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[1989] ZASCA 65
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South African Druggists Ltd. v Pfizer Inc. (612/87) [1989] ZASCA 65 (26 May 1989)
CASE NO. 612/87
/CCC
IN THE SUPREME
COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between:
SOUTH AFRICAN DRUGGISTS
LIMITED
APPELLANT
and
PFIZER INC
RESPONDENT
CORAM
: CORBETT, CJ, HOEXTER, NESTADT, KUMLEBEN JJA et NICHOLAS,
AJA
DATE HEARD
: 9 MARCH 1989
DATE DELIVERED
: 26 MAY 1989
JUDGMENT
2/
2.
NESTADT, JA
Respondent, a United States corporation, is engaged
inter alia
in the
pharmaceutical industry. It is an internationally active company with
subsidiaries in various parts of the world. It is the
patentee of South African
Patent 69/5760 entitled "Process For Preparing Benzothiazine Dioxides". One of
the compounds covered by
the patent is known generically as piroxicam. It is an
anti-inflammatory agent with analgesic properties. Its main use is in the
treatment of rheumatoid arthritis and similar conditions. In South Africa
piroxicam has been marketed under the trade name of "Feldene"
by respondent's
wholly owned subsidiary company here, Pfizer Laboratories (Pty) Limited.
However, this has taken place only since
January 1981. This was some eleven
years after the commencement of the term of the patent on 12 August 1969 and
about four and a
half years before its expiration on 12 August
3/
3.
1985. Before January 1981, no remuneration was earned from the patent.
It
was in these circumstances that respondent, in terms of section 39(1) (a) of the
Patents Act, 37 of 1952, ("the Act") read with
section 3(1)(d)
of the
Patents
Act, 57 of 1978
, timeously applied for an extension of the term of the patent
for a period of five years on the ground that, due to no fault on its
part, it
had not derived adequate remuneration from the patent. The application (I refer
to it as the main application) was opposed
by appellant. It is a South African
company which trades in competition with respondent. Shortly before the hearing,
appellant gave
notice by way of an interlocutory application of its intention to
seek an order in terms of Supreme Court
Rule 6(5)(g)
that, in
limine
,
certain persons who had deposed to affidavits in support of the main application
appear personally to be cross-examined as witnesses.
The Commissioner of
Patents
4/
4.
STEGMANN J), despite respondent's opposition, granted the relief sought by
appellant. (The judgment is reported in 1985-1986 BP 170.)
Respondent appealed
to the Transvaal Provincial Division. The appeal was struck off the roll on the
ground that the order in question
was not appealable. (The judgment is reported:
see
Pfizer Inc vs South African Druggists Ltd
1987(1) S A 259(T).)
Thereafter the main application, which had previously been postponed, was
re-enrolled for hearing. It came before
ELOFF DJP. At the instance of
respondent, he departed from the order of STEGMANN J which referred the matter
to oral evidence. It
was directed that the issues be resolved on the papers as
they stood. The learned Commissioner then proceeded to hear argument on
the
merits of the main application which he granted by ordering an extension of the
patent for five years. Appellant was directed
to pay the costs of the
interlocutory application (which had been reserved), as also the costs of
respondent's
5/
5.
application to vary STEGMANN J's order. (The judgment is
reported in 1985-1986 BP 713.) Appellant unsuccessfully appealed
to the
Transvaal Provincial Division against the order of ELOFF
DJP. The present
judgment is concerned with a further appeal to
this Court.
Lengthy affidavits were filed on behalf of
both parties. In due course it will be necessary to canvass
their contents
in some detail when separately considering the
various issues that arise for
determination. This must be done
with the meaning and requirements of
section
39(1)(a)
in mind.
The relevant part of the section provides:
"39.(1) A patentee ... may ... apply ... for an
extension of the term of the relevant patent on the ground that
-
(a) he has not derived adequate remuneration from
that patent."
This Court has interpreted
section 39
in a number of cases and
6/
6.
in particular in
South African Railways and Harbours vs Standard Car Truck
Co
. 1982(1) S A 806(A) especially at 818 G - 821 G. I understand the
governing principles, in so far as they are presently relevant,
to be the
following. The first function of the Commissioner is to determine whether the
patentee has been adequately remunerated.
