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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Oxford Gene Technology Ltd v Affymetrix Inc & Ors [2000] EWCA Civ 272 (2 November 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/272.html
Cite as: [2000] EWCA Civ 272
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Case No: 2000/2196; 2000/2196A; 2000/2214; 2000/2214A
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE JACOB
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: Thursday 2nd November 2000
LORD JUSTICE ALDOUS
LORD JUSTICE BROOKE
and
LORD JUSTICE SEDLEY
(Claimant/Respondent)
and
(1)
(2)
(3)
(Defendants/Appellants)
- - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - -
P. Leaver QC and Miss C. Bingham (instructed by Bristows for the Appellants/First and Second Defendants)
D. Mackie QC and T. Fancourt (instructed by Allen & Overy for the Appellants/Third Defendants)
A. Wilson QC and Miss T. Holman (instructed by Manches for the Respondent /Claimant
As Approved by the Court
Crown Copyright
1. By claim form dated 1st June 1999 Oxford Gene Technology Ltd (OGT) started proceedings against Affymetrix Inc, Affymetrix UK Ltd and Beckman Coulter Inc. They sought a declaration that they were not obliged to grant a patent licence to Affymetrix Inc and an injunction restraining Affymetrix Inc and Affymetrix UK Limited from infringing European Patent (UK) 0373203 for an invention entitled "Method and apparatus for analysing polynucleotide sequences" together with ancillary relief. The defendants resisted the declaration and claimed that Affymetrix Inc was entitled to a licence under the patent. They also denied infringement and sought revocation of the patent.
2. By an order made on 30th July 1999 Laddie J directed the trial of the licence issues as preliminary issues. They came before Jacob J who held that OGT was not obliged to grant Affymetrix Inc a licence and that neither Affymetrix Inc nor Affymetrix UK Limited were licensed. Against that judgment and the subsequent order, the defendants appeal.
3. I am indebted to the judgment of Jacob J for the basic facts which are not in dispute. OGT is a company whose principal shareholder is Professor Southern of Oxford University. The other shareholders are members of the Southern family and the University of Oxford. OGT owns the patents which are at the heart of this dispute.
4. The first defendant Affymetrix Inc is a Delaware corporation based in eastern California. It is a market leader in the production of DNA microchips. It is the proprietor of a number of patents in the relevant field, and although a relatively new company, its present capitalisation is about US $7 billion. The second defendant is its UK subsidiary. For the purposes of this judgment there is no need to differentiate between them and I will refer to them generally as Affymetrix.
5. The third defendant, Beckman Coulter Inc (Beckman) is successor to an old established business in a wide range of scientific equipment, particularly life science and diagnostic systems. It is a substantial company and its products can be found in most hospitals and in medical and bioscience laboratories.
6. The patents with which this appeal is concerned cover products embodying Professor Southern's ideas for DNA arrays. Those patents were originally owned by Isis Innovation Ltd (Isis) a company which was set up by Oxford University to exploit inventions made within the University. Essentially that exploitation was carried out by licensing patents and know-how to commercial companies for development and marketing.
7. There are a number of companies working on the technology of DNA arrays and chips based on the concept thought of by Professor Southern. Such chips consist of a solid base measuring 2-3cm in width. They have bound to them, on one surface, series or arrays of oligonucleotides. Each chip can contain anything from hundreds to hundreds of thousands of such oligonucleotides. Syntheses can be achieved by building this DNA on the substrata one nucleic acid at a time. Beckman's research concentrated on that technique using a modified Beckman Synthesiser. Affymetrix used photolithography as a means of attaching the nucleic acid bases on the solid support.
8. The ideas of Professor Southern needed development if they were to be brought to the market. With that in view, Isis entered, on 17th April 1991, into a written contract with Beckman. I will refer to it as the Isis agreement. It granted an exclusive licence under Southern patent rights in return for royalties. It contained an obligation to use reasonable endeavours to manufacture, promote and sell royalty bearing products.
9. Over the next four years Beckman did development work. This resulted in some patents being taken out by Beckman and some unpublished research information. But commercialisation appeared not to be imminent and Professor Southern became increasingly dissatisfied with Beckman's performance and commitment. Correspondence passed between Isis and Beckman which resulted in a re-negotiation of the Isis agreement. By an agreement dated 17th April 1996, Isis entered into an amended licence with Beckman. I will refer to it as the amended licence. I shall have to come back to the terms of that agreement, but importantly the reasonable endeavours clause had been deleted and the licence had become non-exclusive.
10. In 1995 OGT was formed and on 7th July 1997 Isis assigned to OGT the Southern patents and the benefits of the licence with Beckman. On 1st October 1997 OGT informed Beckman of the assignment.
