BASF AG v ME2 Crop Protection Ltd & Anor

I have before me an application for interlocutory relief brought by the Claimant in these proceedings, BASF AG, against the first of two Defendants, namely Me2 Crop Protection Limited. The application in fact arose out of a case management conference, but nothing turns on that and I treat this, as it was treated by the parties, as a simple application for interlocutory relief.

BASF sells a herbicide called Butisan S, which is effective for suppression of weeds in a number of crops, including in oil seed rape. The active ingredient is a chemical known as Metazachlor. Metazachlor can exist in a number of forms. Two important forms for present purposes are what are known as the monoclinic and triclinic form. BASF has a patent EP(UK) 0411408, which relates to the monoclinic type of Metazachlor. Butisan S contains, so I understand, that monoclinic version. According to the patent, there is an advantage in using the monoclinic rather than the triclinic version of Metazachlor. The advantage is said to arise as follows.

Metazachlor is highly insoluble. It is therefore not possible, from a practical point of view, to make an effective solution of herbicide for administering to crops. A suspension has to be made. According to the patent, the triclinic version of Metazachlor has a propensity to agglomerate, that is to say to form lumps which come out of suspension. They could block spray equipment and create uneven distribution of the herbicide. The monoclinic version of Metazachlor, according to the patent, is much less susceptible to this defect.

Metazachlor, like many other herbicides, is a moderately noxious chemical. It can cause irritation if it gets on to the skin and, like all other major herbicides, it cannot be sold in this country unless it has received approval from the Pesticides Safety Directorate (“PSD”). There is a body of legislation which requires such approval to be obtained and selling a product like Metazachlor without approval is an offence.

BASF has the relevant approval for Butisan S. It supplies the product to the UK market under that name. It is, however, not the only source of Metazachlor available on the UK market. There are five other sources of monoclinic Metazachlor, all of which are parallel importers, that is to say, the Metazachlor sold by those five other approval holders is, or is supposed to be, Butisan S. which has been acquired from a source - for example, within the EEA, and has been imported into this country. It should be identical to Butisan S. There are also two other competitors who sell the triclinic version of Metazachlor - that is to say, the version which suffers from the alleged agglomeration problem.

Because parallel importers are importing a product which is identical to an existing product on the market, the approval procedure under the PSD is abbreviated. In substance, the approval is based upon the prior approval already obtained for the product as put on the market by the originator - that is to say, in this case BASF.

The Defendant, Me2, acquired an approval in mid-August 2001 for a parallel imported version of Metazachlor - that is to say, its approval relates to the importation of Butisan S. acquired abroad.

The product has a peak season for sales. Since it is a herbicide it needs to be applied at a time when it is most effective to kill, or suppress, weeds. In the case of Metazachlor the peak season starts in July or August and goes through to October. There are no sales in November in this country.

Although Me2 acquired its approval in 2001, apparently it first started selling its product, which it sells under the engaging name of BOOTY, in the summer season of 2003. It appears that it must have started distribution somewhere in about July 2003, although the evidence does not disclose the precise date.

In any event, on or about 22 August 2003, BASF purchased four plastic containers containing BOOTY and forwarded it to its testing laboratories which are located in Ludwigshafen, Germany. After analysis, which took perhaps longer than might have been expected, BASF came to the conclusion that wherever Me2 had acquired this product, it certainly had not come from a BASF distributor. The contents of the containers of BOOTY were not Butisan S.

therefore, on 28 October of last year, IT sent Me2 a letter before action. In that letter it required an undertaking from Me2 by no later than close of business on Thursday, 6 November, 2003. In reality, of course, because of the timing of its purchase of the samples and its analysis of them, BASF had missed the season during which BOOTY was introduced to the market. In any event, the undertaking sought was, in effect, not to infringe BASF’s patent.

On 7 November Me2, through its solicitors, responded. It said that it had some difficulty understanding the claim made by BASF and the letter includes the following:

“what it [that is, Me2] does know is that it acquired the BASF Metazachlor products in question from an appointed BASF distributors within European Union (sic). We do not understand that such importation constitutes patent infringement. We trust this is an end of the matter”.

In response to that, on 11 November, BASF, through its solicitors, sent a letter stating unequivocally that its own analysis showed conclusively that it was not BASF material which was contained within BOOTY. That letter was responded to by letter of 13 November from Me2 solicitors. In expressed surprise at the suggestion that BOOTY was not a legitimate parallel imported product, and asked for copies of BASF’s analysis so that Me2 could verify the position. It ended with the following:

“Finally, we can give you our assurance that we have no intention of disposing of any product in question”.

