Les Laboratoires Servier & Anor v Apotex Inc & Ors (Rev 1)

The illegality principle can apply to a claim under a cross-undertaking in damages, including where the relevant illegality arises under foreign law. Its application is policy-based and fact-sensitive. The court must analyse the particular conduct and the policies engaged, including consistency and comity, and determine whether denying relief is a just and proportionate response. A patent infringer’s honest and reasonable belief that the patent is invalid may materially reduce culpability, even though infringement is a strict-liability wrong. The unlawful conduct must cause the claimed loss, not merely provide its occasion. Where manufacture abroad would infringe a foreign patent but importation and sale in England would be lawful, a deduction reflecting the foreign-law remedy may recognise the illegality and avoid a windfall. On that basis the defence did not defeat the claim.

Servier obtained interim injunctions restraining Apotex from importing and selling generic perindopril in England under a European patent. The patent was later held invalid and an inquiry was ordered. Norris J awarded Apotex £17.5 million on the cross-undertaking in damages in [2008] EWHC 2347 (Ch), reported at [2009] FSR 3. Arnold J subsequently accepted Servier’s illegality defence and ordered repayment.

Apotex’s products would have been manufactured in Canada. The Canadian courts held that manufacture infringed a valid Canadian patent. On appeal, Apotex accepted in principle a deduction for profits recoverable under Canadian law. The central questions were whether the illegality principle could bar recovery, whether the unlawful manufacture caused the claimed loss, whether Servier was precluded from raising the defence, and the effect of the concession.

1. Disposition. The appeal was allowed. Etherton LJ gave the leading judgment. Kitchin LJ agreed with both judgments. Laws LJ agreed with the conclusion and qualified the reasoning only by identifying the principal strands in the rationale of the illegality rule.
2. Nature of the illegality principle. The principle is capable of applying to a claim under a cross-undertaking in damages. Its application is not governed by rigid categories. The court must analyse the particular facts and the policy considerations engaged, including the purpose of the rule infringed, consistency, deterrence, prevention of profit from wrongdoing, integrity of the legal system and, where foreign law is involved, comity. The result must be a just and proportionate response. This does not create a general discretion based on public conscience. The approach rejected in Tinsley v Milligan [1994] AC 340 could not be adopted.
3. Causation and culpability. Applying the causation approach in Gray v Thames Trains Limited [2009] 1 AC 1339, the relevant unlawful conduct must cause the loss rather than merely provide its occasion. Apotex’s claim depended directly on manufacture and export in Canada, which were essential elements of its manufacturing-cost and lost-profit calculation. The conduct was therefore sufficiently causative in principle.
4. Patent infringement was a statutory wrong irrespective of state of mind under the Canadian Patent Act s. 42. Nevertheless, Apotex honestly and reasonably believed that the Canadian patent was invalid and consciously accepted the commercial risk of infringement. Those circumstances placed the conduct low on the scale of culpability. The court rejected both the proposition that patent infringement could never engage the defence and the proposition that it necessarily did so.
5. The Canadian patent was territorial. Manufacture in Canada could infringe it, but the resulting importation and sales in the United Kingdom would themselves have been lawful. The different parties to the English and Canadian proceedings did not prevent consideration of the illegality principle.
6. The Canadian court had not granted an interlocutory injunction restraining manufacture and export for the relevant markets, and the evidence supported the conclusion that it would have regarded damages as adequate. The paragraph 26 concession, allowing deduction of the profits recoverable under Canadian law, placed Apotex in the position it would have occupied without the English injunctions. It recognised the Canadian illegality, preserved comity and consistency, and avoided an unwarranted windfall. The illegality defence therefore did not defeat the claim.
7. Servier was not barred by approbation and reprobation merely because it knew the relevant facts when the English injunctions were granted. There was no authority for such a draconian rule.

1. Court of Appeal (Civil Division): Allowed Apotex’s appeal from Arnold J’s order and rejected the illegality defence as defeating the claim.
2. Chancery Division: Arnold J dismissed Apotex’s claim on the inquiry as barred by the illegality principle and required repayment of the sum awarded.
3. Chancery Division: Norris J awarded Apotex £17.5 million on the cross-undertaking in damages in [2008] EWHC 2347 (Ch), reported at [2009] FSR 3. The Court of Appeal later directed that the sum stand as an interim payment pending determination of further defences in [2010] EWCA Civ 279.
4. Chancery Division: Pumfrey J held the European patent invalid and directed an inquiry as to damages in [2007] EWHC 1538 (Pat). The Court of Appeal dismissed Servier’s appeal in [2008] EWCA Civ 445.