In this trial of preliminary issues, Zacaroli J held that when assessing the damages payable to multiple claimants under cross-undertakings given in respect of various interim injunctions and orders (and for unjustified threats of patent infringement), a single set of counterfactual assumptions should apply to all inquiry claimants, where those claimants operate in the same, largely finite, market. The decision is the latest in a long line of judgments concerning Pfizer’s pregabalin product, Lyrica®.
Pfizer held the marketing authorisation for pregabalin (branded Lyrica®) and Warner-Lambert (a Pfizer group company) was the proprietor of EP 0 934 061 (EP 061), a patent covering the second medical use of pregabalin in the treatment of neuropathic pain. For ease of reference, Warner-Lambert and Pfizer are collectively referred to as “Pfizer” below.
Following the expiry of data exclusivity for Lyrica in July 2014, various entities sought to bring generic pregabalin products to the market. Given the existence at the time of EP 061 (which was due to expire in July 2017), generic entities sought marketing authorisations with various different labels:
• Skinny Label – including indications for epilepsy and general anxiety disorder (GAD) but not neuropathic pain.
• Intermediate Label – including indications for epilepsy, GAD and central (but not peripheral) neuropathic pain.
• Full Label – including indications for epilepsy, GAD and neuropathic pain.
In response, Pfizer wrote to a number of parties, including various generic entities and the Department of Health, in terms that were subsequently held to represent unjustified threats of patent infringement proceedings under s70(1) of the Patents Act 1977. Mylan and Actavis brought proceedings to revoke EP 061, and Pfizer commenced infringement proceedings against Actavis.
In the course of the proceedings various interim orders were made, including injunctions restricting full- or intermediate-label generic entry and requiring the NHS to issue guidance to physicians requiring the prescription of Lyrica (rather than generic pregabalin) for the patented indications. As a condition for the making of those orders, Pfizer gave various cross-undertakings to pay damages to the enjoined parties if the order was later held to be “wrongly” made, for example if EP 061 was subsequently held to be invalid or not infringed. A number of generic entities also contractually undertook not to launch on full or intermediate labels, subject to Pfizer providing cross-undertakings in return.
The proceedings between Mylan, Actavis and Pfizer continued to the Supreme Court. In its decision (Warner-Lambert v Generics (UK) Ltd  UKSC 56), The Supreme Court considered the validity of claims in EP 061 for the second medical use of pregabalin for the treatment of neuropathic pain. Construing ‘neuropathic pain’ to include both peripheral and central neuropathic pain, the Court held that the relevant claims were invalid for insufficiency because they lacked plausibility. This finding triggered Pfizer’s liability for damages under the cross-undertakings. The present judgment arises from a trial of preliminary issues in the subsequent damages inquiry.
At the Case Management Conference in the damages inquiry, Birss J ordered a trial of preliminary issues to determine:
(i) the appropriate counterfactual assumptions upon which to determine damages payable to the inquiry claimants; and
(ii) whether findings of fact should be binding between different parties in the proceedings.
Given the number of generic entities and NHS entities (there were 35 in total), Zacaroli J divided the relevant claimants broadly into three categories:
(i) Generic entities claiming lost profits which would have been derived from skinny labelled products (Skinny Label Generics). Generally, the Skinny Label Generics argued that the counterfactual assumptions should be assessed for each inquiry claimant separately. They argued that the court should assume that the orders (and threats) relating to that specific claimant and the NHS guidance were not issued, but that all other orders should assumed to have been made. The resulting counterfactual would assume that all other claimants continued to be restrained and each individual generic entity could therefore argue for compensation on the basis that they would have been Pfizer’s sole competitor, rather than operating in a more crowded and competitive market with all other generic entities.
(ii) Generic entities claiming lost profits which would have been derived from full label products (Full Label Generics). By the time of the trial of preliminary issues, the only remaining Full Label Generic claimant was Ranbaxy (Sandoz reached a settlement with Pfizer). Ranbaxy also opposed the use of a single counterfactual and argued that the court should assume that only the orders restricting Ranbaxy and NHS guidance were not made. However, in its pleaded case, Ranbaxy accepted that the orders applying to Sandoz would also not remain in place because ”there is no principled or factual reason why it alone would no longer have been subject to such interim measures."
