Hospira UK Ltd v Cubist Pharmaceuticals, LLC

In this matter I am asked to decide the question of costs following judgment in this action whereby I revoked three patents owned by the Defendant (“Cubist”). It was accepted before trial by Cubist that another patent, which the parties designate “the 580 patent”, was invalid.

It is common ground that, as the winner, the Claimant (“Hospira”) is entitled to its general costs. The dispute is whether, in respect of certain issues, Hospira should not recover its costs and in respect of certain other issues I should order that Hospira pay Cubist’s costs.

Before turning to these issues, a question arises in relation to the 580 patent. Mr. Waugh QC, who appears for Cubist, submits that the estimate of costs that have been provided by Hospira, which is £112,500, ought to be treated with great caution because no detailed calculation or basis for this quantification is put forward. He suggests that it is normal to record time against each patent in multi-patent litigation and those details have not been disclosed or provided. He also points out that Ms. Balleny of Carpmaels and Ransford has calculated that Cubist’s costs of dealing with the 580 patent were £60,000 rather than £112,500.

For my part, I see no reason to doubt the estimate of Hospira’s costs which has been provided in Mr. Stoate’s third witness statement at [4.2]. The basis of that calculation is reasonable, given that this was Cubist’s patent and Carpmaels & Ransford were familiar with this subject matter having prosecuted patents from the same family. It is unsurprising that Hospira’s costs would be likely to be more than those of Cubist’s. Furthermore, on a form of order hearing of this nature, it is not necessary to submit a detailed costs bill, which is a matter for the assessment. Therefore, I accept Mr. Stoate’s estimate and that is the figure which I shall apply when considering the overall percentages of recoverable costs.

I now turn to the issues in respect of which there is some dispute as to whether there should be a deduction and, if so, how much. It is often said that the correct principles to apply in patent actions are very well known. In particular, in Monsanto v CargillNo.2 [2007] EWHC 3113, [2008] FSR 16 at [2]- [9], Pumfrey LJ set out the approach that the courts should take to costs in patent actions under the CPR. This approach was subsequently approved by the Court of Appeal in MMI v Cellxion [2012] EWHC Civ. 139. In summary:

The fact that those principles are frequently cited disguises an uncertainty in their application, namely, what is meant by the phrase “so exceptional that the winning party should pay the otherwise unsuccessful party’s costs”. Mr. Waugh has referred me to the principles set out in the White Book at paragraph 44.2.7, p.1254. The authors state that:

“The rules themselves impose no requirement to the effect that an issue-based costs order should be made only in “a suitably exceptional case” and none is to be implied, although there needs to be a reason based on justice for departing from the general rule, and the question of the extent to which costs of a particular issue are to be disallowed should be left to the evaluation and discretion of the judge by reference to the justice and circumstances of the particular case.”

This summary is supported by the decision of the Court of Appeal in F&C Alternative Investment (Holdings) Ltd v Barthelmy (No.3) [2012] EWCA Civ. 843; [2013] 1WLR 548, per Davis LJ at [47]- [49]. When rejecting a submission that, under the issue based approach, the court should only order payment of costs by the winning party in an exceptional case, he said:

“47 In my view that is a hopeless argument. The Rules themselves impose no requirement of exceptionality as such and none is to be implied — although there of course needs to be reason, based on justice, for departing from the general rule set out in Part 44.3(2).

…

49 … The application of the rules in this context requires no further gloss. The question of the extent to which costs of a particular issue are to be disallowed or notionally paid should be left to the evaluation and discretion of the judge, by reference to the justice and circumstances of the particular case.”

Arnold J applied this approach in patent litigation in Hospira UK Ltd and Novartis AG [2013] EWHC 886, where he said:

“Is it appropriate in all the circumstances of the individual case not merely to deprive the winning party of its costs on an issue in relation to which it has lost but also to require it to pay the other side’s costs.”

Nonetheless, it will be seen that there is a tension between the requirement of a suitably exceptional case before costs are ordered in a patent case against a successful party; Monsanto v CargillNo.2; and the express rejection of this requirement in F&C Alternative Investment (Holdings) Ltd and Barthelmy. This raises the question of whether the approach to awards of costs in patent cases differs from that adopted in other types of litigation. In my judgment it does not. Patent litigation is very expensive, and it is important that parties should be encouraged only to pursue their best points, and to be aware of the cost implications of failing to do so.

In my view, this apparent dichotomy may be resolved by a proper understanding of the phrase “suitably exceptional”.It is intended to indicate that if the unsuccessful party succeeds on a particular issue, that is not, on its own, sufficient to award costs against the successful party. There must be something which makes it appropriate and just to order not only that the successful party does not recover his costs, but also that it should pay the costs of the relevant issue. On the other hand, it is not intended to imply that such awards of costs will be extremely rare. Where there is a discrete issue, which required substantial expenditure of costs, it may be just in all the circumstances to order payment of costs.

