Smith & Nephew Plc v Convatec Technologies Inc & Ors

This is the judgment of the court.

The parties have been unable to agree a form of order in the light of our main judgment ([2015] EWCA Civ 607) concerning European Patent (UK) No 1,343,510 (“the Patent”) and have identified a series of issues upon which we have been asked to rule. We shall address them in turn.

Smith & Nephew seek permission to appeal to the Supreme Court on the basis that our decision raises a significant point of general public importance. We disagree. The general approach to the interpretation of a patent claim was explained by the House of Lords in Kirin Amgen Inc v Hoechst Marion Roussel Ltd [2004] UKHL 46, [2005] RPC 9. We have concluded that this approach is as applicable to a claim containing a numerical range as it is to a claim containing descriptive words or phrases. In both cases the critical question is what the skilled person would understand the author to have been using the words or numerals appearing in the claim to mean.

Smith & Nephew have made it clear that they intend to apply to the Supreme Court for permission to appeal. The Patent is also the subject of ongoing opposition proceedings before the European Patent Office (the “EPO”), as we shall explain. Smith & Nephew accept that ConvaTec is entitled to a final injunction to restrain infringement of the Patent and to an order for delivery up or destruction of all infringing products but invite us to stay these orders pending the outcome of their application for permission to appeal and any subsequent appeal, and pending the outcome of the opposition proceedings.

The position in relation to the opposition proceedings may be summarised as follows. The Patent was granted on 19 May 2010. On 18 February 2011 Smith & Nephew filed a notice of opposition. The opposition proceeded to an oral hearing and, in its written decision issued on 21 December 2012, the Opposition Division upheld the Patent with claims in an amended form corresponding to the amended claim held valid by Birss J in the Patents Court ([2012] EWHC 1602). Both Smith & Nephew and ConvaTec appealed against this decision. Oral proceedings took place before the Technical Board of Appeal (the “TBA”) in November 2013 and the written decision was issued on 29 January 2014. The TBA held the Patent invalid for lack of inventive step. However, it then remitted the case to the Opposition Division for consideration of the admissibility and allowability of various auxiliary requests. A further oral hearing took place before the Opposition Division in October 2014 and it issued its decision on 16 December 2014. It declined to admit further evidence upon which ConvaTec sought to rely and revoked the Patent. ConvaTec have now appealed against that decision.

Both sides express confidence that these opposition proceedings will be resolved in their favour. Smith & Nephew’s firm belief, and that of their patent attorney, is that the lack of inventive steps arguments which prevailed before the TBA in relation to the main request are equally applicable to the remaining auxiliary requests, and that ConvaTec’s appeal will be dismissed. ConvaTec, on the other hand, maintain that Smith & Nephew’s confidence is misplaced and that revocation of the Patent is unlikely. It is of course impossible for this court upon an application of the kind now before us to form any firm view as to the likely outcome of these opposition proceedings. But we can say that there is plainly a real prospect that the Patent will be revoked.

The second matter which arises in relation to these opposition proceedings is their likely timescale. ConvaTec say that the TBA hearing is likely to take place in about April 2016. Smith & Nephew maintain that they have requested acceleration of the proceedings and that the hearing is likely to take place in about November of this year. Once again, it is not possible for this court to resolve this dispute but it does seem very likely that the hearing will take place by April 2016, that is to say a few months after the application for permission to appeal to the Supreme Court is resolved.

There is one further aspect of the timing which we should mention. ConvaTec say that it is likely that if, following the hearing before the TBA, their evidence is not admitted, they will petition the Enlarged Board of Appeal (the “EBA”) for infringement of their right to be heard, and it could take up to two years for the EBA to decide the matter. We do not think there is anything in this point for it now seems tolerably clear that any such petition would not have suspensive effect.

What then is to be done pending the decision of the Supreme Court whether to grant permission to appeal (and any appeal thereafter) and pending the forthcoming hearing before the TBA? ConvaTec say that they have now established their right to an injunction and that it is unlikely that the Supreme Court will grant permission to appeal. As for the pending appeal before the TBA, they have referred us to the decision in Adaptive Spectrum and Signal Alignment Inc v British Telecommunications plc [2014] EWCA Civ 1513. There this court refused British Telecom’s application for a cross-undertaking in damages to cater for the possibility that the EPO might subsequently revoke or materially amend the patent in issue. Floyd LJ, giving the judgment of the court, said this at [9]:

“A cross-undertaking is appropriate to take account of the possibility that an earlier judgment is wrong (e.g. an interim injunction or an injunction pending appeal). In the present case, revocation by the EPO would not show our judgment to be wrong, or the injunction to have been wrongly granted. A subsequent EPO revocation or amendment would mean that the injunction would become ineffective or have to be discharged from the date of revocation/amendment, but not ab initio. There is no reason for ASSIA to pay for the harm during the period when the injunction was rightly granted.”

