The UK life sciences industry continues to grow and, despite Brexit looming, is still receiving a high level of investment and collaboration. Often this leads to deals between UK and US entities. The recent case of Chugai Pharmaceutical v UCB & Celltech demonstrates the importance of clear drafting and the cross-border nature of pharma licences.

The case concerned a worldwide licence granted by UCB to Chugai that covered a portfolio of patents relating to products known as tocililzumab, an immunosuppressive drug used in the treatment of rheumatoid arthritis. Since 12 January 2016 the only patent still in force to which the licence applied was US patent 7,566,771 (771). Under the licence for any given territory, Chugai was required to pay royalties in relation to the sale of tocilizumab as follows: ‘Royalties shall be payable upon Net Sales in countries where, but for the licence granted by UCB to CHUGAI pursuant to Article 2, CHUGAI or a Permitted Sublicensee would infringe a Valid Claim of the relevant patent…’

Chugai sought a declaration that it was not required to continue to pay royalties to UCB under the licence, since tocilizumab did not fall within the claims of the 771 patent. UCB disagreed and, since English law governs the licence agreement and it has an exclusive jurisdiction clause in favour of the English courts, it fell to the English court to decide whether tocilizumab infringed the claims of the 771 patent.

It was common ground that the question of infringement had to be determined under US law. In the US addressing claim construction requires consideration of both intrinsic evidence (ie the terms used in the claims themselves, the specification and the prosecution file) and the extrinsic evidence found outside the patent documentation (eg expert and inventor testimony, dictionaries and learned treatises), with intrinsic evidence afforded greater weight. Under US law, if a claim remains ambiguous after considering both the intrinsic and the extrinsic evidence then it should be construed in a way which preserves its validity (the so called ‘validity tie breaker’). The judge applied the US law on construction and found that, although the intrinsic evidence included material that supported each party’s case, the extrinsic evidence firmly supported Chugai’s case. On that basis, the judge concluded that tocilizumab does not fall within the 771 patent and Chugai was not required to pay royalties to UCB in relation to a tocilizumab product manufactured after 13 January 2016. The judge did not find it necessary to apply the validity tie-breaker, but had it been applied, it would have played in Chugai’s favour since there was a piece of US prior art that would have rendered the patent invalid on UCB’s construction.

The Chugai case shows the willingness of the English courts to consider the scope of a non-UK patent in order to give effect to a licence agreement that grants the English court jurisdiction. Although the English court would not have had jurisdiction to invalidate the US patent, it did have jurisdiction to consider the scope of the licensed US patent and if royalties were payable under the licence. The case also serves as a useful reminder of the importance of carefully considering the drafting of the royalty clause. In particular the scope of definitions used within it and their consequences for the royalties payable.