I now turn to the issues which are in dispute. The first issue on which Hospira did not succeed was the question of “daptomycin insufficiency”. The facts, which are set out at the end of my judgment, are reasonably clear. Mr. Waugh submits that Hospira pursued a case that the skilled person would not be able to make daptomycin, given a mistaken stereochemical assignment in a diagram referred to in the patents. This was notwithstanding the fact that, as Hospira knew, for some 20 years actual skilled teams had managed to do precisely that. He says there was never any tenable case of insufficiency and since daptomycin had been made for decades the point was a bad one. He also points out that, although Hospira prevailed in the US proceedings overall, they still lost on this point.

I agree with Mr. Waugh that there is more to this issue than the fact that it is a point on which the winning party lost. For the reasons set out in my judgment, I consider that it was obviously a bad point which required a great deal of evidence to deal with. This is a a circumscribable issue in respect of which it is both appropriate and just that Hospira should not recover its costs and should pay Cubist’s costs.

Turning to the amount that I consider appropriate, Hospira’s proposed discount is 7.27%, which is based on an exercise of counting paragraphs devoted to the issue in the evidence, where the figure is somewhat more than 12%, and in other documents, such as skeleton arguments and the judgment where it is much less. The costliest documents are the expert reports, and taking an average of these figures gives a somewhat lower percentage than I consider appropriate. Cubist’s proposed discount is somewhat more than 11%. On the information before me, I consider that the appropriate discount (to take account of both Hospira’s and Cubist’s costs) is 20%.

The second issue that needs to be dealt with in relation to the 417 patent is the “Baltz” prior art. This was originally cited as an obviousness citation and then dropped. However, it was required to be considered for the purposes of common general knowledge and its disclosure did not assist the patentee. On the contrary, it may be said that Hospira had some measure of success as a result of Baltz. I do not consider that re-categorising this document for consideration as part of common general knowledge rather than as an obviousness citation is an appropriately circumscribable issue for there to be any discount from Hospira’s costs, and I shall not award any.

The third question in respect of the 417 patent is what I will call the Cook v Edwards challenge to priority, based on the proposition that Cubist was not entitled to the priority rights before filing the EP application in question. It is very easy to put in issue entitlement to priority on the basis of a challenge of this nature, because, generally, it requires no disclosure by the party seeking to challenge priority. On the other hand, it may require considerable disclosure from, and occasion considerable cost to, the patentee.

In this case, by a letter dated 26^th June 2015, Carpmaels & Ransford, on behalf of Cubist, wrote to Taylor Wessing requesting an admission of facts, in particular referring to the challenge to the first priority date. They said:

“We set out below the results of our client’s initial disclosure review in relation to the issues raised by your client in these paragraphs. We have also set out our client’s view of the documents obtained by this review. As a result of this information we now give notice that your client is required to admit within 21 days the following facts in this claim pursuant to CPR 32.1.8. Those facts are as follows: That Francis P. Tally and Frederick Beolsen were in the employment of the defendant, Cubist Pharmaceuticals Inc, at the time of filing the application for the 417 patent, that Cubist Pharmaceuticals was the owner of the priority rights to the first and second priority documents at the time that it filed the application for the 417 patent.”

Annexed with this letter was a series of documents, provided as early disclosure, which were said to support Cubist’s case of entitlement to priority.

Hospira did not admit the relevant facts, in spite of the early disclosure, but chose to press on to obtain full disclosure and see if there was anything inconsistent with what had been said by Taylor Wessing. Having done so, I consider that not only should Hospira not recover its costs but that they should pay the costs of this particular challenge to priority.

Cubist’s estimate of costs of this issue is £40,000 and Hospira’s estimate is £10,000. There is no obvious inconsistency in these estimates, given that it was Cubist that had to do the work and expend the money on this issue. A rough conversion of the discount from £50,000 to a percentage of costs is 3%, which is what I propose to deduct.

Fourth, there was a challenge to the second claim priority date which failed. In my view, it is a discrete issue, but not one on which Hospira should pay Cubists’ costs. I shall apply a discount of 1% for this issue, which is slightly more than the parties’ estimates of 0.94%, but they have a somewhat spurious precision given the nature of the exercise that I am conducting.

Fifth, Hospira did not succeed on its challenge to novelty of the 417 patent, but did succeed on lack of inventive step on the basis of the same prior art. I shall not give any discount in respect of this issue because I do not consider that novelty was a suitably circumscribable claim, given that the entirety of the prior art disclosure had to be considered in the context of obviousness.

