GW Pharma v Otsuka
| Jurisdiction | England & Wales |
| Judge | Lord Justice Birss,Lord Justice Baker,Lady Justice Thirlwall |
| Judgment Date | 08 November 2022 |
| Neutral Citation | [2022] EWCA Civ 1462 |
| Docket Number | Case No: CA-2022-001015 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 1462
Lady Justice Thirlwall
Lord Justice Baker
and
Lord Justice Birss
Case No: CA-2022-001015
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
PATENTS COURT
Mr Ian Karet sitting as a Deputy Judge of the High Court
HP-2021-000039
Royal Courts of Justice
Strand, London, WC2A 2LL
Ruth Byrne KC and Kabir Bhalla (instructed by King & Spalding International LLP) for the Appellants
James Segan KC and Ravi Mehta (instructed by Powell Gilbert LLP) for the Respondent
Hearing dates: 12 October 2022
Approved Judgment
This judgment was handed down remotely at 10.00am on 8 th November 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
This is an appeal from the 11 May 2022 order of Mr Ian Karet sitting in the Patents Court as a Deputy Judge of the High Court. The order dismissed the application of the defendants made under CPR Part 11 contesting the court's jurisdiction and seeking a stay of proceedings. In giving permission to appeal Arnold LJ noted that grounds 1–3 raised important issues as to the jurisdiction of the court to determine the validity of foreign patents, relating to the Moçambique principle, derived from British South Africa Co v Companhia de Moçambique [1893] AC 602 and the foreign act of state doctrine.
Background
The claimant (“Otsuka”) is a Japanese pharmaceutical company. The defendants (“GW Pharma”) are UK based R&D companies whose work is focussed on possible pharmaceutical applications of compounds derived from cannabis. There is no need to distinguish between the two defendants. In 2007 the parties entered into a Research Collaboration and Licence Agreement. Essentially the parties agreed to collaborate in the research and development of different cannabinoids as potential drug candidates for the treatment of nervous system disorders and cancer. Both parties had the option of obtaining ownership of a candidate and developing it further afterwards. The party who chose to do so would then pay the other one royalties on net sales of any product covered by patents arising from the collaboration.
The agreement is governed by New York law. It does not contain a jurisdiction clause. There is an arbitration clause (clause 15.2) under which the arbitration would proceed in London if Otsuka initiated the dispute, or in New York if GW Pharma initiated the dispute. There is a carve out from the arbitration clause, excluding issues of “patent scope, validity or infringement”.
The collaboration ran from 2007 until 2013. Much of it took place in the UK, including at Reading University. At the end of the research period Otsuka elected not to pursue clinical development of any candidate product.
In June 2018 GW Pharma or their affiliates started obtaining marketing authorisations for a product known as Epidiolex or Epidyolex (depending on the country). Epidiolex is indicated for the treatment of seizures associated with various conditions or epileptic syndromes. The active ingredient in Epidiolex is the cannabis derivative cannabidiol. First marketing was in the USA, where the bulk of the sales have been so far. Marketing authorisations have now been granted in other places, including the UK, Australia, Switzerland and Israel. Worldwide sales so far have exceeded $1.4 billion. The product is manufactured in the UK.
Otsuka contends that Epidiolex is a product of the research collaboration and is subject to the agreement, so that substantial royalties are due from GW Pharma. In terms of the agreement, Otsuka's case therefore has two aspects. First Epidiolex is a “GW Pharma Product” as that term is defined in the agreement for a product of the collaboration which GW Pharma choose to develop and sell. Second Epidiolex is “Covered” by a “Valid Claim” of the relevant patents, both of which are again defined terms.
