ACTAVIS LIMITED v MERCK&CO.INC. [2007] EWHC 1625 (Pat)

IN THE HIGH COURT OF .JUSTICE
CHANCERY DIVISION
PATENTS COURT
[2007] EWHC 1625 (Pat)Case No Case No: HC 06 C02676Venue Royal Courts of Justice, Strand. London. WC2A 2LL
Between
ACTAVIS LIMITEDClaimantMERCK&CO.INC.Defendant
Before
MR. JUSTICE WARRENMR. SIMON THORLEY QC and MR. PIERS ACLAND (instructed by Messrs. Bird & Bird) appeared on behalf of the ClaimantMR. THOMAS HINCHLIFFE (instructed by Messrs. Linklaters)appeared on behalf of the Defendant
[1]MR. JUSTICE WARREN : I now need to deal with the costs of the action. There are four elements which I need to concern myself with: the costs of the amendment; the method of treatment; obviousness and general costs. Merck accept that it should pay the costs of the amendment, although it may be appropriate to roll my order up as an aspect of a single overall costs order Merck also accept the fact that they have lost the issue of medical treatment and thus the action, and that should result in an order for costs which reflects that issue in some way and also the general costs of the claim.[2]However, Actavis and Merck have very different views on how the significant costs of the obviousness issue should be reflected in principle. There is also a significant divergence about the percentage of costs which is properly attributable to each issue.[3]Actavis submit that the starting point must be that it has won, having succeeded in obtaining an order which is sought to the effect that the patent is invalid and resisting injunctions sought against it. It, however, should be noted that infringement was really never separately dealt with.[4]The principles, or at least the rules governing this, are found in CPR 44.3. I will not waste time reciting well known provisions, but only say that I have read them and taken them all into account. I do note in passing sub-paragraph (7) which reads: "Where the court would otherwise consider making an order under paragraph (6)(f)" - that is effectively costs of a distinct part of the proceedings - it must instead if practical make an order under paragraph (6)(a) or 6(c). In the present case, (6)(a) would be relevant, which is that a proportion of another party's costs should be paid.[5]Mr. Thorley has referred me to a number of cases, starting with SmithKline Beecham plc v . Apotex Europe Ltd (No. 2) , which restates the well-established proposition that CPR 44.3 applies to patent actions as much as it does to any other action, and referred me to certain passages of the judgment. I will read very quickly what Jacob LJ has to say at paragraphs 24 to 26:
"In respect of all intellectual property matters the general rule is that the CPR and associated practice directions apply, unless a rule in Pt 63 or its practice direction provides otherwise. There is no such rule. So, subject to the two statutory provisions discussed above" -- which are not relevant to us -- "the general rules apply as much to patent actions as to any other action. "
It follows that all the factors and matters set forth in CPR 44.3 apply to how the court should exercise its discretion as to costs. Prior to the CPR a party who was successful overall was not normally deprived of its costs of an issue it took unsuccessfully unless it has done so unreasonably" -- he refers to Elgindata (No. 2) -- "But since the CPR a more issue-by-issue approach is appropriate" -- he refers to Summit Property , which I will come to in a moment -- "applied in a patent action, Stena v. Irish Ferries. Even before the CPR an issue-by-issue approach was an exception to the Elgindata approach, applied in patent actions because of the 'large number of issues and the very extensive costs that can be incurred' per Aldous J in Rediffusion v. Link-Miles. "An issue-by-issue approach is therefore one that should be applied so far as it reasonably can. On the other hand such an approach is not the be-all and end-all. Whether or not it was reasonable for a party to raise, pursue or contest a particular allegation remains a relevant factor to be taken into account as part of the conduct of the parties (see CPR 44 r.(4)(a) and (5)(b))."[6]There is a recognition that an issue by issue approach may well be appropriate, but it is not the be-all and end-all. In any costs assessment, one has to step back, in my view, and see what the overall result of applying an issue-by-issue approach really is. If the judge in his discretion feels that it is somehow wrong, he or she has to temper what would otherwise be a blind application of an issue-based approach.[7]Arden LJ puts it slightly differently in her judgment at paragraph 45: "The court is always very reluctant to award costs on an issues basis for the reasons that this court gave in English v. Emery Reimbold & Strict Ltd'.