11. Late in 1997 OGT approached Affymetrix with a view to offering them a licence. Negotiations commenced and they had progressed by December 1997 to a position where the parties were able to sign heads of agreement. By July 1998 agreement had been reached on the financial provisions. The key terms agreed were that Affymetrix would pay an immediate non-returnable signing fee of US $20 million for a non-exclusive licence at a royalty rate of 5%. In addition Affymetrix would license OGT under its patents.
12. OGT was surprised and disappointed when they were told in August 1998 that the deal was off. In essence what had happened was that Beckman and Affymetrix had entered into arrangements which they believed resulted in OGT having to license Affymetrix or resulted in Affymetrix having a licence under the Southern patents. To understand what they did, it is necessary to turn back to the amended licence originally between Isis and Beckman, but subsequently assigned to OGT. As the result of this appeal depends in part upon the terms of this agreement, I will set out the relevant parts in full.
"2.1 LICENSOR is a limited liability company wholly owned by the
UNIVERSITY OF OXFORD ("UNIVERSITY") formed for the purpose of exploiting inventions and know-how developed at UNIVERSITY. LICENSOR is the owner of the entire right, title and interest in and to Licensed Patent Rights (see paragraph 3.1) and in and to the related Technical Information (see paragraph 3.7).
2.2 LICENSEE is in the business of designing, developing, manufacturing
and selling bioanalytical instrument systems and is interested in acquiring rights in and to the Licensed Patent Rights and related Technical Information.
2.3 UNIVERSITY and LICENSEE HAVE ON April 17, 1991 entered into
the Research and Development Agreement of which a copy is attached as the Schedule to this Agreement ("R&D Agreement") which provided for LICENSEE to fund certain research and development directed toward the commercialization of the inventions included in Licensed Patent Rights. The parties have elected not to renew the R & D Agreement.
...
3.0 DEFINITIONS
....
3.2 "Royalty Bearing Product" shall mean and is limited to any product
which is manufactured by or for and sold or otherwise used in the performance of a service on behalf of a third party for money by LICENSEE or by an Affiliate, and which is covered by either a claim asserted in good faith of any patent application included in Licensed Patent Rights or a subsisting claim of any patent included in Licensed Patent Rights.
....
3.11 "LICENSEE Consortium" means any group, consortium, joint venture,
partnership, alliance or corporation in which LICENSEE is a participant which has as one of its principal objectives the development and commercialisation of products and processes covered by the claims of the Licensed Patents.
....
5.1 LICENSOR hereby grants to LICENSEE, for the life of this Agreement,
a non-exclusive right and license to practice all methods, and to make, have made, use and sell all products, covered by a claim asserted in good faith in the Licensed Patent Rights, throughout all countries of the world to the full end of the respective terms of any such patents included in the Licensed Patent Rights.
5.2 LICENSOR hereby grants to LICENSEE an irrevocable, non-exclusive,
fully-paid, divisible, right and licence to use and have used all Technical Information in the manufacture, use and sale of any Royalty Bearing Product throughout the world.
5.3 The rights and licences granted in paragraphs 5.1 and 5.2 shall extend to
Affiliates who undertake directly with LICENSOR in writing to comply with the terms of this Agreement.
.....
6.1 On the Effective Date of this Agreement LICENSEE agrees to pay
LICENSOR the sum of One Hundred Thousand Dollars ($100,000) which sum shall not be creditable toward earned royalties or minimum payments hereunder and shall not otherwise be refundable. LICENSOR acknowledges receipt and payment in full of the foregoing sum from LICENSEE.
6.2 Commencing with the semi-annual period in which the first commercial
sale, or other use in the performance of a service on behalf of a third party for money, occurs, LICENSEE shall thereafter make written reports to LICENSOR semi-annually during the life of this Agreement within sixty (60) days after the first day of January and July setting forth the Net Selling Price of all Royalty Bearing Products which have been sold or otherwise used by LICENSEE or its Affiliates during the preceding six (6) month period. LICENSEE shall notify LICENSOR immediately following the occurrence of the first commercial sale or other use in the performance of a service for a third party for money.
6.3 Concurrently with the making of each semi-annual report provided for in
paragraph 6.2 hereof, LICENSEE subject to the last sentence of this paragraph 6.3 shall pay LICENSOR royalties computed at the specified percentages of the Net Selling Prices of all Royalty Bearing Products included in each such report. The specified percentages are ten (10) in relation to consumables, ten (10) in relation to computer software Royalty Bearing Products marketed independently of hardware Royalty Bearing Products and five (5) in relation to all other Royalty Bearing Products. Notwithstanding anything in this paragraph 6.3 or paragraph 7.1 of this Agreement to the contrary royalties (running or minimum) shall neither be due from LICENSEE nor payable to LICENSOR until the cumulative royalties at the rates specified herein in respect of the sale or other use in the performance of a service for a third party for money by LICENSEE or its Affiliates exceed Nine Hundred Thousand Dollars ($900,000).
