Patent infringement is not “turpitude”

Les Laboratoires Servier & anor v Apotex Inc & anors [2014] UKSC 55 (10 October 2014)

Introduction

The Supreme Court has held that the defence of illegality (ex turpi causa non oritur actio) is not made out where an act of patent infringement is relied on as the basis for the defence because an infringement of a patent gives rise to a breach of the patentee’s private rights, which, as such, is not an act that engages the public interest sufficient to constitute “turpitude” as required to establish an illegality defence.

Background

This case is perhaps the final chapter in the long running battle between Servier and Apotex relating to perindopril erbumine, an ACE inhibitor used for treating hypertension.

Servier owned a number of patents covering perindopril erbumine, including patents in the UK and in Canada.  In 2006, Servier obtained an interim injunction from the English court, restraining Apotex from importing and selling generic perindopril erbumine in the UK. As the ‘price’ for the interim injunction, Servier gave the usual cross-undertakings in damages to the court, effectively agreeing to compensate Apotex for any loss suffered as a result of the interim injunction in the event that it turned out to have been ‘wrongly’ granted.  Servier’s UK patent was ultimately held to be invalid by the Court of Appeal in 2008, the interim injunction was discharged, and damages due under the cross-undertakings fell to be assessed.

During the same period the parties were also engaged in parallel infringement proceedings in Canada, where Apotex manufactured its generic product.  After the trial of Apotex’s claim under the cross-undertaking, but before judgment was given, the Canadian Federal Court of Appeal held Servier’s Canadian patent to be valid and infringed (reversing the finding at first instance in Canada).  Servier then sought to rely on this finding in the English proceedings to support a newly pleaded defence relying on the doctrine of ex turpi causa non oritur actio.  Servier contended that it was contrary to public policy for Apotex to recover damages for being prevented from selling a product the manufacture of which constituted an act of patent infringement in Canada and was therefore illegal.

The ‘illegality point’ was then tried as a separate issue, and it is this issue which made its way to be considered by the Supreme Court. At first instance, Arnold J decided that Apotex’s claim under the cross-undertakings should be barred, holding the ‘illegality defence’ to be a valid one, but this was then overturned by the Court of Appeal.

Decision of the Supreme Court

Lord Sumption gave the leading judgment (with which Lord Neuberger and Lord Clarke agreed) and, in the process, gave a helpful account of the development of the defence of illegality as a rule of law. Lord Mance and Lord Toulson gave separate supporting judgments.

Illegality defence as a rule of law

The defence of illegality has been a well-established rule of principle from as early as 1775, when, in Holman v Johnson, Lord Mansfield CJ stated that “No court will lend its aid to a man who founds his cause of action on an immoral or an illegal act.” Lord Sumption relied heavily on two clear characteristics arising from Lord Mansfield’s statements, namely that the ex turpi causa principle is: (1) a rule of law and not a mere discretionary power; and (2) one based on public policy, and not on the perceived balance of the merits of the dispute.

However, despite these characteristics, Lord Sumption explained that the courts have applied the principle inconsistently over the years, primarily due to the courts seeking to avoid the draconian results and unjustified benefits for defendants which often occur when applying the doctrine. Judges have tended to avoid such outcomes by transforming the legal rule into a mere power the exercise of which depends on the perceived equities of each case. In Tinsley v Milligan [1993] UKHL 3, the House of Lords expressly overruled the discretionary “public conscience” test, and set out a non?discretionary test.

Whilst the Supreme Court was not asked to depart from Tinsley v Milligan, it was invited to accept a wider view of the law in the light of Lord Hoffmann’s observation in Gray v Thames Trains Ltd [2009] UKHL 33 that the illegality defence was underpinned by a policy which was “not based upon a single justification but on a group of reasons, which vary in different situations”.  Lord Sumption did not consider this to bear the weight that Servier sought to place on it, and said that the rules discussed by Lord Hoffmann in that case were not discretionary. The rules did not depend on the court’s assessment of the significance of the illegality, the proportionality of its application or the merits of the particular case.