[8]She quotes a lengthy passage, which I am not going to read out. It makes very good sense. The reason for the rule is that an order which allows or disallows costs of certain issues creates difficulties at the stage of the assessment of costs because the costs judge will have to master issues in detail to understand what costs were properly incurred in dealing with each issue.[9]It seems to me, therefore, that the CPR too recognises in the context of rule 44.3(7), which I have already mentioned, that issue-based orders are to be avoided. The idea behind them should be reflected instead in an overall adjustment of what otherwise would be payable.[10]If there exists two really distinct issues where one has been lost and one won, it might be appropriate to see the issues as separate from a costs perspective. None the less, an issue based order is to be avoided with the same result roughly being achieved by the percentage reduction. That is in contrast with the position where the winner under the old practice took all as a general rule but subject to the Elgindata exceptions.[11]As I have mentioned, Jacob LJ refers to Summit, and he did so without disapproval. This was a decision in November 2001. Longmore LJ at paragraph 13, and following paragraphs, refers to a small number of cases, the first of which is Phonographic Performance Limited v. AEI Rediffusion Music Ltd, where Lord Woolf (then Master of the Rolls) referred to what were then the new rules. Again I am not going to read out that passage, but he explains the change in practice. The starting point remains that the winner is entitled to a costs order, but it is too robust. An application of the "follow the event" principle will encourage litigants to increase the cost of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs so long as you win, you are encouraged to leave no stone unturned in your effort to do so.[12]Longmore LJ then sets out a passage from Elgindata , where Nourse LJ set out four principles as they then stood: costs at the discretion of the court; follow the event, except where it appears that some other order should be made; the general rule does not cease to apply because the successful party raises issues which he fails on, but where that has caused a significant increase in the length of the proceedings, he may be deprived of the whole or part of his costs; where the successful party raises an issue improperly, he cannot only be deprived of his costs but be ordered to pay his opponent's costs.[13]Longmore LJ then goes back to what Lord Woolf had to say about that:
"The 'well established practice' on which Nourse LJ based his third principle is, as I have already indicated, less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed'."
Longmore LJ then says:
"In my judgment, it is also no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party of a particular issue on which he (the first party) has failed."
[14]He then cites part of Chadwick LJ in Johnsey Estates v. Secretary of State for the Environment which, in his view, was the only other case that needed to be referred to in this context. Again, I am not going to read that citation, except paragraph (iv):
"The judge may make different orders for costs in relation to discrete issues -- and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in the event, may make an order for costs against the party who has been generally successful in the litigation"
. He says in paragraph 17:
"It is thus a matter of ordinary common sense that if it is appropriate to consider costs on an issue basis at all, it may be appropriate, in a suitably exceptional case, to make an order which not only deprives a successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party's costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably."
[15]I note there the words "in a suitably exceptional case". I do not read those words "suitably exceptional case" as meaning that one goes back to Elgindata and has to find unreasonable or improper conduct or, because we know that that is not what we have to find, something pretty close to it; but it does mean something out of the ordinary in some sort of relevant way.[16]Chadwick LJ, at paragraph 27 in a shorter judgment but agreeing with the conclusion, said:
"The question, therefore, can be re-stated: was the judge entitled to approach the costs in this case on an issue by issue basis? In my view, for the reasons set out by the judge and by Longmore LJ, I am not persuaded that the judge can be criticised for adopting that approach in what he described as an unusual case, having circumstances which were special and particularly strong. If judges are to approach the question of costs on an issue by issue basis, then their decisions as to cases in which that approach is appropriate must be respected."
