Appeal dismissed; interlocutory injunction refused as damages remain adequate despite defendant's pre-launch conduct.

THE COURT OF APPEAL

Neutral Citation Number: [2018] IECA 177

Record Number: 2018/166

Peart J.

Hogan J.

Whelan J.

BETWEEN/

MERCK SHARP & DOHME CORP.

PLAINTIFF/

APPLICANT

- AND -

CLONMEL HEALTHCARE LIMITED

DEFENDANT/

RESPONDENT

JUDGMENT OF MR JUSTICE MICHAEL PEART DELIVERED ON THE 12TH DAY OF JUNE 2018

1. This is an appeal by Merck Sharp & Dohme Corp (“Merck”) against the refusal by the High Court (Haughton J.) by order dated THE

27th April 2018 to grant an interlocutory injunction the effect of which would be to restrain Clonmel Healthcare Limited (“Clonmel”)

until the trial of these proceedings from infringing Merck’s intellectual property rights in its medicinal product, Inegy® by continuing to

market and sell its rival generic product which it launched onto the market on the 17th April 2018.

2. Merck’s 599 Patent which expired on the 14th September 2014 covered Ezetimibe which is the generic name of the active

ingredient in Inegy® and other Merck products, as well as the combination of Ezetimibe and Impastation which, when used in

combination, allows for reduced doses of the cholesterol-reducing statin. This, it is claimed, has added benefits to the user.

3. However, Merck’s exclusive rights in relation to products containing Ezetimibe as an active ingredient were extended to the 16th

April 2018 by a Supplementary Protection Certificate 2003/014 (“the 014 SPC).

4. Merck claims that its exclusive rights in respect of products containing Ezetimibe in combination with Simvastatin (Inegy®) have

been further extended until the 1st April 2019 by Supplemental Protection Certificate No. 2005/2001 which I shall refer to as “the

Combi-SPC”.

5. Clonmel challenges the validity of this Combi–SPC by way of defence to these proceedings. Clonmel’s position is that if the SPC is

not valid, then its launch of its own rival generic product upon the expiration of the 014 SPC on the 16th April 2018 infringes no

extant intellectual property right of Merck.

6. Unsurprisingly, Merck maintains that the Combi–SPC was issued in full compliance with the provisions of Article 3 of Regulation (EC)

No. 469/2009 (“the SPC Regulation”). Clonmel considers that the Combi–SPC falls foul of Article 3 in a number of respects, and relies

upon a number of decisions of the CJEU such as Activis Group PTC EHF v. Sanofi (Case C-443/12 (12 December 2013), Georgetown

University v. Octrooicentrum Nederland (Case C-484/12(12 December 2013). In response Merck places much reliance upon the

Opinion of Advocate General Wathelet in Teva UK Limited & others v. Gilead Sciences Inc. (Case C-121/17) on what he describes as

“the thorny issue of the criteria for determining whether an active ingredient or a combination of active ingredients of a medicinal

product is protected by the basic patent in force within the meaning of [the SPC Regulation]”. The Court has not as yet given its

judgment in that case.

The test for interlocutory relief

7. The traditional test is that expressed by O’Higgins CJ in his judgment in Campus Oil Ltd v. Minister for Industry and Commerce

[1983] IR 88 at p.107 as follows:-

“In my view, the test to be applied is whether a fair bona fide question has been raised by the person seeking the relief.

If such a question has been raised it is not for the court to determine that question on an interlocutory application, that

remains to be decided at trial. Once a fair question has been raised, in the manner in which I have indicated, then the

court should consider the other matters which are appropriate to the exercise of its discretion to grant interlocutory

relief. In this regard, I note the views expressed by Lord Diplock, with the concurrence other members of the House of

Lords, at p. 407 of the report of American Cyanamid v. Ethicon Ltd. I merely say that I entirely agree with what he said.”

