Ascendis Animal Health (Pty) Ltd v Merck Sharp Dohme Corporation and Others

• Jurisdiction: South Africa

Ascendis Animal Health (Pty) Ltd v Merck Sharp Dohme Corporation and Others
2020 (1) SA 327 (CC)

2020 (1) SA p327

Citation	2020 (1) SA 327 (CC)
Case No	CCT 21/18
Court	Constitutional Court
Judge	Mogoeng CJ, Cameron J, Froneman J, Jafta J, Khampepe J, Ledwaba AJ, Madlanga J, Mhlantla J, Nicholls AJ and Theron J
Heard	October 24, 2019
Judgment	October 24, 2019
Counsel	C Puckrin SC (with M Seale SC and T Ramogale) for the applicant.; L Bowman SC (with G Marriot) for the respondents.

Flynote : Sleutelwoorde

Intellectual property — Patent — Dispute — Revocation and infringement — Whether findings in revocation application having binding effect in later action based on infringement — Res judicata (issue estoppel) and piecemeal litigation (multiple-stage defences) in patent disputes — Court deadlocked on whether failed bid for revocation barring applicant from raising invalidity defences in subsequent infringement (damages) action against it — Whether applicant should be allowed to launch fresh validity challenge on new ground — Ease with which validity challenges should be allowed — Patents Act 57 of 1978, s 25 and s 61(1).

Estoppel — Res judicata — Ambit of doctrine — Court deadlocked on issue of whether failed bid for revocation of patent would bar applicant from raising fresh invalidity defences in subsequent infringement claim.

Headnote : Kopnota

The Patents Act 57 of 1978 (the Act) creates two-track proceedings in patents disputes: first, revocation under ch X, where a challenger seeks to remove a patent from the register; and, second, infringement under ch VI, where the patent-holder vindicates its rights against an infringer. In defending the latter the infringer may rely on any of the grounds on which the patent may be revoked. The issue in the present case was whether findings in the revocation proceedings had final, binding effect on the infringement proceedings (see [105]).

The challenger (Ascendis) applied in the court of the Commissioner of Patents for the revocation of a patent held by the respondents (collectively, Merck). As grounds for revocation Ascendis raised (i) lack of novelty and (ii) lack of inventiveness (obviousness), but indicated that the hearing would be confined to novelty, which, unlike obviousness, would not require oral

2020 (1) SA p328

evidence. [*] Merck stipulated that it deemed this piecemeal procedure incompetent, and that it would regard the failure to advance argument on obviousness as an abandonment of the defence. It would oppose any attempt to resurrect it on the basis of res judicata. The commissioner, Teffo J, upheld the novelty point and revoked Merck's patent. In an appeal the Supreme Court of Appeal (SCA) overturned Teffo J's judgment, holding — without mentioning the obviousness point — that the novelty point was bad and the patent valid.

Merck had in the meantime launched its infringement action for damages before Van der Westhuizen J, as commissioner. The SCA's findings in the revocation proceedings prompted Ascendis to seek an amendment to its plea in the infringement action by deleting its novelty point (while retaining its obviousness point), and adding a new inutility [†] point. In response, Merck applied to amend its own pleadings to argue that, since the SCA had upheld the validity of the patent, the entire matter was res judicata.

Van der Westhuizen J denied Ascendis' application for the amendment of its plea. He ruled that there was only one cause of action, invalidity, and that while a defendant could rely on any one or more of the listed grounds of invalidity, it could not do so in piecemeal fashion. He allowed Merck to raise res judicata, which he upheld on the basis that the matter was disposed of by the SCA's finding that the patent was valid. All that remained, ruled Van der Westhuizen J, was the quantification of Merck's damages.

Ascendis, seeking the reversal of Van der Westhuizen J's denial of its application to amend, and having been rebuffed by the High Court and the Supreme Court of Appeal, applied for leave to appeal to the Constitutional Court. The issues before the court were (i) whether each ground for revocation in s 61 was a separate cause of action, or the cause of action was just one, the invalidity of the patent; and (ii) res judicata.

The Constitutional Court handed down an evenly split decision: while all ten would have granted leave to appeal, five would have upheld it and five dismissed it.

