Dispute between licensees: who can sue and where?

The case of Ablynx NV & Anor v VHsquared Ltd & Ors [2019] EWCA Civ 2192 was published this week. It is a decision of the English Court of Appeal, and concerns a dispute over patent infringement between licensees of some university patents. The licensing aspects should be of interest to readers of this blog, but the facts and legal issues are a little complicated.

With some simplification, those facts are:

1. The invention relates to immunoglobulins derived from camelid (camel family) antibodies. The Free University of Brussels (VUB) is the patent owner. The patents expired in 2013.
2. In 1997, VUB granted a licence under these patents to Unilever NH (Unilever). The licence was exclusive in certain fields (defined as the Reserved Sector) including “packed food products”. It was non-exclusive in certain other fields.
3. The licence agreement is subject to Belgian law and jurisdiction. But disputes over the definition of the Reserved Sector and the scope of the patents are to be decided by arbitration under the Rules of the International Chamber of Commerce.
4. In 1998, VUB granted a licence under the patents to the Flanders Institute of Biotechnology (VIB). (Disclosure: many years ago, IP Draughts advised VIB, but not on this matter, as far as he can recall.)
5. The licence to VIB was in all fields other than the Reserved Sector (using the same definition as in the Unilever licence).
6. In 2001, VIB exclusively sub-licensed the patents to Ablynx. The field of the licence included products for diagnosing, preventing or treating disease in humans.
7. The judge notes that the parties to the litigation agreed that Ablynx’s sub-licence could not be broader than the head licence, and therefore excluded the Reserved Sector. In the Ablynx sub-licence, Ablynx acknowledges that it has received a copy of the Unilever licence agreement.
8. In 2005, Unilever novated the Unilever licence agreement to BAC, a Unilever group company. In the novation agreement (between VUB, Unilever and BAC), BAC granted a non-exclusive licence under the patents back to Unilever in the Reserved Sector.
9. The novation agreement is made under Belgian law and subject to the non-exclusive jurisdiction of the Belgian courts.
10. In 2010, Unilever granted VHsquared Limited (VH) a sub-licence under the patents in the Reserved Sector.

Pausing there, VH has a non-exclusive licence in the Reserved Sector including packed foods. Ablynx has an exclusive licence for certain medical uses that must fall outside the Reserved Sector.

So far, so good. Medicinal products and food products are completely different, aren’t they, so why would the licensees ever get into dispute? Well, maybe it’s not quite that simple.

The English Court of Appeal judgment notes that there have already been two rounds of litigation between the parties in the Netherlands. VH had argued that it was licensed to produce packaged foods, and these could include “functional foods” containing rotavirus antibodies. Meanwhile, Unilever had conducted research in Bangladesh and India into the use of antibodies directed against rotavirus in children. In the words of the UK National Health Service website:

Rotavirus is a highly infectious stomach bug that typically strikes babies and young children, causing an unpleasant bout of diarrhoea, sometimes with vomiting, tummy ache and fever.

In the English appeal, Ablynx narrowed their argument on the definition of Reserved Sector. They contended that the patents (and their rights as exclusive licensee) would be infringed by “products with a therapeutic or prophylactice effect with regard to specific pathogens, whatever the nature of those products.”

In IP Draughts’ words, they were arguing that they were licensed to food products containing antibodies for the prevention or treatment of ailments.

The Dutch court rejected VH’s argument that they were licensed to any kind of foodstuff. The Dutch court grappled with how to distinguish between foods and medicines. Ultimately, it was forced to go beyond the wording of the contract and determine the “common intent of the parties”. Oversimplifying, Unilever could have functional foods for general health promoting effects, but not products for curing ailments caused by pathogens. Unilever had gone over the line by researching foodstuffs to prevent or cure an ailment caused by a pathogen.

In passing, “the common intent of the parties” is a Belgian and more generally, civil law concept. A different method of interpretation would be applied to an English law contract, and might result in a different outcome.

In IP Draughts’ mind, the English court’s summary of the Dutch court’s judgment sounds a bit like the difference between the products you can buy in a health food store that are careful not to claim a physiological effect, and pharmaceutical drugs that generally require a licence.

In September 2018, Ablynx (drug licensee) started the present legal proceedings in the English High Court, alleging infringement by VH (food licensee). In the UK, an exclusive licensee can sue for infringement.

In January 2019, VH issued an application to contest the jurisdiction of the English courts, on the basis that the Unilever licence agreement provided for exclusive jurisdiction of the Belgian courts.

In March 2019, VH issued proceedings in the Brussels Enterprise Court. In those proceedings, it raised the issue of whether VH’s and Unilever’s activities are within the scope of the Unilever licence. The validity of the patents is not in issue in the Brussels court proceedings.

So, the issue before the English Court of Appeal is whether to postpone further consideration of the case until the Brussels court has reached a decision.

At this point, the English Court of Appeal’s judgment becomes highly technical, and of more interest to international patent litigators than to simple transactional lawyers such as IP Draughts. At one point, the judgment focuses on a short phrase in a witness statement by VH’s solicitor, the highly experienced Ian Karet of Linklaters, where he mentions “invalidity of the patents in suit”. Much is made of this phrase in the litigation. It is held against him by Ablynx, for reasons that need not concern us here.

The Court of Appeal discusses the effect of the EU Recast Regulation, which was designed to fix the problem of the “Italian torpedo” (starting a patent action in Italy in the expectation that it would take years to resolve, and meanwhile no actions could be brought in other European jurisdictions).

These and other technical points take up pages of the Court of Appeal’s judgment.

IP Draughts will draw a veil over these unseemly issues, which he wishes to remain blissfully ignorant of. He will jump to the conclusion, which in the words of Lewison LJ is:

Accordingly, in my judgment article 31 (2) requires this court to stay “the proceedings.” I take that to mean the whole of the proceedings. Since the scope of the licence is an integral part of the action as whole, it makes sense in case management terms to stay the whole of the action until such time as the Belgian court (a) decides whether it has jurisdiction and (b) if it decides that it has, rules on the scope of the licence.

Result

I would allow the appeal; and stay the action until the Belgian court has made its ruling.

In other words, VH is successful in its application to stay the English proceedings until the Belgian court has made its decision.

The issue that interests IP Draughts is the scope of the two licence agreements. It is not the first time he has come across disputes between two licensees of a patent, where one is claiming that the other’s activities are infringing its rights. Sometimes, the issue is that the drafter has been careless in defining the field of each licence, such that there is an overlap. The overlap may not be obvious at the time the licence agreements are signed, but future product developments create an unanticipated problem.

Here, the situation is slightly different, in that the drafting of the VIB/Ablynx licence clearly excludes the Reserved Sector. In theory, there can be no conflict. The circles in the Venn diagram don’t overlap. Usually, if this is achieved, IP Draughts is content that his licence agreements are sound and well drafted, at least on the field issue.

So, if the product in question is a food, VH is licensed and does not infringe Ablynx’s exclusive rights. Despite this, so far the Dutch court has interpreted “packed food products” as excluding drugs delivered in the form of food, and the Belgian court has yet to decide. Who knows whether this question of interpretation will come back before the English court.

Is the word “food” so ambiguous? Perhaps it is. IP Draughts is still processing the question, and hasn’t come to a conclusion. Can any reader help him with his mental struggle?