The Court of Appeal in Neurim Pharmaceuticals (1991) Ltd and another v Generics (UK) Ltd and another (Rev1) [2022] EWCA Civ 359 has reversed a controversial High Court decision that held that a patent licence was not exclusive because the licensee was unable contractually to control the patent infringement litigation process. This Court of Appeal decision is likely to be welcomed by exclusive licensees and licensors as it hands back control to them to choose their own approach to enforcing their patent rights.

Background

In December 2020, Neurim Pharmaceuticals (1991) Ltd (Neurim) and Flynn Pharma Ltd (Flynn), the licensee of Neurim’s product, brought a patent infringement action against Mylan UK Healthcare Ltd (Mylan) for damages after Mylan launched a generic version of Neurim’s product.

On inspection of the licence granted to Flynn by Neurim, the High Court held that Flynn was not an exclusive licensee because, in the Judge’s words, “the agreement contemplates no independent action on the part of Flynn being commenced in these circumstances”.[i] In the Judge’s view, the wording of the licence undermined the stated exclusivity of the licence, even going so far as to describe it as a “sham”[ii] and being contrary to the intended application of s. 67(1) of the Patents Act 1977.  See our previous article for more detail about the High Court’s reasoning.

Court of Appeal

The Court of Appeal reversed the earlier decision, with Lord Justice Arnold giving the judgment on behalf of the three judges (Lord Justices Newey and Birss being the other judges on duty) for the following four main reasons:[iii]

1. The licence agreement entitled Flynn to work the relevant invention to the exclusion of Neurim, allowing Flynn to sue Neurim if there was a breach of contract, thereby satisfying the key requirement for an “exclusive” licence.
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2. The High Court’s interpretation of the licence agreement was incorrect. The contractual clauses relating to litigation did not:
   1. alter the effect of s. 67(1) Patents Act 1977 which provides a statutory right of action to the exclusive licensee to bring patent infringement proceedings; or
   2. otherwise prevent Flynn from being a claimant.

Rather, the provisions regulated how the parties should proceed in the event of litigation.

3. The interpretation of s. 67(1) of the Patents Act 1977 was also incorrect. It does not require an exclusive licensee to be able to bring a patent infringement claim “independently” of the patentee. This interpretation is confirmed by s.67(3) which requires the proprietor to be made a party to any patent infringement proceedings taken by an exclusive licensee.
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4. Legislative history demonstrates that the purpose of s. 67 of the Patents Act is to enable exclusive licensees to recover their own losses in the event of patent infringement. Had it succeeded, Mylan’s argument would have the effect of preventing Flynn from recovering its losses, with only the patentee being able to recover its losses from Mylan’s infringement.

On account of these reasons, Flynn was ultimately found to be an exclusive licensee and, therefore, entitled to damages if the patent was held to be infringed.

Legal costs

The Court of Appeal was also required to make a decision on who should pay the legal costs of the proceedings since the licensed patent had been revoked by the European Patent Office before the Court of Appeal decision.  Arnold LJ decided that the correct response was to make no order for legal costs relating to patent infringement, but since Flynn and Neurim were successful in relation to the exclusive licence issue, Mylan was ordered to pay their legal costs relating to that issue.

Practical considerations

While this judgment will bring welcome reassurance for exclusive licensees and licensors, it is a further reminder of the importance of giving due care and consideration to the drafting and negotiating of exclusive licences and the points of care noted in our earlier article remain relevant for the diligent licensor and licensee.

If you have any questions about drafting or reviewing your licence arrangements please contact our IP Transactions team.

[i] paragraph 135

[ii] paragraph 146

[iii] paragraph 18-22