The UK Court of Appeal has issued its judgment in one of the latest hearings in Neurim Pharmaceuticals v Generics (UK) relating to Neurim’s insomnia drug, Circadin. The Court of Appeal ruled that an exclusive licensee has standing to bring patent infringement claims even where the scope of its exclusivity is limited.

In 2020, Neurim Pharmaceuticals ("Neurim") and Neurim’s UK-licensee, Flynn Pharma ("Flynn"), commenced proceedings against Generics (UK) Limited ("Mylan") for alleged infringement of patents protecting the product Circadin and use of melatonin for treating certain forms of insomnia. The UK market for Circadin is worth around £30 million per year.

In this appeal, the Court of Appeal had to decide whether Flynn, as Neurim’s licensee, could bring a patent infringement claim. If it could and Mylan were later found to be infringing, Mylan would be liable not just for Neurim’s loss, but also Flynn’s loss. The Court found that:

• An exclusive licensee can bring patent infringement proceedings even if the exclusive licence is limited (e.g. by field of use or limited to a particular embodiment of the invention), but theoretically there may be a limit as to how far one can ‘salami-slice’ the rights under a patent whilst retaining the licensee's right to sue.
• The fact that a licence agreement prohibits an exclusive licensee from taking infringement action independently of the patent owner does not prevent the licensee being a claimant in an infringement action.

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Statutory Background

Section 67 of the UK Patents Act 1977 states that ‘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’. This does not mean that the patent holder is cut out from proceedings brought by an exclusive licensee. Section 67 provides that if the patent owner does not agree to join the exclusive licensee as a co-claimant, the patent owner must be named as a defendant.

The Court considered whether Flynn was precluded from bringing a claim because of the contractual limitations on (a) the scope of Flynn’s exclusivity and (b) Flynn’s right to take action independently of Neurim.

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Scope of Exclusivity

Mylan argued that for a licence to constitute an ‘exclusive licence’ within the meaning of the Patents Act, the exclusive licence must cover the full breath of at least one claim of the licensed patent. In this case, Flynn’s licence was limited to the particular formulation used in Circadin whereas the claims of the patent were broader.

The Court of Appeal rejected Mylan’s argument and made clear that an exclusive licensee will have standing to bring a patent infringement claim even if the scope of the licence is limited, such as:

• where the licence covers a specific pharmaceutical product for which a marketing authorisation has been issued, but not other variations that would be covered by the patent;
• where the licence covers a single chemical compound or a sub-class, but the patent covers a wider class of compounds;
• where the licence is limited to a particular field of use, but there is no such limitation in the patent (e.g. if a pharmaceutical invention suitable for use in humans and animals is licensed solely for veterinary use).

Whilst the Court of Appeal warned that ‘[t]here may be a limit as to how far one can salami-slice the monopoly in a claim’, it seems that this limit may be rarely relevant in practice – the Court noted that the limitations of the licence in the case at hand were not near to any possible limit. A case defining that limit will be one to watch out for.

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Bringing actions independently of the patentee

The licence agreement between Neurim and Flynn included provisions detailing how the parties were to co-operate in relation to infringement claims, including that Neurim would take the lead in any infringement action with assistance from Flynn.

Mylan argued that Flynn did not have an exclusive licence because, under the terms of the licence agreement, it could not bring a claim against an infringer independently of Neurim. This argument had succeeded in the lower court, but was rejected by the Court of Appeal on multiple fronts:

• If Neurim had exploited the invention in the UK, Flynn was entitled to bring a breach of contract claim against Neurim. Thus, the key feature of an exclusive licence remained intact.
• The provisions regulating third party claims in the agreement between Neurim and Flynn were interpreted as concerning the conduct of claims in the event of a third party dispute but did not alter the exclusive nature of the licence.
• Nothing in s.67 Patents Act 1977 requires an exclusive licensee to be able to take action independently of the patent owner.
• The purpose of the statutory provisions is to enable an exclusive licensee to recover its losses in the event of infringement. To find that Flynn had no standing in the present circumstances would have defeated the purpose of this section.

In this case, there was nothing to suggest that Flynn had not complied with the contractual provisions addressing third party disputes. Neurim and Flynn were co-claimants. The Court therefore did not have to consider whether an exclusive licensee can take action against an infringer in contravention of its contractual obligations to the licensor. It is likely however that in such circumstances the alleged infringer would not have a right to stop the exclusive licensee bringing a claim, but the licensor may be able to block the infringement claim and/or claim damages.

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Comment

Issues of a licensee’s standing for patent infringement claims brought in the UK courts are governed by UK statute, regardless of whether the licence agreement is governed by English law or that of another jurisdiction. The critical requirement for a licensee to bring patent infringement proceedings in the UK is that the licence is exclusive. The specific extent of exclusivity will rarely make a difference to the licensee’s standing. Non-exclusive licensees cannot bring proceedings in their own name. Negotiating a field of exclusivity, even if that field is narrow, can make a significant difference to a licensee’s ability to recover damages from an infringer.

Licensors should ensure contractual controls are in place to regulate their licensee’s role when it comes to third party infringement but should also be mindful that enabling their licensee to also claim damages may increase an infringer’s overall liability and improve the prospects of a successful settlement.

The different regimes applicable to different jurisdictions may also create complexities for parties wishing to enforce rights in more than one country. For example, in the U.S., whether a licensee has standing to bring claims without the patent owner agreeing to join as co-claimant turns on whether or not the licence grants ‘all substantial rights’ in the patent to the licensee (a higher threshold than the UK). In the U.S., co-operation provisions between the licensor and licensee are more likely to undermine the licensee’s standing to take action independently than in the UK (depending on the language of the contract). The UK is a favourable jurisdiction for exclusive licensees looking to take action against infringers without the patent owner agreeing to join as co-claimant.

The authors are grateful to Jennifer Hutchings, Trainee Solicitor in London, for her valuable contribution to this OnPoint.