8. It is worth noting also that in this same judgment, O’Higgins CJ at p. 106 rejected a submission that such a plaintiff must

demonstrate a probability of success in relation to the bona fide issue identified, stating, inter alia, that such a test would be

contrary to principle. It should be borne in mind also that Campus Oil was a case where a mandatory injunction was sought. I mention

that because in the present case Clonmel has characterised the injunction sought by Merck as being mandatory in nature given that

its effect, if granted, would require that Clonmel take positive steps by removing its product from its website and any other sales

outlets. It is unnecessary to reach a definitive conclusion as to its character, but my view is that the injunction sought is prohibitory

in nature namely to restrain Clonmel from infringing Merck’s intellectual property rights protected by the Combi-SPC. What steps must

be taken in that regard does not in my view alter that essential character.

9. It is useful to refer to the judgment of Clarke J. (as he then was) in Okunade v. Minister for Justice & others [2012] IESC 49 in

which the applicable test was considered, albeit in the context of judicial review proceedings. At p.33 of his judgment he identifies as

the most detailed expression of the basis rules for the grant or refusal of an injunction at the interlocutory stage of proceedings, the

statement by McCracken J. in B&S Limited v. Irish Auto Trader Limited [1995] 2 I.R. 142 at p. 145, and he summarised the test as

follows by reference to B&S as follows, stating:

“9.8 As formulated in B & S the test can be summarised as follows:

• The party seeking the injunction must show that there is a fair or bona fide or serious question we tried.

• If that be established the court must then consider two aspects of the adequacy of damages. First the court

must consider whether, if it does not grant an injunction at the interlocutory stage, a plaintiff who succeeds at the

trial of the substantive action will be adequately compensated by an award of damages for any loss suffered

between the hearing of the interlocutory injunction and the trial of the action. If the plaintiff would be adequately

compensated by damages the interlocutory injunction should be refused subject to the proviso that it appears likely

that the relevant defendant would be able to discharge any damages likely to arise.

• If damages would not be an adequate remedy for the plaintiff then the court must consider whether, if it does

grant an injunction at the interlocutory stage, a plaintiff’s undertaking as to damages will adequately compensate

the defendant, should the latter be successful at the trial of the action, in respect of any loss suffered by him due

to the injunction being enforced pending the trial. If the defendant would be adequately compensated by damages

then the injunction will normally be granted. This last matter is also subject to the proviso that the plaintiff would

be in a position to meet the undertaking as to damages in the event that it is called on.

• If damages would not adequately compensate either party then the court must consider where the balance of

convenience lies. If all other matters are equally balanced the court should attempt to preserve the status quo.

10. Clarke J. went on to refer to the basic principle in these matters that the court must minimise the risk of injustice when

considering whether or not to grant an injunction of this kind. He stated in that regard:

“9.9 …If the plaintiff does not establish a fair case or serious issue to be tried then interfering with the position of the

defendant by means of imposing an interlocutory injunction on that defendant would create a serious and disproportionate

risk of injustice. Where damages are adequate on either side and likely to be capable of being recovered, in practice then

there is no risk of injustice for the plaintiff or defendant, as the case may be, will, if they win the case, be either awarded

damages (in the case of the plaintiff) or be able to recover damages on the undertaking (in the case of a defendant).

There is, of course, no real risk of injustice if such recovery would adequately compensate the relevant party.”

11. In his judgment, delivered ex tempore at the conclusion of the hearing of the application for interlocutory injunction on the 27th

April 2018, the trial judge, because of the urgency of the matter, expressed his conclusions with great brevity as follows:-

“First of all, in relation to the threshold argument, I am not satisfied that the interim order should be regarded as a

mandatory order and accordingly, the first issue that the court has to decide is whether there is a fair or serious issue to

be determined as to whether or not the SPC in relation to this combination drug of Ezetimibe-Simvastatin is still protected

by the SPC that doesn’t expire until 1st April 2019. I have come to the conclusion that there is a significant dispute in

relation to that validity, but the position is that the plaintiff, as matters stand, is entitled to the benefit of the SPC and

there is, therefore, a fair and serious question to be tried.

However, having listened carefully to the parties, having read the affidavits, I have come to the conclusion that, so far as

the plaintiff is concerned, damages would be an adequate remedy, and there is no issue but that the undertaking that

this defendant would give as to damages would be a good undertaking, indeed that is not challenged, and accordingly, I

will refuse the application for interlocutory relief. I will give my more detailed reasons in relation to why the Court is of the

view that damages are an adequate remedy at a later date.”

