In a recent decision the Court of Appeal has ordered a final injunction stayed pending the outcome of an appeal. In doing so it has provided insight into the factors that may be considered when determining whether damages may adequately compensate the party that prevails on appeal. It also gives practical guidance on how to manage such stay applications when the first instance court has refused permission to appeal.
Background
The Court of Appeal's ruling (handed down on 29 March 2022) is the most recent in the long-running dispute between Neurim and Mylan. Before discussing the detail of this decision it is necessary to go back to the start:
In February 2020 Neurim sought to restrain Mylan from launching their generic version of Neurim's Circadin (an insomnia treatment) by launching patent infringement proceedings based on EP(UK) 1,441,702 (the "Parent Patent"). At that time Neurim failed to obtain an interim injunction from the High Court (and again at an expedited appeal in June 2020), and so Mylan has been on the market for some time.
That infringement action relating to Parent Patent was at first successful when the Patents Court (Marcus Smith J) found it valid and infringed, but was shortly thereafter brought to an end by the EPO Board of Appeal announcing their opinion that the Parent Patent was invalid for insufficiency. The present action involves an infringement claim in relation to a divisional of that patent (EP(UK) 3,103,443 - the "Divisional Patent") which Neurim have amended to be "patentably indistinct" from its parent.
The first stage of the current action was a trial of preliminary issues (judgment here) which led to findings that Mylan was not issue estopped (because it was prevented from fully pursuing an appeal against the previous decision on the Parent Patent) and that Neurim's behaviour in seeking to obtain a patentably indistinct divisional patent was not an abuse of process. The Patents Court, however, heavily case managed the proceedings and directed that Marcus Smith J should consider Mylan's validity challenge based on the evidence from the Parent Patent trial. See our earlier article on this decision here: Neurim v Mylan: on and on it goes.
The Patents Court decision
This limited "trial" of the divisional patent was first dealt with on the papers (generating a "provisional judgment"; see Neurim's Success #2). However, the parties were afforded the opportunity to apply for the matter to be reconsidered at an oral hearing, and Mylan duly did so.
At the subsequent hearing, which took place on 4 March, Mylan relied on the so-called "lay-patient argument" (which they had successfully deployed at the EPO in relation to the Parent Patent). Marcus Smith J, however, dismissed that argument on the evidence from the prior trial. In his extempore judgment he confirmed his provisional judgment holding the Divisional Patent valid (and therefore infringed) and refused permission to appeal in relation to the "lay-patient argument". A further written judgment, handed down on 8 March (but only made available recently), provided additional reasoning.
Marcus Smith J indicated that, in his view, Mylan's application for permission to appeal was "very unlikely to succeed". He held, therefore, that the "entry level question" (whether there is a "genuine chance of success" on appeal) set out in Minnesota Mining and Manufacturing Co v Johnson & Johnson Ltd [1976] RPC 671, was not satisfied. As such, Marcus Smith J considered it proper to grant Neurim a permanent injunction and refuse any stay. He also proceeded to consider the adequacy of damages to both Neurim and Mylan and, finding the monetary value of Mylan's first-mover advantage readily quantifiable but Neurim's monopoly right less so, maintained the view that the injunction should not be stayed.
The Court of Appeal steps in
Mylan reacted to Marcus Smith J's judgment by filing an urgent application for permission to appeal on 8 March. Arnold LJ directed, on 9 March, that the application be heard on 16 March and stayed the injunction until then.
At the hearing Arnold LJ ruled that Mylan's "lay-patient argument" had a real prospect of success and granted the parties' application that the appeal be expedited (to be heard in May 2022). This caused the application for a stay of the injunction to take on a different complexion as it undermined the primary basis of Marcus Smith J's decision (i.e. his decision that the appeal was "very unlikely to succeed") and meant that any stay would be short in duration.
The balancing act
Turning to the question of quantification and adequacy of damages, Arnold LJ applied Minnesota Mining v Johnson & Johnson (as Marcus Smith J had done). However, unlike Marcus Smith J, Arnold LJ considered that the damage Mylan may suffer as a result of a stay would be difficult to quantify and adequately compensate. This was due to the considerations involved with Mylan's loss of first mover advantage including the need to re-establish themselves after being forcibly removed from the market. Mylan had argued that the adverse effect on contracts with the NHS (and how that might influence future tenders) and the adverse effect on relationships with customers and market credibility would lead to unquantifiable loss.
On the other hand, Arnold LJ considered Neurim's damages readily quantifiable given that both parties' sales figures were available and that sales (both before and after Mylan entered the market) could be easily compared. In so doing, he relied on the fact that, in his view, there was no relevant change in circumstances since the Court of Appeal had first considered the related questions of American Cyanamid ([1975] AC 396) regarding the grant of a preliminary injunction (which was refused; see [2020] EWCA Civ 793).
Given Neurim was, in Arnold LJ's view, more likely than Mylan to be adequately compensated in damages then the stay should be granted. He also considered, in the alternative, that it would be prudent to maintain the status quo pending appeal even if the parties were equally likely to suffer damage that could not be adequately compensated.
Birss LJ and Newey LJ diverged from Arnold LJ on adequacy of damages for Neurim and considered there was a real risk damages would not be adequate for either party (and so differed from the 2020 Court of Appeal decision). Newey LJ, however, considered that the risk of uncompensatable loss to Mylan was greater, and that this favoured the preservation of the status quo. Birss LJ was of the view that the decisive factor was that Mylan was already on the market and so he did not consider that the uncertainties justified disturbing the status quo.
One argument submitted by Neurim is potentially of particular significance to others advising on entry by generic manufacturers into monopoly markets. Neurim said that damages would not be an adequate remedy because a stay would provide a green light to other generic companies to enter the market (and particularly Teva – which is shortly to defend an interim injunction application). This would, in turn, cause a downward price spiral which would complicate the quantification of damage to the Claimants. On the facts Arnold LJ did not share Neurim's concerns. Further, he gave a preliminary view that just as preservation of the status quo favoured a stay of the injunction against Mylan, it favours the grant of an interim injunction against Teva (or any other generic).
Finally, Mylan has been given the chance (at the hearing of the substantive appeal) to argue that a stay of the final injunction should also be granted until determination of the EPO opposition. In practice such a stay would mean that the final injunction does not come into force before the patent expires.
Commentary
This pair of judgments gives helpful insight into the role the Court of Appeal may take when a party is subject to a final injunction. Mylan was facing a rapid exit from the market even though it had indicated that it would be applying to the Court of Appeal for permission (Marcus Smith J having refused permission). The Court of Appeal accommodated the need for quick action and sought to "hold the ring" for a short period until a full hearing could be held. The Court of Appeal has suggested that managing an orderly application for permission to appeal, even when the judge below considers there to be no genuine chance of success for such an appeal, is a key factor. In the future a party indicating it will make such an application is more likely to gain the time it needs to do so in an orderly fashion.
The Court of Appeal's decision also provides insight into the factors that the Court may take into account when considering a stay of an injunction pending appeal. These factors are aligned with those for preliminary injunctions and so the decision is also of interest to those advising on interim injunction risk, particularly regarding generic pharmaceutical cases. The facts of this case are somewhat unique, but this decision perhaps acts as a warning to pharmaceutical originators - should they allow a generic to become established, particularly in a duopoly, the Court's desire to simplify the quantification of damages by maintaining the status quo may tip the balance away from any injunctive relief until final determination of the appeal. In addition, the Court may be inclined to maintain the status quo pending appeal where both sides are equally likely to suffer damage that may not be adequately compensated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
