Monday, November 3, 2014

Ex Turpi Causa Not Relevant to Patent Litigation

Les Laboratoires Servier & Anor v Apotex Inc & Ors [2014] UKSC 55 aff’g [2012] EWCA Civ 593 (IPKat) rev’g [2011] EWHC 730 (Pat) (here and IPKat)
            perindopril; Ex turpi causa

Patent protection is national, but trade and innovation incentives are international. This case begins to address that tension. The UKSC held that ex turpi causa is not applicable in the patent context, and so will not affect litigation where goods sold in one country were infringing in another country. Instead of using the blunt hammer of ex turpi causa, the tension should be resolved with the finer sword of damages. The result is to make Canadian damages law more relevant to foreign disputes; the damages portion of the bifurcated Canadian Perindopril, 2008 FC 825 aff’d 2009 FCA 222 litigation, in particular, has taken on added significance.

In 2006 Servier commenced an action in the UK against Apotex for infringement of its European patent for a crystalline form of perindopril. Servier obtained an interlocutory injunction, subject to the usual undertaking in damages. Servier's action was ultimately dismissed, as the patent was declared invalid, and Apotex sought damages on the undertaking for the loss of UK sales. However, the perindopril which Apotex would have sold in the UK would have been manufactured by Apotex in Canada, and Servier also held a Canadian patent for the compound perindopril itself. In proceedings paralleling the UK litigation, Servier sued Apotex in Canada for infringement of the Canadian compound patent. An interlocutory injunction was denied, but Servier was ultimately successful. Thus it became clear that manufacture in Canada of the product which Apotex would have sold in the UK but for the interlocutory injunction, would have infringed the Canadian patent. In the UK proceedings on the undertaking, Apotex conceded that the award on the undertaking should be reduced by an amount equal to the liability that Apotex would (hypothetically) have faced under Canadian law for manufacturing the perindopril which it would (hypothetically) have sold in the UK had the interlocutory injunction not been in place [EWCA 22]. Servier, on the other hand, argued that Apotex should be entirely precluded from collecting on the undertaking because the Canadian infringement constituted sufficient "turpitude" to engage the doctrine of ex turpi causa. (This summarizes a somewhat complex procedural history, described in more detail at [2]-[8]; and see also my IPKat post on the EWCA decision.)

The issue before the UKSC was whether Apotex was barred by the doctrine of ex turpi causa from pursuing its claim on the undertaking. The UKSC held that infringement of foreign patent rights does not constitute a relevant “turpitude” for the purpose of that defence. The UKSC recognized that ex turpi causa

necessarily operates harshly in some cases, for it is relevant only to bar claims which would otherwise have succeeded. For this reason it is in the nature of things bound to confer capricious benefits on defendants some of whom have little to be said for them in the way of merits, legal or otherwise. [13]

Consequently, the application of the doctrine should be confined to those cases which otherwise “would lend the authority of the state to the enforcement of an illegal transaction or to the determination of the legal consequences of an illegal act” [23]. This being the principle, the specific rule is that “turpitude” for the purposes of the doctrine is restricted to criminal or quasi-criminal acts [25], and only the most serious of those [29]. “Torts (other than those of which dishonesty is an essential element), breaches of contract, statutory and other civil wrongs, offend against interests which are essentially private, not public,” and consequently do not constitute “turpitude” [28].

I am not an expert on ex turpi causa, but the UKSC’s reasoning strikes me as generally sound. One point I would question is the Court’s example of prostitution as a quasi-criminal act which would constitute turpitude, even though not criminal per se, because it is contrary to public policy. This seems to imply that a prostitute would not be able to sue her pimp for money owed to her. This strikes me that as an example of the doctrine operating harshly to favour a defendant who has little to be said for them in the way of merits, and I rather doubt that Canadian courts would take the same view of this particular issue.

More broadly, it seems to me right that Servier’s Canadian patent rights should be vindicated by damages calculated in accordance with Canadian law, rather than by entirely blocking Apotex’ recovery on the undertaking. As Apotex argued, if the Canadian remedy does not fully offset the UK claim on undertaking, this simply reflects the territorial nature of patent law [EWCA 35].

The interesting question now is how Canadian law will assess those damages. There does not seem to be a great deal of Canadian case law on point. In AlliedSignal Inc v DuPont Canada Inc (1998) 78 CPR(3d) 129 aff’d (1999) 86 CPR(3d) 324 (FCA) Heald J held that “The patentee has a right to be compensated for all damages flowing from the infringement of the patent within Canada, which may include profits lost on sales outside Canada.” Consequently, lost profits from foreign sales of product that infringed a Canadian patent because it was manufactured in Canada, can be recovered if the patentee can prove that those lost profits were caused by the Canadian infringement. 

This seems right to me, but the question remains of how to construct the "but for" world used in the standard causation analysis. Heald J proceeded on the assumption that but for the infringement, the product in question would never have entered the US market (140). I’m not sure that is the right “but for” world. If I were a generic seeking to sell product in Europe that I know to be non-infringing there, but which would be infringing in Canada, rather than not manufacture at all to avoid infringement in Canada, I would probably want to manufacture outside of Canada, if that was possible, for sale in Europe. If the appropriate “but for” world is one in which the generic manufactures in a non-infringing country, then the advantage that Servier’s Canadian product patent gives it in respect of non-infringing foreign sales, is only to the cost advantage that Apotex would get from manufacturing in Canada. (I assume there is a cost advantage to Apotex from manufacturing in Canada, or it would have manufactured elsewhere in the first place). That would mean that Servier’s Canadian patent would only give it effective exclusivity in Europe if Apotex’s manufacturing costs would have been prohibitive outside of Canada. That strikes me as a better outcome from a policy perspective, because Servier’s Canadian product patent gives it a worldwide advantage, to the extent that manufacture is cheaper in Canada, but without giving it worldwide exclusivity over a product that is not patented worldwide. While this alternative “but for” world is not how Heald J proceeded, it does not appear to have been argued before him, and I do not see his decision as laying down a rule of law that the “but for” world must be constructed on the assumption that the product would not have been sold in the foreign markets at all. On the contrary, he emphasized that the patentee's lost profits from foreign sales could only be recovered if causation was established.

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