...
9.1 Except as stated in paragraph 5.3, and without prejudice to the right for
LICENSEE and those brought within this Agreement pursuant to paragraph 5.3 to sell Royalty Bearing Products through agents or distributors, the licences granted in this Agreement carry no sub-licensing rights; and neither LICENSEE nor any Affiliate will grant any sub-licences without the prior written consent of LICENSOR.
9.2 Following receipt of a written request form LICENSEE LICENSOR will
not unreasonably withhold or delay the grant to a member of a LICENSEE Consortium of a non-exclusive licence under the Licensed Patent Rights and Technical Information.
.....
16.1 The obligations of LICENSEE hereunder, including the obligation to
report and pay royalties, shall run in favour of the successors and assigns of other legal representatives of LICENSOR.
16.2 LICENSEE'S rights under this Agreement and the licences herein
granted shall pass to any person, firm or corporation succeeding to its business in products licensed hereunder as a result of sale, consolidation, re-organisation or otherwise, provided such person, firm or corporation shall, without delay, undertake directly with LICENSOR to comply with the provisions of this Agreement and to become in all respects bound thereby in the place and stead of LICENSEE."
13. From those clauses it is apparent that there were two routes available for Affymetrix to obtain a right to manufacture under the Southern patents. The first was to join a consortium as defined in clause 3.11. The second was to succeed to Beckman's business as provided for in clause 16.2.
14. For the primary purpose of obtaining rights under the Southern patents, two agreements were signed by Beckman and Affymetrix, the first called "the Consortium Agreement" and the second "the Asset Purchase Agreement". To deal with the inconsistency between them, there was a further agreement in what was called "the Precedence Letter". It was signed on 29th July 1998. In general terms, the letter provided that the Consortium Agreement would come into full force and effect on the date of the letter and that if OGT refused to grant the requested licence on reasonable terms and conditions as defined in the letter within a certain specified time, then the parties would terminate the Consortium Agreement. Thereafter the Asset Purchase Agreement would come into force and effect.
15. Beckman notified OGT of the Consortium Agreement on 13th August 1998 and requested the grant to Affymetrix of a licence pursuant to clause 9.2 of the amended licence. On 8th April 1999 Beckman sent OGT a draft of the licence it claimed OGT was obliged to grant Affymetrix. It was based on the Beckman licence, but with modifications. No licence was granted. There is a dispute as to why not, but the result was that OGT started this action on 1st June 1999. That was taken by Affymetrix and Beckman to amount to a refusal by OGT to grant a licence on reasonable terms and conditions within the terms of the Precedence Letter. The judge held it was such a refusal, given the special definition in the letter, and that it was justified because there did not exist a consortium as required by clause 9.2 of the amended licence.
16. Beckman did nothing to terminate the Consortium Agreement, as the Precedence Letter required, and its letter dated 5th June 1989 contained an offer to implement the Asset Purchase Agreement subject to two new conditions. By a letter dated 30th June Beckman withdrew that offer. On 27th July 1999, however, following a conversation between the parties, Affymetrix accepted the conditions, and the parties proceeded to implement the Asset Purchase Agreement. It was in those circumstances that the judge held the assets purchase agreement came into effect. There followed a letter written by Beckman to Affymetrix and subsequent negotiations as to how the transfer, set out in the Asset Purchase Agreement, would take place. By the end of July steps had been taken to carry out the obligations in the Asset Purchase Agreement.
17. The judge held that Beckman did not have a "business in products" within clause 16.2 of the amended licence. It followed that the Asset Purchase Agreement did not result in Affymetrix succeeding to the amended licence.
18. It followed that the preliminary issues were decided in OGT's favour because the judge rejected Beckman's claim that OGT should have granted a licence to Affymetrix because they had joined a consortium, and also Affymetrix's claim to be entitled to a licence because they had succeeded to Beckman's business in products.
The Consortium Point
19. The consortium point essentially turns upon the construction of clause 9.2 and the definition of "licensee consortium" in clause 3.11 of the 1996 agreement. In particular whether the Consortium Agreement between Beckman and Affymetrix set up a "group, consortium, joint venture, partnership, alliance or corporation", in which Beckman was a participant, which had "as one of its principal objectives the development and commercialisation of products and processes covered by the claims of the licensed patent".
