Where a patent licence covers more than one country the royalty clause may provide for royalties to be paid for each country according to whether the licensed product would infringe the licensed patent(s) in that country. This reflects the fact that patents may expire at different times in different countries and also that the granted claims may vary from country to country. The rules on infringement and construction may differ too. A potential disadvantage of such clauses is that, even where an exclusive English jurisdiction and governing law clause has been included in the licence, the question of infringement needs to be determined under the law of the relevant country. This can lead to complex litigation if a dispute arises, as the English court may need to take expert evidence on the law of a foreign country relating to infringement.
The case of Chugai v UCB
The recent English High Court case of Chugai Pharmaceutical v UCB Pharma concerned a licence granted to Chugai for its highly successful anti-arthritis drug tocilizumab (US brand name Actemra). The licence provided that royalties were payable if the product would infringe in the relevant country, and it contained an exclusive English jurisdiction and law clause. Chugai applied to the English Court for a declaration that it was not obliged to pay royalties to UCB, arguing that Actemra did not infringe UCB’s US patent (771). As Judge Birss commented, the issue was of ‘some commercial significance’ in view of the high sales of the product and the fact that the patent lasted until 2026.
The English High Court took expert evidence from two US experts on the question of construction of patent claims in US law, the key question on infringement being whether Actemra fell within Claim 2 of the patent. The Court considered US principles of construction including, among other things, US rules about ‘intrinsic’ and ‘extrinsic’ evidence, ambiguity and the prosecution history. After a detailed analysis, Birss concluded that Actemra did not infringe Claim 2 as properly construed under US law so that no royalties were due under the licence, a win for Chugai.
Could the English Court consider the validity of the US patent?
An issue which has occasioned much comment in relation to this case is that the English court was willing to consider issues of validity of the US patent as part of its consideration of US claim construction. UCB argued that the English Court had no power to determine the validity of a foreign patent so that those parts of Chugai’s pleading which raised issues of validity should be struck out. Part of the background to this was that, applying an invalidity/infringement squeeze, Chugai had argued that US rules on ambiguity would favour a construction which upheld the validity of the patent, resulting in a narrow construction on which Actemra did not infringe. This argument (among others) introduced validity issues even though Chugai was not arguing that the patent was invalid. In a preliminary ruling in the High Court Judge Carr held that considerations about validity could be taken into account in resolving the question of claim scope under US law.
The key point here is that, although as a general rule the English court will not decide on the validity of a foreign patent, it is willing to take validity issues into account where these are incidental to the contractual issues – i.e. in this case whether a royalty was payable.
The case is a good reminder that where intellectual property is concerned the inclusion of an exclusive English jurisdiction and law clause does not necessarily mean that English law will apply to all aspects. Where practicable, and perhaps particularly in less high value cases, those negotiating royalty clauses may prefer a simpler mechanism, for example one which focuses on a definition of the licensed products or includes a provision for payment of royalties for a certain number of years of commercial sale in any given territory. In some cases, if royalties are payable according to whether the product is within the scope of the claims a contractual mechanism may be adopted for determining the scope. Provision may also be made for the payment of royalties where part of the manufacture/supply/sale of products takes place in a country where there is no patent or for continued payment of royalties in respect of know how where there are no more patents in force. Another potential option is to include a non-exclusive jurisdiction clause allowing for the possibility of proceedings being brought elsewhere.
Case: Chugai Pharmaceuticals Co. Ltd v UCB & Celltech  EWHC 24.08.2018/ Chugai Pharmaceuticals Co. Ltd v UCB Pharma S.A. and Celltech R&D Ltd  EWHC 1216 26.05.2017