Category Archives: Contract drafting

Really, don’t make Affiliates a contracting party

The third most popular article on this blog, Don’t make Affiliates parties to the agreement, has been viewed approximately 20,000 times since it was published in 2014.

That article discussed why, in IP Draughts’ view, it is bad drafting practice to define a contracting party, for example in a licence agreement, as “X (together with its Affiliates)”. Now we have another reason for avoiding this pernicious, thoughtless usage.

The English High Court case of Illumina, Inc v Premaitha Health Plc [2017] EWHC 2930 (Pat) was published last month. Thanks to Mark Robinson for alerting IP Draughts to the case on Twitter.

At paragraph 242 onwards, the judgment discusses whether Illumina was an exclusive licensee of a patent and had standing to sue an infringer of that patent.

Section 67(1) of the (UK) Patents Act 1977 provides:

Subject to the provisions of this section, the holder of an exclusive licence under a patent shall have the same right as the proprietor of the patent to bring proceedings in respect of any infringement of the patent committed after the date of the licence; and references to the proprietor of the patent in the provisions of this Act relating to infringement shall be construed accordingly.

Section 130 of that Act defines exclusive licence as:

a licence from the proprietor or applicant for a patent conferring on the licensee, or on him and persons authorised by him, to the exclusion of all other persons (including the proprietor or applicant), any right in respect of the invention to which the patent or application relates.

The court was asked to consider whether an exclusive licence granted to Illumina “and its Affiliates” was an exclusive licence within the meaning of sections 67 and 130 quoted above. Illumina argued that, in practice, all the Affiliates were under the control of Illumina. After considering the evidence and some prior case law, the judge, Mr Justice Carr, concluded at paragraph 254 that Illumina was not an exclusive licensee for the purposes of section 130 and therefore did not have title to sue an infringer, though the patent owner did:

Accordingly, a licence is only exclusive under section 130(1) if it is granted to a single person, although he may grant sub-licences to “persons authorised by him”.  The PPA does not comply with this definition, as it is a licence granted by the proprietor to a number of persons, even though one of them is in de facto control of the others.

This problem could have been avoided if the parties had not included Affiliates within the scope of the licence, and had instead given Illumina the right to sub-license its Affiliates. This is, in any case, the preferable way of extending a licence to Affiliates, for the reasons stated in IP Draughts’ earlier article.

That article did not mention standing to sue as a reason for avoiding the “and its Affiliates” usage. But we can now add that reason to the list.

 

 

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Our debate on Modern Contract Drafting is now on YouTube

Some readers may be aware – some may even have attended – the debate that we ran at University College London last week on the subject of Modern Contract Drafting. A recording of the event has now been uploaded on to UCL TV, which is hosted on YouTube.

Chaired by IP Draughts, the stellar cast of debaters comprised:

  • Ken Adams, author of a Manual of Style for Contract Drafting, which has recently appeared in its 4th edition. (Humble brag: one of IP Draughts’ books, Execution of Documents, gets a mention on page 158).
  • Iain Biddle, Cisco Systems
  • Dan Deacon, Clifford Chance LLP
  • Alex Hamilton, Radiant Law
  • Marcella Sampic, Orange SA
  • Andy Wishart, Contract Express

Thanks to Marcella for the photo below of the debaters.

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Efficient and effective use of the university contracts manager

Picture the scene. You are responsible for reviewing hundreds of draft research-related contracts on behalf of your university (or other public body, eg NHS Trust). You don’t have time to do a “Rolls-Royce job” on all of them.

You are expected to manage as best you can, with the resources available. You are under pressure to get the contracts quickly through to the stage of signature, and to keep your academics happy. You also have a responsibility to protect the university’s interests in the terms that are negotiated. But you don’t have a list of “deal-breaker” terms that the university can never accept. Or if you do, the list is expressed in sufficiently vague terms that it leaves you room for manoeuvre. And anyway, the terms proposed by industry are sometimes complex, and don’t fit into neat boxes in the way the list suggests.

You can refer difficult points “upstairs” to your boss, but he or she has less experience of detailed contract terms than you do, and their boss is even more naive on this subject. Past experience tells you that they don’t always give you clear guidance, and don’t always support you if the academic pushes for the contract to be signed, however imperfect it may be. Part of the “problem” as you see it, is that the university doesn’t have much experience of legal disputes where the terms of a contract affected the outcome of the dispute, so there is perhaps an institutional assumption that the terms aren’t that important. You rightly point out that a remote risk of a major catastrophe deserves to be managed properly, and people nod when you say this, but you can see that they aren’t really that interested. Identifying, managing and taking responsibility for legal risk is an alien concept within many universities.

This combination of circumstances may lead to sub-optimal management of contracts. Or, put another way, you apply a sniff-test to them, and point out major and obvious issues, but pressure of time prevents you from giving each agreement a more thorough and rigorous review. And anyway, it is difficult to get clear information from the academic department about the underlying facts, risks, strategy, etc.

