Napp Pharmaceutical v Dr Reddy’s Laboratories
In the UK to enforce an interim (preliminary) injunction, the patentee must give a cross-undertakings as to damages (but not post a bond). In the event that the patent is found to be invalid or not infringed, damages incurred by the injuncted party can be recovered under the cross-undertaking. This is either by way of agreement or a damages inquiry. Therefore, the value of the cross-undertaking is only as good as the patentee’s ability to pay. This will be a factor considered by the court when granting the interim injunction (if the patentee is unlikely to be able to pay under the cross-undertakings an interim injunction may not be granted). However, what happens if the financial position of the patentee is alleged to be at risk of deteriorating during the course of the interim injunction and subsequent damages inquiry? This was the position considered by the court in Napp Pharmaceutical v Dr Reddy’s Laboratories.
In 2016 Napp obtained an interim injunction against Sandoz restraining the launch of Sandoz’s transdermal buprenorphine patches, which were to be manufactured by Hexal AG and sold in the UK under the brand name Reletrans. Napp gave corresponding cross-undertakings.
Some four months later, the English Patents Court found that the patent was not infringed. Some two months after that the Court of Appeal upheld the decision and the injunction was discharged. The claim reached a final unappealable decision in some eight months. In May 2017, Sandoz served its points of claim in respect of the damages inquiry.
Sandoz (and others) asserted that “Napp’s financial position [had] changed such that there [was] a risk that its assets could be removed before the outcome of the damages enquiry [was] known...” It therefore sought fortification (security) of the cross-undertakings in support of any damages payable as a result of the damages inquiry.
The court reasoned that two issues had to be resolved:
- Did it have the jurisdiction to order fortification of the cross-undertakings?
- If so, was there a need to do so?
Sandoz argued that the following points in favour of the court having jurisdiction:
- The undertaking had already been given and continued to subsist;
- The court has a general power to require the claimant to identify specific assets and to verify that in an affidavit and order preservation of those assets or a freezing order over assets to a particular value;
- It would be inequitable if a claimant could avoid its obligations to pay damages under a cross-undertaking by reason, for example, of potential insolvency.
The court disagreed. It referred to a number of textbooks which supported the proposition that, once an interim injunction had been discharged, the court had no jurisdiction to order fortification. In particular, Mr Justice Carr, the judge hearing the application, quoted from Thai-Lao Lignite v Government of the Lao People’s Democratic Republic:
“45. The Court cannot require a claimant to give an undertaking. When fortification of a cross undertaking is required, it is not imposed by an order of the court that it must be given. It is part of the undertaking offered by a claimant, and the grant of the order is conditional upon the undertaking being complied with. This is reflected in the standard wording of the Commercial Court freezing order. Requiring fortification is an adjunct to the undertaking offered by a claimant, and is only 'required' in the sense of being the price which the claimant will have to pay if he wants his order to operate in futuro. The fortification now sought by the Central Bank is an adjunct to the undertaking originally voluntarily given by the Claimants, and to attach a fortification requirement to such undertaking now, after the Central Bank accounts have been removed from the scope of the Freezing Order, would be in substance to impose upon the Claimants an undertaking they did not give. Moreover it would be to impose a retrospective burden upon the Claimants whilst at the same time depriving them of the opportunity of considering whether to assume that burden as the price of obtaining the Freezing Order over the Central Bank accounts."
He summarised this position as follows:
“The starting point is that the court has no power to order a party to give a cross-undertaking in damages. A cross-undertaking in damages is the price that a claimant is willing to pay in return for the grant of an injunction. Once the injunction has been discharged, there is no price that is worth paying because the claimant is not asking for the injunction to continue. In my view, it follows that an application for fortification of a cross-undertaking needs to be made whilst the injunction in respect of which it is given is continuing. This is not inequitable, since the court will not order security for damages, and fortification of the cross-undertaking does not amount to such an order.”
In the event that the court was wrong on this point of law, it considered whether it would exercise any discretion to order fortification.
Sandoz pointed to potential financial difficulties faced by Purdue Pharma and other companies owned by the Sackler family following allegations in relation to OxyContin. It alleged that the connection between Napp and Purdue Pharma was close and that any loss incurred by the latter may affect the former.
In response, Napp adduced evidence explaining that, for the year ending 31st December 2014 (when the undertaking was originally given and no request for fortification made), Napp had cash of approximately £28 million, an operating profit of approximately £72 million, a declared dividend of £30 million and net assets of approximately £133,400,000. Since then, Napp's financial position had improved. Further the court held that, were it necessary to reach a decision, it would say that Sandoz had no more than a good arguable case for the sums which have been set aside in Sandoz's latest accounts of approximately £14 million of damages and £5 million of costs.
As to the connection between Purdue Pharma and Napp, Napp explained that they were independent of each other and that it was not aware of any basis upon which any legal claims against Purdue Pharma, or individuals within the Sackler family in the USA, might have any effect on Napp's ability to carry on its business.
Mr Justice Carr, weighing the evidence, held that if he had jurisdiction to order fortification, he would not do so. He concluded that the alleged circumstances giving rise to the need for fortification were “speculation upon speculation”.
The judgment acts as a reminder that the beneficiaries of cross-undertakings in English civil proceedings should monitor the financial condition of the party giving the undertakings carefully while the interim injunction is in place. If there is deterioration of its financial condition during the course of any interim injunction, this may be the time for a beneficiary to apply for fortification; after the injunction lapses it will forego its opportunity.
Link to full decision
Napp Pharmaceutical Holdings Ltd v Dr Reddy's Laboratories (UK) Ltd & Ors  EWHC 1009 (Pat) (15 April 2019).Read more (bailii)