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English Court of Appeal (Civil Division) sees no abuse of discretion in lower court's refusal to stay or dismiss English proceedings over parties' rights to make particular antibiotic in deference to previously filed United States lawsuit against same defendants which plaintiff contended would more appropriately decide same issues.

The original plaintiffs here are DSM Anti-Infectives BV, a Dutch company which sells ingredients for pharmaceutical products, and DSM Anti-Infectives Sweden AB, which makes similar products for the Swedish market (collectively DSM). The first defendant is an English company which produces ingredients for pharmaceutical products. The second defendant is a Pennsylvania company that makes and sells pharmaceutical products using constituents including those supplied by the first defendant. Both defendants are subsidiaries of GlaxoSmithKline plc, an English company (collectively GSK).

In the early 1990s, GSK had come up with strains of a certain bacterium (streptomyces clavuligerus or S.Clav. or SC7). They have used the bacterium to produce clavulanic acid which in turn is used to produce the potassium salt, potassium clavulanate. They combine that salt with a penicillin, amoxicillin, to produce an antibiotic, co-amoxiclav (CA), which is more effective than amoxicillin in dealing with certain infections. GSK sells CA under the mark "Augmentin." DSM sells potassium clavulanate as a bulk product to generic pharmaceutical manufacturers. The defendants later charged DSM with patent infringement and misuse of confidential information, complaining that DSM had allowed other companies to exploit samples of the SC7 purloined from GSK.

After some negotiations, the two sides agreed in 1997 to settle their differences. The Settlement Agreement provided, inter alia, that GSK would not try to sue the claimants for having used the SC7 strain prior to the Agreement. Moreover, GSK reserved its rights to defend against any claims of patent infringement with respect to its use of the strain in the United States.

Finally, Clause 15 provided: "This Agreement shall be governed in all respects by the laws of England and exclusive jurisdiction with respect to all disputes in connection with this Agreement shall be given to the English Courts."

Later on, GSK found out that two generic drug makers incorporated in Delaware -- Teva Pharmaceuticals Inc. (Teva) and Ranbaxy Pharmaceuticals Inc. (Ranbaxy) -- were getting ready to sell CA in the U.S. GSK sued these two companies in a Pennsylvania state court. Their complaint charged that the two U.S. companies were planning to vend CA derived from the pilfered SC7.

By leave of the Pennsylvania court, GSK also served process on DSM as additional defendants in September 2003. The complaint generally seeks against DSM (1) an injunction and damages for the misappropriation of a trade secret, (2) an injunction and damages for knowingly obtaining an unfair competitive advantage over GSK, (3) an injunction and damages for conversion of SC7, (4) restitution for unjust enrichment, and (5) the imposition of a constructive trust.

Three months later, DSM sued GSK in the English courts. It sought, inter alia, to have the court enjoin GSK from taking further steps in the U.S. proceedings against it because the suit breached the 1997 Agreement. GSK applied for a permanent stay of those English proceedings under C.P.R. 11 on forum non conveniens grounds, the disputed factual issues being already the subject of the ostensibly more appropriate Pennsylvania proceedings. Alternatively, GSK asked for a stay that would last at least until the Pennsylvania court finally rules on its own jurisdiction.

The English trial judge held that Clause 15 of the 1997 Agreement applied to the subject matter of the dispute in the U.S. proceedings to the degree that it affected DSM. He also decided that he had no jurisdiction to stay his own proceedings pursuant to Article 2 of Council Regulation (EC) 44/2001 on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters.

It declares that: "Subject to the Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State." The judge therefore dismissed GSK's application and it appealed.

Pursuant to EC Treaty Article 234 (formerly Article 177), the English Court of Appeal (Civil Division) referred to the European Court of Justice (ECJ) the legal question whether it was inconsistent with the Brussels Convention on Jurisdiction and the Enforcement of Judgments for a court of a Member State to exercise a discretionary power to decline to hear proceedings brought against a person domiciled in that state in favor of the courts of a non-contracting state. The ECJ's decision, however, has not yet come down. The Court then dismisses GSK's appeal.

The appellate court first decides whether the Agreement covered this dispute "Whilst the primary focus in the Agreement is on settling the disputes relating to the patent infringement alleged by GSK, it is plain from para. 5 (I) that the Agreement went further."

