Category Archives: Contract drafting

Patent judges do it better

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 [2017] 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.

General approach

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:

  1. 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 [2017] 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 [9] 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.
  2. 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.”
  3. 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.

Interesting guidance

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!




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The limits of commercial common sense

Readers who are familiar with English contract law will be aware that, in recent years, the UK Supreme Court has developed its thinking on the interpretation of contract wording. In a series of landmark cases including Arnold v Britton, it has explored when it is appropriate to take account of “commercial common sense” when interpreting unclear or ambiguous wording. The cases are discussed in our 10,000-word article, Contract Law for IP Lawyers, published in OUP’s Journal of Intellectual Property Law and Practice earlier this year.

A recent case in the Court of Appeal applies the Supreme Court’s thinking to the interpretation of a settlement agreement relating to patents. Teva Pharma – Produtos Farmaceuticos Lda & Anor v Astrazeneca-Produtos Farmaceuticos Lad & Anr [2017] EWCA Civ 2135 was published on BAILII last week. The lead judgment, with which other members of the court agreed, was given by Lord Justice Flaux. (Regular readers will recall that we last encountered him as a panel speaker at our 2016 UCL panel debate on Dysfunction in Contract Drafting, since recorded on YouTube, where he may be said to have represented a traditional approach to contracts.)

IP Draughts has simplified the following explanation, so as to bring out the drafting issue.

Under a settlement agreement between Teva and AstraZeneca (AZ), Teva had agreed, inter alia, to withdraw a generic pharmaceutical product from the Portuguese market, and AZ had agreed not to sue Teva for infringement of an AZ Patent.

The “Patent” was defined in the settlement agreement as “EP0521471 and Portuguese Supplementary Protection Certificate 156”.

Supplementary Protection Certificates (SPCs) are a kind of patent term extension, that give up to 5 years’ protection for medicinal products covered by the patent, beyond the original 20-year life of the patent. A further period of extension, known as Paediatric Extension, extends the life of an SPC for an additional 6 months where the product is used to treat children.

One of the questions at issue was whether the above definition of Patent should be interpreted to include the Paediatric Extension. In the Commercial Court, an experienced commercial judge said no. The Court of Appeal, led by Flaux LJ (a former Commercial Court judge), overturned the judge and said yes. Both judges purported to apply the case law of Arnold v Britton. So how could they have disagreed on the outcome?

That is a good question, to which IP Draughts’ doesn’t have a convincing answer. The other two appeal judges who agreed with Flaux LJ, though highly regarded, are not noted for their commercial law expertise. So it is really one commercial judge’s view against another’s. Ultimately, are all questions of interpretation a “sniff test”, where the guidance of past cases can only take you so far, and where the outcome depends on which judge is allocated to the trial?

It would also be interesting know why this case was originally heard in the Commercial Court rather than the Chancery Division, where most IP-related disputes are heard. And whether an IP judge would have analysed the contract in quite the same way. All this is speculation. What we can be certain of is that applying the case law on interpreting contracts can point you in two opposite directions.



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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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