Category Archives: Contract drafting

Do M&A lawyers care about contract drafting?

Like all generalisations, it can be shot down in flames with counter-examples. But IP Draughts has seen enough evidence to suggest that many M&A lawyers don’t really give a monkey’s about the discipline of contract drafting.

What matters in that world is following a process, using standard templates, and “doing the deal”. The individual M&A lawyer, negotiating the agreement, is not expected to care too much about the words used. Standard contracts are so long and complex, and deals are done at such speed, that “academic” musing over the meaning of words is alien to the usual way of doing business. Drafting is for the back-room boys and girls (professional support lawyers). If the firm has to take a hit occasionally with a professional indemnity claim, well that’s what insurance is for.

This approach is not unique to M&A work. Finance lawyers are also said to be guilty – see this article about the “three and a half minute lawyer” who spends that amount of time on each transaction.

Of course there are exceptions, including Allen & Overy’s former head of banking, the very distinguished Philip Wood CBE, QC (Hon). A smuggled copy of his drafting notes from the 1980s helped to persuade IP Draughts to write his books on contract drafting and boilerplate clauses.

If these negative thoughts reflect a conscious bias on IP Draughts’ part, fuel for the bias is given by a recent case in the English Court of Appeal. Judgment in the case of Hopkinson & Ors v Towergate Financial (Group) Ltd & Ors [2018] EWCA Civ 2744 was published this week. The case was about a claim under an indemnity in a share sale agreement.

Several clauses of the share sale agreement were scrutinised in this case, but the one that received the most attention from the Court of Appeal read as follows:

6.7 The Purchaser shall not make any Claims against the Warrantors nor shall the Warrantors have any liability in respect of any matter or thing unless notice in writing of the relevant matter or thing (specifying the details and circumstances giving rise to the Claim or Claims and an estimate in good faith of the total amount of such Claim or Claims) is given to all the Warrantors as soon as possible and in any event prior to:

6.7.1 the seventh anniversary of the date of this Agreement in the case of any Claim solely in relation to the Taxation Covenant;

6.7.2 the date two years from the Completion Date in the case of any other Claim; and

6.7.3 in relation to a claim under the indemnity in clause 5.9 on or before the seventh anniversary of the date of this Agreement.

The dispute concerned whether the Purchaser had given valid notice of a claim under the indemnity in clause 5.9. In particular, did the notice comply, and did it need to comply, with the obligation to provide details and an estimate of the total amount – i.e. the words in brackets, quoted above?

In the view of the Court of Appeal, “…it cannot be said that …clause 6.7 was well-drafted nor that, as drafted, it fits well with related provisions elsewhere in the agreement.” The court identified several drafting mistakes, which made interpreting the clause difficult.

With some simplification, the mistakes included:

  1. The clause uses the defined term Claims. The definition is limited to warranty claims and doesn’t mention indemnity claims. So how do you interpret the word Claims in the quoted phrase in brackets, in relation to claims under clause 6.7.3? Does it mean the details need not be provided? Or that you read “Claims” as meaning “Claims and other claims”?
  2. The clause refers to not making claims against the Warrantors. But clause 5.9 (mentioned in clause 6.7.3) doesn’t refer to claims against the Warrantors. Instead it refers to the Vendors and their spouses. Does this mean that clause 6.7 doesn’t apply to people who are not within the definition of Warrantors?
  3. Clause 6.7.1 refers to the Taxation Covenant. This is not a defined term. Tax Covenant is defined. But the definition of Claim makes no mention of the Tax Covenant. So should Claim or Taxation Covenant be interpreted broadly?
  4. Clause 6.7.1 imposes a 7 year time limit for claims in respect of the Taxation Covenant, while clause 6.7.2 imposes a 2 year time limit for any other Claim. Schedule 4 defines Tax Covenant and separately defines Tax Warranty. One might therefore expect that clause 6.7.2 covers Tax Warranties. But Schedule 4 goes on to provide a 7 year time limit for any claims under either a Tax Warranty or the Tax Covenant. How can one resolve this apparent contradition? By assuming that Taxation Covenant includes Tax Warranties? This was David Richards LJ’s conclusion.