On 27 November a further letter was sent by Me2’s solicitors. In it, it claims that there were two possibilities. One was that Me2 had been supplied inadvertently with non-BASF material which was not Butisan S, or alternatively that the products which BASF had purchased on the market were, in fact, counterfeit versions of BOOTY. If the product was, in fact, BOOTY, it would mean that Me2 was selling outside the scope of its approval. The letter includes the following paragraph:

“Me2 currently has no stocks of the BOOTY product. If, as would appear to be the case, some previous supplies have been of infringing products, then that was inadvertent. When purchasing supplies for BASF Metazachlor in future it intends to double-check with its suppliers that it is purchasing genuine BASF products which have been placed on the market in the EEA by BASF or an associated company. It certainly has no intention of purchasing infringing products to use in its BOOTY product. If you wish to suggest a formal undertaking to this effect, Me2 would be perfectly prepared to sign it. In the circumstances we do not see that there is any immediate need for BASF to act precipitately. It can supply the information reasonably requested by Me2, and let Me2 have the opportunity properly to investigate the position without risk to BASF’s position”.

Although subsequently Me2 has reiterated its suspicion that the BOOTY purchased by BASF was counterfeit, the majority of the correspondence between the parties descended into an unnecessarily antagonistic dispute about when, and how, samples were going to be made available, and things like that. In any event, BASF took the view that this was not counterfeit BOOTY; it was product which Me2 was selling, and that it clearly was not parallel imported BASF Metazachlor. On 28 January of this year BASF commenced the current proceedings.

Me2 has, throughout, confirmed that its approval is only for parallel imported Metazachlor - that is to say, it is the BASF product which it has a PSD license to import on the parallel market.

Unfortunately, the position of the parties seems to have changed somewhat since the commencement of the litigation in January. On 9 March, by its solicitors, Me2 wrote a letter which included the following:

“We appreciate your client’s concern regarding the importation and placing on the market of infringing products. Our client denies that it has imported or placed on the market any infringing product; nor does it have any intention of importing or placing on the market, infringing products. Our client is not prepared to provide the undertaking you requested, or indeed any undertaking which would effectively provide your client with injunctive relief at this stage. To give such an undertaking would be tantamount to giving acknowledging (sic) that your client’s patent is valid, and as we have stated in correspondence, our client now has reason to doubt its validity”.

At this point, BASF were requiring an undertaking that Me2 would not import outside the scope of its approval. Now, Me2 was taking the stance that not only would it not offer undertakings along the lines which it had offered the previous year, but it also said that it had reason to doubt the validity of the patent.

The change in stance of Me2 has been explained on its behalf in evidence filed before me on this application. In essence, Me2 says that it is irritated by the fact that the proceedings have been commenced, and therefore it is - to use its words - no longer prepared to be co-operative.

BASF, no doubt, wanted to make sure that this matter would get to Court as soon as possible. As I have said already, it asked for undertakings in its letter before action, and it has continued to press for those subsequently.

After the claim form and Particulars of Claim had been served, a fairly lengthy time passed before the defence was served. The defence was due on 2 March. A number of large extensions were obtained, and eventually it was served on 23 April of this year. It does not contain an attack on the validity of the patent. Dr. Lawrence, who appears on behalf of BASF, says that it is clear that had the proper timetable been kept to, it would have been possible to have a trial of this action by July of this year, had the Court been minded to assist it in bringing on such an action before this year’s sales season commenced. In my view she is right that it is likely that the Court would have been prepared to impose a timetable which would have allowed the action to come on in July, particularly since validity was not in issue.

In any event, the realities now are that because of the extended timescale for the pleadings, there is no prospect of this action coming on in July, and it is for that reason that BASF seeks interlocutory relief. As has been said in the past, determining whether or not to grant interlocutory relief is really a balancing of injustices. Whichever course a Court adopts has the potentiality for inflicting injustice on the party which does not succeed at the interlocutory stage.

For the purpose of this application, Mr. Edenborough, who appears on behalf of Me2, accepts, although without enthusiasm, that the Claimant has made out an arguable case of infringement in relation to the BOOTY product. He points out that there are certain issues on infringement which may need investigation at the trial, but for present purposes it looks like BOOTY does include the monoclinic version of Metazachlor, and it does appear to be arguable, at the very least, that that product was not made by, or with the approval of, BASF, and therefore it is not parallel imported.

