CA, Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621 CA, Columbia Pictures Industries v Robinson [1987] Ch 38 Ch D, Stone & Rolls Ltd (In Liquidation) v Moore Stephens (A Firm) [2009] UKHL 39, [2009] 1 AC 1391, Nayyar v Denton Wilde Sapte [2009] EWHC 3218 (QB), [2010] Lloyd’s Rep PN 139 and Safeway Stores Ltd v Twigger [2010] EWCA Civ 1472 considered.

Such a limitation would not properly reflect the policy considerations underlying the rule.

There would be situations where the tort was insufficiently serious to engage the rule, but the degree of seriousness required would depend on the circumstances of the case.

The key factor in most cases would likely be the claimant’s state of knowledge at the time of the act.

If the claimant knew the material facts, and particularly if he committed the act intentionally, the rule was likely to apply.

Although the purpose of a cross-undertaking was to compensate if an injunction had wrongly been granted, the fact that the court had discretion to refuse to order an inquiry into a cross-undertaking showed that the court was to have regard not only to the fact of the wrongly granted injunction, but also to wider considerations.

P’s claim involved sufficiently serious unlawfulness to engage the rule: P’s illegal act had not been induced by S; they had been aware of all material facts; they had committed the infringing acts intentionally; and there was a precise symmetry between the claim and the illegality.

P were not to be permitted to claim compensation for being wrongly prevented from infringing one patent on the basis that, but for the injunction, they would have infringed another patent. The rule should apply in such circumstances.

(2) Substantial reliance on the unlawful act was necessary for the rule to apply, Lilly Icos LLC v 8PM Chemists Ltd [2009] EWHC 1905 (Ch), [2010] FSR 4 applied.

P did have to substantially rely upon their own illegality to establish the loss claimed. Their claim was predicated on manufacturing the drug in Canada, which would have been unlawful.

(3) The statement in Lilly rejecting an illegality defence because of the inconsistency of the party’s stance was obiter and was founded on the particular facts of that case, Lilly considered.

Unlike in Lilly, S, when giving the undertaking, had not told the judge that the manufacture of the drug in Canada was illegal.

They had not known for certain that P was manufacturing it in Canada.

Further, the undertaking had not been unqualified, but had been to compensate P only if the court decided that P should be compensated.

It could not be interpreted as a self-denying ordinance not to rely on proper objections to any claim by P.

Judgment for defendants.

Iain Purvis QC (instructed by Bristows) for the claimants; Antony Watson QC, Simon Salzedo (instructed by Taylor Wessing) for the defendants.