Medical Research Council v Celltech R&D Ltd

I have before me an application by the defendant, a company called Celltech R&D Limited, to transfer this action, which is currently in the general list of the Chancery Division, to the Patents Court. The claim is not one brought under the Patents Act 1977, and therefore does not fall within CPR 63.2(2), whereby claims under the 1977 Act must be started in the Patents Court. It is a claim for royalties said to be due under a licence agreement.

The claimant, the Medical Research Council, granted a licence, called by the parties the ‘Winter Licence’, to the defendants as long ago as 27^th November 1987. It was amended in 1997. It related to a patent called in the agreement the ‘Winter Patent’, which in fact was not one patent, but a number of patents and applications set out in the schedule. The schedule refers to patents or applications in the UK, Europe, Canada, USA and Japan. The definition of ‘Winter Patent’ includes any divisions, renewals, continuations, extensions or-issues thereof.

The patent is a patent in the field of recombinant antibodies and methods for production and in its description says (this is the European patent):

Claim 1 is as follows:

It will be apparent from that both which field of expertise the patent relates to, and that it is a highly technical subject, and if there were an issue pending in the court as to the infringement of that patent, it would attract a complexity level of 4 or 5. That is what the parties have suggested, and I certainly have no reason to disagree.

The Winter Agreement required the defendant, Celltech, to pay royalties, both on sales of products by Celltech itself, or any affiliate, a matter which does not appear to be in issue, and by clause 3.6.2:

Celltech has, in turn, granted a sub-licence to a US business called Genentech Inc. That appears to be common ground on the pleadings.

The allegation in the amended particulars of claim is that Genentech, together with two companies which are said to be licensees of Genentech, one called Roche and one called Novartis, have developed two antibody products, which are called Avastin and Lucentis, which have been manufactured and sold in the US and worldwide by Genentech and by both Roche in respect of Avastin and Novartis in respect of Lucentis, as licensees of Genentech.

That leads to a claim that Celltech was required to pay to the claimant royalties at 1 per cent (the 1.5 per cent having been effectively amended, it is said, to 1 per cent) of Net Receipts on all sales of those drugs manufactured and/or sold in the US or Canada by each of Genentech, Roche and Novartis for certain periods, which in the case of Avastin are from March 2008 to December 2010, and in the case of Lucentis from March 2008 to around 2009. It is said that although Celltech have paid large royalties to the claimant, it has not paid enough. I was told by Mr. Miller QC, who appears for Celltech, that in 2009 and 2010 in relation to Avastin alone Celltech has paid $31 million each year in respect of sales which it has been notified of by Genentech. The total amount which is said to be outstanding is some $44 million, which amounted at the date of issue of the claim to about £27 million, and, together with interest, the claim exceeds £57 million as at the date of issue of claim, and by now will be rather larger.

The point taken in essence by Mr. Miller is that because of the terms of the Winter Agreement it will be necessary for the claimant, in order to succeed, to demonstrate a number of things. Among the things that it will have to demonstrate is that the products in question - that is Lucentis and Avastin - are products which satisfy the proviso added by the variation, which is products whose sale or manufacture would, but for this agreement, infringe a valid and subsisting claim of the Winter Patent. It is said that that will require not only a great deal of investigation as to the underlying facts as to where products have been manufactured, or whether they have been manufactured in part here and in part there, and where they have been sold, but also raises the spectre of a patent infringement dispute as to whether the manufacture and sale of those products would, were it not for the agreement, have infringed claims in subsisting Winter Patents in the relevant territory, of which the US can be taken as an example. He says that ultimately, before recovering any money, the claimants not only have to establish that the true construction of the Winter Agreement, as varied, entitles the Medical Research Council to royalties on sales not only by Celltech’s direct sub-licensee - that is Genentech - but also by Genentech’s licensees - that is Roche and Novartis according to the claimants - but also that such sub-licences were, in fact, granted by Genentech, and also that products were manufactured and sold in a way which infringed the US patent, or would have infringed the US patent were it not for such sub-licences. That, therefore, raises the spectre of the question of whether these products and the way in which they are manufactured and the way in which they have been dealt with fall within the scope of the US patent in such a way as they could constitute infringing acts at all.

