Recent Patent Damages Decision of the Madrid Court of Appeal

A few weeks back Adrián Crespo published a short post on the Kluwer Patent Blog titled Patent case: Judgment no. 18/2023 of Madrid Court of Appeals (Section32) of 23 June 2023, Spain.  The author writes that, as a result of the decision, “generic companies wishing to launch at risk” should be aware that “the first mover(s) will be held liable for triggering regulatory price reduction and thus for the damages arising from the price gap between the innovator and the generic, even if other third parties have launched at a later point in time.”  The post references a longer summary of the decision on Kluwer IP Law, to which I do not have access, but I was able to obtain a copy of the decision itself and will note a few things about it below.  (Here is a link to the decision in the original Spanish, and here is a link to a machine translation.)

The facts of the case, in brief, are as follows.  Eli Lilly and Company was the owner of ES 2 102 602, the Spanish validation of a European patent, covering the active ingredient Raloxifene, as well as a SPC 009900002.  These rights expired on August 5, 2013.  Daiichi Sankyo Europe GmbH was Eli Lilly’s exclusive licensee, and marketed the brand-name drug Evista in Spain through a Spanish subsidiary, Daiichi Sankyo España.  (Eli Lilly also marketed some amount of its own Raloxifene product under the brand name Optrumar, however, through a Spanish distributor, Esteve.) Teva launched-at-risk a generic version of the drug in Spain in May 2011.  Prior to launch of the generic product, the Spanish Ministry of Health set the price of the Teva product at €13.22 and included both the brand name and generic drug in a “homogeneous grouping.”  Under Spanish law, pharmacists are required to dispense the lowest priced drug in the group, so as a result Daiichi had to lower its price by 40%.  Meanwhile, another company, Laboratorios Cinfa, S.A., also obtained permission to market a generic version of the drug and began doing so in January 2012.  Thereafter several other generic firms entered the market as well.

Eli Lilly and Daiichi filed suit against Teva and Cinfa.  The court of first instance entered judgment for the plaintiffs, and the defendants appealed.  I’ll just note that the court affirms on liability, and focus on the damages issues.  The appeals court holds as follows:

First, Daiichi is entitled to recover its lost profit from sales of Evista that it would have made, but for the defendants’ infringement, through the term of SPC expiration in 2013.  The court rejects Cinfa’s argument that its liability should be reduced to take into account sales made by other generic firms from June 12, 2012 through August 5, 2013 (heading 7, para. 2).  (If I understand correctly, the plaintiffs didn’t sue these other companies to avoid having to defend the patent’s validity against them.  Cinfa had already lost on the validity issue in a different Spanish proceeding and was estopped from raising other grounds for invalidity in this case.)  

Second, Daiichi also is entitled to recover price erosion damages caused by the reduction in its profit margin caused by the infringement through August 5, 2013.  The appeals court holds that the party responsible for the drop is Teva, the first firm to launch at-risk, since it was Teva’s entry into the market that caused the Spanish Ministry to bring about the 40% reduction in the price of Raloxifene drugs (heading 12).  

Third, Daiichi is entitled to recover compensation for the reduction in the net operating profit after tax suffered by its Spanish subsidiary as a result of the infringement, which reduction in turn reduced the consolidated profit of Daiichi.

Fourth, Eli Lilly is entitled to an award of the profits Teva and Cinfa made on additional sales of the drug at the lower price, which sales displaced sales that Eli Lilly would have made through the distributor (but which did not displace existing sales from Daiichi).  Cinfa does not get to deduct costs it incurred to bring its product to market, because these costs would have been incurred anyway after the expiration of the SPC and thus are not directly related to the infringing activity (heading 15).

Going back to the beginning, Mr. Crespo asserts that the final damages award will be in the seven-figure range, which would be quite high for a European country.

Some Recent Commentary on SEPs in India

As I noted earlier this year, commentators on the Essential Patent Blog, FOSS Patents and IPKat had called attention to a March 2023 decision of the Delhi High Court, Intex v. Ericsson, holding, inter alia, that SEP owners may obtain interim injunctions on the basis of a prima facie case, and reversing a lower court decision imposing more stringent criteria.  Within the past few weeks, a few additional commentaries have appeared, including the following:

1. Enrico Bonadio and Mahak Kansara published a post on the Kluwer Patent Blog titled Recent Indian Case Law on Standard Essential Patents.  The post discusses the Delhi High Court’s decision, and argues that notwithstanding Intex the four-step test for obtaining a preliminary injunction in a FRAND case, previously set forth by the High Court in Nokia v. Oppo (and ostensibly rejected in Intex) “should still have some relevance, especially in proceedings where patent owners ask for an injunction to put pressure on implementers.”    