In order to do this, the Commissioner
is required to make a comparison. The comparison is between the remuneration (i)
in fact derived
from the patent (the actual remuneration) and (ii) that which
the patentee could and would have derived from it, but for some reason
did not
(the potential remuneration). Obviously (ii) must be shown to be more than (i).
In some cases, this will be proved by the
production of actual comparative
figures. In this event, there will be direct evidence of inadequate
remuneration. But there may
be circumstantial evidence of inadequate
remuneration rendering it unnecessary to quantify it. This occurs where there
is
7/
7.
proof that for part of the term of the patent, usually commencing at the
beginning of the term, the invention did not earn remuneration.
This is the lost
time situation. It may give rise to the
prima facie
inference that had
the patentee exploited his patent over its full term, he would have derived more
remuneration than he actually
did and that he accordingly earned inadequate
remuneration. But there are two instances where the inference has been said
(though
not in so many words) to be negated. One is where the patentee, whilst
the patent was being exploited, so fixed the price of his
product as to recoup
the prior loss of remuneration (i e sustained in the sterile period). Whether
this is still to be regarded as
correct is dealt with later. The other is where
the lost time was due to some inherent weakness or shortcoming in the invention
(as
opposed to an extraneous factor or circumstance) so that it was, in any
event, not capable of earning remuneration. The reasoning
here is that the
patentee's remuneration is only to be regarded as
8/
8.
inadequate if the lost time was due to circumstances extraneous to the
invention. Only then should he be afforded more time to earn
remuneration (by
way of an extension). If, however, there are other factors which cause or
simultaneously contribute to the delay
in exploiting the invention, viz,
intrinsic defects in it, the patentee cannot, in respect of the period during
which the invention
was so defective, complain about inadequate remuneration.
For then it cannot be said that the failure to earn remuneration was due
to
circumstances
dehors
the invention. Finally, in regard to the second main
function of the Commissioner, viz, to determine, subjectively, in the exercise
of his discretion, whether an extension should be granted, and if so the period
thereof, a relevant consideration is whether the
failure of the applicant to
derive adequate remuneration was ascribable to his fault.
9/
9.
Appellant's contentions on appeal, in support of a general submission that
respondent had failed to show that it derived inadequate
remuneration were, in
summary, the following: (i) the decision of ELOFF DJP not to allow respondent's
witnesses to be cross-examined
was wrong; (ii) respondent failed to show that
during the period after January 1981 it did not, by increasing its prices,
recoup
its prior loss of remuneration; (iii) respondent failed to sufficiently
particularise its actual remuneration; (iv) the invention
suffered from an
inherent weakness so that it was, in any event, incapable of earning any
remuneration until about December 1978
at the earliest; and between then and
January 1981 when sales of Feldene commenced there was a culpable delay in
marketing the product
and thus earning remuneration; accordingly, the time lost
does not avail respondent.
10/
10.
Because the evidence relevant to the issue raised by (iv) relates to a period
of time prior to that which bears on (i), (ii) and (iii),
I propose to deal with
it first. It involves an enquiry into the reasons for the lost time. This is
fully explained in respondent's
founding affidavits. The position that emerges
is, in outline, the following. Piroxicam was first synthesised in respondent's
laboratories
in America in November 1967. It was patented there in August 1968.
However, although it was already known through pharmaceutical
testing that it
possessed substantial anti-inflammatory properties, many years were to elapse
before piroxicam could be marketed.
Respondent's policy was to patent its
inventions at the earliest possible date lest competitors anticipate it. Such
patenting will
normally be "well before the development work necessary to
commercialise a pharmaceutical product can be completed". What such development
work consisted of, in the case of piroxicam, was, broadly
11/
11.
speaking, the following:
(a) To begin with, exhaustive tests, first on animals and them on humans, had
to be carried out. Their purpose was to demonstrate
that piroxicam was safe to
use and efficacious. Initially, these tests were carried out on a
closely-related compound called sudoxicam.
However, problems relating to
elevated enzyme levels were encountered and further testing of sudoxicam was
halted. Piroxicam, which
until then had been regarded as a "back-up" compound,
then came to the fore. This was in March 1972. Toxicological studies of
piroxicam
then commenced and continued through to 1977 and beyond. This involved
a series of experiments on a variety of animals. Their principal
purpose was to
ascertain whether any harmful side-effects
12/
12.
resulted from the administration of piroxicam and thus to
avoid them in human subjects upon which clinical testing would follow. Early
in
1973 a start was made with such clinical testing of piroxicam. It consisted of
three phases, stretching over a number of years.