20. The judge found that it did not. In those circumstances OGT was within its rights to refuse to grant Affymetrix a licence. His conclusion depended upon the terms of the Consortium Agreement, the relevant parts of which are in these terms:
"I. Affymetrix is in the business of developing, manufacturing and selling
Array Chips (as that term is hereinafter defined), and has proprietary technology and intellectual property relevant to the making and using of Array Chips and instruments for using and reading Array Chips.
II. BCI is in the business of developing, manufacturing and selling
automated instruments systems for the bioresearch and human clinical diagnostic markets. BCI has developed technology relating to the manufacture of Array Chips and has access to proprietary chemistry used in the preparation of oligomers. BCI also has proprietary technology which can be applied to automating processes which use Array Chips.
III. The parties agree to cooperate, each with the other, to develop Array
Chips and systems for using Array Chips, to accelerate market acceptance, uses and applications of Array Chips and to develop and commercialize Array Chip products, processes and systems.
NOW THEREFORE in consideration of the mutual undertakings contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:
The intent of the parties is to cooperate to accelerate market acceptance, applicability and use of Array Chips in the bioresearch and diagnostics markets. To this end, the parties will enter and execute the various agreements and relationships contemplated by this Agreement and use their individual strengths, collectively, to jointly develop individual arrays, and instruments and systems for processing and using arrays. This Agreement shall be construed in accordance with this intent.
For purposes of this Agreement the term "Array Chip" shall mean a series of polynucleotides arranged in an array on a substrate to perform quantitative or qualitative analyses.
Affymetrix Research on Behalf of BCI - Affymetrix shall, in accordance with attached Exhibit A, perform Five Million Dollars ($5,000,000) in contract research and development services for and under the direction of BCI on Array Chip technology and products of interest to BCI.
....
3.1 Immediate Objectives - Affymetrix shall, within ( ) days of
the signing of this Agreement complete and implement the design modifications of the scanners and other instruments and systems it currently sells for use with Array Chips to efficiently and effectively interact with BCI's SAMI(tm) and SILAS(tm) laboratory information and management systems.
....
3.3 BCI as a Preferred System Provider - Subject to Paragraph 3.4,
Affymetrix shall, during the ten (10) years following the effective date of this Agreement use commercially reasonable efforts to actively promote BCI, with Affymetrix customers, as the preferred source for systems integration and laboratory information and management systems and products. Included within such promotion, by way of example only and not limitation, shall be (a) Affymetrix, at least once each calendar quarter, providing to BCI, a list of customers to whom it has sold an Affymetrix scanner or instrument or similar system for using or processing Array Chips in the preceding three (3) months, such list to include the name and address of the customer, the identity of a key contact and the type or model of Affymetrix scanner, instrument or system sold: the foregoing information shall only be used by BCI to promote the sale of its laboratory information and management systems, products and services; (b) semi-annual meetings between the relevant marketing and sales management of Affymetrix and BCI to develop, execute and administer co-marketing and promotional plans for Array Chips; scanners, instruments and systems which use and process Array Chips; systems which automate processing of Array Chips; and, market opportunities, uses and applications for Array Chips; and, (c) each party (a "first party") permitting the other party ("a second party") to use the first party's trademarks and depictions of its products in marketing and promotional literature; such second party literature to be subject to the party's review and approval, not to be unreasonably, withheld or delayed, prior to release by such a second party.
3.4 The ten (10) year term for cooperation and collaboration in Paragraphs
3.2 and 3.3 shall be extended thereafter, from year to year, unless either party provides written notice to the other party at least ninety (90) days prior to the expiration of the ten (10) year term or anniversary thereof, of its intention to terminate such cooperation.
Affymetrix and BCI will enter the agreement attached hereto as Exhibit B for the OEM manufacture by Affymetrix and the sale by BCI of Array Chips for use on instruments and systems manufactured or distributed by BCI.
5.1 BCI License to Affymetrix - BCI and Affymetrix shall enter into the
license agreement attached hereto as Exhibit C for the license by BCI to Affymetrix of the BCI Array Chip making technology and intellectual property set forth in Exhibit C.
5.2 Affymetrix License to BCI- BCI and Affymetrix shall enter into the
license agreement attached hereto as Exhibit D for the license by Affymetrix to BCI of the Affymetrix Array Chip making and using technology and intellectual property.
