Patents: whether royalties payable under patent licence

11 October 2018

Audrey Horton

Summary
The High Court has construed a patent using US legal rules and held that, since the licensed product did not infringe the patent, no royalties were payable.

Facts
C sought a declaration that royalties were no longer payable under a licensing agreement for a US patent concerning humanised antibodies.

The patent was part of a patent portfolio licensed to C under a worldwide patent licence agreement between C and U. Royalties were due on sales of a relevant product in a territory if that product fell within the scope of a patent valid in that territory, unless and until that patent expired or was finally held invalid. The agreement was governed by English law and had an exclusive jurisdiction clause in favour of the English court. C sold a pharmaceutical product, a drug used in the treatment of rheumatoid arthritis. The patent was the last valid patent left in the licensed portfolio and was not due to expire until 2026.

C argued that since the product did not fall within the scope of the patent, its manufacture after January 2016 did not attract royalties under the licence agreement, and that it was entitled to a declaration to that effect. U submitted that a royalty was still due because the patent fell within the scope of the patent. The parties agreed that the issue of the proper construction of the relevant patent claim should be determined under US law. 

U had earlier unsuccessfully applied to strike out parts of C's claim on the ground that the English court had no power to determine the validity of a foreign patent.The High Court dismissed U's application for strike-out and held that it had jurisdiction to construe the patent claim (www.practicallaw.com/w-008-7946). It held that exclusive jurisdiction clauses providing for the determination of disputes relating to the infringement of foreign intellectual property rights, or to determine the scope of those rights for example under a patent licence, will in principle be enforceable in the English courts, provided that there is no direct challenge to the validity of the right in question. The court distinguished between disputes relating to construction of patent claims and disputes seeking to challenge the patent's validity, which should be decided by the courts where they were granted.

C's claim proceeded to trial.

Decision
The court construed the patent using US legal rules for patent claim construction and held that C's product did not infringe the patent. As this US patent was the last remaining patent covered by the licence, no royalties were payable under the licence since the expiry of the last of the other covered patents.

The words of a claim are generally given their ordinary and customary meaning, which is the meaning that the term would have to a person of ordinary skill in the art on the effective filing date of the patent application. Claim construction was an objective exercise. The skilled person was deemed to read the words used in the patent documents with an understanding of their meaning in the field, and to have knowledge of any special meaning and usage in the field. 

The disputed claim had to be read in the context of the entire patent, including the meaning and scope with which the relevant terms were used in the claims themselves and the patent specification. If the claim construction was not clear on the basis of the claim language and specification, the court should turn to the prosecution file to inform its construction of the claim. The prosecution file, which included the complete record of the proceedings before the US Patent and Trademark Office (USPTO) and any prior art cited during the examination of the patent, would help to inform the meaning of the claim language by demonstrating how the inventor and the USPTO understood the invention. 

The court was also free to examine extrinsic evidence concerning scientific principles, the meaning of technical terms and the state of the art. That extrinsic evidence included expert and inventor testimony, dictionaries and learned treatises. Extrinsic evidence was a secondary source, however, and might be less significant than the intrinsic record in determining the legally operative meaning of the claim language. Care should therefore be taken to ensure that it was consistent with the description of the invention as set out in the patent and prosecution file, and it could not be used to contradict a claim meaning that was unambiguous in light of the intrinsic evidence.

Here, the patent specification, which was the single best guide and primary basis for construing the relevant claim, was hard to interpret and contained some material which positively supported one side and some material which positively supported the other. The prosecution file was similar, containing statements which supported each side's case. The extrinsic evidence, although it was the least powerful source of evidence, firmly supported C's construction of the claim. So, the court determined that the product did not infringe a valid claim of the patent. No royalties were due for the product under the patent licence for product manufactured after January 2016.

Comment
This decision demonstrates the flexibility and ability of the English court as a forum to resolve multi-jurisdictional patent disputes, where a patent licence is governed by English law and there is an English exclusive jurisdiction clause, including as here where this involves the application of non-English law such as US rules of patent construction. The English court would not have had jurisdiction to invalidate the US patent, but it could and did decide whether the product infringed and so whether royalties were payable under the licence. 

The decision also includes an interesting summary of the US law on claim construction and prosecution history estoppel. 

Case: Chugai Pharmaceutical Co Ltd v UCB Pharma SA and Others [2018] EWHC 2264 (Pat).

Authors