The trials, which involved
careful planning and preparation, were conducted in the United States and
Western Europe. A total of about
1 000 patients participated in them. By the
beginning of 1977 respondent's experts were convinced that piroxicam was
efficacious
and safe for use as an anti-inflammatory agent and that its
commercial development and marketing could be proceeded with. (b) During
the
course of the clinical trials certain problems regarding the bulk manufacture
and
13/
13.
formulation of piroxicam arose. As to the former, it is stated that whilst
"small batches of a particular compound made in a laboratory
may prove effective
and safe, the production of the compound in a large plant may result in a
commercial product which is less effective
and/or more toxic unless very careful
quality control is exercised". Thus, as regards piroxicam, there had to be a
large expenditure
of time and manpower to achieve an acceptable product which
could be manufactured on a commercial scale. Simultaneously, problems
of
formulation or dosage form were being dealt with. By this is meant "the total
physical mixture of non-active excipients (inert
substances which constitute the
vehicle by which the active ingredient is carried into the ... body) and the
14/
14.
active ingredient. Formulations can take numerous
forms such
as capsules, tablets, solutions or
suppositories..." Which of these
formulation is
adopted is important because each maý differently affect the rate and
level of absorption of the drug into the body, as also
the product's stability
and thus its shelf-life. Initially, a capsule formulation was used. Because of
problems arising from the
incidence of what is called polymorphism, bulk lots of
piroxicam were then (by May 1975) prepared in tablet form. However, respondent's
scientists soon determined (early in 1976) that the tablet form gave rise to
undesirable side-effects, whereupon they decided to
return to the capsule
formulation. By March-April 1976, bulk lots of capsules had been prepared. This
change-over
15/
15.
caused the clinical trials to be delayed by about six months. But problems
continued to be encountered. The capsule was affecting
the dissolution rate of
the drug. It thus became necessary to modify the capsule. Samples of the
modified capsule were prepared in
the first half of 1977. It would seem that
even these showed poor dissolution properties. It was only in August 1979 that
respondent
was finally able to commercially produce capsules having acceptable
dissolution characteristics. (c) The successful results of the
clinical trials
led to it being decided to submit what is termed a New Drug Application to the
United States Food and Drug Administration.
Its approval was necessary before
piroxicam could be marketed in that country. The
16/
16. compilation of the necessary information for this purpose took
many months so that it was not before March 1978 that the application
could be
lodged. Only then was respondent in a position to make a similar application to
the relevant authority in South Africa.
It is called the Medicine Control
Council (MCC). The application for registration of piroxicam with the MCC was
made in December
1978. The application could not reasonably have been done
earlier. In June 1979 the MCC requested substantial additional information.
This
was furnirshed two months later. However, registration was only obtained in
September 1980 when respondent was for the first
time enabled to market its
product. It was too late to do this before the new year, ie January 1981, when,
as I have said, sales
commenced.
17/
17.
The question is whether this catalogue of events and circumstances was such as
to frustrate respondent's reliance on lost time. ELOFF
DJP did not think so. And
I think he was right. As has been indicated, there are two aspects to be
considered. One is whether due
to some inherent weakness or shortcoming in the
invention it was not capable of earning remuneration; the other is whether
respondent's
loss of remuneration was caused by its fault. I deal firstly with
the latter. It is, I think, clear that the various procedures undertaken
were
necessary. Respondent's deponents are at pains
to point out that
at each of the development stages referred to,
every effort was made to complete the work as expeditiously as possible and that
what delays did occur were not due to any remissness
on its part. There is no
effective denial of this in appellant's papers. There is an assertion in the
affidavit of
18/
18. Anthony Karis, its deputy managing
director, that respondent's selection of sudoxicam for tests whilst "virtually
ignoring" piroxicam
was "unreasonable, unscientific (and) unbusinesslike" and
caused a delay of about three years. In my opinion, it is not justified.