(iii) NHS entities from England, Wales, Scotland and Northern Ireland (NHS Parties) argued that a single counterfactual should be considered for all inquiry claimants but that it should be assumed that all claims of the patent were known to be invalid following the expiry of data exclusivity. By assuming knowledge that all claims of the patent were invalid, the counterfactual would proceed on the basis that all generics would have entered the market, as without knowledge of invalidity some generic entities may have been put off the possibility of having to launch ‘at risk’. The NHS Parties pursued this argument because greater numbers of generic entities entering the market would have resulted in greater competition, lower prices for pregabalin, and thus greater damages for the NHS Parties.
Pfizer argued that a single counterfactual should apply to all inquiry claimants and that the court should assume a counterfactual scenario where no orders, undertakings or threats were made. Pfizer argued, inter alia, that approaching the inquiry on any other basis: (i) risked inquiry claimants recovering more than the loss suffered by them; and (ii) would be contrary to the fair administration of justice because it risked irreconcilable judgments based on essentially the same facts.
Despite references to various authorities (including a number of Australian cases), the judge held that no cited authority directly dealt with how to approach the counterfactual assumptions for determining damages payable to inquiry claimants operating within the same finite market.
Zacaroli J acknowledged the attractive simplicity in the argument that the only real world occurrence to be removed from the counterfactual is the very order, undertaking or threat upon which the individual inquiry was based. However, he concluded this was not the correct approach. Instead he held that a single counterfactual scenario which assumes that no threats, orders, or undertakings were made should bind all inquiry claimants.
He reasoned that the market for pregabalin was finite and that determining the market share is a “zero sum game between all participants in the market”. Thus the market share of one inquiry claimant could not be determined without assessing the respective shares of the other market participants. He held that removing only the order relevant to each particular inquiry claimant would ”result in Pfizer being required to pay more in aggregate by way of compensation to all Inquiry Claimants than the total loss that could possibly have been caused in any single counterfactual world”.
Zacaroli J also noted that had the court restrained all of the generic entities by way of a single order it could not sensibly be argued that any counterfactual should assume that the order remained in place for generic entities other than the relevant claimant. He further recognised that it would be unjust to allow the NHS Parties to claim on the basis that the price for pregabalin would have collapsed upon generic entry, but to allow generic entities to claim on the basis that the price would have remained high due to the restricted access to the market for other generic entities.
The judge emphasised that the counterfactual assumptions applied to all inquiry claimants, including Dr Reddy’s, who had argued it should be entitled to rely on the facts outlined in its detailed pleadings as to what would have happened in the absence of the NHS guidance and threats. Factual contentions (and admissions, if any) would only bear on the second stage of the inquiry, i.e. what would have happened in the postulated counterfactual world.
The judge also rejected the NHS Parties’ argument that it should be assumed that all claims of the patent were known to be invalid at the date of expiry of data exclusivity. He noted the importance of distinguishing “between losses caused by the order itself, and losses caused by the existence of the underlying litigation. Only the former are recoverable under the cross-undertaking”. Damages resulting from an assumption that the patent was known by all to be invalid would not flow from the orders that had actually been made, and would instead be tantamount to awarding compensation for the existence of the patent and Pfizer’s defence of it.
Finally, the judge held that any findings of fact should be binding on all inquiry claimants. He noted that where each claimant’s claim depended on its share of the overall market, it would make little practical sense for the respective market shares to be assessed on different findings of fact. Although Pfizer and each individual claimant were free to agree facts relevant to the compensation payable to that claimant, such agreements would not be binding in respect of the other parties.
This trial of preliminary issues related to the first stage of the damages inquiry, namely identifying the assumptions existing as a matter of law in the counterfactual scenario. The second stage – identifying the facts, and ultimately the compensation to be awarded to each claimant – is yet to come. However, this judgment confirms that the court will take a pragmatic approach to damages inquiries, making sure that any assumptions protect the interests of justice and prevent the claimants’ total recovery from exceeding the aggregate losses that could in reality have been suffered.
If you have any questions regarding this article, please contact Jonathan Solomon and/or Trevor Crosse.
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T: +44 20 7420 0250