IP Information & News

Royalties, revoked patents and pharmaceutical giants

A recent case at the CJEU (on referral from the Court of Appeal in Paris) has held that EU Competition Law does not prevent royalties being paid for technology protected by revoked patents.

IP law and competition law are often seen as opposites, as IP law confers monopolies whilst competition law seeks to control those monopolies. It is perhaps ironic then, that when IP and particularly ‘patented’ technology is commercialised, the issues that are often disputed are those that fall within the ambit of competition law, rather than IP law.

This was the case during a long running dispute between pharmaceutical giants Genentech and Sanofi.

Background

In 1992, Genentech took a licence to use DNA technology described in a European patent and two US patents owned by a subsidiary of Sanofi. Under the licence, Genentech agreed to pay royalties on the sale of finished products incorporating the licensed technology.

In 1999, the European patent was revoked by the European Patent Office (EPO). Then in 2008, Sanofi, believing that Genentech had exploited the patented technology in production of a successful anti-cancer drug named Rituxan and other products without paying the royalties on the sale of those drugs, alleged that Genentech had contravened the licence agreement and commenced litigation against Genentech in Europe and the US.

An application was then lodged by Sanofi with the International Court of Arbitration in Paris, where it was held that Genentech had benefitted from the commercial purpose of the licence — to avoid all patent litigation in relation to the patents. The arbitrator then held that payments made under the licence agreement should not be reclaimed and the payments remained due despite the revocation of the European patent, as the commercial purpose of the agreement had been fulfilled.

Referral to CJEU

The arbitrator’s ruling was appealed (to the Court of Appeal in Paris). It was argued that forcing Genentech to pay the royalties for use of technology protected by a revoked patent was contrary to EU competition law, specifically Article 101 of the Treaty of the Functioning of the European Union (TFEU).

The Court of Appeal in Paris referred the question of whether EU competition law had been breached to the Court of Justice of the European Union (CJEU).

The CJEU ruled in the negative (that EU competition law had not been breached). The reasoning is interesting, since the CJEU set out that a royalty is the price to pay for commercial exploitation of licensed technology with the guarantee that the proprietor (the owner of the licensed technology or the patent which protects that technology) will not enforce that right against the licensee. The reasoning therefore facilitates a de-coupling between the monopoly provided by the patent and the monopoly given by the owner of the patent to a licensee.

The CJEU confirmed that, provided the licensee is free to terminate the licence, EU Competition law had not been breached.

Comment

The CJEU considered the question of whether it was in contravention of EU competition law to make a licensee continue to pay a royalty on technology protected by a revoked patent and answered that it was not. The CJEU effectively held that the terms of the license were what mattered in whether or not royalties were due and therefore rendered the validity of the patent irrelevant to whether the royalties on the ‘patented’ technology should still be paid.

Common sense dictates that, going forward, parties that are engaging in a license of technology protected by a patent should include in the agreement a clause providing a release from the obligations of the licence, should the patent be invalidated.

If this is not successful then parties should, on agreement of a license to use technology protected by a patent, also instantiate a program by which they monitor the patent they have licensed. This is often simple and relatively cheap to implement — certainly cheaper than continuing to pay royalties on a patent which is no longer in force. This is particularly relevant in fields where patents are often disputed, such as pharmaceuticals. Royalties can be very expensive, where a simple letter from a patent attorney every couple of months to say that a patent is still in force, can be significantly cheaper.

A copy of the judgement can be read here.

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