David Richards LJ identified further drafting errors and inconsistencies, in other clauses.

At issue was a letter that purported to give notice of claims. The letter was sent to the sellers within the 7 year time limit but didn’t include any details about the claims or an estimate of losses. The letter referred rather generally to two reviews that the target company had been required to make by the Financial Conduct Authority, and any payments that might be made to customers for misselling of financial services, arising out of those reviews.

In the end, David Richards LJ decided (agreeing with the judge at first instance) that the notice given in this letter was sufficient to bring it within the conditions in clause 6.7, and on this basis dismissed the appeal by the sellers and their spouses. The other two judges in the Court of Appeal agreed with Richards.

Comments

Two observations from David Richards LJ resonate with IP Draughts.

First, the judge speculated (and IP Draughts thinks this speculation is very plausible) that some of the mistakes arose because clause 6.7.3 was bolted onto clause 6.7 as an afterthought, and the drafter didn’t clean up the rest of the agreement to take account of this change.

Drafting detailed agreements is difficult. It requires painstaking care to ensure  clarity and consistency. It is not enough to bolt a clause on to an existing clause and hope it works. Other parts of the clause, associated definitions and other clauses may need to be considered to ensure that the new clause works properly.

Second, the judge discussed that the starting point for interpreting a contract clause was:

the court should assume, unless driven to a contrary conclusion, that the parties who have entered into a professionally drafted agreement in which terms have been elaborately defined intend to use such terms in accordance with the definitions.

In other words, in such circumstances, it may be appropriate for the court to limit its focus to a textual analysis of the words used. This is the traditional approach to contracts drafted by commercial lawyers as distinct from business people.

But just because the contract has been drafted by solicitors from a respectable commercial law firm, that doesn’t necessarily mean that this assumption will hold. In this case, the judge concluded that the relevant clauses were so strewn with errors that rigorous textual analysis was unlikely to reveal the parties’ intended meaning.

A sad indictment of the drafting of a share sale agreement.

 

 

 

 

 

 

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Predatory behaviour by lawyers – IP aspects

The Solicitors’ Regulation Authority (SRA) is the regulatory body for solicitors (the profession of most lawyers) in England and Wales. It has recently updated its guidance to solicitors on Balancing Duties in Litigation, in light of the recent controversies over extreme non-disclosure agreements (NDAs).

While the guidance is directed primarily to litigators rather than transactional lawyers, and across all sectors rather than being focussed on IP, it is striking that several examples from the guidance are of direct relevance to those of us who advise on IP matters including transactions. Three areas in particular are worth noting:

  1. Predatory IP litigation
  2. Drafting aggressive and unenforceable terms in NDAs
  3. Taking advantage of unrepresented individuals

As the executive summary to the guidance document makes clear:

…although solicitors must advance their clients’ cases, they are not ’hired guns’ whose only duty is to that client. They also owe duties to the courts, third parties and to the public interest.

This is a welcome change of emphasis from the SRA, which in the past has seemed to downplay these duties in favour of an overriding obsession with the interests of “consumers”.

This blog article doesn’t seek to summarise the overall content of the guidance, but instead highlights some points that jumped out as particularly relevant to IP practitioners.

Predatory litigation

One of the examples of predatory litigation cited by the SRA is the action brought by ACS:Law against downloaders of porn. Letters were sent out to multiple parties, in each case alleging copyright infringement and demanding several hundred pounds to settle the case. Though the law firm is not named in the guidance, it is clear who the SRA has in mind as the guidance refers to “blackmail” and includes a footnote linking to the transcript of a House of Lords debate where this firm’s activities were discussed by name.

The guidance includes the following paragraphs:

Predatory litigation generally involves solicitors bringing large numbers of claims with limited investigation of their individual merits or of the underlying legal background. The idea is usually that the cost in time and money of proceedings, or the threat of public embarrassment, will lead to opponents settling cases that might have no real merit.