"The correspondence leading up to the Agreement, ... shows that GSK were concerned about the possibility of a misuse of confidential information to produce the strain DSM were using, having regard to GSK's belief that Dr. Callewaert had stolen a sample of SC7, that DSM had been in contact with him and that DSM had been using Panlabs which employed Dr. Rowlands."

"In response to GSK's request for information, DSM had made disclosure to GSK of the genealogy and development details of the Annex VII strain. The bargain struck between GSK and DSM involved each side accepting obligations and amongst those accepted by GSK was an obligation not to take action against the use by DSM of the Annex VII strain. In the Pennsylvania proceedings, GSK themselves so plead. ...." [ 34]

The Court of Appeal then turns to the question of whether or not the Agreement has a binding effect as to the proper forum in which to resolve whether DSM has been using the Annex VII strain rather than the stolen SC7 specimens.

"... [S]ubject to the effect of cl. 14 ..., the obvious answer is that [the forum] was not left at large but that such dispute is connected with the Agreement and so cl. 15 applies. It is connected with the Agreement because cl. 5 (I) bars GSK from objecting to the use of the Annex VII strain. True it is that that is a factual dispute, but [there is] nothing to prevent such a dispute from being one 'in connection with' the Agreement. The possibility of such a dispute arising was plain from the parties' exchanges prior to the Agreement." [ 35]

"Further, if it were necessary, ... for the purposes of this appeal to decide the difficult question whether cl. 14 does permit GSK to bring the Pennsylvania proceedings to determine the issue between the parties as to the strain used to produce clavulanic acid in Sweden and hence potassium clavulanate, [the Court] would hold that it does not. The wording of cl. 14 is significant."

"It reserves GSK's rights 'with respect to Potassium Clavulanate in the [U.S.A.] and in particular its rights to defend and enforce such rights in the [U.S.A.] against any infringement'. Those rights with respect to potassium clavulanate, as defined, are localised to being in the U.S.A. and are rights which might be infringed. That language suggests that the parties were contemplating patent rights, which are territorial, rather than the ownership by GSK of a strain of S. Clav. allegedly used in Sweden."

"... [T]he foundation of any claim which GSK may have must be DSM's production in Sweden, and any consequences in the U.S.A. are only secondary to DSM's activities in Europe and in particular Sweden. If GSK were to obtain against DSM the relief which they seek from the Philadelphia court, in reality they would obtain worldwide relief against DSM as DSM would be estopped from raising against GSK an inconsistent argument elsewhere. ... [T]herefore cl. 14 does not entitle GSK to have the issue of whether DSM have been using the SC7 strain rather than the Annex VII strain ... determined in the U.S.A. in derogation of cl. 15." [ 38]

In the light of conclusions reached thus far, the Court of Appeal will not hinder the exercise of the trial judge's discretion to refuse to grant a stay unless GSK can show that the judge erred in law or principle in granting "paramountcy" to the exclusive jurisdiction clause.

The Court rejects DSM's first claim that GSK's delay in bringing it into the Pennsylvania proceeding was damaging to it. "The judge has not, in my judgment, been shown to have erred in law or principle in rejecting the alleged prejudice to GSK from the delay as a weighty factor in the exercise of his discretion." [ 42]

Secondly, the trial judge's concerns about the danger of inconsistent findings did not detract from his exercise of discretion in refusing to stay. "It is plain from the judge's assessment of this as GSK's best point that he did recognise that it was an important point. However, matters of weight are for the judgment of the judge exercising his discretion and this court will rarely interfere with that judgment. He was entitled to take note of GSK's claim of the certainty which their testing would produce even though DSM challenged that claim. The reality is that the possibility of both the Pennsylvania and the English proceedings going ahead and producing inconsistent results is remote. Whichever of GSK and DSM lose in the first case to be tried on the issue of the strain DSM has been using would be estopped from arguing the contrary in the other proceedings." [ 44]

Citation: DSM Anti-Infectives BV v. Smithkline Beecham plc, [2004] E.W.C.A. CIV. 1199, [2004] All E.R. (D) 66 (Ct. App. Civ. Div. September 10).
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Publication:International Law Update
Date:Oct 1, 2004
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