Respondent has explained what the rationale was behind the decision to initially
proceed with the development of sudoxicam and it
seems to me to be a perfectly
reasonable and acceptable one. Generally, it must be borne in mind that "(t)he
decision to commence
production and marketing of a particular drug is an
extremely serious and important step. Not only does Pfizer have an immense moral
responsibility not to market a drug of dubious safety, but the legal
consequences of such a step could be momentous." (I have quoted
from the
affidavit of respondent's Senior Vice-President, Medical, a Dr Jefferis.) It is
obvious that respondent had to proceed with
care and caution. The only other
point that need be mentioned concerning respondent's alleged fault is Mr
Plewman's
submission, on behalf
19/
19.
of appellant, that between July 1979 (when, he said, piroxicam was for the
first time capable of earning a remuneration) and January
1981, there was no
good reason why marketing should not have taken place. I disagree. The delay in
obtaining MCC approval cannot
be laid at respondent's door. This, as I have
said, was only given in September 1980. And appellant has not shown that the
decision
to wait until January 1981 before launching Feldene was
unreasonable.
I turn to the other aspect of (iv) above, viz, whether the
invention was incapable of earning remuneration because of some inherent
weakness or shortcoming in it. Appellant contends for an affirmative answer.
Now, it cannot be gainsaid that piroxicam could in fact
not be generally sold
until about 1979. Indeed, as appears from what has already been said, this was
the basis on which respondent's
claim that it received inadquate remuneration
was founded. And its deponents
20/
20.
acknowledge as much. Thus it is said: "in the drug industry, therefore, there
is inevitably a lapse of time between the date upon
which an invention is
patented and the date upon which actual commercial exploitation commences"; "by
the end of 1968, I was convïnced
that both sudoxicam and piroxicam had the
potential for development into successful commercial non-steroidal
anti-inflammatory agents
of substantial benefit to mankind provïded, of
course, that they successfully completed the extensive toxicological and
clinical
trïals necessary to establish safety and efficacy in humans and to
obtain approval for product marketing from regulatory authoritïes";
"the
development of a marketable pharmaceutical compound is an ongoing process"; "it
will be apparent ... that a number of years
passed before completion of clinical
trials sufficient to enable Pfizer to consider the marketing of piroxicam". But
it does not
follow that respondent cannot rely on the sterile period to
21/
21.
support an allegation of inadequate remuneration. An inability
to exploit
the invention commercially does not
per se
show a
weakness or
shortcoming in the invention. The enquiry that has
to be made is whether the
lack of commercial viability was not
due to some extraneous factor or
circumstance. In
Lennon Ltd and
Another vs Hoechst
Aktiengesellschaft
1981(1) S A 1066(A) at 1084
B - C, the expression used
is "some unconnected, extraneous
factor or circumstance". But I think the
omission of the word
"unconnected" would be more in keeping with what the
learned
judge meant in the light of the facts he was dealing with and
the
sort of problem that arises in this type of case.
In contending that piroxicam lacked
commercial viability because of an inherent weakness or
shortcoming, Mr
Plewman,
consistently with what had been alleged
in appellant's answering affidavits, confined his submissions to
those founded on the factors referred to in (a) and (c). The
22/
22.
argument was, in other words, that the failure to earn remuneration was
caused by the need to first establish the safety and efficacy
of piroxicam and
then to obtain its registration; and these, so he said, were inherent
shortcomings and weaknesses in the invention.
There is no merit in the point.
These are the classic, extraneous factors usually relied on (with success) by
patentees applying
for an extension of
inter alia
a pharmaceutical patent
under
section 39(1)(a).
(See eg, at least as far as (a) is concerned,
Lennon's
case at 1084 E.)
The remaining set of circumstances (referred
to in (b)) can also be briefly dealt with. As I say, appellant did not contend
that they
evidenced an inherent weakness or shortcoming in piroxicam. They were,
however, debated with Mr
Puckrin
, who appeared for respondent, during
argument. Suffice it to say that I do not think that problems of production and
formulation,
in the circumstances of this case (unlike those in
23/
23.
