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BGH rules for patentees on appeal again

In two decisions published yesterday on its website, the German Federal Court of Justice (Bundesgerichtshof, BGH) overturned two decisions by the Federal Patent Court (Bundespatentgericht) invalidating the patents in suit for lack of novelty. Both decisions are remarkable not because they break new ground in (patent) law (they dont), but rather because the BGH corrects the fact finding of the lower court and finds in favour of the patentees. They fuel the impression that the Federal Court of Justice is more patent-friendly than the Bundespatentgericht, or, to put it another way, that the Federal Patent Court has become overly strict.


In the first decision, designated a leading case (Leitsatzentscheidung) by the Court, the BGH finds that a key witness lacked credibility and concludes that the public prior use which led the Federal Patent Court to invalidate the patent for lack of novelty was not established. The patent at issue was Nichias EP 936 682, an important patent concerning white light emitting diodes that has also been the subject of opposition proceedings before the EPO. The decision is remarkable because the Federal Court of Justice is bound by the fact finding of the lower court unless there are specific doubts regarding the correctness and completeness of the fact finding (§ 529(1) Civil Procedure Act). The Court held that there were specific doubts as to the credibility of a key witness for the public prior use, whose testimony was inconsistent with that of other witnesses and established facts. The twist was that the witness had died in the meantime and could not be questioned again. This, so the BGH, did not preclude it from finding the testimony unpersuasive. After it had concluded that public prior use was not proven, the Court assessed inventive step based on the record before it and found the subject matter(s) of the claims to be inventive.

Fig. 1 of EP 1 389 985

In the second decision, the Federal Patent Court had found that claim 1 of EP 1 389 985 concerning a lower leg orthosis lacked novelty over the German utility model DE 299 08 981. It upheld an auxiliary claim. The patentee appealed. The Federal Court of Justice held that the lower court had misconstrued the disclosure of the allegedly novelty destroying document and that the document failed to disclose all the features of the invention. It then went on to assess novelty over two additional documents, also finding the invention not anticipated, and assessed inventive step in a single paragraph, concluding the plaintiff had failed to show lack of inventive step. Again the patentee prevailed on appeal.

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Servier successful before Henderson J in introducing defence based on the Department of Healths prescribing reimbursement practices

We are now into the Autumn season and the Michaelmas term, which means an influx of new court judgments.  This author was delighted to stumble upon the latest decision in the intriguing litigation between Secretary of State for Health and Others v Servier when browsing through the recent list of Chancery decisions ([2016] EWHC 366 (Ch)).  This long running saga concerns the thorny intersection of patent rights and antitrust claims, and now - an added attraction in the form of the governments role in providing prescribing guidance to healthcare professionals, and making changes to the NHS drugs tariff for reimbursement.

The IPKat was rather less enthused by the decision.

Background

Servier are the suppliers of the original, branded version of Perindopril, which was supplied in the UK under the brand name "Coversyl". Perindopril is an angiotensin-converting enzyme inhibitor ("ACE inhibitor") which is used in the treatment of hypertension and congestive heart failure. Patent EP 1 296 947 (the 947 Patent) was a patent for a particular crystalline form of Perindopril – the alpha crystalline form - which Servier applied for in 2001, and which was in 2007 held to be invalid for lack of novelty and obviousness in Les Laboratories Servier v Apotex Inc ([2007] EWHC 1538 (Pat), upheld by the Court of Appeal [2008] EWCA Civ 445.) In those proceedings it was held that one of Serviers pre-existing process patents, EP 0 308 341, led to the production of the alpha form as its inevitable result.

Following a decision of the European Commission, the Secretary of State for Health ("DoH") has brought a claim in the High Court of England & Wales alleging that Servier tortiuously interfered with the DoHs economic interests by unlawful means in that it procured, defended and enforced the 947 Patent.  The DoH also alleges breach of Article 102 of the TFEU, on the basis that Servier was dominant on the market for the supply of Perindopril or for the supply of ACE inhibitors in the UK between 2011-2007, and that it abused its dominant position.  Further, it claims an infringement of Article 101, on the basis that Servier concluded anti-competitive settlement agreements with various generic suppliers which precluded those companies from challenging the 947 patent, or from supplying generic Perindopril in the UK (i.e. pay for delay). 