12. I should say at this point that the trial judge’s detailed reasons for his conclusion that damages would be an adequate remedy for

the plaintiff were not available by the time this urgent appeal was heard. In these circumstances, it was not appropriate or even

possible for this Court to reach any conclusion as to whether or not the trial judge was correct in the exercise of his discretion not to

grant the injunction on the basis that damages were an adequate remedy for Merck. For that reason, and with the agreement of the

parties, and in view of the obvious urgency of the appeal, this Court was satisfied that it should exercise its own discretion on the

basis of the applicable legal principles, and on the basis of the evidence before this Court both in terms of the affidavits before the

High Court and any additional affidavits filed in this Court for the purposes of the appeal.

13. I am satisfied that the test or threshold applicable in this case is no different by reason of the fact that it involves an alleged

infringement of a patent, being a property right. In that regard there can be no doubt but that the question of whether or not

Clonmel has infringed the rights of Merck protected by the Combi-SPC is at the heart of these proceedings, and therefore the

associated question as to its validity raised by the defendant. There can equally, in my view, be no doubt that this amounts to a fair

bona fide, or serious issue to be tried at the hearing of the action. This is so clear in this case given the competing affidavits and

competing legal submissions by counsel that it is unnecessary to explain why I am of that view. In my view the trial judge was correct

to so conclude, though for the reasons stated, I reach my own conclusion in this regard.

14. There has been some discussion that, because this injunction application may well be determinative of the proceedings (since, by

the time this action can reasonably be expected to be heard in the High Court and judgment delivered, the Combi-SPC will have

expired thereby rendering any controversy between the parties moot), this Court should reach a firm conclusion on the validity of the

Combi-SPC when deciding whether or not an injunction should be granted. I do not agree with this approach.

15. It is suggested that if the Court on this application was satisfied that the claim of invalidity in respect of the Combi-SPC was likely

to fail this should of itself favour of granting the interlocutory injunction; and conversely that if the Court was satisfied that the

invalidity claim would likely fail then the Court should refuse the injunction. In this particular case the maximum life of the Combi-SPC

is now just nine months. If this interlocutory injunction is refused, the plaintiff will seek to recoup its losses from the defendant on

foot of the latter’s undertaking as to damages after the 19th April 2019. Then the question of the validity of the Combi-SPC will fall to

be decided in any event. In that sense the issue does not become moot. It will need to be decided. That issue of invalidity or

otherwise is a complex matter, and in my view it is not appropriate that this Court (being an appellate court) should determine it as

part of its own consideration as to whether to exercise its own discretion whether or not to grant the injunction sought, especially

where the Court does not have the detailed reasons for the trial judge’s conclusions, given the rapidity with which this appeal has

been heard due to its urgency.

16. I would in any event refer to the judgment of Kelly J. (as he then was) in SmithKline Beecham plc v. Genthon [2003] IEHC 623 in

which he stated that no special rule should apply in relation to the granting of an injunction in a patent case from the normal rules

applicable for the granting of such injunctions. At pp. 13-14 Kelly J. stated:

“… I should however deal with a contention made by the defendants to the effect that a claim for a patent infringement

is almost always remediable by an award of damages. The suggestion was that therefore the remedy of the injunction

should not normally be available to a patentee. The authorities cited in support of this assertion was a dictum of Laddie J.

in the case of: Unilever plc v. Frisa NV [2000] F.S.R 708. At page 717 Laddie J. said, and I quote:

‘I am aware that interlocutory proceedings in the Patents Court are not common. That is at least in part due to the

fact that it is possible to get a full trial on in about a year and sometimes much less than that.’.

Having cited that passage I did, however, draw counsel’s attention to the next sentence where the judge went on, and I

quote:

‘But practitioners should not believe that there is an inherent hostility to interlocutory relief in suitable cases.’

I wish to state that there is no hostility, inherent or otherwise, to the grant of interlocutory injunctions in patent

infringement proceedings. The tests for the grant of such an injunction are the same as in any other case. No better

exemplar of this is the decision of the House of Lords in American Cyanamid which set forth those guidelines of wide and

general application in what was itself a patent infringement suit.”

