Locations
Much to the disappointment of the patentee and its exclusive licensee, the Court of Appeal has confirmed the High Court's decision to refuse an interim injunction in respect of a generic product to treat insomnia. With the trial set for October 2020, the court agreed that damages would be an adequate remedy.
Quick overview of the facts
Neurim Pharmaceuticals, and its exclusive licensee Flynn Pharma, market a melatonin-based sleeping product under the CIRCADIN brand. The EP patent that covers the product expires in August 2022.
Mylan has obtained a marketing authorisation for a generic variant of CIRCADIN, which (according to the judgment) it intends to launch imminently. In February 2020, Neurim and Flynn began infringement proceedings and unsurprisingly applied for an interim injunction. Prior to the interim injunction hearing on 20 May 2020, the trial was expedited and scheduled for October 2020.
High Court ruling on interim injunction
Martin Smith J analysed Neurim's application for an interim injunction according to the very familiar four-stage test in American Cyanamid v Ethicon [1975] AC 396 namely:
- Stage 1: is there a serious question to be tried?
- Stage 2: are damages an adequate remedy for the claimant?
- Stage 3: if not, are damages (on the cross-undertaking in damages) an adequate remedy for the defendant?
- Stage 4: if damages are not an adequate remedy for either side, where does the balance of convenience lie?
The judge ruled that the application failed at stage 2 of the above test, concluding that damages would be an adequate remedy for Neurim and Flynn. He considered that if Mylan was subsequently found to infringe the patent, it would be possible to quantify the claimants' losses arising from the lower price for their patented product and reduced sales in the period from now until the October trial.
Neurim and Flynn advanced numerous grounds of appeal. One of their key arguments was that the judge had been wrong not to consider their consequential loss – the CIRCADIN product was effectively Neurim's sole source of revenue, and so they submitted, it was entirely credible to suppose that large parts of Neurim's operation would be shut down (eg R & D programmes) if these revenues were lost.
Court of Appeal's ruling
The Court of Appeal heard the appeal on an expedited basis by remote video-conferencing on 18 June 2020 (as is becoming a more and more familiar procedure during the ongoing Covid-19 pandemic).
Floyd LJ gave the principal judgment and upheld the High Court's decision to refuse the interim injunction, agreeing to a certain extent with the judge's reasoning. (See the Court of Appeal's judgment for details: [2020] EWCA Civ 793).
He stated that the first and critical question to decide was whether the judge was correct, or entitled, to conclude that damages were an adequate remedy under stage 2 of the American Cyanamid test.
Floyd LJ agreed with Martin Smith J that there were two potential periods for damages to Neurim:
- Period 1: the period from now until the trial in October; and
- Period 2: the period from the trial (assuming a final injunction was then granted) and the expiry of the patent in August 2022.
Floyd LJ rejected Neurim's arguments based on consequential loss, finding that there was no evidence of any risk of multiple generic entrants to the market and a downward price spiral. One of the difficulties for Neurim on this aspect of the case was that its key witness statements had been prepared before the expedited trial had been ordered and therefore on different factual circumstances where they presumed the trial would be 1-2 years away. As there was now only a four month period of generic competition, the Lord Justice found it unrealistic for the lost revenues to be on such a scale as "to necessitate the drastic steps" referred to by Neurim and Flynn.
The Lord Justice agreed with the High Court that it would be possible to calculate the potential damages that the refusal of an injunction would cause to Neurim. There were a number of features in the case that made the court's task in assessing the loss relatively straightforward. In particular, Neurim and Flynn had provided reasonably detailed forecasts of their expected sales revenues in periods 1 and 2, which could form the basis of the court's calculation of the position which they ought to have been in, but for Mylan's infringement, for both periods.
As a result, Floyd LJ concluded that damages were an adequate remedy for Neurim and Flynn and it was not necessary to consider where the balance of convenience lay (under stage 3 of the American Cyanamid test.)
Comment
The refusal of the High Court and now the Court of Appeal to grant an interim injunction to a pharma patentee and its exclusive licensee against a generic entrant has sparked some concerns from some quarters that this is going to set an undesirable precedent. The justification often used is that if the generic is not stalled before the trial there will be an inevitable price erosion, which may permanently lower the price level of the original product, making it difficult to quantify damages, particularly for blockbuster products (if it turns out that at the trial that the generic is in fact an infringing product).
However, as Floyd LJ says in his judgment, the facts of this case are "extremely unusual" with the upcoming trial expedited and only a relatively short period away. He therefore categorically rejected Neurim and Flynn's assertion that this ruling would have "grave consequences" for the pharmaceutical industry in general and was emphatic that he had not decided any principle of general application.
We will be closely watching the outcome of the trial in October and any further developments stemming from this decision.