Last Friday Mr Justice Arnold delivered a monumental judgment (312 paragraphs) in Lilly Icos, Pfizer Enterprises, Merck, AstraZeneca and others v 8pm Chemists and others [2009] EWHC 1905 (Ch). In earlier proceedings the various claimants, all proprietary pharma manufacturers, secured interim injunctions in trade mark infringement proceedings that were ultimately unsuccessful (you can read a note on the issue of liability here: in short, this was a scheme to supply US patients with Turkish drugs, ordered from Canada, repackaged and labelled, then freighted through the UK -- it came about as close as you can get to being an infringement without actually infringing).Having given cross-undertakings to compensate the defendants in the event that the infringement proceedings failed, the claimants were now called upon to pay up. The defendants maintained that they suffered losses running into millions of pounds, while the claimants maintained that the defendants had suffered any loss at all and that, even if some loss had been suffered, it was irrecoverable in law.
The Court of Appeal directed an inquiry under the cross-undertakings in the orders in the Lilly action. Subsequently it was agreed that there should be inquiries in the other three actions, and that all four inquiries should be heard together. On 26 March 2009 Warren J ordered that the inquiries be heard in two parts. This judgment is only concerned with the first part (the second being due for trial in December 2009).
Paragraphs 207 to 249 of the judgment deal with the issue of quantum, which is dealt with in more detail than this preliminary posting can adequately represent. Of note is the judge's statement of principle as to the direction from which compensation should be balanced against the risk factor:
"In projecting the lost profits which the Defendants' Turkish fulfilment business would have made but for the Injunctions, it is necessary to take account of the risks to which that business was subject. These include the risk of the Defendants' customers going out of business, the risk that one or more of those customers might transfer their business elsewhere and so on. It is common ground that it is appropriate to allow for this by applying an annual percentage risk factor to the calculation of future profits, representing the risk that the business would come to an end within that year" (para 237).But how does one do this?
"I consider that the correct approach is to assess the compensation with the benefit of hindsight. Hindsight is not available looking forward, and it is appropriate to reflect the contingencies to which the Defendants' business was subject by the application of a risk factor" (par 243).
