Supreme Court holds patent infringement not "turpitude"/"illegality" for the purposes of the defence of illegality

9 minute read
30 October 2014

The Supreme Court has held that the infringement of a patent does not constitute "turpitude" for the purposes of the defence of illegality ("ex turpi causa non oritur actio"), in Les Laboratoires Servier & another v Apotex Inc [2014] UKSC 55.

Les Laboratoires Servier & another v Apotex Inc [2014] UKSC 55.

The Supreme Court has held that the infringement of a patent does not constitute "turpitude" for the purposes of the defence of illegality ("ex turpi causa non oritur actio").

In 2006, Servier obtained an interim injunction restraining Apotex from making sales in the UK of its generic perindopril erbumine tablets, which it was alleged infringed Servier's formulation patent. The patent was later held to be invalid, although it would have been infringed. Apotex claimed for damages under Servier's cross-undertaking in damages. Apotex's position was that but for the interim injunction obtained by Servier, it would have sold an additional 3.6million packs of perindopril erbumine tablets in the UK, the active ingredient for which would have been manufactured in Canada by a group company. Late in the High Court damages inquiry, Apotex was held in Canada to have infringed, by the manufacture of generic perindopril tablets, Servier's Canadian patent for the compound (perindopril), which remained in force in Canada although it had expired in the UK.

Servier was eventually permitted to amend its defence to Apotex's damages claim, to argue that:

  1. According to the doctrine ex turpi causa non oritur actio, it was contrary to public policy for Apotex to recover damages for being prevented from selling a product whose manufacture in Canada would have been illegal there as an infringement of Servier's Canadian patent.
  2. In assessing Apotex's loss of profit, the damages for infringement to which Servier would have been entitled in the Canadian proceedings should be treated as an additional cost of manufacture.

The second of the issues was stayed pending the assessment of damages in Canada and Apotex later conceded that any damages awarded in the Canadian proceedings should be deducted from the award payable in the UK irrespective of the fate of the first issue.

Regarding the first issue, Servier succeeded at first instance before Arnold J., whereas Apotex succeeded in the Court of Appeal. In the Court of Appeal, which was bound by the House of Lords' decision in Tinsley v Milligan [1994] 1 AC 340, Etherton LJ rejected Servier's argument that patent infringement was necessarily turpitude and also Apotex's argument that it never was. Instead, he held that "it all depends on the precise circumstances".

In the Supreme Court, Lord Sumption (with whom Lord Neuberger and Lord Clarke agreed), rejected the approaches of the lower courts, noting that their differing answers both depended "not on the character of the illegality but on largely subjective judgments about how badly Apotex had behaved and how much it mattered. This was a process, discretionary in all but name, whose outcome would have been exceptionally difficult for either party's advisers to predict in advance", which was "contrary to established legal principle".

Lord Sumption noted that the defence of illegality was already well-established when Lord Mansfield articulated it in his statement of principle, in Holman v Johnson (1775) 1 Cowp.341, 343, beginning "No court will lend its aid to a man who founds his cause of action on an immoral or illegal act…". Lord Sumption explained that ex turpi causa principle "precludes the judge from performing his ordinary adjudicative function in a case where that would lend the authority of the state to the enforcement of an illegal transaction or to the determination of the legal consequences of a legal act". Further, the application of the ex turpi causa principle commonly raises three questions: (i) what acts constitute turpitude for the purpose of the defence?; (ii) what relationship must the turpitude have to the claim?; and (iii) on what principles should the turpitude of an agent be attributed to his principal, especially when the principal is a corporation?

So what is "turpitude"? In Holman v Johnson, Lord Mansfield spoke not only of criminal acts (noted by Lord Sumption as the paradigm case), but of "immoral" or "illegal" ones founded on acts which are contrary to the public law of the state and engage the public interest. Lord Sumption noted that such "quasi-criminal" acts include cases of a) dishonesty or corruption, which have always been regarded as engaging the public interest even in the context of purely civil disputes, b) some anomalous categories of misconduct, such as prostitution, which without itself being criminal are contrary to public policy and involve criminal liability on the part of secondary parties, and c) the infringement of statutory rules enacted for the protection of the public interest and attracting civil sanctions of a penal character, such as the competition law. "Quasi-criminal" acts engage the public interest, which is the foundation of the illegality defence. In contrast, torts (other than those of which dishonesty is an essential element), breaches of contract, statutory and other civil wrongs, offend against interests which are essentially private, not public. Lord Sumption held that a patent is a public grant of the state but it does not follow that the public interest is engaged by a breach of the patentee's rights. The effect of the grant "is simply to give rise to private rights of a character no different in principle from contractual rights or rights founded on breach of statutory duty or other torts". Regarding the parties' dispute, Lord Sumption held:

"The only relevant interest affected is that of the patentee, and that is sufficiently vindicated by the availability of damages for the infringements in Canada, which will be deducted from any recovery under Servier's undertaking in England. There is no public policy which could justify in addition the forfeiture of Apotex's rights."

On this, the Supreme Court was unanimous. Lord Toulson additionally noted that there had been no suggestion in this case that the conduct of Apotex in relation to the injunction was such as to make it inequitable to enforce the undertaking. If Servier was permitted to rely on the ex turpi causa doctrine, it would potentially be placed in a better position than if it had not obtained the interim injunction, for which it gave a cross-undertaking. As things stood, however, Apotex would, following the completion of the damages inquiry, be in the position it would have been in if there had been no interim injunction: both Apotex's costs of sales and the amount for which Apotex would have had to account to Servier in Canada by way of damages for patent infringement would be deducted from the proceeds of the lost sales the subject of its claim. This was neither offensive to comity with Canada nor infringed English public policy.

No ruling was made regarding the remaining principles noted as commonly arising on the application of the ex turpi causa principle (i.e. (ii) what relationship must the turpitude have to the claim?; and (iii) on what principles should the turpitude of an agent be attributed to his principal, especially when the principal is a corporation?) Lord Mance noted that these points might have arisen, had it not been for the parties' agreement that each group should be treated as one entity. There may yet be cause to examine these issues, but this was not the case to do so.

Consequently, "leaving aside the rather special case of contracts prohibited by law, which can give rise to no enforceable rights" (per Lord Sumption), the defence of illegality is likely only to be worth considering in intellectual property disputes where the act relied upon is criminal in nature or otherwise involves dishonesty, so as to engage the public interest. Without such additional circumstances, patent infringement will not amount to "illegality". However where there is a relevant act which is truly criminal or "quasi-criminal" (and which is not an exceptional case, for example based on strict liability), the ex turpi causa doctrine is a rule of law, not a mere discretionary power.

In practice, the ruling of the Supreme Court is probably most noteworthy to IP right holders in the following contexts:

  1. Confirmation that patentees who obtain an interim injunction but later (at trial) find their patent revoked will be liable under their cross undertaking in damages, even if the product which would have infringed, but for the injunction, would have been manufactured in a way/place such that another right would have been infringed.
  2. Where such hypothetical manufacture would have caused liabilities to be incurred between the parties, this may properly be included in the calculation of damages payable under the cross-undertaking.

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