5.3 Cooperation to Obtain License Under Southern Patents - BCI agrees to
and shall, promptly after the signing of this Agreement, make a written
request to Oxford Gene Technology ("OGT"), in accordance with
Section 9.2 of that certain Patent License Agreement between Beckman
Instruments, Inc, and Isis Innovation Limited, to grant Affymetrix a non-
exclusive, world-wide license under U.S. Patents 5,436,327 and 5,700,
637 and each of their foreign counterparts (the "Southern Patents") on
reasonable terms and conditions. BCI further agrees to use commercially
reasonable efforts to require OGT to comply with its obligations under
such Section. For purposes of this Paragraph 4.3 it is understood that
commercially reasonable efforts does not require litigation or the
bringing of a lawsuit by BCI. If the foregoing BCI efforts do not result in
the grant of a license to Affymetrix under the Southern Patents within six
(6) months from the date of the BCI letter to OGT then the parties agree
to consult and cooperate with each other to explore alternatives available
to effectuate the intent to this Paragraph and to further the goals of the
parties to commercialize Array Chips.
....
It is the express intention of the parties to enter into good faith negotiations with Hewlett Packard ("HP") to make HP part of this Agreement. The execution of this intention is subject to the following understandings: (a) HP will OEM manufacture Array Chips for Affymetrix and BCI on reasonable terms and condition, (b) any monetary consideration paid by HP to join the consortium or for the rights provided under Paragraph 5.3 hereof will be paid to and retained by BCI, and (c) any running royalties will be paid to and retained by Affymetrix.
Neither party may assign this Agreement or the rights set forth herein without the prior written consent of the other party; provided that either party may assign this Agreement to an affiliate or to a successor in interest to all of its business to which this Agreement relates, whether such succession is accomplished by sale of stock or assets or by merger or consolidation."
21. Before the judge there was a subsidiary dispute as to what would be the scope and terms of any licence that would have to be granted. OGT contended that, on its true construction, the licence to be granted should be limited to the purposes of the consortium. Alternatively it contended that any purpose beyond that was not reasonable. If both those contentions failed, it contended that the agreement was too vague to be enforceable. The judge agreed with those contentions. He concluded in paragraph 35:
"35. I have to say that I have reservations as to the certainty of the term even on the basis that the licence is to be limited to Consortium purposes. I say no more about it. If there was properly a Consortium within the meaning of the Agreement then the form of the licence to be granted would essentially be that of the Isis/Beckman licence with modifications such as omission of the Consortium Clause, a clause concerned with a royalty holiday and some other matters."
22. The judge went on to consider whether there had been a consortium as defined in the amended licence and if so, what was its purpose. He concluded in paragraph 37:
"37. Now the definition of "licensee consortium" in Clause 9.2 requires that Beckman be a participant of a "group, consortium, joint venture, partnership, alliance or corporation" which has as "one of its principal objectives the development and commercialisation of products and processes covered by the claims of the licensed patents." Mr Mackie submitted that this had a very wide meaning but it seems to me the essential notion is one of a joint venture, one which has a joint objective. The words used are "its principal objectives", i.e. the objectives of the Consortium as such. So it is not sufficient if one member of the Consortium is "majoring" on development and commercialisation, it is the group whose purpose must be development and commercialisation. In this context I bear in mind again that sub-licensing is forbidden by Clause 9.1 - Clause 9.2 is a derogation from that general rule and should be construed narrowly."
23. The judge considered each potential item of collaboration in the Consortium Agreement and concluded:
"41. In the result I am not satisfied that the so-called Consortium Agreement had as a principal objective the development and commercialisation of products covered by the Southern patents. That was just Affymetrix's purpose because they wanted a licence under the patents. It follows that OGT were not obliged to grant Affymetrix a licence whatever the terms of that licence might be."
24. Mr Mackie QC who appeared for Beckman criticised the conclusion reached by the judge. He reminded us that the judge had held that the Consortium Agreement was not a sham. He submitted that it should be considered as a whole against the relevant background. Beckman wanted to capitalise on the value of its rights in its patents and under the Southern patents; but it wanted to be involved. It did not want to sell its business in relation to DNA arrays. It was for that purpose that it did the deal with Affymetrix contained in the Consortium Agreement. It created a broad commercial relationship to harmonise hardware, manufacture custom arrays for sale, carry out research and development work up to US $5 million and to share technology. He submitted that the Consortium Agreement was a true alliance. The common objective was to benefit both parties. He criticised the judge's conclusion that it was not sufficient if one member of the consortium majored on development and commercialisation. The relevant question was - "Is one of the principal objectives of the consortium development and commercialisation of products and processes covered by the Southern patents?" If so, it did not matter which member majored on carrying out the work nor which member ultimately benefited the most. The fact that a major concern of Affymetrix was obtaining a licence to use the patents in suit was irrelevant, particularly when such a licence was a prerequisite to carrying out the purpose of the consortium. That probably was a motive of Affymetrix, but the only relevant question was whether the consortium, once established, had as one of its principal objects the development and commercialisation of the products covered by the patents. That was a question of construction and effect, not of the motive of one of its members. Mr Mackie submitted it was clear from the recitals and articles 1-7 that the Consortium Agreement had provided for the sharing, use and development of gene technology including patents and was clearly directed to developing and commercialising products covered by the patents.