One way of dealing with this issue (and IP Draughts has seen others, including getting the department head or dean to formally sign-off on contracts that don’t comply with the university’s standard approach) is for the contracts manager to undertake a triage exercise, in which each contract that comes in to the university is formally placed in one of three categories, namely:

  1. Major importance (e.g. because of financial value or risk) – these contracts should be dealt with thoroughly.
  2. Medium importance – these contracts should be given a light-touch review.
  3. Minor importance – these contracts should either be on standard university terms, without negotiation, or left to the department to negotiate if they wish, or the department should confirm that they are happy to accept any risks that arise. Either way, the contracts manager should not be required to devote valuable resources to negotiating them.

For this approach to work:

  1. There need to be clear criteria under which the triage process takes place, and preferably the academic department is involved in agreeing the categorisation of each agreement.
  2. The contracts managers need to have sufficient resource to deal with the resulting workload, particularly for contracts of major importance.

IP Draughts really feels for the contracts manager who doesn’t get clarity from their superiors as to what they are expected to do with the limited resources available. Sometimes, a solution is to get some training, not for the contracts manager in this case (though all of us benefit from training) but for their superior who is supposed to manage and guide the contracts manager, and take the difficult decisions that are referred up to them.

Do readers have their own solutions to these problems?

 

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Clinical trial agreements: thriving in ambiguity?

IP Draughts has recently advised several clients on clinical trial agreements (CTAs) and related contracts, including manufacturing agreements and agreements with clinical research organisations (CROs). The experience has left him reflecting about how this area of practice is an odd mixture of precision and vagueness, of formal procedures and finding ad hoc solutions, of strict regulatory compliance and muddling through the best one can, and where the scientific values of accuracy and taking a long-term view often run up against a commercial need to advance one’s product through trials ahead of the competition and before the development money, or investors’ patience, runs out.

In the UK, there is also sometimes a contradition, not found in some other countries, between the commercial aspects of running trials and paying fees to a hospital, and the non-commercial values and attitudes of National Health Service (NHS) hospitals and the people who work in them.

Instances of these contradictions include:

  1. Worldwide documentation. The need to comply strictly with national or regional (eg EU) regulations governing the conduct of trials, data protection and privacy, freedom of information, insurance and indemnities. But some of these regulations are complex, subject to change (eg EU data protection regulation), and vary between countries, while many clinical trials are conducted on a worldwide basis, using a single set of documentation wherever possible. Some of the language used in this documentation has clearly been designed under a different regulatory system to the one in which it is being used.
  2. Different skill-sets. The contracts that one encounters usually attempt to be in alignment with the regulatory system with which the drafter is familiar, at the time of drafting. But often they are drafted by non-lawyers and/or negotiated by non-lawyers, and used for several years without substantive review. They can and do end up with incorrect, misleading or outdated references to regulatory compliance, e.g. referring to guidelines rather than the relevant law, using terminology designed for a different type of trial, or a trial in a different country, or incorporating contradictions between obligations in documents designed for the same trial by different professionals, e.g. the Protocol (medical and ethical drafters), the Technical Agreement (regulatory and manufacturing drafters) and the CTA (financial, commercial and, one hopes, legal drafters).
  3. Poor source documents. This blog has previously commented on some of the oddities in the model NHS CTAs, e.g. the limit of liability for deliberate breach to twice the contract price. IP Draughts finds it difficult to believe that this strict limit, which he has never encountered in any other contract in over 30 years of practice, would be upheld by a court. Though he has no case authority directly to support this argument, he wonders whether a court would find such a limit unenforceable under the Unfair Contract Terms Act 1977, in view of the need for liability terms in written, standard terms of business to be reasonable. There are plenty of other examples of oddities in the NHS CTAs, which seem to be have been driven by commercial or financial priorities and to underplay the importance of clear, accurate, and legally-valid drafting. And yet he is told that the template CTAs in use in many other countries are much worse than the UK templates.
  4. Varying quality and availability of advisers. It is sometimes difficult for trial sponsors to find advisers and consultants who have significant experience of clinical trials and the associated legal issues in the jurisdiction in which the trial is taking place. For example, one of IP Draughts’ clients is currently looking for a legal adviser in Finland. Is any reader able to recommend someone suitable? A separate issue relates to CROs. Although he has not studied the subject in depth, IP Draughts has the impression that the market for CROs is dominated by a few international providers. He has heard stories of some large CROs taking weeks to respond to requests and being very bureaucratic in their approach.

The skilled clinical trials manager learns when to insist on strict compliance with the rules and when to bend, when to take one’s time and when to rush headlong, and when to stick and when to compromise in contract negotiations. It is not an easy task. In the UK we seem to have plenty of people who have these skills, and a thriving eco-system of life-science companies, service providers, hospitals, universities and regulators.

Whether this eco-system will survive Brexit is yet to be seen. There is a real danger of damage to the lagoon, its coral reef and its colourful species of fish.

 

 

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