17. If damages are an adequate remedy for the plaintiff, or for the defendant as the case may be, as explained by Clarke J. in

Okunade I see no reason why this Court should reach a conclusion on the validity of the Combi-SPC, particularly where it would be

doing so on the basis of such affidavit evidence as was before the High Court and this Court. The issues to be resolved in this regard

are complex and technical. In an ideal world there would be expert evidence called by each side at a full hearing of the action in due

course which would put the trial court in a position to determine these difficult issues.

18. I do not exclude the possibility that there may be another case where damages are demonstrably not an adequate remedy, and

where the balance of convenience falls to be considered, and where the merits of the respective sides of the argument might have to

be more fully examined as part of the exercise of assessing where the balance of convenience lies, or as it is put more recently where

the greater risk of injustice lies, but this is not such a case. But I would urge caution in this regard, just as Clarke J. did in his

judgment in Okunade, when he stated the following:-

“9.17 It has sometimes been suggested that the court should, in deciding whether to grant or refuse an interlocutory

injunction, place much greater weight on the strength or weakness of the parties’ case on the facts and thus engage in a

detailed analysis of the facts at the hearing of an application for an interlocutory injunction. At least in the commercial

context there are strong reasons for not doing so. Those reasons are set out in my judgment in AIB v. Diamond. It would

be very difficult to resist repeated applications by the parties to put in continuing additional evidence and argument if a

nuanced view as to the strength of either party’s case was likely to form a significant part of the court’s consideration as

to whether to grant or refuse an interlocutory injunction. Such a practice would defeat the whole purpose of the

interlocutory injunction hearing. Indeed it could lead, as was pointed [out] in Diamond, to the court having to have an

earlier hearing to decide what was to happen pending the determination of the interlocutory application. Such a practice

would not be in the interests of litigants or of the proper management of scarce court resources ….”

19. I have reached a conclusion that damages will be an adequate remedy for Merck, particularly so where in any event, and

inevitably, the Combi-SPC expires by the 1st April 2019, and that they would not represent an adequate remedy for Clonmel in the

event that their claim of invalidity succeeds at trial. Therefore the balance of convenience does not need to be considered. Merck’s

contention that damages are not an adequate remedy where they will have to match the 92% reduction in price of the Clonmel

generic product, and in the event that they succeed in these proceedings will be unable to raise their price again, must be seen in

the very specific context of this case where the Combi-SPC will expire in 9 months time. Also I would refer to what is said in

SmithKline Beecham v. Genthon by Kelly J. at p. 29 thereof:

“The next area which is pointed to is of course the fact that the defendant’s product is some 18% cheaper than the

plaintiff’s. It is said that this may result in the plaintiff’s having to reduce its price. If that is so and the plaintiff’s are

wrongly deprived of an additional profit, that is clearly recoverable as an item of monetary damage against the

defendants. I cannot see how this gives rise to an irreparable loss.” [Emphasis provided]

I have underlined the word “may” in the above passage because counsel for Merck has sought to draw a distinction in the present

case where he says that it is not a question of whether Merck “may” have to reduce its price, but rather that it “must” reduce its

price. I think this is a distinction without a difference, if I may say so. Whether it may have to reduce its price or must reduce its

price, one way or another any losses will be readily ascertainable given the stability of the market.

Adequacy of damages

20. This appeal is really all about the adequacy of damages. An important fact which is not in controversy is that the generic product

launched by Clonmel to compete in the market with Merck’s product is being sold at 92% below the Merck price. The written

submissions of Merck before the High Court neatly summarises the basis on which it claims that damages will not adequately

compensate it in the event that an injunction is refused, and it succeeds at trial. It is stated:-

“In summary, MSD’s position as to the adequacy of damages is as follows:-

(a) If Clonmel is permitted to remain on the market MSD will have no alternative but to respond to very large price

reductions of its own.

(b) It is highly unlikely that such price reductions will be capable of significant reversal within the remaining term of

the SPC

(c) Even if such price reductions were capable of significant reversal it would be at a significant cost to MSD in

terms of its reputation with pharmacists.