25. Mr Mackie went on to criticise the judge's conclusion that the licence should be limited to the consortium purposes. He submitted that there was no ambiguity in the words of clause 9.2 which permitted the principal of construction propounded by Lord Reid in Wickman Tools v Schuler [1974] AC 235 to be applied. The Beckman licence was negotiated with Isis and it included a royalty rate of 10%. Isis's interest could have been furthered by the grant of other licences on equivalent terms.
26. Attractive as the submissions of Mr Mackie seemed, I cannot accept the result that he sought. As Mr Mackie pointed out the Consortium Agreement was concluded by Beckman with the object of capitalising on its rights and with a view to remaining involved. But an agreement for that purpose would not necessarily involve setting up a consortium as defined in clause 3.11 of the amended licence. That clause requires that the consortium, as defined, must have "as one of its principal objectives the development and commercialisation of products and processes covered by the claims of the licensed patents." Thus setting up a consortium with one of its members having as one of its principal objectives development and commercialisation would not be sufficient. The relevant objective had to be a consortium objective. Consider for example, an alliance between two companies which arranged joint research and development objectives to be carried out with management co-operation on the one hand, and on the other an alliance whereby one company carried out all the research and development under patents owned by the other and in return paid royalties and supplied patented articles to the patentee. The latter would not have as an alliance objective the development and commercialisation of products whereas the former would. Clause 3.11 is directed to a scenario in which Beckman and another or others actively co-operate to develop and commercialise the licensed patents. That was the conclusion of the judge. He pointed out that the objective had to be the objective of the consortium.
27. Despite the terms of recital III of the Consortium Agreement and Article I, it did not provide for Beckman and Affymetrix to have as one of their principal objectives the development and commercialisation of licensed products. In essence the agreement provided for Affymetrix to carry out the research and development and the manufacture of arrays. Beckman remained involved to the extent that the apparatus made by it would be compatible. Further it would be a preferred system provider for arrays with Affymetrix avoiding competition with Beckman in its sales field. Of course that was supported by cross-licensing, but in essence Affymetrix wanted to have and did obtain a licence under the Southern patents: no doubt to push forward with their photolithographic process. They were to do the work to provide arrays at a marketable price. In reality the agreement amounted to a sublicence upon terms, not one which provided a joint objective of development and commercialisation.
28. It may be, as Mr Mackie submitted, that the interests of the original licensor, Isis, would have been furthered by the arrangement between Beckman and Affymetrix. Equally an assignment or sublicence could have furthered Isis's interest. But the issue to be determined depends upon construction of clauses 9.2 and 3.11. Those clauses are concerned with whether there is a consortium having an appropriate objective, not whether Isis would benefit.
29. The conclusion reached is, I believe, emphasised by considering the subsidiary issue between the parties, namely would the licence granted under the consortium clause be limited to use for the consortium? The judge was right to conclude that it would be a limited licence. The amended licence did not permit Beckman to sublicense or assign. It would therefore be odd that that could be done by the back door by forming a consortium. Further it would be ridiculous to believe that the licence to be granted to a company joining a consortium would continue for the full term of the patents, when the consortium might only last for 2 years. The purpose of providing for the consortium member to be licensed was to further the relevant objective of the consortium. It follows that the licence would be limited to enable that purpose to be achieved and no more. That is consistent with the conclusion that the relevant objective must be a consortium objective.
30. As I have come to the conclusion I have, there is no need for me to deal with OGT's alternative submission that the clause was void for uncertainty. For my part I would have rejected it. The consortium clause can sensibly be interpreted as a clause requiring grant of a licence for consortium purposes on reasonable terms; not as an agreement to agree.
The Asset Purchase Point
31. Clause 16.2 of the amended licence provided that rights under that licence should pass to any person firm or corporation succeeding to Beckman's "business in products licensed hereunder ....". That Affymetrix contend occurred by the Asset Purchase Agreement. The relevant parts of that agreement are as follows:
WHEREAS Buyer desires to purchase particular assets (and assume the liabilities relating to such assets) of the Seller as more fully described in this Agreement and Seller desires to sell transfer and convey such assets and related liabilities to Buyer all subject to the terms and conditions of this Agreement.
NOW THEREFORE in consideration of the respective covenants and promises contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged the parties hereto agree as follows:
1. Definitions
"Acquired Assets" means all of the right, title, and interest that the Seller possesses and has the right to transfer in and to the BCI Technology, the Equipment and the business associated therewith. Buyer shall not receive or acquire any assets of Seller other than the Acquired Assets.