So, I have to concern myself with whether or not, in the circumstances of this case an interlocutory injunction should be granted. First of all, BASF says that the harm it would suffer would be considerable if further sales of BOOTY are not prevented. It points to the fact that there is a new sales season coming up. It says that it is clear already that BOOTY is sold at a very considerably lower price than Butisan S. in this market. Indeed, as I understand it, BASF does not know how it would be possible for the Defendant to sell BOOTY at the price it does if its contents have come, directly or indirectly, from BASF. The result will be, according to BASF, that there will be loss of sales of Butisan S., either through its own distributors or from legitimate parallel importers, and that this will result not only in significant losses in this season, but that it will effectively push BASF into reducing the price of Butisan S. in this market in a way which will be very difficult to reverse if, after a full trial, it succeeds in its action against Me2. It says therefore that there are financial losses which it will suffer now, which it accepts will be calculable, but there will be also incalculable future losses.

In my view, it is clear that, if BASF is right and it is forced to reduce its prices, there will be losses in the future, and I accept that they will be difficult to assess. But, they are losses which sound primarily in money.

BASF also says that there is risk to Butisan S’ reputation because people in the trade may realise that BOOTY is supposed to be a parallel import product. It does contain, as I understand it, the triclinic version of Metazachlor, and therefore may well suffer from the agglomeration problem which the invention is supposed to avoid. I suspect that this fear is greatly over-stated in the evidence. Not only is there nothing before me which indicates the scale of the problem of agglomeration, but I am far from persuaded at this stage that BASF have made out a clear case that anybody in the trade would consider BOOTY to be Butisan S in disguise. It seems to me that most of the loss which will be suffered by BASF will be in money, although I accept that it will be extremely difficult to calculate that loss in the future.

Dr. Lawrence also says that in any event this is a case where it is not possible to be confident that the Defendant will be able to pay the damages when they are due. Sales of BOOTY in the first season - that is, the 2003 season - were small (somewhere between 2,500 and 7,000 litres). However, what is of particular importance to Dr. Lawrence’s submission is the paucity of material indicating that Me2 will be in a position to pay any damages at all, let alone what may well be very large damages recoverable by BASF to compensate it for its suppression of the future price of Butisan S.

The accounts of Me2 are late. I have only seen draft accounts for the year ending January 2003. So, it does not even cover the period when the Defendant was selling BOOTY. What they show is that in the most recent year of trading Me2 had creditors of over £1 million, cash in bank of £190,000, stocks at just over £500,000, and debtors of £577,000. The cash in hand is nowhere near enough to meet the indebtedness to creditors - indeed, its ability to meet its debts is, in large part, dependent upon its ability to secure payments of the £577,000 due to it from its debtors. There is nothing indicating who those debtors are, and, in particular, there is nothing which indicates one way or another whether or not those debtors include debts owed by associated companies of Me2. The significance of that is as follows: as Me2 accepts on this application, it has gone to great lengths to hide the details of its corporate ownership. Shares in the company are owned by other companies, and all trails lead back to the West Indies, but the identities of all individuals involved are hidden. It is simply impossible to know who or where the moving spirit is behind Me2 - and, in particular, whether there are intercorporate loans in existence which could result in Me2 disappearing like snow on a hot summer’s day. In my view, Dr. Lawrence is right that BASF has reason to be concerned that any financial relief that it would obtain at the trial might not be recoverable.

On the other hand, I have to look at the position of the Defendant. This, in my view, is quite simple. First, I should say something about the allegation that this may be counterfeit material. No substantive evidence has been put before me which would show that this is likely. A counterfeiter might be expected to counterfeit the market leader with the most expensive product - that is to say, BASF’s Butisan S. It is difficult in the extreme to believe that somebody would have come in and counterfeited a product which had only just been introduced to the market at the cheapest price, and which was being sold on what is accepted to be an extremely small scale. I think the suggestion that this is counterfeit material can, for the purpose of this application at any rate, be put to one side. It follows that I shall work on the assumption that what BASF purchased was BOOTY, and that there is a strong case that it is not parallel imported Butisan S.

The only injunction sought by BASF on the application before me is to prevent the Defendant from importing Metazachlor which is not BASF’s product. In other words, the injunction does not seek to prevent Me2 from parallel importing in accordance with the approval which it has obtained from the PSD. The only thing that BASF is trying to do is prevent Me2 from importing material which Me2 has no licence to sell, and which, at least according to the correspondence which I have referred to already, it has no desire to import. Its suggestion that the product was counterfeit is supportive of its position that it is surprised that the product being sold under the name BOOTY is not parallel imported Butisan S. It seems to me that the injunction being sought by BASF, if granted, will inflict very little harm on the Defendant since it will only prevent it from doing what it does not want to do anyway, and what it is not allowed to do in accordance with the approval regime in existence in this country.

In my view, this is a case where an interlocutory injunction is justified in the terms sought by BASF to prevent the importation and sale of non-BASF monoclinic Metazachlor.