I should have said that one of the other provisions of the Winter Agreement to which I have been referred is that the royalties are only payable on Products, and “Products” is defined as meaning:

He referred me to the defence, which contains in para.18, a plea in the following terms. Having denied that Roche and Novartis were, in fact, licensees of Genentech, it said this:

That was effectively Mr. Miller’s primary submission, and he bolstered that with four further submissions. One is that, on any view, it will be necessary for the court hearing this trial to reach a view on questions of construction. There are questions of construction of the Winter Agreement as varied - in particular, as to whether the reference in the royalty clause, which I have read, clause 3.6.2, to sub-licensees of Celltech extends to people in the position of Roche and Novartis, who are said to be, but not accepted to be, sub-licensees of Genentech.

A question of construction also arises on the licence between Celltech and Genentech, which is a sub-licence. That is a confidential document, and I am not going to refer to its terms in this judgment, but I have seen in a confidential part of the defence references to an issue of construction which arises in relation to that agreement as well. Mr. Miller says that those issues of construction, being issues of construction of patent licences, would be much more securely and easily determined by a judge of the Patents Court with patents experience than by a judge in the general Chancery list.

Thirdly, it may be necessary for the court to determine issues of foreign patent law - for example, US patent law - and that is something which the judges of the Patents Court are used to doing.

Fourthly, he says that there are a large number of case management issues, in particular in relation to the pleadings, where an extensive request for further information has been served by the defendant, which has so far been met by the claimant with the statement, “We have told you effectively everything we know, and you do not need to know the rest now, and we will let you know once we have had disclosure from various people if we can give you any further information”. Mr. Miller complains that that is completely inadequate as a basis for going forward to trial. He says that those issues, the question of what particulars should be given and the scope of the pleadings and various related issues in relation to case management, would be better dealt with again by a judge of the Patents Court, case management being dealt with by the judges of the Patents Court, than by the Master to whom the action is currently assigned in the general list.

Those are effectively the reasons why Mr. Miller says that I should transfer this to the Patents Court today.

Mr. Saunders, who appears for the claimant, takes effectively two points. One is a point of jurisdiction, which I will have to deal with. Assuming that there is jurisdiction for the Patents Court to take a transfer of this type, he says that one should at this stage look at what is likely to be in reality in issue. Undoubtedly there will be issues as to the construction of the agreements and whether the Medical Research Council, the claimant, is entitled to claim royalties in respect of sales made by Celltech or by Celltech’s sub-licensee, Genentech, or people who have been allegedly sub-licensed by Genentech.

There is, therefore, a series of construction issues. There is also an estoppel issue which is pleaded, which I have not so far referred to, whereby the defendant says that they have operated the agreement in this way for a large number of years, and that gives rise to an estoppel by convention.

He accepts that ultimately, in order to recover any money it will be necessary for the claimants to identify where products were manufactured, where they were sold, where patents were subsisting, and it may be that when one gets through all that material and satisfies the court that, as a matter of contractual construction, the sales or manufacture by Genentech’s licensees attract a royalty, there may then remain a question as to whether the actual products concerned do fall within the claims of the patent. He points to the fact that that is a long way down the line in relation to the issues, that no positive case that they do not fall within the claims in patents has been advanced. There is in the plea which I have referred to in para.18 a mere non-admission. He accepts that, if it becomes apparent that there will be a substantial technical dispute, it may be necessary for the matter to be looked at again, but at this stage the court should not conclude that there is bound to be, or even necessarily likely to be, a technical dispute on what I identified as the question at the end of line, whether the actual products manufactured or sold by Genentech’s licensees would fall within the claims of the relevant patent.

The point there which he prays in aid is that Genentech have paid to Celltech very large sums in relation to Avastin and presumably Lucentis and Celltech has passed those on, and he says that it is perhaps unlikely that Genentech would have done that if there was really any dispute at a technical level as to whether those drugs would otherwise have infringed the patent, because large commercial operations do not generally pay out millions of dollars in royalties if they have a decent argument for saying that they should not have to do so.

