F Hoffmann La Roche & Company AG v Secretary of State for Trade and Industry
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE BUCKLEY,LORD JUSTICE LAWTON |
| Judgment Date | 30 July 1973 |
| Judgment citation (vLex) | [1973] EWCA Civ J0730-1 |
| Date | 30 July 1973 |
| Court | Court of Appeal (Civil Division) |
[1973] EWCA Civ J0730-1
The Master of The Rolls (Lord Denning)
Lord Justice Buckley and
Lord Justice Lawton
In The Supreme Court of Judicature
Court of Appeal
Appeal by defendant from order of Mr. Justice Malton on 13th July 1973.
Revised.
HSR MAJESTY'S ATTORNEY-GENERAL (The Rt. Hon. Sir Peter Rawlinson, Q. C.), Mr. KENNETH JUPP, and Mr. PETER GIBSON (instructed by the Treasury Solicitor) appeared on behalf of the Appellant.
Mr. RICHARD YORKE, Q. C., Mr. ANTHONY BARRACLOUGH and Miss Genevra CAWS (instructed by Messrs. Herbert Smith & Co.) appeared on behalf of the Respondents.
The Roche group of companies are based in Switzerland, They make and supply drugs all over the world. They spend vast sums in research. They have done a great good for mankind. We are concerned here with two of their products which have special merit as tranquillisers. Their brand names are Librium and Valium. They are marketed in capsules which bear the distinctive colors of black and green. The Roche group have patented these drugs in the United Kingdom. Those patents have been in force for many years. They are due to expire in 1975 and 1976; but meanwhile the Roche group have done all they can to maintain a monopoly in them. They do not grant voluntary licenses. They resist the grant of compulsory licenses; though two have recently been granted in spite of their opposition. There are some other countries, such as Italy, which do not grant patents or allow monopolies In medical drugs of this kind. These self-same drugs can be and are manufactured in Italy by other firms without any need for a license from the Roche group. On occasions these Italian makes have been imported into England and sought to be sold here. They have, or should have, the same beneficial qualities as Librium and Valium. Whenever such imports are discovered, the Roche group have invoked the law of this country to stop them being marketed here. In this Court we have had actions by the Roche group for infringement of patents, and we have granted injunctions, see Hoffmann-La Roche v. Inter-Continental Pharmaceutics calls Ltd. (1965) 1 Ch. 795. We have had actions for passing off. we have restrained others from using the black and green combination. In addition, the law of this country enables the Roche group to prescribe and fix the prices for the drugs, and to enforce those prices right down the chain of supply from manufacturer to wholesaler, and from wholesalerto retailer, and from retailer to customer; because these "ethical drugs", as they are called, are exempt from the prohibition on re-sale price maintenance, see In re Medicaments Reference (No. 2) 1970 1 W. L. R. 1339.
So the Roche group have been given great privileges, by our English law. In addition, the market for drugs in England places them in a specially favourable position. These drugs cannot be supplied by a chemist except under a doctor's prescription. Most patients are on the National Health Service. They do not pay for the drugs (except for a small flat rate prescription charge). The doctor does not pay for the drugs. The chemist does not incur any cost himself because he is indemnified by the National Health Service. So none of them need worry about the price of the drugs. It all comes on to the National Health Service. Once the doctors are persuaded of the value of Librium and Valium, all is well. The doctor prescribes. The National Health Service pays. There are a few private patients who can pay for their own drugs, but they are usually so concerned for their own well-being that they do not worry about the cost.
The present case arises because the National Health Service have thought for some years that the prices charged by the Roche group were excessive. They felt that the Roche group were making too much profit out of them. Prom 1967 to 1969 the National Health Service made representations to the Roche group and got them to make substantial payments back to them. The Roche group paid back £200,000 for the year ending June 1967; £500,000 for the year ended June 1968; and £900,000 for the 18 months ending December 1969.thereafter the Roche group declined to make any payments back. One of the reasons for this was because two other concerns (which apparently did not do so much research)applied for compulsory licenses and got them in 1970 and 1971. The Roche group felt that this would lead to increased competition. They could not forecast the result, and so declined to make any further repayments.