ConvaTec argue that this principle is equally applicable to Smith & Nephew’s application for a stay of the injunction pending the decision of the TBA. This court has upheld the validity of the Patent and has now found it to have been infringed. If the Patent is subsequently revoked or materially amended, this will not show those judgments to be wrong or that the injunction was wrongly granted. ConvaTec also say that Smith & Nephew chose to bring proceedings in this jurisdiction and pushed for their early determination, but are now seeking to avoid the consequences of their own actions. Furthermore, they continue, a stay would simply give Smith & Nephew a chance to design and introduce a new non-infringing product under the name Durafiber Ag and so retain the market share they have secured by their infringements.

Smith & Nephew say that if this court declines to grant a stay then they will suffer severe and irreparable harm, and that will be so even if they win before the TBA or on appeal to the Supreme Court. The imposition of an injunction pending the decision of the Supreme Court or the TBA would, they say, devastate the market for Durafiber Ag. They have filed evidence from Mr McKinlay, a senior executive responsible for new product development, who explains that Durafiber Ag has now been on the market for some 18 months, that Smith & Nephew have and are continuing to suffer damage as a result of the wrongful grant of interim relief in relation to the Durafiber product, and that the grant of the injunction sought would cause significant harm to Smith & Nephew’s reputation, would seriously affect Smith & Nephew’s ability to sell other products, would result in a significant number of employees losing their jobs and would bring a halt to the manufacture and sale of Durafiber Ag throughout the world. Indeed, he continues, the impact on Smith & Nephew of the grant of an injunction would be such that he has doubts that it would ever be possible to re-launch the product.

We have refused permission to appeal. However, we recognise that the Supreme Court may take a different view. There is therefore a real prospect of a further appeal. We have also taken careful account of all of the matters on which ConvaTec relies. Nevertheless, we have come to the conclusion that the balance of justice lies in favour of suspending the injunction at least until the Supreme Court decides whether to grant permission to appeal. The question whether to grant any further stay will be a matter for the Supreme Court. In reaching that conclusion we have taken into account all of the matters relied upon by the parties in their extensive evidence and submissions, and consider the following matters particularly material. First, we recognise that Smith & Nephew first sought revocation of the Patent and then, when the revocation proceedings failed, began these proceedings claiming a declaration of non-infringement. However, we do not believe they can be criticised for so doing. They have simply sought to clear the way. Second, if the injunction is suspended for a relatively short time but is ultimately granted, ConvaTec will recover their monopoly position in the market and any damage they suffer in the meantime will likely be wholly or largely quantifiable by reference to the quantity and value of Durafiber Ag made and sold in the meantime. In so saying we have carefully considered ConvaTec’s expressed fear that Smith & Nephew will take the opportunity to design around the Patent but we have seen little evidence that this is a real possibility. Third, and conversely, if the injunction is granted now, the consequences to Smith & Nephew are likely to be severe and irreparable for the reasons explained by Mr McKinlay which we have summarised. Fourth, Smith & Nephew (but not ConvaTec) have been pressing for the accelerated disposal of the opposition proceedings. Fifth, ConvaTec have not offered a cross-undertaking in damages although, in light of the matters to which we have referred, we are satisfied that, were ConvaTec now to offer such a cross-undertaking, we would not reverse the decision to which we have come.

We must also consider the position pending the decision of the TBA. We are fully conscious that this raises rather different considerations and in that regard have well in mind the decision and reasoning of this court in Adaptive Spectrum. However, in our view this is an unusual case in that the Patent has now been revoked by the Opposition Division and we are satisfied that the decision of the TBA is likely to be at most only a few months after the decision of the Supreme Court in relation to the application for permission to appeal. We have also come to the firm conclusion that it would be wholly disproportionate not to grant to Smith & Nephew the further suspension they seek and that such suspension should be granted in the interests of fairness and equity in light of all of the matters to which we have referred in considering the grant of a stay pending the decision of the Supreme Court in relation to the permission application. In our judgment these matters are equally apposite to the further period between the decision of the Supreme Court and the decision of the TBA.

We have therefore come to the conclusion that the injunction should be stayed pending the decision of the Supreme Court in relation to the application for permission to appeal or, if later, the decision of the TBA. For like reasons we also grant a stay of the order for delivery up or destruction. We grant these stays on the basis that Smith & Nephew undertake to continue to press for expedition of the TBA hearing and to prosecute their application for permission to appeal to the Supreme Court with all due diligence. We would make it clear that, subject to any further stay which the Supreme Court may grant, we do not envisage this stay extending beyond April 2016. We therefore give the parties liberty to apply to a single judge of the Patents Court of the High Court should that appear likely.

