Assessing damages due under a cross-undertaking in damages—more of an art than a science?

Authors: Gary Moss and Emma Muncey (EIP Legal)

AstraZeneca AB & Another v KRKA, DD Novo Mesto & Another [2014] EWHC 84 (Pat), 24 January 2014, Patents Court, England and Wales

Journal of Intellectual Property Law & Practice (2014) doi: 10.1093/jiplp/jpu028, first published online: March 4, 2014

The Patents Court decided that krka would have had a substantial ‘first-mover’ advantage in relation to the launch of its branded generic pharmaceutical had it not been wrongfully prevented from doing so by an interim injunction and accordingly assessed damages due under the cross-undertaking. The decision once again highlights the difficulties which the court faces in trying to put a monetary value on hypothetical scenarios.

Legal context

The assessment of damages in patent cases is a notoriously difficult task. As Jacob J at 396 in Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383 noted:

[Q]uantification of damage in a case such as the present [a patent infringement case] is a much harder, and less certain, task than I had hitherto thought. Although I have had to reach an answer I do not pretend it is an accurate measure of the damage, of what would have been. It is just the best assessment I can make!

In assessing such damages, the court is tasked with trying to work out what would have happened had there been no infringement or, as in the present case, no injunction, and then reflecting that in the amount of damages awarded. However, the position of the parties as to what would have happened had the event in question not occurred tends to vary considerably. This is not surprising; in the real world, commercial decisions are driven by a multitude of interlinking considerations whereas, for the purposes of assessing damages, the court is asked to consider only one, albeit an important one.

In the present case, Sales J used a hypothetical counterfactual scenario to estimate the advantage that Krka would have enjoyed had it not been wrongly subjected to an interim injunction. The judgment indicates that Sales J's decision was based more on his general impression, or ‘feeling’, of the evidence as a whole, rather than on the forensic expert evidence submitted by the parties, in particular AstraZeneca.

Facts

AstraZeneca held a European patent, effective in the UK, for its branded esomeprazole proton pump inhibitor (PPI), Nexium. Krka developed a branded generic esomeprazole PPI, Emozul, which it sought to launch in the UK. AstraZeneca began proceedings in the UK against Krka, asserting that Emozul infringed its patent rights in relation to Nexium. In October 2010, AstraZeneca successfully obtained an interim injunction to prevent Krka from launching Emozul in the UK. Also at this time, AstraZeneca's Nexium patent was being challenged by another generics company, Ranbaxy. In July 2011, Ranbaxy's product was found not to infringe the Nexium patent (Ranbaxy (UK) Limited v AstraZeneca AB [2011] EWHD 1831 (Pat)). Shortly after that judgment, AstraZeneca discharged the injunction against Krka.

Krka finally launched Emozul in the UK in September 2011. However, it claimed that by then it faced a very different market from the one which existed in October 2010, and that it had been deprived of the ‘first mover’ advantage. This was because, following the Ranbaxy ruling, several generic esomeprazole PPIs were launched in the UK. In particular, AstraZeneca launched its own generic product in July 2011, only two days after the Ranbaxy judgment. Ranbaxy then launched in September 2011, followed by Mylan in November 2011. Krka argued that this drove down the price for generic esomeprazole PPIs and had an impact on the success of its launch of Emozul in September 2011. By contrast, had Krka been able to launch in October 2010, it would have been the first and only alternative in the market, thus enabling it to capture a larger market share and command higher prices.

It was agreed between the parties that the injunction did have the effect of depriving Krka of ‘first mover’ advantage. However, there was a significant difference between the parties as to the value of that advantage: AstraZeneca assessed the damage to Krka as £6 million whereas Krka's estimate was that it had lost over £30 million.