"Array Chips" means a series of polynucleotides arranged in an array on a substrate to perform quantitative or qualitative analyses.
"Assumed Liabilities" means
(a) only those liabilities and obligations that arise out of or relate to the ownership, use or operation of the BCI Technology accruing from and after the Closing:
(b) Buyer shall not assume any Liabilities, obligations or commitments of Seller other than the Assumed Liabilities:
"Assumption Agreement" shall mean the Assumption Agreement attached hereto as Exhibit A.
"BCI Technology" shall mean and is limited to the specific patents, copyrights, software concepts and know-how set forth in Schedule 1 and relating to creating and analyzing polynucleotide sequences in accordance with the methods claimed in US Patent Nos. 5,436,327 and 5,700,637 and their U.S. and foreign counterparts and specifically includes all of the Seller's intellectual property rights acquired pursuant to the Isis Agreement.
...
"Equipment" shall mean tools and equipment related solely to the Acquired Assets.
...
2. Basic Transaction
(a) Purchase and Sale of Assets. On the terms and subject to the conditions of this Agreement, at the Closing Seller shall sell, transfer, convey, and deliver to the Buyer, and the Buyer shall purchase, acquire and accept from the Seller all of its right, title and interest in the Acquired Assets. Buyer shall not acquire any other assets from Seller.
(b) Assumption of Liabilities. On the terms and subject to the conditions of this Agreement, the Buyer agrees to assume and become responsible for all of the Assumed Liabilities at the Closing and the sales and use taxes involved in or levied on the transaction. The Buyer will not assume or have any responsibility, however, with respect to any other obligation or Liability of the Seller not included within the definition of Assumed Liabilities.
(c) Purchase Price. Concurrently herewith, the Buyer agrees to pay to the seller [Five Million Nine Hundred Thousand Dollars ($5,900,000)] payable in immediately available funds in United States Dollars by wire transfer in accordance with Seller's Wire Instructions.
(d) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Seller, 4300 North Harbor Boulevard, Fullerton, California, concurrently herewith.
(e) Deliveries at the Closing. At the Closing, (i) the Seller is executing and delivering to the Buyer (A) an assignment attached hereto as Exhibit F and (B) such other instruments of sale, transfer, conveyance, and assignment as the Buyer and its counsel reasonably may request, (ii) the Buyer is executing and delivering to the Seller (A) the Assumption Agreement, and (B) such other instruments of assumption as the Seller and its counsel reasonably may request: and (iii) the Buyer is delivering to the Seller the consideration specified in Section 2(c) above.
(f) Allocation. The parties to this Agreement agree to determine the amount of and allocate the total consideration transferred by Buyer to the Seller, pursuant to this Agreement (the "Consideration") in accordance with the fair market value of the assets and liabilities transferred. The Seller shall promptly after the Closing provide the Buyer with one or more schedules allocating the Consideration. If the Buyer disagrees with any items reflected on the schedules so provided, the Buyer shall have the right to notify the Seller of such disagreement and its reasons for so disagreeing in which case the Seller and Buyer shall attempt to resolve the disagreement; provided that the Buyer agrees to accept and be bound by the determination of the Seller, which agrees that such determination and allocation shall be reasonable. The Seller and the Buyer agree to prepare and to file an IRS form 8594 in a timely fashion in accordance with the rules under Section 1060 of the Code. The determination and allocation of the Consideration derived pursuant to this subsection (f) shall be binding on Seller and Buyer for all Tax reporting purposes.
3. Conditions and Covenants. The Seller agrees to consummate the transactions to be performed by it pursuant to this Agreement only upon the condition and in reliance on the Buyer making and hereby affirming the following covenants:
(a) The Buyer will in accordance with the agreement attached hereto as Exhibit G perform [Five Million Dollars ($5,000,000)] in contract research and development services for and under the direction of the Seller on Array Chip technology and products of interest to the Seller.
(b) The Buyer and the Seller will, at the Closing, establish Joint Venture, L.L.C., a Delaware limited liability company (the "LLC") pursuant to the terms of the Operating Agreement. Buyer and its successors in interest covenants and agrees that the LLC will at all times be an "Affiliate" of the Buyer or its successors as that term is defined in the Isis Agreement.
(c) The Buyer and Seller will enter into the 10-year (renewable thereafter by mutual agreement) OEM Supply Agreement for Array Chips to be manufactured by Buyer and sold by Seller in the diagnostic and bioresearch fields attached hereto as Exhibit H.
...