Before coming to the jurisdictional question which he has raised and which I will have to deal with, I think I should express my view on the competing arguments which I have so far identified. I accept the submissions of Mr. Saunders on this. It does seem to me that, although it is plain from the non-admission in para.18 of the defence, that there may in due course be a dispute as to whether the products, Avastin and Lucentis, do or do not fall within the claims of a subsisting Winter Patent (probably a US patent, but maybe elsewhere in the world), the court does not at this stage have the material to conclude that that is either something which is bound to be in issue, or something that is likely to be in issue, and it may very well be the case that the effective disputes between the parties are disputes in relation to questions of construction and estoppel and questions of fact as to where patents subsist, where the relevant drugs have been manufactured, what the process of manufacture is and where the drugs have been sold, none of which give rise to the necessity of engaging in what will undoubtedly, if it does become necessary, be highly technical questions of whether the drugs fall within the claims of subsisting patents.

I do think there is a great deal of force in what Mr. Saunders says, that there is nothing before the court which indicates at this stage that that is something where there is likely to be, let alone bound to be an active dispute, and that the fact that very large sums have been paid by Genentech to Celltech and paid on by Celltech to the Medical Research Council in relation to at any rate Avastin suggests that those who are responsible for manufacturing the drugs have not taken the view so far that they fall outwith the scope of the licence and fall outwith therefore the claims of the relevant patents.

That does not by any means shut out the defendant from running a case in due course that they do indeed fall outside the claims in the patent, but it is very far from obvious to me that that is something that is likely to be a live issue.

In those circumstances, it does seem to me that it is, prima facie, inappropriate to require this matter to proceed in the patents court, which will have the practical effect of requiring it, because of the level of complexity concerned, to be heard by one of two full-time judges or possibly by one of a number of deputy judges, and that is bound to be something which would cause inconvenience to other court users by taking that quite scarce judicial resource and devoting it to a case where it may well turn out at the end of the day to be quite unnecessary.

So far as Mr. Miller’s other points are concerned, it is, of course, the case that those who have regularly practised in a field find it easier and quicker to construe documents in that field, of which they have seen many before, than those to whom the particular type of document is less familiar. I, therefore, have no hesitation in accepting that it may be easier and quicker and may also be sounder for patents judges to construe patent licences than it would be for someone who has no background in intellectual property. But it does not seem to me that that consideration by itself is sufficient to justify the order which is sought. It is the daily experience of those who practise in this Division that judges sometimes have an extensive familiarity with a particular type of commercial document and sometimes they have little or none. Just as Arnold J is quite competent to construe a pension scheme when he has to (see the IMG case), so I am sure that other judges of this Division are quite competent to construe a licence which, in the end, is simply a permission to do something. It does not require a level of technical expertise such as would be required to decide a patent action. Equally, I see no reason for thinking that the case management issues which are undoubtedly matters that, on this morning’s argument, are likely to prove quite contentious have to be decided by a High Court judge in the Patents Court, rather than being decided as case management issues are in all other types of case by experienced masters in the general list.

In those circumstances, I am not persuaded that this is a case where at this stage it is necessary or appropriate to transfer it to the Patents Court.

I was referred helpfully by Mr. Saunders to the decision of Akenhead J in NATL Amusements (UK) Limited & Ors. v White City (Shepherds Bush) Limited & Anor. [2009] EWHC 2524 TCC in relation to the factors relevant to the exercise of discretion when a question of transfer from one specialist list to another is in issue, not so much for what Akenhead J, himself, said, but by way of referring to what Colman J had said in an earlier case called Lumbermens Mutual Casualty Comp v Bovis Lend Lease Ltd [2004] 2 CLC 778. The lengthy citation from that case included reference to the fact that the approach which has traditionally been taken is to ask whether it is inappropriate that the proceedings should remain, in that case in the Commercial Court, but that engaged the overriding objective, the aim of which is to achieve a just and efficient resolution. In that case Colman J was faced with a case where some of the issues were issues which were appropriate for the Commercial Court, particularly issues as to insurance, but some of the issues were more appropriate for the TCC, and he said at para.10:

That makes it strictly unnecessary to resolve the question of jurisdiction which was raised by Mr. Saunders, but I think I ought to give my views, not least because, as I have just said, it may be that at some future stage in these proceedings, it will be appropriate, or be thought appropriate, to renew the application.

