Astex v AZ: second thoughts

Yesterday, IP Draughts reported on the English Court of Appeal decision of Astex Therapeutics Ltd v Astrazeneca AB [2018] EWCA Civ 2444.

Having reflected overnight, he is keen to understand what lay behind this litigation. He wonders whether there was a disconnect between the technical, drafting point that was decided in the case, and the commercial realities of the dispute.

Without speaking to the parties who drafted and negotiated the deal, this is inevitably an exercise in speculation. But several points jump out at IP Draughts from the case reports that merit further attention.

For once, IP Draughts appreciates the great detail of Arnold J’s judgment at first instance. Although he cannot claim to have read all of its 43,000 words, a skim-reading and some word-searching reveal some interesting background to the dispute.

The agreement

Unfortunately, IP Draughts has not been able to find the full agreement on the internet. He has done some searches on Edgar, the database of the US Securities and Exchange Commission, but the agreement does not seem to have been lodged there as a material contract by either of the parties (or their parents). Seeing the full agreement would be really helpful to understand the drafting issues in their full context, and to see whether he agrees with the interpretation decided upon by Arnold J and Floyd LJ, respectively. If anyone can find a copy for IP Draughts, he would be very grateful.

As part of the drafting process, IP Draughts would have expected the parties to think through what would happen if AZ developed a compound after the collaboration had come to an end, but drawing on the output of the collaboration, and draft specific terms (particularly financial terms) to address this possibility. But it seems that the agreement doesn’t include provisions of this kind, or the court reports would have referred to them.

It seems rather an indirect way of looking at this issue, as the court was forced to do, to look at the various definitions of Program, Collaboration Term, Lead Compound, etc, and work out from these whether post-collaboration developments by AZ could be subject to the terms of the agreement, including milestone payment obligations.

Why didn’t the parties consider and address this important issue during the negotiations? Did they simply not address their minds to the point? Or did one party think about it but not want to raise the point explicitly in negotiations, preferring to slip in some wording and hope the other party wouldn’t notice it?

Perhaps there was enought complexity in the agreement already, and no-one had the energy to think about and address hypotheticals that were not covered. IP Draughts was amused by the following extract from Arnold J’s judgment, reporting on the actions of one of the AZ scientists:

Mr Berg read the Agreement once, but found it very complicated. He focussed on the science, and left the Agreement to his Business Development colleagues.

Perhaps the agreement text was too complicated for any of the participating parties to understand fully, whatever their professional backgrounds. And perhaps there wasn’t enough inter-disciplinary discussion of its terms. IP Draughts is strongly of the view that preparing a good collaboration agreement involves lawyers, business development people, scientists and others (eg regulatory specialists, accountants) working closely together. As Arnold J noted about another witness in the case:

Dr Angst’s evidence was that he did not have the authority to authorise payments to third parties. But he was clear that the Legal department was not able to make its own assessment of the science, and he did not know whether Business Development and Legal attempted to consider the issue of CD1’s contractual status independently or whether they just adopted and implemented the RAMT’s recommendation to pay the milestone payment.

The decision to declare CD1 and CD2 as collaboration compounds

AZ decided to pay milestone payments to Astex on the basis that CD1 and CD2 were compounds that were “caught” by the terms of the agreement. Why did they do this and why did it take them so long to change their minds?

As noted above, it was an AZ committee, the RAMT (Research Area Management Team) that, in effect, took this decision. Reading Arnold J’s judgment, it seems that this decision may have been based on an assumption by a member of the RAMT, Dr Angst:

Dr Angst recalled having a disagreement in about 2007 with Dr Nordstedt in respect of whether Södertälje’s work on the BACE project was within the Agreement, which may have been as a result of the discussions considered in the preceding paragraphs. At that time, Dr Angst was the person on the LGT and the RAMT with the most detailed knowledge of the Astex collaboration. Dr Angst’s view was the BACE project was covered by the Agreement. His view prevailed, and Dr Nordstedt never brought the matter up at the RAMT.

postcard from Södertälje

At the CD1 nomination meeting of the RAMT in August 2010, or shortly before, Dr Angst recalled that a question was raised by a Södertälje scientist about whether CD1 was a Collaboration Compound. Dr Christer Köhler, who headed both the RAMT and the iMed Leadership Team, asked Dr Angst for his view. Dr Angst’s view was that CD1 was evolutionarily linked to Collaboration Compounds and therefore was itself a Collaboration Compound. Accordingly, he recommended payment of the $1m for Program Milestone 3.

If this was what led the RAMT to decide that AZ should make the payments to Astex, it is a rather flimsy basis for a significant commercial decision. But as noted above, Dr Angst was not ultimately the decision-maker on this issue.

It seems that a business development director, Dr Farmery, notified Astex that it would be paying the first milestone payment for CD1. He declined to be a witness in the proceedings. Was it his decision based on the RAMT’s recommendation? In fact, did anyone carefully scrutinise the agreement to see whether the payment was due? Reading between the lines, it looks as though no-one did, until much later.

AZ’s change of mind

It seems that in 2012, an AZ scientist queried (within AZ) whether CD2 was a collaboration compound and subject to the agreement. Her query was referred to a recently-appointed in-house solicitor, Conor Johnston, who investigated the matter and discussed it with other AZ staff. (IP Draughts doesn’t know Mr Johnston, but sees that they have 6 connections in common on LinkedIn. Small world.)

In 2014, AZ licensed the CD2 compound to Eli Lilly, who also queried whether any payments were due to Astex. If payments were due, Eli Lilly agreed to pay 50% of them.

In 2015, Mr Johnston notified Astex of AZ’s change of view, ie that CD2 was not subject to the agreement.

Reflections

Arnold J’s judgment reveals a long line of people at AZ who thought that CD1 and CD2 were subject to the agreement. It was only when a skilled in-house lawyer examined the issue in detail, and discussed it with relevant parties, that AZ’s official position changed. This new position was ultimately supported by the High Court and the Court of Appeal.

Why did those people take a different view? It seems to have been a mixture of:

  • making wrong assumptions about the scientific issues
  • obstinacy, having made a decision
  • being put off by the complexity of the agreement
  • the imperfections of decisions by committee and going along with someone else’s view, however ill-informed
  • not wanting to “rock the boat” or prejudice relations with outside collaborators
  • failure to consult lawyers until a very late stage
  • not wanting to take a final decision until prompted by the pressure of a new business partner not wanting to share the burden of the payments

IP Draughts is left feeling that the merits of the case were really about the extent of the scientific connection between the two compounds and the earlier work done in the Astex/AZ collaboration.

Yet when the issues came before the court, at first instance and on appeal, its decisions were taken partly on the basis of interpreting complex definitions and contract wording that had several inconsistencies as identified by the court.

It seems that the drafting of the collaboration agreement sometimes has to do the “heavy lifting” when a dispute reaches the court, and that drafting may not be up to the task.

IP Draughts takes some comfort from the fact that it was not only the contract drafting that was sub-optimal in this case. As revealed by the case reports, the work of the scientists, business development managers and others also left a lot to be desired.

 

 

 

 

 

 

 

 

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Filed under Contract drafting, Intellectual Property, Licensing

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