Costs of patent amendment application not immutable; opponent ordered to pay substantial legal costs

Costs of patent amendment application not immutable; opponent ordered to pay substantial legal costs

Costs of patent amendment application not immutable; opponent ordered to pay substantial legal costs

Departing from the near ‘immutable rule’ that the amending party pay any other party’s legal costs of the amendment application, the Federal Court recently ordered substantial legal costs against opposing generic pharmaceutical companies Apotex and Actavis.  

Background to the Apotex v Servier case

The proceedings involved a revocation suit against Servier’s patent, initiated by Apotex, and an application by Servier to amend the patent.  The amendment application was opposed by Apotex and Actavis. An interlocutory injunction had been granted preventing Apotex from entering the market and Servier had provided the usual undertaking as to damages in favour of any person adversely affected by the operation of the injunction.

Apotex succeeded in invalidating the patent, but only on the ground of failure to disclose the best method. Servier defeated the invalidity attacks on all other grounds. These included lengthy and time consuming evidence and legal debate on assertions of lack of inventive step and false suggestion. Apotex had also abandoned challenges to the utility and sufficiency of description of the patent in the interlocutory stages.

Federal Court Rule 25.14(3) states:

(3) If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served — on a party
         and party basis; and
(b)    after the time mentioned in paragraph (a) — on an indemnity basis.

What was included in the offers of compromise?

Shortly before the trial commenced, Apotex made two offers of compromise to Servier. The first was made under r 25.14(3), and the second was a Calderbank offer. The substance of each offer was the same namely:

  • Apotex’ application for revocation be dismissed
  • Servier’s claim for infringement also be dismissed
  • The interlocutory injunction be discharged and Servier be released from its undertaking as to damages
  • Each party bears its own costs
  • Servier grant Apotex a royalty free non exclusive license under, and for the remainder of the term of, the patent, including any applicable extension of the term substantially as set out in the offers.

The offers of compromise were rejected by Servier.

Legal costs of the trial unevenly split between Apotex and Servier

The trial judge sought to determine a fair apportionment of the legal costs of the trial.  

The trial judge found that Apotex presented its argument on best method (the only ground upon which it was successful) in a sensible and confined way.  As to the totality of the arguments Apotex made, he said:

Where parties choose arguments that can be segregated from others, and where those arguments are wholly unsuccessful, there may be occasions where it is possible to make an appropriate apportionment to ensure justice is done between the parties in the award of costs.

The trial judge noted that Servier had lost on a very narrow point, and concluded that justice would be served by Apotex paying two thirds of Servier’s costs of the litigation, an amount which in his view reflected the substantial success that Servier enjoyed on issues it ought not to have had to defend.  However, it was noted that such an award of costs should not be seen as punishment.

Activis and Apotex ordered to pay 60% of the  amendment application costs

The ordinary rule in proceedings for an amendment to a patent is that the patentee pays the costs of other parties to the proceeding, and any opponent seeking to oppose the making of the amendment, regardless of the outcome.  The justification for this is that the applicant for the amendment is requesting an indulgence.  

Actavis, the opponent alongside Apotex, argued it is an ‘encrusted, and almost unbreakable, rule of law’ that whatever arguments an opponent makes, it is entitled to do so at the cost of the patentee.  His Honour rejected the argument, emphasizing that costs are in the discretion of the Court.  His Honour noted that such a position could result in great injustice being done to a patentee if it has to meet a ‘barrage of unmeritous, time wasting or substantially unsuccessful arguments’.

In this case, the opponents to the amendment lost on a range of issues that were pressed .  The amendment application was decided substantively on evidence that was initially filed by Servier in support of their application.  His Honour found that the stance taken on some issues in the proceedings by the opponents caused the application to be far more protracted than it ought to have been.  A large amount of time was taken up during the course of the application by the opponent’s unsuccessful arguments.  Further, a large amount of time and effort was taken up with assertions that were not fully supported by evidence.

Overall, the opponents were ordered to pay 60% of the costs of the amendment application.

Issues with the offers of compromise

There were two issues with regards to the offers of compromise:

1. Whether, in accordance with r 25.14(3), Apotex obtained ‘a judgment that was more favourable
    that the terms of the offer.’

Under r 25.14(3), costs are payable on an indemnity basis if the offeror obtains a judgment that is more favorable than the terms of the offer.

The trial judge found that it was not possible to ascertain whether the orders made (revocation of the patent and Apotex to pay some costs in respect of the trial and amendment proceedings) amounted to a judgment more favorable than the outcome proposed in the offers of compromise because:

  • The financial value of Servier’s liability pursuant to its undertaking as to damages was not capable of evaluation on the material before his Honour – there was no evidence of what damages Apotex might be able to claim.
  • It was not possible to assess whether Apotex would have been better off had Servier accepted the offer. With no information as to what the financial position would have been had Servier accepted the offer, the trial judge was unable to make any finding on the matter.

Accordingly, the trial judge was not satisfied that Apotex had obtained a judgment more favourable than the terms of the offer.  

2. Whether, under the Calderbank principles, Servier has acted so as to attract liability to pay
    indemnity costs by rejecting Apotex’ offer.

In order to establish that a party is entitled to an order for indemnity cost based on an offer outside of the Federal Court Rules, it is necessary to demonstrate that the other party’s refusal of the offer was unreasonable.

The trial judge found that Apotex had not demonstrated this was the case because:

  • Each party clearly perceived its own case at the time the offer was made to be strong
  • Each was vindicated in its assessment of the strengths of parts of its case to some degree.
  • Servier’s senior counsel advised that Servier was not at risk on the issue of best method. It was therefore reasonable for Servier to consider it would be successful on that point.

The trial judge found that the fact the two sides held genuinely different views could not amount to the refusal being unreasonable or ‘imprudently or plainly unreasonable.’

Orders for costs not affected by offers of compromise

The trial judge therefore concluded that the orders for costs should not be affected by either offer of compromise.

The orders that were made were:

  1. Apotex and Actavis pay 60% of Servier’s costs of the application to amend
  2. Apotex pay 66.67% of Servier’s costs of the proceedings

Servier has appealed both the best method issue and the amendment decision.