(d) There will be permanent damage to the SPC.

(e) Clonmel does not dispute that parallel importers may purchase Inergy® for resale in other EU countries and

thereby occasion loss to MSD in those markets.

(f) As a result of reference pricing, if the price falls in Ireland it is likely to impact on the price paid in the other

basket of countries used in international price referencing.

21. A further argument made, as stated by Ms. Aoife Murphy in her affidavit sworn on the 30th April 2018 is that the 92% price

differential has the effect of blocking MSD’s own Inegy product from the market, that price being set by Clonmel in order to be

competitive as against other generics whom it is anticipated will (in the absence of injunctive relief) entered the market as soon as

possible.

22. If one takes Merck’s case on damages at its height, and I do since the underlying facts are not really in dispute, there can be no

doubt that given the 92% discount price of the Clonmel product, the Merck Inegy® product will be for all practical purposes blocked

from the market, as is stated by it, and in effect it will not have the benefit from, and the fruits of, the full life of the Combi-SPC.

Equally, they may well suffer as a result of parallel imports and of price referencing as asserted by it. It will undoubtedly suffer losses.

23. On the other hand, as submitted by Clonmel, even on Merck’s own case on affidavit, the market for its product is a stable market,

and their own sales figures over the past few years indicate clearly that the market for Inegy® is worth in the region of and not more

than €8 million annually.

24. Clonmel point also to the fact that without any doubt the Combi-SPC expires on the 1st April 2019, and thereafter any generic

can be put on the market without challenge. It follows, in Clonmel’s submission that the extent of any losses incurred by Merck during

the remaining period of the Combi-SPC are easily calculated, and capable of being ascertained for the purpose of calling upon Clonmel

to pay those losses on foot of its undertaking as to damages, given the stability of the market as identified.

25. I agree with Clonmel’s submissions in this regard. I am also not satisfied that the fact that some Merck staff may have to be

diverted into other positions or even let go in the event that the demand for the Merck product is greatly reduced is itself a reason to

grant an injunction. Again, if losses arise to Merck in this regard, they are easily quantifiable.

26. In view of my conclusions as to the adequacy of damages for Merck in the event that they are ultimately successful in resisting

the challenge to the validity of the Combi-SPC, it is not necessary to consider whether damages would be adequate for Clonmel.

Having said that I am persuaded that they would not be given the uncertain nature of the damages that could result from the loss of

what is termed “first mover advantage”. In other words the first generic launched onto the market enjoys such an advantage over

generics that are launched subsequently. They are in a sense “the incumbent generic”, and that has an advantage as first mover.

The deprivation of that first mover advantage does not seem capable of ascertainment. It is an unknown matter. It is not simply a

question of it being a difficult matter to quantify such losses, as discussed in the judgment of Finlay CJ in Corust Financial Services

Ltd v. Loewe-Lack-Werk [1994] 1 IR 450. It would in my view be impossible and in that sense damages cannot be considered to be an

adequate remedy for Clonmel.

Clonmel’s conduct

27. Merck has argued that Clonmel’s conduct prior to the launch of its generic should be a factor that the Court should take account

of when considering whether to grant the injunction sought. By conduct is meant that in the lead up to the launch of its generic on

the 17th April 2018 it did not in advance inform Merck of its intended launch even though there was correspondence passing between

Merck’s solicitor (Whitney Moore) and Clonmel, and between Clonmel’s solicitors (William Fry) and Whitney Moore. In particular it is

submitted that Clonmel deliberately decided not to inform Whitney Moore of the date of its intended launch when answering (through

William Fry) its letter dated the 6th April 2018.

28. Merck refers also to the fact that at any time prior to the 18th April 2018 Clonmel could have sought to clear the way for an

uncontroversial launch of its generic product in advance of the expiry of the Combi-SPC, by initiating a challenge to its validity under

Article 15 of the SPC Regulation. That would have brought clarity to the situation instead of acting by subterfuge and thereby

stealing a march on its competitor.