South African Druggists Limited vs Bayer Aktienqesellschaft
, case
number 623/87, a judgment of this Court delivered on 26 May 1989) were or arose
out of any weakness or shortcoming in the invention
itself. As respondent's
experts point out, piroxicam was, ab
initio
, an effective,
anti-inflammatory agent (as subsequent events demonstrated); no further
discovery or development of the compound itself
was required to render it
capable of earning remuneration. The position is, in principle, the same as in
the
Lennon
case where one of the problems that contributed to the delay
in marketing the drug there in issue was "having to produce furosemide
with a
sufficient degree of stability and purity for testing purposes and the loss of
some three million tablets, made for the initial
marketing of the product,
through deterioration caused by an unforeseen phenomenon - the effect of light
on sugar-coated tablets
packed in non-coloured bottles" (see at 1074 E - F) .
Though this point does not appear to have been
24/
24.
specifically dealt with subsequently in the judgment, it is obvious that the
problems referred to were not regarded by WESSELS JA
as a weakness or
shortcoming in the invention.
The issues raised by the arguments (i), (ii)
and (iii) earlier referred to really all bear on respondent's actual
remuneration and
in particular whether it was sufficiently proved and how it was
calculated. They may therefore largely be dealt with together. In
its
affidavits, respondent alleged the following. Its remuneration, in the form of
profits from the sale of Feldene in South Africa
is derived from two sources:
(i) the profits which accrue from the sale to Pfizer Laboratories of piroxicam
in bulk, powder form
by a subsidiary of respondent in Eire (where it is
manufactured); and (ii) the profit which Pfizer Laboratories makes from the sale
of Feldene in South Africa (consequent upon it preparing the material for sale
in the form of capsules). Neither the price (called
the transfer
25/
25.
price) nor the profits which it produces are, in relation to (i), disclosed.
It is said by Maurice Roche, the executive vice-president
of the holding company
of respondent, that it, for reasons which are set out but whïch need not be
detailed, "does not wish"
and has been advised that it is not necessary to
disclose what such profit is; but it is prepared to have the whole of the income
derived from the sale of bulk piroxicam to Pfizer Laboratories treated as profit
and, therefore, as remuneration. The profits accruing
to the latter company from
the sale of Feldene up until the expiry of the patent are, to a limited extent,
disclosed. Annual turnover
figures are given. So, too, are the company's
expenses, with the important exception of the "considerable" cost to it of
piroxicam.
The total amount of sales up to the expiry of the normal term of the
patent amounted to R19.9 million and the "profit" to R10 million.
(I have given
both in fairly round figures.) The last-mentioned
26/
26.
figure, in the words of David Rosenberg, the company's financial controller,
"represents the absolute maximum remuneration which could
possibly be held to
have accrued to (respondent) as a result of the exploitation of piroxicam in
South Africa". Obviously, however,
seeing that the transfer price has not been
deducted, that figure is greater than the actual profit earned.
It is
necessary to deal in more detail with what is said about the prices at which
Feldene has been sold and how they were calculated.
In substance, it amounts to
the following: the prices were "reasonable"; they were dictated by market
factors such as the price of
competitor's products (particulars whereof are
given); all the prices were more or less on a par with each other. The question
whether
there was an increase or "loading" of prices (to make up for lost time)
is specifically raised and answered in the negative. Thus
Dennis Chambers, the
chief executive of Pfizer Laboratories says: "I
27/
27.
emphasise that the fact that the applicant has lost more than 11 years during
the life of the normal term of Patent No. 69/5760 has
not influenced the price
at which Feldene has been sold in South Africa".
In his answering affidavit
on behalf of appellant, Karis, relying mainly on a statement by Chambers that
respondent's large research
costs have to be financed by its few successful
products "during the period which is invariably somewhat less than the full term
of the patent", "disputes" Chambers's assertion that respondent's prices were
reasonable and that the lost time did not influence
the prices at which Feldene
was sold. In a supporting affidavit a Mr MacIntosh, a chartered accountant,
alleges both in relation
to the price of Feldene and the transfer price that
market considerations (ie the prices of competing products), though a factor,
are not dominant. He argues that respondent must have realised that "it has less
than the full patent term to exploit a product free
of competition and
28/.....
28.
must take this factor into account in fixing its transfer prices. In so doing
the company compensates itself for the loss of remuneration
during the early
unproductive development years". He, too, "disputes" the correctness of
Chambers' evidence that there was no loading
of Feldene's
prices.