[17]I acknowledge that the Lord Justice is addressing there particularly the question of when a Court of Appeal should interfere with the judge's discretion, but he does acknowledge the case to be one as "an unusual case having circumstances which were special and particularly strong".[18]Mr. Thorley asked three questions, "Have you won, have you lost a suitably circumscribed issue, so should you be deprived of your costs, and is this an exceptional case such as to lead to an adverse costs order on an issue in favour of the overall loser?"[19]I should not leave this area of the law without just mentioning Universal Cycles v. Grangebriar Limited on 8th February 2000, so post CPR but an early case, again a court in which the Master of the Rolls was presiding. The judgment came from Hale LJ. At paragraph 26 she says:
"However, there is an alternative principle, that the costs should be considered according to the actual issues upon which they have been incurred. The object of this principle is, it seems to me, to encourage good litigating behaviour: to encourage the parties to focus on the issues really in dispute and devote their time and energies to those. This is reflected in CPR rule 44.3(4) where the court is directed to have regard to all the circumstances, including (a) the conduct of the parties; (b) whether a party has succeeded on part of his case even if he has not been wholly successful; and (c) any payment into court or admissible offer to settle."
In paragraph 28:
"Nevertheless, that approach can be taken too far as is clear from the leading case of Re Elgindata (No. 2). Where the claim succeeds on some issues and not on others, it is one thing to award the claimant only a portion of his own costs; but it is quite another thing to order him to pay the costs of the other side in establishing his rights. There are trenchant comments of Beldam LJ on the deterrent effect on claimants who are in the right overall of so doing."
[20]Those are remarks which were made in the context of the CPR. Without incorporating the strict test of Elgindata , I think it sounds a cautionary note to the application of an issue-based approach.[21]Mr. Hinchliffe refers me also to Rediffusion Simulation Ltd v. Link-Miles Ltd , a pre CPR case in 1992. It shows the Patents Court being more willing perhaps than other courts to adopt an issue-based approach. It was a case where a successful party none the less ended up paying a significant part of the costs of the loser, but the facts were truly exceptional.[22]One can see this from some observations of Aldous J in relation to each issue: Under novelty:
"That issue played no part in the education of the court and it appeared to me one upon which the defendant could not hope to succeed."
Under obviousness:
"I can also understand that the defendant, which is attacked by a patentee, wishes to defend himself against all ways that the case may be argued. However, that does not mean that it is reasonable to make a prolonged and determined attack on obviousness which I have rejected and which I believe should not have been pursued."
Under insufficiency:
"I held that the allegation in paragraph 6(1) was based on a wrong understanding of the law and was wrong in fact."
Finally, towards the end of the judgment:
"It would be very unusual for a defendant, who succeeded in establishing that a patent was invalid, to be ordered to pay the plaintiffs costs on any issue. However, I believe that this is an unusual case. By the end of the trial, it was clear to me that the defendant had explored in cross-examination and evidence many points which were not relevant to my decision, and they were in the main responsible for the very long trial. I believe it would be appropriate for may order as to costs to reflect that."
