31 May 2017

Patents, validity and worldwide licensing: Which court would you choose?

Those of you who are involved in exploitation of intellectual property rights (IPRs) will recognise the potential dilemma when an agreement is subject to one country’s laws and jurisdiction in the event of there being a dispute, but there are patents or patent families located in a multitude of jurisdictions: The problem being when validity of one of the patents is in issue yet has a potential impact the way the agreement is to be considered.

Validity is the preserve the country which granted the patent. Only that country and the laws applicable in that country should therefore decide whether a patent is valid. What, then, should happen when a patent licence agreement is subject to the exclusive jurisdiction of the English court and subject to English law, but the licence royalty is dependent upon whether the licensee’s product falls within a valid claim of a foreign patent?

In Chugai Pharmaceutical v UCB Pharma [2017] EWHC 1216 (Pat) Mr Justice Carr was faced with a request by Chugai to make a declaration that their tocilizumab product (used for treating rheumatoid arthritis) did not fall within the scope of a US Patent, and accordingly no royalties for the manufacture or sale of products was due and owing. UCB responded by submitting that this was not justiciable in an English court as there was no power to determine the validity of a foreign patent. Accordingly, UCB applied to strike out Chugai’s action.

The Mocambique principle

As in many patent license, a licensee will only pay a royalty in the event that their product would infringe a “Valid Claim” which means that the patent has not been held invalid or unenforceable by a court having jurisdiction over it. In the case of a US patent, that would mean a district court in any of the 50 US states. However, following a decision in 1893 (known as the Mocambique principle or rule) an English court cannot determine a dispute if it would infringe the territorial limits of a foreign court’s jurisdictional powers and constitute an ‘affront to comity’ (in other words if you respect our position, we’ll respect yours’). This principle therefore prevents an English court from determining issues that relate to the sovereign acts of a foreign state (including the validity of patent).

There have been a number of cases involving intellectual property in which the extent of the English court’s jurisdiction has been considered. In one case, involving a German patent, the only issue was whether a defendant had infringed a valid claim of that German patent. The English court considered that it would be artificial to split the issue of validity and infringement, and so this issue must be decided by the German court. The English court therefore declined to act in the case. In a subsequent decision (decided by the same judge) it was held that because the matter concerned a European patent designated UK (as well as France, Spain and Italy), and the defendant undertook not to challenge the validity of the patent, a declaration of non-infringement could be decided by an English court.

Mr Justice Carr also looked at the decisions in cases of other intellectual property rights, namely, copyright, and the decision of the Supreme Court in the Lucasfilms case. There, the English courts did not recognise a US multi-million dollar damages claim for copyright infringement in the sale to the US of a small number of replica Star Wars storm-trooper helmets, and so the claimant sought to enforce their US copyright in UK proceedings. The Supreme Court held that the English court did not have jurisdiction under the Mocambique principle.

Exclusive jurisidiction clauses

The judge also took into consideration the fact that the parties had specifically agreed to submit to the exclusive jurisdiction of the English courts, and that the agreement was to be construed in accordance with English law. In assessing the impact of this point, he had regard to an earlier decision of Lord Justice Jacob, in which the latter had to consider the same definition of “Valid Claim” as that facing Mr Justice Carr. In the case decided by Jacob LJ, he pointed out there were two meanings for the word “infringes”: falling within the scope of protection assuming the patent is valid or falling within the scope of a valid patent. Only in the latter case is the making or selling of a product wrongful. As in the case before Mr Justice Carr, the issue with the licence was whether royalties would be paid on a product which “would infringe a Valid Claim”. Accordingly, the judge had to consider whether the scope of Chugai’s pleading was such as to put validity in issue (in which case the English court could not have jurisdiction) or what Chugai was seeking did not challenge the validity of the US patent, and that the court was only asked to provide guidance on the patent claim in order to determine whether Chugai’s product would infringe and so a royalty would be payable under the agreement. He decided on the latter.

The judge also pointed out that the agreement of the parties to submit to the exclusive jurisdiction of the English court had in itself to be given some meaning, and that the parties had or seen the possible consequences what was now before the court. It therefore made sense for the English court to consider only whether Chugai’s product fell within the scope of the claims US patent, since to go beyond that would fall foul of the Mocambique principle.

In approaching the case in this way, it was accepted by the judge (and indeed as has been the case before) that expert evidence of US law and claim construction would be required in order to be able to understand whether the scope of the claims of the US patent would cover Chugai’s product.

The significance of English Court exclusivity

In case the reader is unaware, Chugai Pharmaceutical is a Japanese corporation and UCB is a Belgian company. Both do, however, have subsidiaries or branches within the UK. Nevertheless, it is interesting to note that two large pharmaceutical corporations chose to have their licence subject to the exclusive jurisdiction and law of the English courts. Certainly, in relation to intellectual property matters, particularly patents, the English High Court/Patent Court is highly regarded and justifiably so. By choosing to have intellectual property disputes dealt with exclusively under English law and by English judges, foreign corporations are giving their seal of approval to our judicial institution.

What this decision has done is endorse the parties’ freedom to choose the jurisdiction and law they consider is best suited for their situation and the global world of patents and licensing. Moreover, it makes enormous commercial sense to have one jurisdiction, with a mature and highly regarded understanding of intellectual property matters, to decide how an agreement should be construed, and to deal sensibly with the law of a foreign jurisdiction when it comes to claim construction and interpretation of whether a product does or does not fall within the scope of a foreign patent claim. The approach the English court has taken is to give effect to that freedom of choice of the parties, whilst preserving the foreign jurisdiction’s right to deal with a patent’s validity.

If the judge had not given effect to the parties’ wishes (although admittedly, UCB sought to challenge the jurisdiction of the court, but only on the basis that they felt validity was being put in issue by the back door) it would have meant that for each patent that was part of the licence agreement, the parties would have had to litigate in each jurisdiction in order to find out whether Chugai’s product fell within the claims of those patents. That would have been good news for the IP lawyers in those jurisdictions, but not such good news for the paying client!

Perhaps by endorsing the English legal system in this way (at least in relation to patent matters) these two multinational pharmaceutical companies have shown us what we should be promoting post-Brexit: our judicial expertise. It would, at least, provide some support for the UK government’s desire to ditch the Court of Justice of the European Union, and not have their decisions overriding those of our own judiciary. Only time, as they say, will tell.