For example, a law firm might send letters of claim to large numbers of individuals alleging, on limited evidence, that they have breached the intellectual property of their client. The requested settlement is usually significantly lower than the potential cost of fighting the claim, which encourages people to settle the claim before it goes to court and without first seeking their own legal advice.

IP Draughts was challenged about the SRA’s effectiveness in this area, when he gave oral evidence to a House of Lords bill committee in relation to what became the Intellectual Property (Unjustified Threats) Act 2017. His off-the-cuff, unprepared response was that there will always be outliers who break the rules, and it was better to deal with them in a regulated environment than an unregulated environment. He acknowledged that the SRA was like an oil tanker, taking a long time to change direction, but it did eventually take action against ACL:Law and its principal, striking them off the roll of solicitors.

Now the SRA has gone further and provided specific guidance to solicitors about this type of behaviour. Most IP lawyers that IP Draughts’ knows wouldn’t dream of behaving like ACS:Law but there are outliers in any profession, and the guidance is welcome.

Unenforceable terms in NDAs

The Harvey Weinstein case involving a UK member of staff was the subject of much press comment, and lawyers from the English law firms involved were hauled before a Parliamentary committee to explain their actions. Some of the details of that case were, to IP Draughts’ mind, extraordinary, including that a party was not allowed to retain a copy of an NDA that they had signed.

The SRA guidance on this subject includes the following statements:

The role of solicitors in drafting NDAs in relation to allegations of harassment has received public and political attention.4 This attention will continue. There are legitimate uses for these agreements, but solicitors must make sure that they do not draw up clauses that go beyond what is necessary to settle the claim. They must not threaten consequences that cannot legally be enforced. In particular, solicitors must not seek to prevent anyone from reporting offences or co-operating with a criminal investigation and other legal processes, including influencing the evidence they give. They must also not prevent someone who has signed an NDA from keeping a copy of the agreement.

There have also been allegations of employers threatening to give a hostile reference or otherwise to penalise a victim if they do not agree to sign an NDA.5 Other victims have reported being given the impression by the solicitor that they would be imprisoned if they did not comply with the NDA.6 People that have experienced some form of harassment might be vulnerable, in part because of the harassment itself. Solicitors need to consider this when communicating with them and when drafting an NDA.

The document cross-refers to a more specific guidance document on NDAs from the SRA.

Unrepresented individuals

When dealing with a party that is not legally represented, a solicitor should not “take advantage”. The only situation where IP Draughts comes across this on a fairly regular basis is where a university client is negotiating an IP transaction with an individual such as an academic who is forming a spin-out company to exploit IP. Sometimes, the academic does not take their own legal advice on the terms they are being asked to agree to, and IP Draughts recommends recording in writing, eg in an email to that person, that (a) the law firm is acting for the university alone (if that is the case), (b) neither the law firm nor the university is providing legal advice to that person in a personal capacity, and (c) they should consider obtaining their own legal advice.

The SRA’s advice in this area includes the following comments:

In advancing a client’s interests, solicitors must be careful not to take unfair advantage of the opponent or other third parties such as witnesses. Special care is needed where the opponent is unrepresented or vulnerable. Solicitors will need to consider this duty in all cases, but particularly when faced with a party showing a simple lack of legal knowledge or obvious procedural misunderstandings.

There can be a fine line between proper defence of the client’s interest and taking unfair advantage of others, usually highlighted by any form of deceit or misinformation.

Indicative behaviour 11.7 in the Code of Conduct highlights that taking unfair advantage of an unrepresented party’s lack of legal knowledge shows a failure to comply with duties to others. Special care should be taken when corresponding with lay or vulnerable opponents not to take advantage or use language that might intimidate them.8 Regulatory breaches can arise from any oppressive or domineering tactics, regardless of whether misleading information is included. These tactics include:

  • overbearing threats of claims or poor outcomes
  • legalistic letters to minors or others who might be vulnerable
  • threats of litigation where no legal claim arises
  • claims of highly exaggerated adverse consequences.

From memory, this is not the only guidance that the SRA gives on dealing with unrepresented parties, but the above is focussed on the specifics of litigation.