On this basis, Lord Sumption held that the courts in both the first instance judgment and the appeal had acted contrary to the established legal principles, as they had applied too much discretion and carried out a fact-based evaluation. The decisions were based on the judges’ perception of how badly Apotex had behaved and how much it mattered (with the difference in outcome being attributed to the fact that Arnold J was less impressed than Etherton LJ by the argument that Apotex genuinely believed that the Canadian patent was invalid and further Arnold J attached more weight to the importance of respecting Canadian patents).

What is “turpitude” for the purposes of the defence of illegality?

Lord Sumption considered specifically, one of the key questions that arises in the application of the ex turpi causa principle, namely ‘what acts constitute “turpitude”?’ This question, as a matter of principle, was simply not addressed by the lower courts. The 1775 case of Holman v Johnson refers to ‘immoral or illegal’ acts, but what does this mean?

Lord Sumption’s view was that the question depends on the legal character of the acts relied on. He commented that the ex turpi causa principle is concerned with claims founded on acts which are contrary to the public law of the state and engage the public interest, and therefore held “turpitude” to mean, in general, acts that are criminal in nature or “quasi-criminal” (meaning acts that engage the public interest in the same way, for example (a) cases of dishonesty or corruption, (b) acts which, whilst not criminal, are contrary to public policy or involve criminal liability on the part of another, or (c) the infringement of certain statutory rules enacted for the protection of the public interest). Lord Sumption noted that in the long and much-litigated history of the defence of illegality, save for only a small number of instances, the principle had not been applied to civil wrongs, such as acts which were merely tortious or in breach of contract. For these private acts, he saw no reason for the law to withhold its ordinary remedies.

Accordingly, the Supreme Court held that the illegality defence was not engaged by Apotex’s acts of patent infringement in Canada. Whilst a patent is a grant by the state, an infringement is not a matter of public interest, but a breach of the patentee’s private rights. Accordingly, the Supreme Court held that this does not give rise to a “turpitude” which would provide a defence to Apotex’s claim under the cross-undertakings in damages.  The proper means to seek redress for the acts of infringement in Canada was to seek appropriate relief from the Canadian court.

Comment

The doctrine of ex turpi causa does not feature very often in intellectual property cases and the fact that Servier’s reliance on it in this case did not succeed, suggests that this trend will continue.  However, there may be some intellectual property cases where it can be applied.  For example, under the UK law (which is by no means unique) there are a number of criminal offences that may be committed in relation to the infringement of intellectual property rights, primarily in the context of trade marks (i.e. counterfeiting) and copyright (i.e. piracy), but also now (as a result of changes brought in by the Intellectual Property Act 2014, which came into force on 14 May 2014) registered designs.  In relation to patents, there are also a number of criminal acts, albeit not in respect of infringement, such as failure to observe the requirement for UK residents to file patent applications in the UK before filing abroad in respect of certain inventions (i.e. those which may be prejudicial to national security or public safety).

It is conceivable that such criminal offences or similar ones arising in other jurisdictions could form the basis of an illegality defence, although suitable fact patterns seem unlikely to arise very often.  For example, could an infringer of a patent defend itself against an injunction and claim for damages on the basis that the patent, although valid and infringed, was first filed outside the UK contrary to the provisions of UK law which impose criminal sanctions?  Alternatively, in the situation where a trade mark owner obtains an interim injunction in the UK against a counterfeiter which turns out to be ‘wrongly’ granted because the mark is ultimately held invalid, it would seem possible for the trade mark owner to make out an illegality defence to a claim for damages under the cross-undertaking if it could establish that the manufacture of the counterfeit products occurred in a country where the trade mark owner’s rights were held to be valid and infringed and such activity gave rise to criminal sanctions.

Published with minor amendments in IP Forum Issue 100: March 2015