"13. First, the "at risk" period. Where a drug patent has been registered but its validity is under challenge any company which brings onto the market a competing generic drug does so "at risk". The risk is enormous. The "protected" branded product is generally sold not simply at a "premium" price but at a hugely profitable price. Coversyl was on the market at about £11 per unit, whereas the "floor" price for the generic product (which is obviously still profitable for those who manufacture and sell it) is currently £1.50 per unit. The whole point of the generic product is to provide a cheaper alternative. A generic pharmaceutical company which launches its generic product in the "at risk" period in order to make a margin of x% on each unit sale may (if the patent is upheld and its product found to be infringing) therefore ultimately find that it is liable to pay damages in respect of every unit it sold at 2x% or 5x% or 7x% or more. Thus if a unit of generic perindopril sells for £1.50 and yields Apotex 50 pence profit, but Coversyl sells for £11 per unit, in seeking to make its profit of 50p per unit Apotex is having to run the risk of having to pay Servier damages of £10 per unit. Entering a market "at risk" thus requires (a) a high degree of confidence in the accuracy of the "judgment call" on the validity of the patent, (b) a company capitalised at a sufficient level to secure that any misjudgement on that validity question can be survived and will not lead to the destruction of the company (which may have a range of other profitable generic products not "at risk"); and (c) experience both of the market into which the competing products are being sold and the strengths and weaknesses of the brand leader with whom the fight will have to be conducted or a deal struck.The judge then interrelated these two features, added some figures, did a bit of conjecture and came up with an award of £17.5 million. This will have disappointed Apotex, which had asked for £27 million.
14. The second feature is the market dynamic. The market ultimately moves from one absolute state (the monopoly of the patent holder) to another (an entirely open market in an unprotected product). But the move from one such state to another is not a smooth transition properly represented by a straight line or a simple curve. There are transitional stages which themselves are characterised by periods of rapid price adjustment ("transition periods") interspersed with periods of relative price stability ("plateau periods"). The transition periods represent the market response to an actual or rumoured new entrant (whose only ability to gain market share from existing participants will be through price advantage, but who will have no interest in driving prices immediately to rock bottom whilst there remains some advantage in sharing in the profit margins established by the earlier and fewer participants). The reason for the plateau period is that if the number of participants in the market is relatively stable, then gradually market shares and unit prices emerge with which each participant is comfortable, and which yield a satisfactory return. The move from monopoly to open market will take three or four years. The number and individual length of the intervening "plateau periods" will depend on the number and timing of new entrants. The steepness of the price fall in the transition periods will depend on the degree of aggression of the new entrant and the extent to which there is scope for cutting prices to obtain market share".
Monday 13 October 2008
Calculating damages on a cross-undertaking in patents
In Les Laboratoires Servier and Servier Laboratories Ltd v Apotex Inc, Apotex Pharmachem Inc, Apotex Europe Ltd and Apotex UK Ltd  EWHC 2347 (Ch) (full text here, IPKat comment here) there is an interesting example of a judge's calculations, following an inquiry into damages, as to how much a pharmaceutical product patent owner must pay a competitor where an interim injunction was granted subject to a cross-undertaking on the part of the patent owner to compensate the alleged infringer in the event that the infringement action failed at trial. After summarising the basic principles he applies them to the market for the patented perindopril, which Servier sold under the Coversyl trade mark and which Apotex had been restrained from selling in generic form (the patent was subsequently held invalid):