Conclusions

Some clients hire a large legal team

The bottom line is that an English solicitor is not supposed to go out “all guns blazing” in pursuit of their client’s interests, if this would result in a breach of the solicitor’s other professional duties. Care is needed, particularly with vulnerable or unrepresented individuals. Although the SRA’s guidance is primarily concerned with litigation, it may also affect those of us who draft IP agreements and are regulated by the SRA. IP Draughts expects that the other regulators of UK IP professionals, including the Bar Council and IPReg, would follow a similar line to the SRA.

Some clients will be disappointed with this approach, and see it as “pulling your punches”. They may prefer the US approach where attorneys are expected to represent their clients in a “zealous” manner.

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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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Interpreting complex collaboration and licence agreements

The English Court of Appeal’s decision in Astex Therapeutics Ltd v Astrazeneca AB [2018] EWCA Civ 2444, reported earlier this week, should make us all pause and think about our contract drafting.

Drafting style of pharma agreements

Pharmaceutical collaboration and licence agreements tend to be drafted in a very “thorough” or at least detailed way. There are several reasons for this, in IP Draughts’ view:

  • they tend to deal with long term relationships – both scientific collaboration to generate new pharmaceutical drugs, and later commercialisation of those drugs
  • they contemplate the possibility of millions of dollars (or other currency) of payments being made, including so-called milestone payments and royalties on the sale of products.
  • the mindset of the individuals involved in such collaborations tends to favour a thorough and accurate approach – partly, IP Draughts suspects, because of the presence of chemists and other scientists in the team
  • the agreements that are used – many based on US templates – tend to be very detailed. In other words, the choice of document is partly based on habit and industry practice.

Which brings us to the Astex v AZ case cited above, and the collaboration and licence agreement that was in dispute. It is clear from the clauses that are quoted in the Court of Appeal judgment that the agreement is in a typical detailed format, and uses US-style drafting.

A peeve

<peeve> In an era of electronic documents, it would be much easier for practitioners to follow the arguments in the case, and decide whether they agree with the court’s interpretation, if the text of the agreement were attached to the end of the judgment in its entirety and in its original format (with whatever redactions the judge may agree to, to protect confidentiality). The traditional court practice of simply quoting relevant sections from the agreement, unformatted, is a very clunky approach, which may have been suitable for an earlier era of short agreements and high printing costs for law reports, but doesn’t make sense when the number of clauses quoted is large and the judgment is provided online. </peeve>

Key interpretation question in Astex v AZ

A central question in the case was how one should interpret the following definition (emphasis added), which formed clause 1.32 of the agreement:

1.32 “Program” means the research program described in the Research Plan, to be performed in collaboration by the Parties during the Collaboration Term as part of the Project, which thereafter may be continued by or on behalf of ASTRAZENECA alone.

Does the wording that IP Draughts has highlighted in red mean that product development activities conducted by AZ after the active collaboration with Astex has come to an end, but following on from the research conducted during that collaboration, come within the definition of Program?

This was one of the key questions of interpretation before the court. Reading clause 1.32 in isolation, IP Draughts’ first reaction is “yes” – those post-collaboration activities are within the definition of Program.

Then his second reaction is, did the parties really intend that any developments made by AZ downstream would automatically come within the scope of the agreement? That seems rather open-ended.

But let’s go back a few steps.

Context of the Astex v AZ dispute

As explained in the judgment of Floyd LJ in the Court of Appeal:

  1. The parties collaborated from 2003-2005.
  2. Thereafter, AZ continued the Project on its own.
  3. Some years later, two compounds known as CD1 and CD2 were nominated by AZ as Candidate Drugs under the agreement, and AZ made milestone payments to Astex. It seems that a total of US$2M was paid.
  4. CD1 progressed to Phase I trials but was then dropped.
  5. In 2014, AZ announced a collaboration with Eli Lilly under which the latter would conduct Phase II/III trial on CD2.
  6. In 2015, AZ informed Astex that it had reviewed its position and now considered that neither CD1 nor CD2 were Collaboration Compounds under the agreement.
  7. At the time of the trial of the present action, CD2 was in Phase III trials.
  8. By the time of the appeal, development of CD2 had been discontinued.

