In the previous posting on this blog, IP Draughts considered the different approaches of two Commercial Court judges (one current, the other now in the Court of Appeal) to the interpretation of a patent settlement agreement. For some reason, the parties had originally chosen to bring the case of Teva v AstraZeneca in the Commercial Court rather than the Chancery Division, where patent-related cases are usually heard.
The CA judgment spent many pages considering the approach taken in Arnold v Britton and other leading cases on how to interpret a contract. And yet the point at issue was simple: where a settlement agreement includes a definition of Patent that identifies (by number) a patent and an associated SPC, does this definition also cover a Paediatric Extension of that SPC? The Commercial Court said no, the Court of Appeal said yes.
On the same day as Teva was reported, another Court of Appeal case was reported, again on the interpretation of IP terms in a contract. The case was Kason Kek-Gardner Ltd v Process Components Ltd  EWCA Civ 2132.
(By the way, both the Teva and Kason Kek-Gardner cases involved advocacy from Ian Mill QC. He wins IP Draughts’ award of barrister of the month for cases on the interpretation of IP agreements.)
In Kason Kek-Gardner, the case had originally been heard in the Chancery Division by a judge who hears some IP cases (or did, until she retired last Autumn). IP Draughts commented on the first instance decision when it was published. The panel in the Court of Appeal was an exceptionally strong trio of commercial and patent judges, namely Lewison, Kitchin and Floyd LJJ. Lewison LJ gave the only judgement, and the other two simply agreed with him.
IP Draughts has to confess that he is a fan of Lewison LJ, and has been disappointed that he (Lewison) has not been allocated more often to contract-related cases in the Court of Appeal. He is the author of an excellent book, Interpretation of Contracts, that IP Draughts first stumbled across in the Bristows law library over 25 years ago. The latest edition and supplement can be found here.
Kim Lewison QC practised as a barrister mainly on commercial property cases, before becoming a Chancery judge. Though he had no prior involvement with patent cases, he became experienced and skilled at dealing with them during his time as a first-instance judge. Kitchin and Floyd LJJ were leading patent barristers before becoming highly-regarded patent judges.
So, how does Lewison LJ approach the interpretation of some badly-drafted and confusing IP terms in two sale of business agreements? His approach has several, distinct features:
- Citing case law. He doesn’t waste time quoting at length from Arnold v Britton and its companion cases on the general approach for interpreting contracts. He confines himself to mentioning the most recent in the line of Supreme Court cases on this subject, Wood v Capita Insurance Services Ltd  UKSC 24. In relation to that case, he simply says: “The correct approach to the interpretation of contracts has been most recently discussed by the Supreme Court in Wood v Capita Insurance Services Ltd. I will not attempt to summarise or paraphrase it. As Lord Hodge said at  the legal profession has sufficient judicial statements of this nature.” Brilliant! If only more judges could take this approach, rather than reciting at length from what is now well-known law.
- Criticism. He doesn’t pull his punches. His assessment of the judge’s reasoning is withering: “Mr Mill was, I regret to say, justified in many of his criticisms of the judge’s reasoning process. However, despite Mr Mill’s forceful submissions to the contrary, on the points that matter I consider that she reached the correct answers, even if my route to those answers is not the same as hers. In short, she was entitled to make the order that she did; and appeals are against orders, not against reasons. I would dismiss the appeal.”
- Forensic analysis. Numerous legal principles were raised in argument, from whether extrinsic evidence is admissible when interpreting a contract, to whether a right of termination for disclosure of confidential information is an “innominate term”, ie neither a condition nor a warranty. Lewison LJ disposes of these and other arguments in a clear-headed, concise way.
One of the issues before the court concerned a clause in a licence agreement that allowed the licensor to terminate the licence if the licensee disclosed the terms of the agreement to a third party. Lewison LJ decided that it was not appropriate to imply a term, as counsel had proposed, allowing disclosure of the terms “for reasonable business purposes”, including disclosure to a would-be purchaser of the licensee’s business. As Lewison LJ pointed out, an implied term of this kind would allow disclosure to a potential competitor. He concluded that no such term should be implied and the right of termination was enforceable.
As IP Draughts commented in his article on the first instance decision, a prospective purchaser of a business will typically want to see all material contracts, and may get restricted access to them in a data room. Those contracts will sometimes include restrictions on disclosure of their terms, with typically no express exception allowing disclosure to a prospective purchaser of the business. Despite such restrictions, it is not unheard of (to put it mildly) for all contracts to be put in the data room. This case confirms, now at Court of Appeal level, that confidentiality obligations mean what they say, and there is no permitted, but unstated, exception based on custom and practice in the M&A sector.
Which type of judge is better at interpreting IP agreements?
In the print-outs of the BAILII versions of the judgments, Lewison LJ takes 14 pages to deal with a large number of points of interpretation in relation to 3 agreements. Flaux LJ in the Teva case takes 15 pages to deal mainly with one issue in one agreement – whether to imply a term that SPC includes a Paediatric Extension to the SPC. IP Draughts has no objection to decision in the latter judgment, just its length. Judging from these two cases, in IP Draughts’ view…
Patent judges do it better!