ConvaTec seek an order for disclosure of information to enable them to elect between an inquiry as to damages or an account of profits. Smith & Nephew have no objection in principle to the making of such an order but say that some information is sought at a level of detail which is not necessary for ConvaTec to make an informed election.

The specific point at issue relates to paragraph 8(c) of the draft order. Here ConvaTec seek details of the sales by Smith & Nephew of non-infringing products which would not have been made but for the sale and disposal of infringing products. ConvaTec say this is important because they believe that a significant quantity of Durafiber has been sold as a result of being bundled with Durafiber Ag. Smith & Nephew resist this order because they do not have the information readily available and they say that it would require a complicated and disproportionate analysis of the data they hold. However, they do offer to provide details of their sales and supplies of Durafiber over the relevant period.

We have come to the conclusion that the information which Smith & Nephew have offered to provide is sufficient to enable ConvaTec to make their election and that it would be unduly burdensome to require Smith & Nephew to provide the further information sought by ConvaTec at this stage and in the limited time available. We will make an order in the terms proposed by Smith & Nephew.

The background is helpfully summarised by Ms Macdonald, ConvaTec’s solicitor, in her ninth witness statement.

Smith & Nephew began these proceedings seeking a declaration of non-infringement of the Patent in relation to a process for the manufacture of Durafiber Ag using not more than 0.77% of binding agent (the “Modified Process”). It maintained that the lower limit of the claimed range was exactly 1% or, as its secondary case, 0.95%.

ConvaTec resisted the declaration and counterclaimed that the Modified Process infringed the Patent on the basis that, on its proper construction, the claimed range embraced concentrations of binding agent greater than or equal to 0.5%. They also complained about Smith & Nephew’s development work.

It then became apparent that Smith & Nephew had carried out an earlier process (the “Original Process”) in various experiments conducted by way of process development. As we explained in our main judgment, this was a serious matter because ConvaTec asserted that data generated by using the Original Process were relied upon by Smith & Nephew in support of their application for marketing approval. ConvaTec therefore amended their counterclaim and, by way of a secondary case on Smith & Nephew’s 0.95% construction, sought springboard relief.

Details of over 80 experiments were eventually produced but for many of them Smith & Nephew then pleaded a defence of experimental use. Eventually, and shortly before trial and with the benefit of full disclosure, ConvaTec amended their case to rely on only four experiments which were used by Smith & Nephew for the purposes of obtaining regulatory approval and for which no experimental use defence had been pleaded. ConvaTec maintain they could not have narrowed their case down in this way any earlier than they did.

We have summarised the findings of Birss J at the trial in our main judgment at [7]-[13]. In short, he accepted Smith & Nephew’s fall back argument on construction and that the lower limit of the claim was 0.95%. It followed that the Modified Process did not infringe. As for the experiments, he found that carryover should be taken into account but that it should be calculated by the theoretical rather than empirical method. Accordingly, the four experiments did infringe. The judge therefore granted an inquiry in respect of these experiments, accepted that Smith & Nephew had derived an unwarranted advantage from them in the form of regulatory approval but declined to grant a springboard injunction.

In dealing with costs, Birss J considered that Smith & Nephew were the overall winners and he ordered ConvaTec to pay 82.29% of their costs. The judge arrived at this figure by deducting certain calculated percentages to reflect a costs order made in ConvaTec’s favour at an interim hearing and because ConvaTec had succeeded on part of their counterclaim.

ConvaTec initially appealed to this court on construction, carryover and springboard. Shortly before the hearing, ConvaTec dropped their appeal on carryover and springboard. For their part, Smith & Nephew also appealed on construction; but they also contended that the judge fell into error in the way that he approached carryover in that he was wrong to reject the empirical approach. In the result we have accepted ConvaTec’s submissions as to construction with the result that, as both sides accepted, the empirical approach issue fell away.

We must now decide where the costs burden of the first instance and appeal proceedings must fall. We will take them in turn.

ConvaTec say that the effect of our judgment has been to turn them from partial winners into complete victors and that they should receive all of their costs at first instance. Smith & Nephew respond that ConvaTec have won on a point of construction but, at first instance, did not have the courage of their convictions and pursued two costly and time-consuming fall-back positions. The first was to assert a broad infringement case encompassing every experiment that Smith & Nephew performed in the course of product development. This required Smith & Nephew to undertake a very costly disclosure exercise and to prepare detailed evidence. Yet at trial ConvaTec cut their case back to just four experiments and withdrew their case on all the others. Thus very substantial costs were needlessly incurred. The second was the claim for springboard relief, which was again based upon the 0.95% construction and which occupied more than half the time at trial. In the result, say Smith & Nephew, very substantial costs were once again unnecessarily incurred. Smith & Nephew continue that ConvaTec’s behaviour was such that, far from having their costs of these issues, they should pay Smith & Nephew’s costs. Finally, Smith & Nephew point to the various interim costs orders made in favour of each of the parties and say that ConvaTec’s proposal takes no account of them and is flawed for this reason too.