A “Valid Claim” means essentially a claim which is in force and has not been held to be revoked or invalid by a competent court or government agency, and “Covered” means essentially that an act of commercialisation such as manufacture or use of the product would infringe that claim but for a licence. It is not necessary to decide precisely what these terms mean in this appeal, but it is worth noting that these sorts of definitions are fairly common in international patent licences. They are similar to the terms of the licence in the judgment of Henry Carr J in Chugai Pharmaceutical Co. v UCB Pharma SA [2017] EWHC 1216 (Pat) which, at paragraph 39, the judge noted were in turn similar to the licence in Celltech v Medimmune [2004] EWCA Civ 1331. In Celltech Jacob LJ had held that the clause meant that royalties will be payable if the product does fall within the scope of the relevant claims regardless of its validity unless and until the patent is finally declared invalid; and as Jacob LJ also explained (at paragraph 13):
“To those unfamiliar with the world of patents this might sound irrational – why should royalties be payable (and apparently be unrecoverable) for a licence under a patent claim ultimately held invalid? There is a rational answer to this. Everyone knows that patent law can, at least at its edges, be uncertain – and that different results can arise in parallel litigation in different countries. By taking such a licence MedImmune have achieved a number of clear desirable commercial objectives: (1) they know they are free to develop and market products irrespective of the question of validity; (2) they are free so to do across the globe; and (3) their competitors may have to face litigation from Celltech in a variety of jurisdictions whereas they, MedImmune, stand in the shelter of the patents, valid or invalid. It is not irrational that they should pay for such benefits.”
GW Pharma do not agree that royalties are due. They contend, amongst other things, that Epidiolex is not subject to the agreement at all because it is not a GW Pharma Product since it was developed independently, nor is it Covered by a Valid Claim of any of the relevant patents. As to the latter, GW Pharma contend that the relevant patent claims do not cover Epidiolex as a matter of claim construction and that the claims would be invalid if they were construed to cover Epidiolex. The second of these arguments is known as a squeeze. Finally GW Pharma also argue that certain claims of the relevant US patent (US 9,066,920 (“US 920”)) are invalid in any event.
Before going further it is worth putting some of these arguments in context. If the interpretation of “Valid Claim” which is explained above applies in the present case then it has no impact on GW Pharma's arguments that the claims ought not to cover Epidiolex as a matter of construction nor on the squeeze arguments. However it would mean that there is no point in raising the final argument, which is a simple contention that the patent is invalid in any event. The point Jacob LJ was making in Celltech is that such an argument would not provide a defence to a contract claim and, if that really was the argument a licensee wished to rely on, they would need to go to the relevant national court and apply to revoke the patent. Once the national courts had finally ruled the patent was invalid then there would no longer be a Valid Claim, but not before that.
However in this case GW Pharma seek to rely on a decision of the US Supreme Court called ( Lear v Adkins Lear 395 US 653 (1969)). As I understand it GW Pharma seek to deploy Lear at least in part as an antidote to a prospective argument from Otsuka based on Celltech that the definition of Valid Claim means that invalidity is not a defence to the contractual claim for royalties, especially given that the licensee can always go to the relevant local court and revoke the patent. Lear concerns the question whether under US law a licensee in a contract claim brought against them for royalties can defend the claim on the basis that the US patent is invalid. Thus if GW Pharma are right about Lear and its application in this case (given that the agreement is governed by New York law), it may mean that they would wish to bring a direct challenge to validity as part of their contract defence to the claim. I emphasise that it is not necessary to decide any of these points on Lear or the true construction of the licence, but for reasons I will explain below, it is worth illuminating the issues.
There were negotiations that commenced in May 2019 but they did not resolve the dispute. In June 2021, Otsuka commenced an arbitration in London claiming royalties. In August GW Pharma challenged the jurisdiction of the arbitration to determine issues within the carve out relating to patents. Accordingly Otsuka commenced proceedings in the Patents Court, with the claim form issued on 29 October 2021. The proceedings claim declarations that royalties are due under the agreement because the product is a GW Pharma Product and is covered by the relevant patents. The relevant patents are in the USA, UK, Germany, Switzerland, Australia and Israel. They consist of two families, including US 920, EP (UK) 2 448 637 and EP (UK) 2 661 263 (as well as the German and Swiss designation of the same EPs).
Proceedings were served within the jurisdiction, since the GW Pharma companies are UK companies (based in Cambridge). The acknowledgement of service indicating that GW Pharma would contest jurisdiction was served on 12 November 2021.
On 7 January 2022 GW Pharma commenced proceedings in the New York State Court. In the US Complaint GW Pharma contend that...
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