Cipla loses fightback over diarrhoea antibiotic

Judge rejects notion that tribunal acted unfairly in royalties dispute with Salix | Indian firm wanted payments on sales of antibiotic | Appeal brought under act with ‘high hurdle to surmount’.

Indian pharma giant Cipla failed to reverse a ruling in a licensing dispute over a diarrhoea antibiotic after a judge at the England and Wales High Court deemed its appeal “hopeless”.

The decision was delivered on Friday, April 21.

Cipla brought its appeal under section 68 of the Arbitration Act 1996,  which Judge Clare Moulder described as a “high hurdle” to surmount.

The multinational firm sought to challenge the arbitration proceedings that handed a victory to US specialty pharma firm Salix Pharmaceuticals, after Cipla accused it of failing to pay royalties under a patent licensing agreement.

‘An unfair ruling’

The dispute between Cipla and Salix arose from an exclusive deal dating back to 2009, under which Cipla licensed the use of certain patents to Salix.

Since 2004, Salix has sold a medication known as Xifaxan, an antibiotic used to treat conditions including diarrhoea and irritable bowel syndrome.

Cipla initiated arbitration on the basis that Xifaxan also contained amorphous rifaximin, rather than just crystalline rifaximin as initially claimed by Salix.

According to the Indian company, this meant that it was owed royalties on the sales of the treatment.

An arbitration tribunal was appointed in 2020 and gave its award dismissing Cipla’s claim for royalties on Xifaxan sales in May 2022.

Cipla challenged the outcome, not on the basis that the tribunal was wrong in its decision but that there was a “fundamental incompatibility” between a ruling made by the tribunal on the issue of multiple forms of amorphous rifaximin and the conclusions it made on the subject in its award.

The company contested that during proceedings, polyamorphism was “a totally new point that was being advanced for the first time by Salix” and it would be unfair to put it to an expert witness.

The tribunal agreed and excluded the late evidence in October 2021.

Cipla appealed to the High Court citing the “unfairness that in light of the ruling it conducted its case on the basis that polyamorphism was not an issue… the lack of evidence referred to by the tribunal in the award resulted from the October 26 ruling and that otherwise it would have pursued the issue in cross examination”.

‘No breach of duty’ found

However, in her determination of whether the tribunal acted correctly, Judge Moulder rejected Cipla’s submission that the arbitration was decided on a point that was not raised as an issue or argued. In her view, the parties “had an opportunity to address all the ‘essential building blocks’ in the tribunal’s conclusion”.

Although Cipla claimed the failure to deal with particular evidence may exceptionally be a ground for challenge under section 68, “even if this were to fall within any alleged exception to the general rule that the court will intervene, the challenge is hopeless on the facts of this case”.

The onus was on Cipla to prove its case, she said, and there was “no breach by the tribunal of its duty to act fairly and impartially”.

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