Similar legal proceedings have been issued by the Scottish, N Irish, and Welsh health authorities, and the cases have been linked and are proceeding in parallel.

Application to re-amend Defence

This decision concerned an application by Servier to re-amend its Defence, in a form which can be summarised as follows:

1. The Claimant failed to take reasonable steps to encourage switching from the prescription of Perindopril to the prescription of cheaper alternative ACE inhibitors in generic form (the "prescribing argument").  This: (a) results in a failure of the Claimant to mitigate its loss; (b) amounts to contributory negligence in relation to the tortious interference claims; and (c) broke the chain of causation/rendered any damage suffered by the Claimant too remote. 

The DoH opposed this amendment on the basis that it is not reasonable arguable.  The DoHs opposition was motivated by concerns that giving disclosure of all documents formerly held by Primary Care Trusts (predecessors to clinical commissioning groups) in relation to the prescribing argument, and addressing it in witness evidence and at trial would be extremely burdensome and expensive.

2. The Claimant failed to act expeditiously in moving Perindopril into category M (i.e. the generic price category) of the NHS Drug Tariff. This proposed amendment was not challenged by the DoH.

The Scottish, N Irish and Welsh health authorities did not oppose Serviers application to amend.
 
Analysis of the Court

It was common ground that the test for "not reasonably arguable" is the same as the summary judgment standard under Civil Procedure Rule Part 24, namely, whether the amendment has a real as opposed to fanciful prospect of success.  The DoH submitted that there was a fundamental inconsistency between the prescribing argument and the nature of the causes of action. Claims under articles 101 and 102 are aimed at protecting consumers from market power being created artificially or exploited by producers in order to raise prices above competitive levels. It would be incompatible to reduce Serviers liability on the basis that the DoH (essentially the consumer) should never have purchased the product at the inflated price in the first place. 

Henderson J analysed five separate arguments advanced by the DoH for saying that Serviers mitigation defence based on the prescribing argument had no real prospect of success (only the first will be analysed in this report, it being of particular interest). The court noted that the doctrine of mitigation cannot come into play before the relevant breach of contract has occurred.  The issue then was whether the case against Servier involves: (a) allegations of a series of separate infringements of their rights occurring on each occasion when they purchased branded Perindopril; or (b) allegations of certain specific infringements of their rights at specific times which produced a series of losses stemming from those infringements on each occasion that Perindopril was subsequently bought. Ultimately, the issue turned on the form of the DoHs pleading. There was no clearly pleaded foundation for the proposition that each and every supply of Perindopril involved the accrual of a fresh cause of action.  Instead, the claim was framed in the sense that the specific infringements alleged against Servier had the result that generic entry into the market was unlawfully delayed and the consequence that Servier was able to continue charging its normal price for branded Perindopril. The prescribing argument was properly advanced as a failure to mitigate.

The DoH submitted that the prescribing argument could not provide a defence of contributory negligence, because the alleged negligence is not the effective cause of the loss, but merely the occasion for it.  Henderson J noted that this was a highly fact-specific issue which was unlikely to be suitable for summary determination.  It was reasonably arguable that the ongoing levels of purchase at Perindopril at a high price were caused in part by the DoHs conduct in failing to encourage switching to other ACE inhibitors.  Similarly, it is possible that this alleged failure of the DoH amounted to a break in the chain of causation.  In light of the above, Serviers "prescribing argument" defence in its various guises was allowed. 

Comment

So far as this GuestKat is aware, this is the first occasion on which prescribing and reimbursement matters have been raised by way of defence in a claim made by public healthcare authorities against a pharmaceutical company.  The 31 page judgment is a juicy one, and well worth a read for those interested in this area. It is worth remembering that the standard for introducing pleading amendments is a low hurdle, and it remains to be seen whether any of these defences will gain traction with the Court in due course.   