The main questions before the court at trial and on appeal were (in IP Draughts’ paraphrase):

(a) whether the Program ended when the collaboration ended, such that compounds generated by AZ after the end of the collaboration (eg CD1 and CD2) were automatically outside the scope of the agreement.

(b) if the answer to question (a) is no, were the compounds CD1 and CD2 discovered as a direct result of activities performed as part of the Program.

Arnold J in the High Court decided that the Program ended when the collaboratoin ended. And that the answer to question (b) was (for reasons that he set out at length) no. AZ won on all counts.

The Court of Appeal agreed with Arnold J’s conclusions on the definition of Program, and found it unnecessary to opine on the latter question, which didn’t arise in light of the limited scope of the Program.

Closer scrutiny of the Program definition

So, why did both courts decide that the Program definition should be interpreted in a way that, in IP Draughts’ view, wasn’t the obvious way of interpreting the words in isolation?

Arguments were presented by each side for the interpretation that they preferred, many of which were based on looking at the wording of other definitions and clauses to see whether it was intended that the Program would survive the end of the collaboration.

As Arnold J noted, Astex’s strongest argument was to look at the definition of Lead Compounds in clause 1.23, which referred to structures selected during the collaboration “or, after the Collaboration Term, by ASTRAZENECA as candidates for Lead Optimisation.” This definition seems to suggest that compounds discovered by AZ after the end of the collaboration could be caught by the agreement.

But Arnold J thought that other clauses, such as 1.6 and 1.17, indicated that the phrase “after the Collaboration Term” above could have been a drafting error. The wording of 1.6, the definition of Candidate Drug, and 1.17, the definition of Hits, made no reference to post-collaboration developments.

In the Court of Appeal, each side’s counsel played the game of “look at the other clauses” for all it was worth. Astex’s counsel referred the court to clauses 14.1, 2.9, 1.23, and 1.38. AZ’s counsel referred to the wording of the Research Plan and to clauses 3.7. 3.8, 3.1, 4, 5.1, 5.2, 14.1, and 8.

Floyd LJ assessed these arguments and ultimately came out in favour of AZ’s interpretation, ie that the Program ended when the Collaboration Term ended.

Award of costs

The case report reveals that, before the trial, AZ had offered to settle the dispute on terms that it wouldn’t ask for the US$2M back that it had already paid to Astex, and would bear its own costs in the litigation, but would require Astex to accept that CD1 and CD2 were not Collaboration Compounds. Astex rejected this offer. With hindsight, they were unwise to do so. Arnold J thought they were so misguided in their conduct that he ordered them to pay AZ’s costs on an indemnity basis (ie awarding more costs that would normally be awarded to the winner). But the Court of Appeal overturned this part of Arnold J’s order.

Concluding thoughts

As is often the case with pharmaceutical collaboration and licence agreements, the wording of this agreement is very detailed and appears to have been carefully thought out. But when you look at a set of facts, and try to interpret the detailed wording, problems of interpretation can emerge.

IP Draughts’ approach, when his client is willing to pay for the time involved, is in several stages:

  1. To try to start with a draft agreement with which you are familiar. But that depends partly on having the bargaining power to propose your own draft, or being cute enough to have a draft ready for circulation when the parties have finalised their heads of terms.
  2. To spend time carefully going through the draft, check one’s understanding of the commercial intention with business and scientific colleagues, and review the draft for consistency. Sometimes, errors can be spotted by noting subtle differences in wording between clauses dealing with similar issues. IP Draughts is a great believer in consistency as an important drafting technique.
  3. To stress-test the wording by using several real-life examples, to try to see how robust the wording is and whether it works for those examples. This may involve other members of the negotiating team, who bring their own professional expertise to bear on the stress-testing exercise.

This is a good argument, if one is needed, for erring on the side of simplicity rather than complexity; the longer the agreement, the more scope for drafting errors and unintended conseequences. IP Draughts has just checked the last agreement of this kind that he worked on, which happens to have been drafted by a Californian company. The word count was close to 30,000 words, or 70 pages.

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