29. Whitney Moore’s letter dated the 6th April 2018 to Clonmel, having referred to the existence of the Combi-SPC and the fact that

it is in force until the 1st April 2019, as well as to the 014 SPC which was about to expire on the 16th April 2018 states as relevant:-

“We note that you hold several marketing authorisation[s] from the Irish Medicines Board for medicinal products containing

ezetimibe and simvastatin as the active substances [licence no’s …refer]. It has just come to our client’s attention that

these Clonmel products were granted reimbursement prices by the Health Services Executive on 1 April 2018. Accordingly,

our client believes that you are about to launch generic ezetimibe + simvastatin tablets onto the Irish market.

Take notice that the making, offering, putting on the market or using a product which contains ezetimibe in combination

with simvastatin, or importing or stocking such a product purposes, would, if carried out in Ireland prior to 1 April 2019

infringe our client’s SPC.

Our client is surprised that you have sought and obtained reimbursement prices for your generic ezetimibe + simvastatin

tablets in circumstances where your parent company [Stada] wrote to our client’s German lawyers … On 27 September

2016 and 31 May 2017 indicating that it was not Stada’s intention to launch a generic product before expiry of MSD’s

SPCs for ezetimibe. This in further correspondence dated 14 September 2017, [German lawyers] wrote to Stada enclosing

an overview of all SPCs based on European patent 0 720 599 and its national counterpart, which included details of the

Irish SPC covering ezetimibe and simvastatin. We also note that Stada is one of the entities identified as a manufacturer

in the product leaflets for your generic ezetimibe + simvastatin tablets.

The present situation is unacceptable to our client and, in the circumstances, it requires from you signed undertakings in

the form attached, to be returned to us no later than 5pm on Thursday 12 April 2018. You will note that one of those

undertakings involves you informing the HSE that you have no intention to market generic ezetimibe + simvastatin

products on the Irish market until 1 April 2019 and that you wish to change the reimbursable effective date to 1 April

2019.

Our client will consider a refusal to supply the enclosed undertakings or lack of response by 5p.m. on Thursday, 12 April

2018 as indicating your intention to immediately launch onto the Irish market.”

30. Messrs. William Fry replied to this letter by one dated 12th April 2018. It is a brief reply, and as relevant stated:-

“… We are instructed to reply as follows:

Our client contends that your client’s SPC is invalid.

In these circumstances, our client is not prepared to provide the undertakings sought in your letter and in the event that

proceedings are issued against it for infringement (which infringement is denied) under Irish law, they will be vigorously

defended and a counterclaim for invalidity shall be made.”

31. Merck’s complaint is essentially that this letter did not go on to state that their client intended to launch its generic product on

the 17th April 2018 – a fact that must have been known at that point. Clearly the point is that if it had done so, Merck would not

have waited until after the launch had taken place and would have sought interim relief in advance of the launch, and would not have

to have waited until after the launch had taken place, by which time the product was already on the shelves, so to speak.

32. Messrs. Whitney Moore wrote again on the 17th April 2018 to William Fry stating:-

“Having noted your response and in particular your client’s refusal to provide undertakings that our client requires, our

client has no option than to assume that your client is now about to launch generic ezetimibe + simvastatin tablets onto

the Irish market.

If we are incorrect in this assumption, require written confirmation by 6.00pm today, Tuesday 17 April 2018, otherwise our

instructions are to immediately commence proceedings against your client for infringement of our client’s SPC and to seek

urgent injunctive relief (“the proceedings”)

33. Messrs. William Fry responded on the same day refusing to give the undertakings sought, and also informing that in fact Clonmel

had already on that day launched two categories of generic combi drugs, ezetimibe-simvastatin onto the Irish market.

34. In my view the conduct of a defendant in relation to events which precede the application for an injunction ought to be

considered when the balance of convenience is under consideration. However, it seems to me that such conduct, even where it is

open for the Court to reasonably take an adverse view in relation to the alleged conduct (and I am reaching no concluded view on

the allegations made by the plaintiff against the defendant in this particular case), it ought not lead to the granting of an

interlocutory injunction where for other reasons such an injunction would not be granted on the basis of the normal legal principles –

i.e. where damages are an adequate remedy.

35. For these reasons I would refuse to grant the interlocutory injunction sought by Merck.