2. Brian Scarpelli and Priya Nair published Forging a Fair Path for Standard-Essential Patents in India, Law360, Oct. 18, 2023.  These authors too are disappointed with the Intex decision, and reference their longer paper “A Call to Action:  Guiding a Fair Standard-Essential Patent Licensing Process for a Thriving Indian Economy,” which is available on ssrn.

3.  Dr. Victor Vaibhav Tandon and Dr. Ashwini Siwal published a post on SpicyIp titled SEPs & FRAND:  Misnomers & Maladies, which summarizes their paper SEP Litigations & Issues in Determining FRAND License, 28 J. Intell. Prop. Rts. 438 (2023), previously noted here.  The post is not limited to Indian law, but poses the question "where Indian SEP jurisprudence is headed."

Some Recent Discussion of Preliminary Injunctions in the EU

1.  Christian Le Stanc recently published a short commentary titled Que fair contre les méchants «patent trolls»? (“What to about patent trolls?’”), Propriété Industrielle, Sept. 2023, pp. 1-2.  The commentary notes a written question submitted earlier this year by French MP Christophe Blanchet to the Minister of Justice, posing this very question, i.e., “If and how the government intends to act to better protect rightsholders and operating companies against the rogue utilization of the courts, specifically in guaranteeing an effective and harmonized application of the proportionality principle in constraining the automatic grant of injunctions at the national and European level, and within what time frame” (my translation from the French).  Dr. Le Stanc characterizes the government’s response as “Rien” (nothing).  More specifically, the government’s response notes that the rules are intended to assure a balance between rightsholders and other parties; and states that French and EU law, including IPRED and the UPA, are such as to confine the harmful activities of “patent hunters.”  Dr. Le Stanc appears to have been hoping for something a bit more forceful, and states that under the proportionality principle it would be legitimate to award patent trolls only a reasonable royalty, rather than an injunction.  (For the submitted question and response, see here.)

2. Léon Dijkman published a post on IPKat titled What is the standard for preliminary injunctions before the UPC?   The post notes the recent decision of the UPC Munich awarding a 10x Genomics a preliminary injunction against Nanostring (pending motion previously noted here; English-language translation of the decision available from Tilman Müller-Stoy on EPLaw here).  The author states that the court articulated a “two-fold necessity argument” comprising both urgency and threatened harm to the patentee; the latter may take into account such factors as price erosion, market erosion, and the products’ life cycles. The author also notes some possible ambiguity over how the balance of interests fits in, but reads the decision as requiring consideration of this factor (that is, whether the patentee’s interest in obtaining interim relief outweighs the infringer’s interest in avoiding it), and that ownership of a patent that is likely infringed and valid (following some preliminary assessment of validity) can tilt the balance in favor of the patentee.  In addition, the court considered the defendant’s proportionality argument, but found it lacking for various reasons (and considered the patentee’s status as an NPE immaterial).  For additional discussion of 10x v. Nanostring, see Konstanze Richter’s write-up on JUVE Patent and another here by Dr. Julia Traumann Emmanuel Gougé.  Also, as noted by Dr. Dijkman and as discussed in a recent post on the Kluwer PatentBlog, 10x failed to obtain a second UPC preliminary injunction against Nanostring, apparently for lack of sufficient evidence of infringement and validity of the patent in suit in that case.  And even more recently, Tilman Müller-Stoy published an illuminating post on EPLaw titled UPC–10x Genomics/Harvard v NanoString, discussing both preliminary injunction proceedings.

3. Rik Lambers published a post on the Kluwer Patent Blog titled Status Quo Vadis?  The post discusses a Dutch decision granting a “status quo injunction,” which the author describes as “preliminary relief in preliminary relief proceedings,” which was then followed by an actual preliminary injunction against Teva’s marketing a generic version of a drug owned by Grünenthal (despite a broader version of the claim in suit having been invalidated in Germany and the U.K.)

4.  On JUVE Patent, Konstanze Richter published a post titled UPC imposes penalty payment on Revolt in e-bike dispute with MyStromer.  The post discusses a follow-up proceeding to what was the UPC’s first ex parte decision this past June (previously noted here).  According to the post, the court “imposed a penalty payment totaling €26,500,” which “is mainly due to the German dealer offering the [accused] bikes for sale in September.”