Sixth, the added matter objection failed, and Hospira should not recover its costs. I do not consider that there are circumstances which should encourage me to order Hospira to pay Cubist’s costs. I will apply a discount of 1.25%.

In relation to the insufficiency squeeze on the 417 patent, I shall not apply any discount. By its very nature it was not a sufficiently circumscribable issue.

Turning to the 179 patent, in relation to the attack based on common general knowledge alone, I shall not apply any discount. I do not consider that it was a suitably circumscribable issue, given that my findings on common general knowledge formed an important part of the judgment in respect of lack of inventive step.

As to added matter, I will apply a discount. I will not order Hospira to pay Cubist’s costs given that there was no evidence devoted to this issue. I shall accept Mr. Stoate’s estimate of 1.5% as the appropriate level of discount. In respect of the insufficiency squeeze, for the reasons given above, I shall not apply any discount.

Similarly, in respect of the 047 patent, I shall not apply any discount in respect of common general knowledge alone because I do not consider that it is a suitably circumscribable issue.

I now need to consider whether to grant permission to appeal in this case. I shall apply the familiar test set out in CPR Part 52.3(6). Cubist contends that the appeal has “a real prospect of success”, which means more than fanciful. When considering this question, I bear in mind that there are a number of well-known cases where the Court of Appeal has referred to the difficulties of challenging a decision on obviousness, which is a multifactorial value judgment. It is important to consider the draft grounds of appeal, and to check whether the unsuccessful party is seeking to re-argue the trial in the Court of Appeal rather than to identify real errors of law or principle which are material to the judgment.

I have considered the draft grounds of appeal in respect of the 417 patent, and, with great respect to Counsel, it is a document which seeks to challenge numerous findings of fact, often on the basis that I should have preferred the evidence advanced by Cubist to the evidence advanced by Hospira. Appeals are by way of review, rather than re-hearing, and this must be reflected in the grounds of appeal.

Mr. Waugh pinned his colours to [13] of the draft grounds of appeal, which alleges an error of principle in failing to consider or to take account of the evidence of the Hospira’s expert, Dr. Ebert, that he could not explain why a longer dosage interval, or use of daptomycin to treat soft tissue infections, was not proposed by Lilly. Mr. Waugh says that the numerous other grounds of appeal are linked to this alleged error and, therefore, I should grant general permission. However, I consider that Dr. Ebert had set out, in respect of published documents, why he considered that a dosage interval was obvious. Dr Ebert had no knowledge of what Lilly did or did not do, or the reasons for their actions. His evidence that he did not know and could not explain was unsurprising, because he was not there.

The judgment at [40] contains findings of fact as to the goals that Lilly chose to pursue, what happened during the Lilly daptomycin trials, and the reasons for their termination. They are sought to be challenged on appeal, but this illustrates the problem, rather than providing a solution. They are matters on which I consider that Dr. Ebert could have had no knowledge. Therefore, I do not consider that [13] of the draft grounds raises a point of principle at all.

The draft grounds seek to challenge the finding of lack of entitlement to the first priority date. If Cubist could win the appeal on that point alone, I would have granted permission. However, I have also found that the 417 patent was obvious in the light of Woodworth, which does not depend on that point. Having carefully looked through the remainder of the grounds, I do not consider that they raise any point of law or principle which has a real prospect of success. Therefore, I refuse permission to appeal. Of course, Cubist are entitled to renew their application in the Court of Appeal.

Similarly, in respect of the 047 patent, the draft grounds of appeal contain a series of challenges to findings of fact or value judgments, which I do not consider have a real prospect of success. Mr Hinchliffe QC, who argued this part of the application on behalf of Cubist, points to [6] of the draft grounds, which alleges an error of principle in taking account of the electrical conductivity test when considering whether the skilled person would find that daptomycin was a surfactant. The judgment deals with the issue of whether it would have been found that daptomycin was a surfactant in some detail at [333]- [341]. I found, on a balance of probabilities, that any of the tests that I considered would have confirmed the strong expectation of the skilled team that daptomycin was a bio-surfactant. I do not consider that this raises a point of principle.

Similarly, Mr Hinchliffe focused on [10] of the draft grounds which alleges that the judgment fails to consider whether the skilled person would have had the required fair expectation of success. However, the relevant legal principle is set out at 150(iv) of the judgment, and at [366]- [368] the judgment summarises why there would have been a fair expectation of success, without again repeating that particular phrase. Therefore, I do not consider that that raises a point of principle, either.

So, in this particular case, I have decided to refuse permission to appeal.