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Is there a competition law issue lurking on the horizon of cloud computing

Are we on the cusp of a potential competition law problem in the area of cloud computing services? The Economist tantalizingly, in an article entitled “Cloud Chronicles”, which appeared in its August 27th issue, has described the present circumstances of the industry, and why there might be room for future competition law concern. The culprit, if it comes to pass, may well be Amazon Web Services (usually referred to as AWS), which is the cloud-computing part of amazon,com. The story goes like this.

In 2006, Amazon made available a beta version of a service called “Elastic Compute Cloud”, described as “the central offering” of AWS. The service took off, in part, according to the article, because it coincided with the rise of the smartphone and the supporting app industry. Developers loved the opportunity to forego maintaining a hardware system and paying a fixed fee for use of software, in favor of paying only for the capacity that they used. AWS is said to have engaged in “many rounds of price reductions”, enabling it to capture increased market share. As well, AWS has, and continues to offer, an increasing number of add-on services, the marginal cost for which is minimal since the software has already been developed.

As such, AWS early on enjoyed first mover advantage (being the first cloud computing service “to succeed on a large scale”) and continues to benefit from network effects. As well, the burden of switching costs served to make it more likely that a user will be reluctant to move to another cloud service. Based on these advantages, AWS has raced far ahead of its competition. It is three times larger than its nearest competitor—Microsoft Azure. Other potential competitors are even less visible, including competing offerings from IBM and Google. At least these two hi-tech behemoths are still in the game; Hewlett-Packard has apparently simply withdrawn from the field. Even Salesforce.com, which is a prominent provider of on-line applications, announced that it will begin to make use of AWS services.

What will slow AWS’s continued dominant position in the industry? The article suggests that users are aggressive in trying to avoid being locked-in to AWS as their sole cloud services provider. It further reports that, at least in Europe, two-fifths of the companies in the cloud use more than one cloud service. Also, while the AWS service is highly popular with start-up developers, it has less success in attracting larger, established companies, in part, it would seem, from a hesitation by such companies to be tied up with a potential competitor, given the ever-increasing nature of Amazon’s product and service offerings. These countervailing forces argue that there may be a limit as to how much more AWS can grow.

Still, based on the information in the article, AWS does seem to enjoy a dominant position with smaller developers. If this were to be found to be the relevant population for vetting competition law concerns, then attention to pricing (should prices begin to tick upwards) and the ease or difficulty of switching to another cloud service, bears watch, especially since the computing infrastructure required might serve as a potential barrier to entry for competitors. Or perhaps less conventional metrics will be brought to bear. The article itself does not go into a discussion of how anti-competitive behavior by AWS might look, stating merely that—

“AWS could end up dominating the IT industry just as IBM’s System/360, a family of mainframe computers, did until the 1980s. If that happens, the antitrust authorities may eventually have to step in, as they did with IBM.”

This in itself is an interesting comment. This Kat is hoary enough to remember the antitrust case against IBM, filed in 1969, which dragged on until 1982. There, the issue was IBM’s alleged anti-competitive conduct based on its alleged dominance of the mainframe computer industry. What is notable is that this decade-long lawsuit came to an end because the US Depart of Justice ultimately decided to dismiss the case. Developments in the computer world had moved on since the filing of the law suit in the late 1960’s, and the capacity of IBM to dominate the computer world had passed.

Even more, this Kat remembers the frequently made comment that antitrust suits such as the IBM case, especially in the technology area, are almost always late to the game: either the technology is passing the target industry by, or the law suit is a cue to the target to seek new products and markets. If this be true, then it raises an interesting question: what would the filing of such a law suit say about the cloud-computing industry? Is the pace of innovation so seriously stuck in neutral, and the nature of cloud-computing so very different from the world of IBM’s System/ 360 family of mainframe computers, that there might be greater justification in considering such a law suit, should there be prima facie indicia of anti-competitive behavior? Or will such a suit be a redux of the IBM litigation? Stay tuned (especially if your computing connectivity is from the cloud).

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