[23]So that is a strong case pre-CPR and I do not really gain much assistance from it in the context of the exercise of my discretion under the new rules.[24]Mr. Hinchliffe also points me to Stena Rederiaktiebolag v Irish Ferries Ltd (No. 2) [2003] RPC 37, which was another case mentioned by Jacob LJ in SmithKline Beecham plc v Apotex Europe Ltd (No. 2) [2005] FSR 24 . Mr. Hinchliffe also points out that that was a fairly exceptional case where the proverbial kitchen sink was found in deployment. I am not sure that that was the reason for the decision. The reason really was, it seems to me, that the court saw the cases as two essentially entirely distinct matters, one relating to section 60(5) and the other relating to what it regarded as a conventional patent action in relation to which the separate costs issues should be dealt with separately.[25]It is clear of course that costs issues are heavily fact-based and all at the discretion of the court. It is also clear that the CPR represents a significant shift in approach, but having said that, the starting point, I am sorry to repeat, remains that the winner gets his costs even where there has been issues on which he loses. That must be the correct starting point, particularly in relation to a defendant who is a person brought to the court unwillingly, who is introduced into litigation which he did not wish to be involved in and defends himself and raises all proper points in his defence, although he must act reasonably and proportionally.[26]The task is to identify those cases where the loss on an issue carries the costs sanction ranging from deprivation of costs to an order against the losing party on that issue. The test, as is clear, and from the citations I have already made, is that one no longer has to find improper or unreasonable conduct. Instead, as Longmore LJ puts it, one has to find a suitably exceptional case so far as concerns making adverse orders. In the present case the claimant recognise it cannot obtain its own costs on the obviousness issue, but say that this is not a case for an order to be made against it, saying it is not unreasonable or improper. I accept that its case on obviousness was a perfectly proper one for it to have pursued and, indeed, I have given permission to appeal in relation to it.[27]But the test that Mr. Thorley I think was seeking to put is no longer the correct test. What has in fact happened is that the claimant has lost on the major issue in this case. On the other hand, this case is not at the extreme in a case such as Redifjusion, but against that it is not a case either where there has been any significant overlap of factual material between obviousness and medical treatment which are relevant to the issues which have to have been both won and lost by the claimant.[28]In my judgment, it would not be fair to adopt an approach the result of which is to leave the costs of the obviousness attack falling where they have been incurred, but neither do I think it is fair that the defendant should, as Mr. Hinchliffe submits it should, recover all of its costs on the obviousness issue.[29]Even if I were to apply an approach recognising the win and lose on those issues, a pure issue-based approach in the sense of costs following the event would not in my judgment be an appropriate result.[30]I consider that I should make an order which broadly allows the claimant to recover 75% of its costs of this issue. There is, I am afraid, little science in this and some might say no art either. It reflects my judgment of the nature of the case. It is exceptional in this sense, that the method challenge and the obviousness challenge had no or little overlapping material and, on any view, the latter formed the far more significant part of the case in terms of time of trial and preparation; but it is not a suitably exceptional case to lead to the result of a 100% recovery.[31]The position therefore is this, that I will make an order which reflects Merck paying Actavis's costs of the amendment with the method and the general costs and Actavis is to pay 75% of Merck's costs on the obviousness issue. I therefore propose to make a single order and not an issue-based order and I am going to sweep up the separate costs of the amendment issue within those figures.[32]There then comes a dispute as to the proper percentages to put on the various issues. Percentages have been put forward by two experienced solicitors in this field. Mr. Thorley has presented me with evidence and argument that ends up with 43% of his client's costs being recoverable from Merck, but that is only on the basis that his clients do not have to pay anything in respect of obviousness. Taking his figure of 43%, that leaves 57% on obviousness, of which 75% would be, in my judgment, payable by Merck to his clients. My calculator says that 75% of 57 is 42.8, which leaves one with virtually nul point. That is not going to be the answer. Mr. Hinchliffe is looking for 68% on the basis of the evidence that he has put in, but that is on the basis that he gets 100% of his costs on obviousness. If he only gets three-quarters, the figure is 51%. Those figures of course are miles apart between the two sides, so I need to explain them further for the record.