The point that he took was this: the Patents Court was created under s.6 of the Senior Courts Act 1981, which provided that it should be a specialist list within the Chancery Division. Then s.62 of the Senior Courts Act under the heading “Business of Patents, Admiralty and Commercial Courts” sets out at 62(1):

Going back to the Patents Court, the jurisdiction conferred on it by the Patents Act 1977 I was told was, in fact, contrary to what one might expect, not the ordinary jurisdiction in relation to infringements or declarations as to non-infringement or invalidity or the like, but it did, in s.97, confer a specific jurisdiction in relation to appeals from comptrollers, but the other matters as may be prescribed were, Mr. Saunders said, and I agree, a reference to CPR 63.2, which I have, in fact, already referred to, which sets out that claims to which this section applies must be started in Patents Court or in the Intellectual Property Enterprise Court, and 63.2(1) lists a number of specific claims, namely:

Mr. Saunders said that 62(1) was exhaustive of the business which the Patents Court could take - in other words, where it says, “the Patents Court shall take such proceedings”, etc, it is to be read as meaning, “the Patents Court shall only take such proceedings”, etc. He said that since the current claim is not a claim under the 1977 Act or any of the other matters referred to in 63.2, the Patents Court has no business taking it, and therefore there is, in fact, no jurisdiction to transfer this matter to the Patents Court in any event.

As became apparent in the course of argument, that would lead to some seriously inconvenient practical consequences - for example, if one takes the present case, there is, as I have said, no claim for royalties in respect of manufacture or sale within the UK, the UK patent having expired in 2007 before the six year period before the issue of the claim form. The thrust of the claimant’s case is in relation to matters which are covered by a US patent, which is said not to expire until either 2015 or 2017.

If it were the case that there was an active dispute as to whether the drugs in question fell within the scope of the claims made in the US patent, it would seem to be a case that would cry out for being heard in the Patents Court by judges with the appropriate expertise. Yet if Mr. Saunders’ submission were right that would not be a claim under the 1977 Act, because the 1977 Act does not apply to US patents, and it would not be a claim that would otherwise fall within CPR 63.2, and therefore the Patents Court would have no jurisdiction to hear it.

Moreover, it seems to me that it would logically follow from Mr. Saunders’ submission that if there were a claim which raised two questions, as Mr. Miller correctly pointed out, for example, a claim for infringement of a UK patent but at the same time for infringement of certain foreign patents which were the equivalent of the UK patent, it would seem logically to follow that the Patents Court had no jurisdiction to try the latter claims, because there is nothing in s.62 or in CPR 63.2 which says that, as long as the Patents Court has jurisdiction to try a claim, it can try related claims. That seems to me to be a very inconvenient result. Mr. Miller also said that questions such as, for example, the scope of a patent licence agreement were part of the regular diet of the Patents Court judges, and again it would be inconvenient if that could never be done.

His submission was that there is no need to read the word “only” into s.62(1), and therefore both s.62 and CPR 63.2 are only prescriptive as to which matters must be heard in the Patents Court, but are not prescriptive as to what other matters may be heard there. I accept this submission. Had one simply read s.62 by itself, there is some force in the suggestion that by saying what proceedings the Patents Court should take, it might well be that the natural reading is that the only proceedings that it should take were those that were there specified, but the practical consequences are so inconvenient that it seems to me that I should not read the word “only” into s.62(1) unless I am satisfied that it is impossible to construe it in any other way, and I am not so satisfied.

In my judgment, s.62(1) does not preclude the Patents Court from taking such other proceedings as may be appropriate to be heard. What it does is it sets out the central business of the Patents Court, and when read with CPR 63.2, the combination provides that certain claims must be started in the Patents Court, but they do not, taken together, preclude other appropriate claims from being started in or transferred to the Patents Court.

There was another issue raised in the skeletons which is whether the application for transfer should, itself, be brought in the Patents Court under CPR 30.5 or in the general list, but counsel were agreed that, since I could wear either hat, it was unnecessary to resolve that question and I do not propose to do so.