Respondent's replying affidavits reiterate and amplify its original
stance. Chambers states, for example, that "(t)he simple fact
is that the
applicant would not have charged any more or any less for Feldene (piroxicam)
whatever the effective term of the patent
had been". In particular a document
dated 20 August 1979 evidencing respondent's pricing policy applicable to its
operations in the
Republic was produced. Such policy is stated to be that
Feldene "should be priced directly competitive with the market leader" of
certain named "major competitive products" save that "wherever possible, a
premium of at least 15% should be obtained". Such policy,
it is said by a Mr
Price, the manager of the pricing division of a
29/
29.
subsidiary of respondent, was carried out; and the extent of the premium
referred to was directly related to market forces; respondent
cannot fix a price
which "the market is unable to bear"; the transfer price, too, was dependent on
the price of competitor's products;
it is always determined so as to allow the
subsidiary company (Pfizer Laboratories) to make a reasonable profit. Price also
pertinently
denies that lost time was taken into account in determining prices
for piroxicam in South Africa.
This, then, was the background against which
appellant brought the interlocutory application. It was widely framed. A dispute
of fact
was alleged in relation to a number of. issues. STEGMANN J, however, in
granting an order, confined the issue to be resolved to the
following: "whether
or not the patentee priced its product piroxicam or Feldene in such a manner as
to compensate itself wholly or
in part for the fact that it was unable to derive
any remuneration therefrom for a number of
30/
30.
years". (I refer to it as the "recoupment reasoning"
or "recoupment argument".) The deponents who, in accordance with his direction,
were to give
viva voce
evidence were Chambers, Roche, Rosenberg, Price
and another. ELOFF DJP, in refusing to follow this order, held, on the basis of
what
WESSELS JA said in the
Lennon
case at 1082 C - H, that the criterion
to be applied in considering whether there had been recoupment for lost time,
was whether
respondent's prices of Feldene were competitive; such prices, so he
accepted, were competitive; (by implication therefore) there
was no dispute of
fact warranting the order that had been made by STEGMANN J; and, on the merits,
respondent had established that
its prices of Feldene had not been increased to
compensate it f or the lack of remuneration in the lost time period.
In my
opinion, the submission that ELOFF DJP should have given effect to the
interlocutory order must be rejected. As a matter of
principle, the recoupment
reasoning,
31/
31.
on which it is based, is no longer available as a
valid answer to
an application for extension based on inadeguate
remuneration
caused by lost time. This is the effect of the judgment
in
South African Druggists Ltd vs Bayer, supra
, in which
NICHOLAS
AJA, in dealing with the lost time principle, examined
the
validity generally of the recoupment reasoning. The learned
judge
refers to the fact of its incorporation in paragraph 8(b)
of the principles
set out in the
SAR
case where, at 820 D, it is
said:
" (8) If lost time is proved, its cogency in establishing that there has been
inadeguate remuneration from the patent depends on
all the facts and
circumstances. Relevant considerations in this regard would include
...
(b) whether or not the royalties demanded by the
patentee or the prices fixed for its product have been calculated and fixed in
such
a way as to compensate the patentee for the lost time or allow him to
recoup loss of remuneration sustained during the period of
lost time (see
Lennon's
case
supra
at 1082 C - H)"
In a fresh approach to the problem, NICHOLAS AJA nevertheless
finds that this is not a principle of law but simply an argument;
32/
32.
that he was therefore free to reconsider it; and that it was
fallacious.
At pp 28(d) - 31 of the typed judgment (which was
concurred in by the
majority of the members of the court) the
following is said:
"The proposition on which an applicant relies who adopts the lost time approach
is that, however large or substantial the remuneration
which he in fact derived
from the patent, it was nevertheless inadequate within the meaning of
s
39(1)(a)
, since, during the lost years, he derived no remuneration from the
patent. (See the
Lennon
case at 1079H.) On such an approach there can be
no talk of 'compensation' or 'recoupment' - it just does not enter into the
matter.
If the patentee, in calculating and fixing the price of his product,
subjectively makes provision for compensation or recoupment
in respect of lost
years, he deludes himself: he does not compensate for lost years by subjectively
attributing remuneration received
to compensation for remuneration not earned,
any more than a man enriches himself by transferring his money from one pocket
to another...