[33]Mr. Hinchliffe starts by saying if you have costs of about £500,000, the claimant's 15% of that is 75%, which he says is quite excessive, and he suggests that a figure of 5% is more realistic, giving £25,000 rather than £75,000. On the amendment, the claimant say 3%. Again, Merck say that that is much too high at £15,000 on that percentage and it should be more like 1% to 2%. There is a real dispute about the general costs with one experienced solicitor saying they are 25% in his experience and the other saying that they cannot have been incurred at anything like that level in this case and that the figure should be more like 10%. So Merck come up with a figure of 16%. That is 5 plus 10 plus 1. The other way is more simple because Mr. Thorley gets to his figure of 43% by saying it is 15% for method of treatment, 3% for amendment and 25% general costs. My own view, you will be unsurprised to hear, is somewhere in the middle. Using the hallowed phrase, doing the best I can on the evidence before me, and having read the evidence of Mr. Jenkins and Mr. Karet and the exhibits, I think that neither 57% nor 84% represents the cost of obviousness. I think that the percentage is more likely to be about 75%, allowing 25% in total for the amendment method and general costs.[34]In the upshot, my judgment is that the claimant get 25% of their costs, Merck gets 75% of 75%) of its costs. I do not know on the figures whether the parties would wish me to net those off against each other in percentage terms on the basis that their costs are roughly the same or whether there needs to be an assessment or agreement about each side's costs and the percentages that I have just stated then being set against each other. Subject to that, I think I need to say no more until I have heard from counsel. MR. HINCHLIFFE: My Lord, the costs bills are slightly different in the sense that our costs bill is round about £600,000 and my learned friend's is round about £500,000. So there may be some imprecision if one was simply to take 75% of 75%, which I am afraid I cannot do on my feet, and subtract 25% from that. MR. JUSTICE WARREN: It ought to be done on the basis, unless you can agree something else, that my order will be that the claimant gets 25% of its costs, you get 75% of 75% of your costs, which is 66.25%. MR. HINCHLIFFE: We obviously understand what my Lord has done. We will either agree the order as it is — MR. JUSTICE WARREN: What I will do in terms of payment on account is to pretend that the costs are the same and I then make a net movement to Merck of 31.25%) of Actavis's costs. So half of that is 15.6. MR. HINCHLIFFE: 33% is £200,000. MR. JUSTICE WARREN: I am sorry? MR. HINCHLIFFE: 33% of the total bill of £600,000 is about £200,000 and half of that is £100,000. MR. JUSTICE WARREN: I can simply make an order of a round figure of £100,000. I will make an order on account of £100,000 then. MR. THORLEY: My Lord, may I have 28 days to pay? MR. JUSTICE WARREN: Of course. MR. THORLEY: Thank you. Can I just clarify one matter. Is your Lordship anticipating that there will be an assessment of my costs of which I get 25% and an assessment of my learned friend's costs of which he will get 75% and there will then be a set off between the two? MR. JUSTICE WARREN: Yes. MR. THORLEY: I understood that to be the case. If that is expressed like that, the matter can go to the costs judge if we cannot agree it between us. MR. JUSTICE WARREN: Yes, I imagine you will. MR. THORLEY: It tends to happen. The prospect of MR. JUSTICE WARREN: Assessments are very expensive in themselves. MR. THORLEY: The prospect of taxing two bills obviously is MR. JUSTICE WARREN: That is why I wondered if the figures were the same, but they seemed to me to be significantly different, so it would not be appropriate simply to have a percentage moving one way which would mean only one side need be assessed. MR. THORLEY: I hear what has fallen from your Lordship. That must be the formal order that is made and the solicitors can put their heads together to see if they can agree some form of figure that represents a net payment and obviously then it can all go into the pot in the Court of Appeal, and will see what happens there. MR. JUSTICE WARREN: Yes. This will be overtaken, depending on the result of appeal of course. MR. THORLEY: It may in the long run of things. One never knows. My Lord, we are very grateful to your Lordship. We shall produce a minute. I think everything else is agreed between us. Do you want interest on paid bills? MR. JUSTICE WARREN: I think interest is wrapped up in the £100,000 on account, otherwise things get too complicated, but I think you should have interest on paid bills in the final assessment. Does that make sense? MR. THORLEY: I am just trying to get my head round that. MR. JUSTICE WARREN: It is going to be very complicated on an interim payment issue to work out interest, so just MR. THORLEY: There will be interest on paid bills once the proportions have become plain. MR. JUSTICE WARREN: Correct. MR. THORLEY: After assessment. MR. JUSTICE WARREN: Yes, but that is interest both ways. MR. THORLEY: Yes. One can see one is going to have to get a few accountants in to work this one out. MR. JUSTICE WARREN: Thank you.

Cited in 6 later judgments