First mover advantage valued highly by the Court of Appeal
17 June 2015
In a recent decision the Court of Appeal upheld the finding of the Patents Court that the claimant, Astra Zeneca (AZ), should pay £27 million in damages to the defendants Krka and Consilient, as settlement of a cross-undertaking that AZ agreed to, as part of an interim injunction. This is said to be the largest ever award made by the Patents Court in a case of this kind. See here for the full decision.
AZ owned a patent protecting the use of esomeprazole, a proton pump inhibitor used in the treatment of stomach ulcers. They marketed esomeprazole under the brand name Nexium® and it commanded a high price. The defendants also wanted to market esomeprazole and in September 2010 were preparing to do so under the brand name Emozul®. AZ issued proceedings for infringement of their patent and applied for an injunction to restrain the defendants from marketing Emozul pending the trial. The interim injunction was granted with, as is customary, a cross-undertaking in damages.
At about the same time another company, Ranbaxy, began revocation proceedings against the AZ patent, challenging validity and seeking a declaration of non-infringement in respect of its own esomeprazole product. The Ranbaxy product was held not to infringe the patent and shortly afterwards, in July 2011, the injunction against Krka and Consilient was lifted. Emozul was launched a couple of months later, around a year after it would have been but for the injunction. However, in the meantime, as a result of the Ranbaxy decision a series of companies had launched or were about to launch generic esomeprazole products. Hence the year long delay in launching Emozul had cost the defendants their so-called “first mover” advantage. Taking this into account, the Patents Court awarded record damages of £27 million.
The focus of the appeal was whether or not the Patents Court assessed this first mover advantage in the right way and was correct to award such substantial damages.
The defendants argued that, despite the fact that they were intending to sell Emozul at only a 25{e27634494e39db391c4a3c1babcce9c96667e0da0c02f00a98e80c871bbff07c} discount against the list price of Nexium, and some changes in prescribing practice would have been needed to make the switch, there would nevertheless have been a large scale shift towards Emozul because Primary Care Trusts (PCTs) were under a great deal of pressure to save money. Medicine Managers from various PCTs were called as witnesses as to how the market would have behaved in relation to Nexium/Emozul, had it not been for the injunction. On this basis the defendants claimed damages in excess of £32 million in respect of their losses. Interestingly this covered not just the period of the injunction, but also the period following the launch of Emozul in 2011 when, but for the injunction, they would have still been benefiting from the first mover advantage.
AZ took a different approach and started from what actually happened when Emozul was launched in 2011. They ascertained the market share the defendants secured, backdated it to 2010 and adjusted it upwards to take account of the loss of first mover advantage. This resulted in a calculated loss of just £3-6 million, almost an order of magnitude lower than the defendant’s claim.
The Patents Court preferred the reasoning of the defendants and, save for a 20{e27634494e39db391c4a3c1babcce9c96667e0da0c02f00a98e80c871bbff07c} reduction due to uncertainties in their approach, awarded them the damages as claimed. AZ’s appeal questioned the reasoning of the Patents Court but was considered unpersuasive by the Court of Appeal and was dismissed.
The moral of this story is that, as powerful as interim injunctions are, they can come with a high price if later found to have been unjustified. Accordingly they should be sought with care and lifted as soon as there are reasons to do so.
Elizabeth Swan
Life Sciences & Chemistry
If you require further information on anything covered in this briefing, please contact Elizabeth Swan (eswan@withersrogers.com; +44 1179 253 030) or your usual contact at the firm.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Withers & Rogers LLP, June 2015