Moreover, the contention flies in the face of economic realities. A patentee is
in general at liberty to fix whatever price he may
wish to charge for his
product, using the data and techniques he considers to be appropriate for that
purpose. In practice, the lower
price limit is set by his production costs -
unless a product can be priced to yield an attractive
margin
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above the production costs, he will not offer it at all. The upper limit is set
by what the buyer will pay for the product... There
is, therefore, a limited
range within which the prices of a product must be fixed. It can be assumed that
a manufacturer's object
is to
maximize his profits.... The manufacturer will therefore
seek to calculate and fix the 'optimum' price for his product, that is, the
price which will yield the greatest profit. To fix too
low a price would be
self-denial - which is not a virtue to be attributed to economic man; and to fix
it too high would be self-defeating,
because then he would price himself out of
the market.
Emptor emit quam minimo potest, venditor vendit quam maximo
potest
... It follows that when the manufacturer has caicuclated the
'optimum' price, there is no room for adding on something 'to compensate
for a
reduced monopoly period.' "
On this
basis alone, the recoupment argument
fails. But in any event, I am satisfied, despite Mr
Plewman's
strong argument to the contrary, that ELOFF DJP correctly
found
that on the facts there had been no loading of Feldene's prices.
The
issue that had to be decided was whether appellant had made
out a sufficient
case for
viva voce
evidence under
rule 6(5)
(g)
(or, one may add, under section 76 (1) (f) of the Act which
empowers the
Commission to.allow any witness to be cross-examined
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on his affidavit). Rule 6(5)(g) provides:
"Where an application cannot properly be decided on affidavit the court may
dismiss the application or make such order as to it seems
meet with a view to
ensuring a just and expeditious decision. In particular, but without affecting
the generality of the aforegoing,
it may direct that oral evidence be heard on
specified issues with a view to resolving any dispute of
fact..."
Many cases over the years have dealt with
its meaning (and the broadly similar, previously existing rule 9 of the
Transvaal Rules
of Court). A useful explanation in this regard is that of
KUMLEBEN J in
Moosa Bros. and Sons (Pty) Ltd vs Rajah
1975(4) S A 87(D).
The learned judge finds that as a matter of interpretation there is nothing in
the language of rule 6(5)(g) which
restricts the discretionary power of the
Court to order the cross-examination of a deponent to cases in which a dispute
of fact is
shown to exist. Without attempting to lay down any principle which
may have the effect of limiting the wide discretion implicit in
the rule, he
expresses the opinion that
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oral evidence should be allowed if there are reasonable grounds
for doubting the correctness of the allegations concerned. He
adds that in
reaching a decision, it is necessary to carefully
scrutinise facts peculiarly within the knowledge of an applicant
and
which, for that reason, cannot be directly contradicted or
refuted by the
opposite party. (See at 93 F - H.)
In applying these principles to the present
matter, it must, of course, be remembered that the prescribed
procedure
for obtaining an extension of the term. of a patent is
by application.
Furthermore, a reference to oral evidence would
inevitably cause a delay in
finalising the matter. This is a
result which in the public interest should
if possible be avoided
(see the remarks of STEYN CJ in
Firestone South Africa (Pty)
Ltd
and Others vs Gentiruco A.G.
1968(1) S A 611(A) at 631 A -
B,
although they were made in a different context). These
considerations
must, naturally, not be allowed to improperly
restrict appellant's rights
under rule 6(5)(g). Nevertheless,
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they can, I think, legitimately be taken into account by the
Commissioner
in deciding how to exercise his discretion under the
rule. And they serve to
underline the difficulty that an
objector, who raises the issue of loading,
has in successfully
invoking the rule. This is particularly so where the invention
is being exploited in a competitive situation. Perhaps that
accounts for
this being the first case, so far as I am aware,
where in the context of an
application under section 39(1)(a),
resort to rule 6(5) (g) has been
attempted. The attempt must
fail. Respondent's prices would have had to be
inflated to an
appreciable extent to compensate it, over a period of about
four
and a half years, for it not earning any remuneration for more
than
eleven years. Far from that being the case, respondent's
affidavits show, as
I have said, that the price of Feldene has
been much the same as that of its
rivals. The evidence on this
point was not, as was suggested, hearsay. As
appears from the
Lennon
case, at 1082 G, the inference, in these circumstances, is
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that there was no loading. The reason for this obviously is that where a
price is competitive, it is likely to be one that the patentee
would have
charged whether or not there was lost time.