The National Health Service were still aggrieved about the higher prices being charged for Librium and Valium. So they made approaches to another Government department, the Department of Trade and Industry. In consequence, on 14th September 1971 the Secretary of State referred the matter to the Monopolies Commission for investigation and report. Shortly stated, he asked the Monopolies Commission to determine the level of prices made by the Roche group for Librium and Valium, and to find out whether or not it operated against the public interest.
Now the Monopolies Commission is an independent body set up by Parliament especially to inquire whether things done by a monopoly are operating against the public interest. It is composed of members of much distinction. Seven of them sat to inquire into Librium and Valium. The Chairman was Sir Ashton Roskill, a Queen's Counsel. The others were: Professor Barna, Professor of Economics at Sussex University; Sir Roger Falk, an eminent management consultant; Professor Hart., Professor of Jurisprudence at Oxford; Mr. Richardson, a Fellow of St. Johnls College, Oxford, a specialist in economics; Mr. L. H. Williams, a former Deputy Chairman of I. C. I.; and ilk. Noble, Vice-Chairman of the Co-operative Wholesale Society, a specialist in management and financial subjects.
The Monopolies Commission took 17 months over their task. They made many investigations in many quarters and particularly of the Roche group. They paid tribute to the assistance given to them by Roche Products Ltd., but they were disappointed in some respects with the replies of the Roche group. They recordedthat the group was "not prepared to give for publtoation details of its worldwide expenditure on research" (paragraph 44). They said in paragraph 156:
"We asked for
(1) the value of world-wide sales of ethical products;
(ii) the value of world-wide research costs for ethical products;
(iii) the world-wide sales of Librium and., valium respectively by value;
(iv) the world-wide sales of Librium and valium respectively by weight."
They added: "The Group refused to supply us with this information,"
In addition, the Monopolies Commission held a hearing on the question of public interest, at which the Roche group were represented and made such submissions as they wished.
On 13th February 1973 the Monopolies Commission made their report to the Secretary of State. They found that the Hoche group had made excessive profits at the expense of the National Health Service, and they recommended that the prices should be greatly reduced. They found, to use their words in paragraphs 234 and 235, that … "the Roche Group has already obtained from the sale of these drugs in this country profits far in excess, of what is justifiable The excessive prices charged up to the present have already produced excessive profits on a very large scale." They considered that the prices should be greatly reduced; and in assessing the future price they said significantly in paragraph 236:
"No future price which it is practicable to recommend for the reference drugs could take full account of the excessive profits which have been made on them at the expense of the National HealthService in the past and will continue to be made until the prices are reduced. This damage could be remedied by the repayment of large sums to the Department of Health."
They concluded, with the important recommendation in paragraph 237 that the prices charged by Roche Products should be reduced (i) as regards Librium to not more than 40 per cent of the selling prices in 1970, (ii) as regards Valium, to sot more than 25 per cent of the selling price in 1970."
The Secretary of State received that report on 13th February 1973. He considered it for two months. It was made public on 11th April 1973. The very next day he made a statutory order by which he ordered in effect that the Roche group should reduce their prices of Librium by 607 and of Valium by 75% as from 23rd April 1973. THE STATUTORY ORDERS
The Secretary of State acted under the powers conferred on him by section 3 of the Monopolies and Mergers Act 1965, By that section he was empowered to make orders regulating the prices to be charged for the drugs. Any such order was to be laid before Parliament and was effective for 28 days. It would then cease to have effect unless it was approved by Resolution of each House. If so approved within 28 days, it was of full force and effect thereafter until modified or varied or rescinded.
In this case the Secretary of State made three orders in succession, each of which lasted for 28 days. The Roche group sought to prevent them being approved by Parliament. To this end, on 1st May 1973 they made a Petition against the first order to the House of Lords, They asked that "the order may not be approved and that they may be heard" on it. Their Petition was referred to a Special Orders Committee of the House of Lords, A Committee of seven peers sat to hear it. They heard Counselfor the Roche group and for the Secretary of State. It took five days. They studied ail the documentary evidence. Then they came to a decision by a majority of 4 to 3. This decision was of a very limited nature....
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