Held per Khampepe J (Froneman J, Ledwaba AJ, Nicholls AJ and Theron J concurring)

Ascendis should have been allowed to amend its plea. The various grounds for revocation did not provide for a common cause of action (ie the general invalidity of the patent) but, by virtue of having different facta probanda, constituted separate and distinct causes of action. Since Teffo J had made no decision on the merits of the ground of inutility, the matter was not res judicata, and Van der Westhuizen J erred in finding that it was. (See [54], [61], [63], [65] – [66], [74].)

The crux of res judicata was that where a cause of action had been litigated to finality between the same parties on a previous occasion, a subsequent attempt to litigate the same cause of action by one party against the other party would not be allowed. There was no reason to extend it to include the same conclusion, even when an alleged procedural error by the applicant was the underlying reason why the cause of action was not heard on the merits or formally separated in the first proceedings. (See [70], [80].)

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The second judgment's widening of the scope of res judicata by making it applicable to new defences in infringement proceedings, could result in hardship and injustice by depriving future adjudicators of room to invoke equity to decide whether this really was the 'same issue'. Merck did not make out a case as to why equity and fairness should preclude Acendis from raising the validity of the patent as a defence in the infringement proceedings. (See [93], [97] – [98].)

The above did not create carte blanche for parties to institute revocation proceedings on a repetitive basis. Should this occur, considerations of abuse of process would be applicable. (See [96]; compare [108].)

Testing the validity of patents was in the public interest because patents created artificial monopolies. Currently, South Africa completely relied on private parties to regulate this artificial monopoly system because the government does not examine a patent's validity upon registration. Instead of being deterred, litigants — who were working both in a private capacity and for the public interest — had to be encouraged to bring more revocation challenges. (See [97], [100].)

Held per Cameron J (Mogoeng CJ, Jafta J, Madlanga J and Mhlantla J concurring)

Leave to appeal should be granted, but the application to amend dismissed. Ascendis sought to introduce new defences against Merck's infringement claim because it previously (before Teffo J) tried and failed to invalidate Merck's patent on the ground of novelty. Ascendis had in those proceedings abandoned its obviousness defence when it argued, unsuccessfully, for revocation. Courts should not countenance multiple-stage defences in patent disputes: first bite at revocation, second bite when sued for infringement. This was not how enforcement of patents would most fairly and efficiently work. (See [107].)

If an alleged infringer, who had failed to make a successful case for revocation, was permitted to raise further invalidity defences when later sued for infringement, there could be no principled reason to preclude it from launching a fresh revocation claim on any new ground. When that failed, the patent-holder would have to initiate yet another damages claim, to which the alleged infringer could then respond with further new defences, and so on. The resulting dissonance in the two sets of patent litigation would not only produce incoherence, but also affront long-held judicial caution against piecemeal litigation. (See [108].)

The default position should be that a previously unsuccessful revocation applicant was precluded from raising the validity of the patent in a subsequent damages claim. The conclusion that the Act did not sanction endless validity challenges was prudent and squared with the position in the majority of foreign jurisdictions. (See [123], [125].)

Justice required that the SCA's refusal of Ascendis' revocation argument should be treated as conclusive of the patent's validity. There was no reason why res judicata, appropriately expanded, should not apply. While this prejudiced Ascendis, the destabilisation of our patent litigation system, through the creation of a perilous and novel default, was of greater importance, for it would be to the prejudice of all. The courts in both the amendment proceedings and the interdict application were alive to this fact, and the issue of validity between the parties was long-worn and settled. (See [139].)

Held per the court

Since there was no majority decision, the judgment of the commissioner would stand (see [3]).

2020 (1) SA p330

Cases cited

Southern Africa

Abrahamse & Sons v SA Railways & Harbours 1933 CPD 626: referred to

African Farms and Townships Ltd v Cape Town Municipality 1963 (2) SA 555 (A): referred to

Alcatraz Integrated Intelligent Systems (Pty) Ltd v Intergra-Set (Pty) Ltd 2010 BIP 94 (CP): referred to

Alcatraz Integrated Systems (Pty) Ltd v Automated Identification Technologies (Pty) Ltd 2008 BIP 94 (CP): referred to

Amod v Multilateral Motor Vehicle Accidents Fund 1998 (4) SA 753 (CC) (1998 (10) BCLR 1207; [1998] ZACC 11): referred to

Bafokeng Tribe v Impala Platinum Ltd 1999 (3) SA 517 (B): referred to

Bateman Equipment Ltd and Another v Wren Group (Pty) Ltd 2000 (1) SA 649 (SCA) ([1999] ZASCA 89): referred to

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