To what extent do appellant's
affidavits detract from this? They go no further than vague, unsubstantiated,
argumentative denials
of respondent's allegations. No facts are presented to
counter respondent's evidence that Feldene's price is competitive. There is
no
particularity as to what appellant contends a reasonable or competitive price is
or should be or in what amount Feldene's price
is excessive. Appellant should
have been able to give this information. In the result, and despite making due
allowance for respondent's
pricing being a matter peculiarly within its own
knowledge, I do not think appellant succeeded in raising a real dispute of fact.
Nor did it show that there were reasonable grounds for doubting the correctness
of respondent's allegations that it did not increase
its price for Feldene so
as
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to recoup what it did not earn in the sterile period. The interlocutory
application was therefore not well-founded and ELOFF DJP correctly
departed from
the order made pursuant thereto. This he was entitled to do (
Bell vs Bell
1908 TS 887).
This brings me to appellant's complaint that respondent did not
sufficiently particularise its actual remuneration. Appellant's argument
centred
upon the transfer price. It was said that it and in particular respondent's
expenses in producing " piroxicam (such as its
research, development,
manufacturing, packaging, distribution and administrative -eests) should have
been disclosed. This would have
revealed respondent's true remuneration in the
form of its profit on the transfer price and thus (taking into account Pfizer
Laboratory's
profit) on the patent as a whole. It was vital to know this. Only
then could the worth of the invention and the adequacy of remuneration
be
assessed. This, rather than whether respondent had earned the maximum, was what
had to be determined.
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As matters stood, the figure of R10 million (being Pfizer Laboratory's deemed
profit, referred to earlier) was meaningless.
The argument is fallacious and
must be rejected. It seeks to resurrect the requirement of section 51(1) of the
old Patents Act, 9
of 1916, viz, that the court, in considering its decision
(whether to grant an extension) had to have regard to
inter alia
"the
profits made by the patentee". Section 39(1) of the Act is differently worded.
Nor, on its proper interpretation, and unlike
English law (on which Mr
Plewman
relied) does the patent or the benefits conferred on the public
have to be valued. As has been indicated, a comparison has to be
made between
the actual and potential remuneration; and where there has been lost time you
may not need to know their amounts in
order to do this. For, if the invention
has merit and is commercially successful in the years in which it is actually
exploited,
this will sustain the inference that no
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matter how substantial the remuneration then earned, appreciably more would
have been derived had there been no lost time (see the
SAR
case at 820 B
- C).
This is the position here. It is clear on the papers that the invention
has great merit. This is dealt with in some detail and was
not disputed by
appellant. It was established that from 1 January 1981 Feldene was sold at a
profit. That sufficed. It was not necessary
for respondent to disclose the exact
amount thereof. Even in the absence of this information, the most probable
inference in the
circumstances was that had respondent been able to trade during
the lost time period, profits would have been made then as well.
It would follow
that had the patent been exploited over the full term, respondent's remuneration
would have been greater; and that
it accordingly derived inadequate
remuneration. I ought to stress, however, that it is not to be assumed that in
every case of lost
time a more precise quantification of the patentee's
actual
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remuneration and therefore of his loss of remuneration may be dispensed with.
Where the invention is not of great merit and the period
of lost time is
relatively short, the position may be different. But on the facts of this case,
I am satisfied that what was essentially
an evïdential problem was
correctly resolved in respondent's favour.
This conclusion disposes of the
matter. It was submitted in appellant's heads of argument that the Commissioner
should not, in the
exercise of his discretion, have granted an extension for any
period, alternatively for the maximum permissible period of five years.
However,
apart from the contention that respondent was at fault in relation to part of
the period of lost time (a matter already
dealt wïth) no reasons were
advanced in support of the submission. In my opinion, no fault can be found with
the manner in which
ELOFF DJP exercised his discretion.
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The appeal is dismissed with costs. Such costs are to include the fees of two
counsel.
NESTADT JA
CORBETT, CJ )
HOEXTER, JA ) CONCUR
KUMLEBEN,
JA )
NICHOLAS, AJA )