4 January 2018

“We love London!”: Big pharma choose English law and Courts to resolve foreign dispute

Earlier in 2017, an eminent US Mid-West IP lawyer explained to me why he considered the English Courts (whether part of the UPC or not) were in a strong position to deal with global disputes (and IP particularly). First, we have specialist IP judges. Second, because a considerable number of IP contracts had exclusive English law and jurisdiction clauses. His point was that this gave clients a degree of certainty about the speed and quality of judgments. In the modern commercial world, waiting for 2 or more years for trial let alone judgment is not acceptable, and could potentially irreparably harm a business.

It was no surprise to me, then, that the decision in Teva Pharma-Produtos Farmaceuticos Lda v Astrazeneca-Produtos Farmaceuticos Lda [2017] EWCA Civ 2135 (handed down on 21st December 2017) continued this growing trend of multi-nationals choosing to litigate in English Courts, and in relation both to foreign and English law contracts. It followed on from the decision in Merck KGaA v Merck Sharp & Dohme Corp [2017] EWCA Civ 1834, and was emulated in a decision handed down the same day as the Teva decision in The Black & Decker Corporation v Dvize bv [2017] EWHC 3387 (Pat) (in which I and the team at Venner Shipley acted). In these cases, issues of German contract law construction, and that of Maryland law, were considered.

 “Westminster Abbey, the Tower Big Ben, the rosy red cheeks of the little children….”

In Teva, the appellant was the Portuguese company in the Teva Group, and the first and second respondents were the Portuguese arm of the AstraZeneca Group (and licensee), and the Japanese proprietor of the patent in issue (EP0521471 – the ‘Patent’ – which related to rosuvastatin an inhibitor of cholesterol production). The Patent expired on 30 June 2012. However, AstraZeneca eventually obtained in November 2013, a SPC which was to expire on 3 July 2017.

In January 2012, Teva obtained marketing authorisation from the Portuguese authority, Infarmed, for their generic rosuvastatin product. AstraZeneca commenced proceedings in the Portuguese Administrative Court against Infarmed (including Teva) on 31 July 2012. By the end of January 2013, AstraZeneca considered Teva would launch their generic product imminently, and sought a preliminary injunction under the SPC. Teva launched their product in Portugal on 1 February 2013. Following correspondence between the parties, a Settlement Agreement dated 25 February 2013 was entered into in which Teva and their affiliates were entitled to use, sell, market, distribute etc., the generic product in Portugal from 3 July 2017 onwards.

However, to complicate matters further, AstraZeneca sought a further extension of the SPC by way of a Paediatric Extension (‘PE’). PEs are designed to address the concern that pharmaceutical products used to treat children were not appropriately authorised. They provide for an extension of six months to the term of an SPC, provided certain conditions are met.

An application for a PE must be filed no later than two years before the expiry of the SPC on which it is based. At the time of the Settlement Agreement, certain details needed for the PE were public, but it was uncertain whether it would be completed in time to meet the deadline for a PE. Eventually, a PE was granted which extended the term of the SPC to 29 December 2017.

Relying on the PE, on 28 April 2017 AstraZeneca commenced proceedings against Teva in Portugal, seeking to prevent Teva from selling their generic product before 29 December 2017.

As a result, Teva commenced the English proceedings against AstraZeneca, seeking expedited relief based on the Settlement Agreement and that they were entitled, irrespective of the PE, to sell product in Portugal after 3 July 2017.

“No hitting below the belt”

The key terms of the Settlement Agreement were:

Recitals (vi) and (vii) which stated:

“(vi) Given the existence of the Patent the Parties wish to avoid the costs, risks, expenses and time which would be associated with any disputes relating to the said Patent, including the Proceedings, and wish to enter into a negotiated and consensual agreement terminating and/or preventing such disputes.

(vii) Accordingly, the Parties have agreed to resolve/prevent such disputes between them on and subject to the terms set out below.”

Clause 2.6, being a general release in the following terms:

“2.6. Subject to clause 2.1 (d) and (h), as of the Effective Date, Patentee irrevocably releases and forever discharges Teva and its customers in relation to any claims, rights, demands or damages arising from the use, importation, storage, offer for sale, sale, marketing, distribution of the Teva Product in or for Portugal other than in breach of this Agreement.”

There was also clause 2.7 which contained an undertaking by Teva not to sell etc. their generic product before various dates, the most important of which was 3 July 2017.

Teva’s argument was that the general release related to any claims. AstraZeneca’s construction was that there was a restriction in the Settlement Agreement, which would include the basic patent and the SPC, but not the PE. Accordingly, they could still rely on the PE. The judge agreed that the underlying subject matter of the Settlement Agreement was to be considered. If not, Teva would be given a ‘windfall’ since they had obtained a marketing authorisation, and would be able to sell, despite the PE, and compete with AstraZeneca. Teva therefore failed on the basis the general release did not include claims relating to the PE. Teva appealed the decision.

“London calling”

Teva made three arguments as to why the judge fell into error:

  1. He lost sight of the principle that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language;
  2. His approach ignored that the purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed;
  3. Previous cases of general release clauses considered the object of interpretation was that the release should extend to any claims which might later come to light, as the parties wanted to achieve finality. The mere fact that the parties were unaware of the particular claim was not a reason for excluding it from the scope of the release. The risk that further claims might later emerge was a risk the person giving the release took upon himself.

It mattered not that at the date of the Settlement Agreement the PE had not actually been achieved, since it was known to the parties it could be, and the judge was wrong to ignore this.  AstraZeneca’s argument was the judge’s interpretation was correct.

The Court of Appeal concluded Teva were correct. They pointed out the judge acknowledged that the PE extended the SPC, and was not any separate right. Therefore, as the general release specifically covered the SPC, it also covered the PE. Accordingly, Teva could sell its generic product after 3 July and it was not a breach of the Settlement Agreement. The effect of this is also that AstraZeneca were wrong to bring the latest Portuguese proceedings.

View from the London Eye

As all IP lawyers know, hindsight is to be avoided particularly when considering novelty and obviousness. Commercial IP lawyers should also resist the temptation of using knowledge learned at a later date when considering what an agreement’s terms were intended to cover and the effect on the parties.

To some extent not only do we have to be lawyers, we have to be astrologists too, and gaze into that legal crystal ball to predict the future. Well, maybe not; there are certain limits on our collective talents after all. But at least English law and Courts give greater predictability than most. It is, therefore, why businesses love London!