We have given our anxious consideration to all of the submissions and the evidence filed in relation to the costs issues. We also have well in mind the relevant provisions of the CPR and, in particular, CPR 44.2. Having done so, we believe the following matters are particularly material.

First, we think there can be no doubt that ConvaTec are now the real winners and we do not understand Smith & Nephew seriously to dispute that this is so.

Second, we see no basis for interfering with the interim costs orders made in favour of each of the parties or in which no order for costs was made. There is no real dispute about these and appropriate deductions must therefore be made from ConvaTec’s total costs to take them into account. The percentage figures to which we refer hereafter are to be taken as referring to ConvaTec’s costs after these deductions.

Third, we recognise that very substantial costs have been incurred in relation to both the claim for infringement in respect of Smith & Nephew’s product development work and the claim for springboard relief. Focussing first on the product development work, we see the force of the points made by Smith & Nephew but we also have regard to the way this aspect of the infringement claim developed. It was originally advanced on a broad front. Disclosure was provided which led to the identification of over 80 experiments; and this disclosure also revealed that there were some experiments for which Smith & Nephew could plead an experimental use defence and some for which they could not. In due course, ConvaTec narrowed their claim down to four experiments which were used for the purposes of obtaining regulatory approval but for which no experimental use defence could be claimed. Moreover, both before the judge and on appeal, ConvaTec have established that these four experiments amounted to an infringement. Looked at in the round, we do not think ConvaTec’s behaviour can be characterised as unreasonable. Nevertheless, we think there is also some merit in Smith & Nephew’s submission that a very great deal of time and money has been expended on the claim for infringement in respect of all of Smith & Nephew’s experimental work, only a small part of which was ultimately relied upon at trial.

Turning to the claim for springboard relief, this was dealt with by the judge both in his main judgment and in his further judgment on the form of order ([2014] EWHC 86). From this it is clear that the judge found that, by obtaining approval as they did in June 2012, Smith & Nephew did secure an unwarranted advantage by infringing the Patent. However, he also found that, by the time of his judgment, any conceivable springboard advantage had expired. In a sense, therefore, each side secured a measure of success on this issue. Nevertheless, in the judge’s view, the success achieved by ConvaTec was not such as to justify an adjustment of his costs order in their favour. But again, we do not believe that, in pursuing the claim for springboard relief, ConvaTec can be said to have acted unreasonably.

Stepping back, we are clear that it is not appropriate to require ConvaTec to pay any part of Smith & Nephew’s costs arising from the withdrawal of part of the claim for infringement in respect of most of the development work experiments or in respect of the springboard claim. Nevertheless, we consider that these are relatively circumscribed issues and that justice demands that we reduce the costs recoverable by ConvaTec to reflect the various matters to which we have referred and upon which Smith & Nephew so forcefully rely. Having regard to the various analyses of the costs incurred in relation to these issues, we have come to the conclusion that a fair and just result would be achieved by reducing ConvaTec’s recoverable costs by 20% in respect of the development work experiments and by 20% in respect of the claim for springboard relief.

It follows that ConvaTec are entitled to 60% of their first instance costs after the various interim costs orders have been taken into account.

The issues here are relatively simple. ConvaTec say that they are entitled to their costs. Smith & Nephew respond that to make such an order would be to disregard the late withdrawal of a large part of ConvaTec’s case relating to springboard and carryover and that, as a result, their recoverable costs should be reduced by between about 30% and 40%. ConvaTec reply that they withdrew these issues because they were subsidiary to the main construction issue, that they behaved entirely reasonably both in raising them in the first place and then withdrawing them to simplify the appeal, and that Smith & Nephew’s estimate of the money wasted on them is flawed because only about 35% of the appeal costs were expended when they were in play and at that time there were five issues under consideration.

We have come to the conclusion that a deduction from ConvaTec’s recoverable costs should be made to reflect the costs expended on these issues but that, in the context of this hard fought litigation, ConvaTec have not behaved unreasonably and that it is not appropriate to require them to pay any portion of Smith & Nephew’s costs. We believe that a fair and proportionate result would be achieved by awarding to ConvaTec 86% of their appeal costs.

ConvaTec seek a payment on account of their costs of the appeal and at first instance of 60% of the relevant figures. We think this is reasonable and appropriate.

ConvaTec also seek an order for repayment of the £500,000 paid on account of Smith & Nephew’s costs below together with interest pursuant to Smith & Nephew’s undertaking at paragraph 8 of the order made by Birss J. We can see no objection to such an order.

Save as expressly dealt with above, we propose to make an order in the terms of the marked up draft submitted by Smith & Nephew. The parties are now asked to agree the terms of the final order and to lodge it with the court.