High Court rules out fortification of cross-undertakings where the underlying injunction has been discharged

UK Patents Court dismisses application for fortification of a cross-undertaking for damages where underlying preliminary injunction discharged because patent held to be not infringed.

The UK Patents Court recently handed down a judgment in Napp v Dr Reddy’s Laboratories, Sandoz and others concerning the circumstances in which a party can obtain fortification of a cross-undertaking for damages. Napp had been granted a preliminary injunction under a pharmaceutical patent that was subsequently held to be not infringed. Accordingly, the second defendant, Sandoz, sought to fortify the cross-undertaking to secure their interests in the face of Napp’s apparent financial issues.

Background

Napp’s product is BuTrans (also marketed as Butec), a skin patch which lasts 7 days that is used for chronic back pain and osteoarthritis. In early 2016, Napp brought a claim for infringement under its patent (EP 2 305 194) against Sandoz and Dr Reddy’s who intended to market their own seven day buprenorphine transdermal patches. Napp also sought and obtained an interim injunction preventing the launch of the allegedly infringing patches. In exchange, Napp provided a cross-undertaking to pay any losses and damages the defendants might suffer as a result of the interim injunction if the patent was ultimately held not to be infringed.

The case was perhaps best known for being a "rocket docket" as after the preliminary injunction was granted, the case was heavily expedited and the trial came on in less than six months (and the appeal only a matter of days later).

At trial Napp’s patent was held to be not infringed and so the defendants sought to recover under the cross-undertaking for the 6 months they had been kept off the market. An enquiry for damages has ensued (and in a far less speedy timeframe since the decision in the summer of 2016).

Napp is associated with, and a sister company of, Purdue Pharma as both are owned by the Sackler family. Purdue Pharma has been involved with controversy surrounding its product, Oxycontin, since November 2018. This controversy had caused the defendants concern as to Napp’s ability to pay out under its cross-undertaking and so they sought fortification of the cross-undertaking, seeking an order that Napp make a payment into court to secure the financial interest in the cross-undertaking.

The key issue faced by Sandoz was that the undertaking and injunction had long since been discharged (in 2016), which challenged the court’s jurisdiction to order fortification.

Fortification of cross-undertakings as a price for injunction

The Judge, Mr Justice Henry Carr, relied upon on two key precedents on this issue . In particular, the Judge considered the principle in Miller where Neuberger J stated that to retrospectively impose fortification would deprive the applicant of the opportunity to consider whether the burden of the fortification justifies obtaining the injunction.

Carr J commented that once an injunction is discharged, there is no longer an injunction for which fortification would form part of the price paid for the injunction and as such, the court has no jurisdiction to grant fortification.

The position would be different where the injunction is to continue, in which case Carr J considered that the court would have jurisdiction as the fortification would form the price being paid for the continuation of the underlying injunction. Again, Carr J referred to Lao Lignite in which Popplewell J said that fortification is the price to be paid if the applicant wants the injunction to operate in futuro.

The court’s discretion to fortify cross-undertaking

In case he was wrong on the first point, Carr J went on to consider whether, if the court were to have jurisdiction, it would use its discretion to order fortification (the second limb of the relevant test). In this respect, he considered the risk of Napp not being able to comply with its cross-undertaking as low because its net asset value was far in excess of the figure of damages which would be protected by fortification. Therefore, he held that the court would not exercise its jurisdiction in any event and so Sandoz’s application was refused on both counts.

It was interesting that in this part of the judgment the decision refers to the distance between parties as to the relevant recovery under the cross-undertaking. The decision reports that Sandoz’s claim is for more than £100m on the basis that whilst the injunction was in force, Napp launched its own generic and thereby deprived Sandoz of the opportunity to be first on the market. In contrast, Napp’s position is said to be that the level of recovery should be more like £400,000 (albeit they are said to have alternative cases which put the figure in some £millions). Carr J’s initial views were that Sandoz have no more than a good arguable case for the sums which have been set aside in Sandoz’s latest accounts of approximately £14m of damages and £5m of costs. He also said “Indeed, the figure may in the end be considerably less than that”.

Comment

The circumstances of this case seem to be quite unusual, but it nonetheless helps to clarify the position that the court does not have jurisdiction to order fortification of a cross-undertaking where the underlying injunction has been discharged.

Irrespective of fortification, it will be interesting to see how this case progresses given the gap between the parties as to the appropriate quantum of recovery. The UK Patents Court is no stranger to sizeable gaps between the parties’ positions in this type of case. The last large-scale battle to come to court in this context was in 2014 when Krka and Consilient sought to recover under a similar cross-undertaking after succeeding in a patent case against AstraZeneca (in which they were held not to infringe AstraZeneca’s patent). In that case, AstraZeneca contended that the recovery should be of the order of £6 million, compared to the defendants’ position that recovery should be of the order of £32 million. The court eventually awarded a sum in excess of £27 million, which was upheld on appeal in 2015. It will be interesting to see how the court in this case applies the relevant tests and deals with the factors influencing this market.

The trial of the enquiry into damages was heard in May 2019 and so we may know the outcome by the summer (or if not, after the court’s vacation).

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