Delhi High Court Awards 8.1 Million INR (US$97,000) for Patent Infringement

The case is Strix Ltd v. Maharaja Appliances Limited, CS (Comm) 403/2018 and CC 54/2009 (Delhi High Ct. Oct. 20, 2023).  Swaraj Paul Barooah recently published a post on the decision on SpicyIP, titled Delhi High Court Directs Maharaja to Pay a King’s Ransom in a Patent Infringement Suit, which I commend to readers’ attention.  The patent in suit, which expired in 2015, covered liquid heating vessels having a control system that switches off the electrical heating element when the water boils; if I understand correctly, the point of novelty was the control system, which the patent owner manufactured and sold at an average price of 270 INR during the period in question.  The owner filed suit in 2008, and the court granted a preliminary injunction in 2009; the period of infringement was said to be the two-year period 2007-09.  Patent infringement cases can take a long time to make their way through the Indian court system, and as Mr. Barooah points out this is “one of the few patent cases where a decree has been issued by the court after an interim injunction.”  Much of the decision centers on substantive issues of infringement and validity, but in keeping with the subject matter of this blog I’ll focus just on damages.

According to the decision, the defendant’s counsel sought leave to withdraw at some point in the past, and the defendant itself “has also chosen to stay away from the proceedings” (para. 68) and has not produced any accounts.  Thus, the court has to do its best to award compensation based on a very limited record.  Ultimately, the court awards a reasonable royalty based on the following estimates:

1. According to a press clipping from October 2007, the defendant, which the court refers to as “one of India’s leading home appliance companies,” had an annual turnover of 180 crores.  (A crore = 10 million INR = 100 lakhs.)  The defendant sold 18 types of products, two of which were kettles, one of which included the infringing feature.  Thus, “[i]f the turnover is broadly divided amongst the 18 product categories, each product category could have a turnover of Rs. 10 crores.  However, considering that kettles may not be one of the most expensive product categories, the annual sales of kettles are taken at Rs. 5 Crores and divided into the two models of keels sold by the Defendant.  The sale of the infringing Kettles would constitute on an average Rs. 2.5 crores per year i.e., a total of Rs. 5 Crores for two years” (para. 80.)

 

2.  According to an invoice produced by the plaintiff, “the sale price of one kettle is Rs. 1,400/- in the retail market” (para. 81).

 

3. “The average price of the Plaintiff’s patented control as per the Plaintiff’s written submissions is around Rs. 270/-“ (id.).

 

4.  Dividing the estimated turnover of infringing kettles of 5 crores (50 million INR) by the sale price of infringing kettles (1,400 INR) gives us approximately 35,700 infringing kettles.

 

5.  Multiply 35,700 infringing kettles by the average price the plaintiff charges for its patented product (270 INR) gives us 9,639,000 INR.

 

6.  The court then reduces this a bit, stating “Considering this is a broad estimate only calculated for the retail market and not considering all the relevant market conditions, damages of Rs.50,00,000/- are awarded in favor of the Plaintiff” (para. 82).

The court added on 3,144,925 INR as fees and costs, bringing the total to 8,144,925 INR (about US $97,000), and further stated “said amount shall be paid to the Plaintiff within three months, failing which, the Plaintiff would be entitled to recover the said amount along with 7% simple interest from the date of pronouncement of this judgment” (para. 84).

A few observations follow.  First, this case makes me think of analogous situations in which a defendant defaults, the plaintiff wants monetary compensation and not just injunctive relief, and the court has to somehow calculate appropriate damages.  I’ve started looking at some U.S. cases on this topic and will report back when I have a bit more to go on.  (My sense is that this doesn’t happen all that often, though, at least not in U.S. patent law.)  Second, it also makes me think of German law, under which courts sometimes make use of the concept of "free discretion" (nach freier Überzeugung) to estimate patent damages under § 287 of the Code of Civil Procedure, as discussed in Markus Schönknecht, Determination of Patent Damages in Germany, 43 IIC 309, 311-13 (2012).  As I have previously noted, "[a]ccording to Schönknecht, in Germany “[t]he injured party is not required to prove the exact amount of its damage; rather, it is sufficient if it presents a factual basis on which the court can establish ‘at least a rough estimate’ of the damage.”  Schönknecht, supra, at 312 (citing Federal Supreme Court (Tolbutamid), 1980 GRUR 841, 842, translated in 11 IIC 763, 764 (1980))." Third, for me a case like this also highlights the need for patent laws to authorize awards of interest, preferably compounded, starting from an early enough date to make the plaintiff whole.  Here, the defendant in effect has had the use of approximately US $100,000 for 14 years, without interest, which seems unfair to the patent owner.