Analysis

Assessment of damages

Sales J's judgment highlights the complexities involved in making an assessment of such a hypothetical counterfactual scenario. The court heard evidence from representatives of both parties, Medicine Managers, experts on the pharmaceutical market and expert accountants and economists. (Medicine Managers are experienced pharmacists employed by Primary Care Trusts (in England and Wales) and heath boards (in Scotland and Northern Ireland) to provide guidance and assistance to GPs to encourage them to prescribe the cheapest relevant drugs to their patients, in order to minimise the costs for the NHS.) Sales J used this evidence to build a picture of the scenario had Krka not been subject to an interim injunction and launched Emozul in the UK in October 2010.

Evidence

AstraZeneca endeavoured to counteract the Medicine Managers' assessment of what they would have done in the counterfactual scenario by adducing evidence from an expert economist to the effect that there is a well-established tendency of witnesses to exaggerate the impact of monetary incentives in relation to hypothetical scenarios. However, Sales J was not impressed. He held that this was not a matter for expert evidence, and that it was not appropriate for the court to rely on academic studies in making an assessment of the evidence given by witnesses of fact. In fact, he found the evidence of the Medicine Managers to be a good representative cross-sample of the different Primary Care Trusts (ie differing populations, size, social conditions etc) and the evidence to be credible overall. In short, he preferred to rely on his own assessment of this evidence rather than on academic studies as to that evidence's credibility.

There was another significant issue on which AstraZeneca did not succeed. It sought to argue that, in the hypothetical scenario under consideration, if Krka had captured 20 per cent of the market, it would have dropped the price of Nexium by 10–15 per cent. This would have had two consequences. First, it would have enabled AstraZeneca to hold onto a greater share of the market, thereby reducing the amount of the market captured by Krka. Secondly, it would have reduced the price which Krka could charge, even with its first mover status. However, it emerged during the course of cross-examination that decisions by AstraZeneca as to reducing the price of a product were not taken solely with regard to competition in the UK but with regard to other factors including what effect a reduction in the UK price would have on prices in other markets. Unfortunately for AstraZeneca, it failed to call any evidence as to how those factors were likely to play out in this particular context. Accordingly, Sales J considered that he had no option other than to ignore that factor altogether and assess the counterfactual scenario on the basis that AstraZeneca would not have dropped the price for Nexium.

Asserting the difficulties in assessing loss

In setting out the legal framework surrounding the assessment of damages due under cross-undertakings in damages, Sales J made reference to Mann J's judgment in Smithkline Beecham v Apotex [2006] EWCA Civ 658 in relation to the relative difficulty of assessing each party's loss. In doing so, he reiterated that it does not lie in the mouth of the claimant to submit at the interim inunction stage that it is going to be easier to assess the defendant's loss than its own, only to submit at the damages stage that in fact the defendant's damages are very difficult to assess, that the onus in proving damages lies on the defendant and that, accordingly, the court should only take into account that which the defendant can establish with an element of certainty.

Outcome

Sales J concluded that a substantial percentage of the Primary Care Trusts, health boards and dispensing doctors would have switched to Emozul if Krka had been able to launch in October 2010, largely accepting the switching figures submitted by Krka with a cut-off date in 2015. Since the number of prescriptions made is published, this calculation could easily be made. Sales J thus left the final damages calculation to be agreed between the parties' experts. It seems likely that the final figure will be more towards Krka's value than AstraZeneca's.

Practical significance

The main point that comes across in Sales J's judgment is the difficulty in making an assessment of the damages due under a cross-undertaking in damages in relation to the launch of a pharmaceutical, or any other, product. Building a picture of the hypothetical counterfactual scenario had an injunction not been imposed is a complicated and detailed task. Given those scenarios, it would appear that the court tends to be more comfortable in relying on the evidence of those people who are familiar with the field and what goes on in practice rather than on expert forensic evidence. In this instance, Sales J placed significant reliance on the evidence of the Medicine Managers and his own assessment of that evidence and was not prepared to accept the theoretical suggestions that that evidence had a tendency to be overstated.