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Appeal over cancer drug royalties succeeds

Credit: MAXSHOT.PL / Shutterstock.com

The Court of Appeal has today unanimously allowed an appeal by Tesaro, Inc., a subsidiary of GSK, in a dispute with AstraZeneca. The dispute was one of The Lawyer’s Top 20 cases for 2022. Several hundred million dollars were at stake. The issue was whether Tesaro was obliged to pay royalties on all sales of its cancer drug, Zejula, or only on sales that fall within the scope of the patents licensed to it by AstraZeneca. This raised a question of contractual interpretation.

Arnold LJ gave the leading judgment, and King and Birss LJJ each gave short concurring judgments. 

It was common ground that the usual principles of contractual construction are to be applied when construing a patent licence: [5]. However, the decision contains an interesting discussion of the interaction between the licence agreements and certain features of patent law.

First, the scope of a licence should in principle be coextensive with the scope of the claims of the patent, but the purity of this principle is complicated by various points: [24].

Secondly, the scope of the royalty obligation need not be coextensive with the scope of the claims of the patent and it would be wrong to presume that it is: [25]-[26].

Thirdly, the patents in question were second medical use patents (in the UK and EU). There can be real difficulties in deciding whether such claims are infringed, and these might have led the parties to have agreed a royalty obligation which did not depend on the resolution of such difficult questions. However, it does not follow that the parties did in fact so agree: [34], [43].

Fourthly, it is common for patent licences not to contain any mechanism for ascertaining the extent to which the royalty is due, beyond that provided by patent law: [35].

Fifthly, all three appeal judges stressed the importance of the fact that, if the royalty was payable on products that were not covered by the patents, this created a serious risk that AstraZeneca would fall foul of the US law doctrine of patent misuse, which had been the subject of expert evidence at trial: [36], [52], [55]. The canon of contractual construction, whereby a lawful interpretation is to be preferred over an unlawful one, therefore supported Tesaro’s case.

Conall Patton KC, together with Thomas Mitcheson KC of 3 New Square, were instructed by Ian Karet of Linklaters for the successful appellant.