(e) Subject to due diligence and confirmation of technical feasibility, the Buyer will use reasonable commercial efforts, in light of commercial opportunity, to assure that, within ninety (90) days of the Closing, it will complete the modification of the scanners and other instruments and systems it currently sells for use with Array Chips to efficiently interact with the Seller's SAMI(tm) and SILAS(tm) laboratory information and management systems. Buyer agrees and covenants that it will use commercially reasonable efforts in light of commercial opportunity to assure that any scanners and other instruments and systems it hereafter sells or promotes during the ten (10) years following the Closing will, at the item of first commercial sale, be configured and adapted to interact with Seller's then current laboratory information and management systems. Seller covenants and agrees to keep the Buyer informed of its developments in laboratory and management systems and of the modifications required in Buyer's scanners, instruments and systems to facilitate use with Seller's laboratory information and management systems.
(f) The Buyer will, during the ten (10) years following the Closing, use commercially reasonable efforts to actively promote the Seller with the Buyer's customers as the preferred source for systems integration and laboratory information and management systems and products. Included within such promotion, by way of example only and not limitation, shall be (A) the Buyer, at least once each calendar quarter, providing to the Seller a list of customers to whom it has sold a Buyer scanner, instrument or system sold (the foregoing information to be used by Seller only to promote the sale of SAMI(tm) and SILAS(tm) products and services), (B) semi-annual meetings between Buyer's marketing and sales staff and sales staff in charge of its scanners and instruments and systems products and Seller's marketing and sales staff in charge of its SAMI(tm) and SILAS(tm) products and services and any follow-on or similar products and services to develop, execute and administer co-marketing and promotional plans and co-making of sales calls for such products and services and (C), each party (a "first party") permitting the other party (a "second party") to use the first party's trademarks and depictions of its products in marketing and promotional literature (such second party literature to be subject to the first party's review and approval, not to be unreasonably withheld or delayed, prior to release by such second party).
...
4. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer that the statements contained in this Section 4 are correct and complete as of the date of this Agreement.
...
(e) Intellectual Property. Schedule 4 attached hereto identifies each patent which has been issued to the Seller with respect to its intellectual property associated with the Acquired Assets, identifies each pending patent application which the Seller has made with respect to any of its intellectual property associated with the Acquired Assets, and identifies each license, agreement or other permission (if any) which the Seller has granted to any third party with respect to any of its intellectual property associated with the Acquired Assets."
32. Affymetrix submitted to the judge that by the Asset Purchase Agreement it had succeeded to Beckman's business in products licensed by the amended licence and therefore it was entitled to the licence from OGT instead of Beckman.
33. OGT submitted to the judge that there could only be a business, of the type
contemplated by clause 16.2, when commercial exploitation was possible. Broadly that was accepted by the judge. He said in paragraphs 53 and 54:
"53. I think the true meaning of "business" in Clause 16.2 is simply that conveyed by the normal meaning of the word. No one would normally describe a few patents and some incomplete research work, even if the latter were modestly ongoing, as a "business". Still less would they describe the mere transfer of the rights to such, without any associated transfer of any actual activity, as a "business". Moreover where does the submission stop? Suppose Beckman had done even less research than they had - a few test-tubes and the odd notebook - would that amount to a "business" too? Could they have assigned after only a few months of research? If not, why not? The incomplete research is no more a "business" than a half-built factory and probably less.
54. So I think Mr Wilson is essentially right - the business begins broadly when the sales start. I do not think, however, that the line is that sharp. If a factory existed, and samples were on trial that might have been enough to constitute a business in embryonic form. To some extent the question is one of degree. What I am clear about however, is that whatever was passed, or supposed to be passed to Affymetrix did not amount to the transfer of a business."
34. The judge reached that conclusion on the language of the amended licence as such. He went on to state that another compelling reason for arriving at that construction was the fact that clause 16.2 was in the licence agreement before amendment and that that agreement contained a reasonable endeavours clause. In those circumstances neither side could have contemplated that, by the use of clause 16.2, the resources of some unknown party could be substituted for those of Beckman to get the products to market.
35. The judge summarised the facts in paragraph 42 of his judgment. He held that during the four years of the Isis agreement Beckman had done some useful development work. Some patents had emerged and doubtless there was some unpublished material. However there had, during that period, been no commercialization and there had been no move towards it. Between the date of the amended licence and the coming into effect of the Asset Purchase Agreement further work had been carried out by Beckman, but not much was achieved towards commercialisation. At the date of the Asset Purchase Agreement, Beckman had some laboratory equipment, some computer software and some material in laboratory notebooks. They also had a few thousand laboratory sample arrays. Most of the physical apparatus and material used in research by Beckman were passed over as were the Beckman patents. Upon the judge's construction, there was no business to transfer as progress had not been sufficient. As he said "the business begins broadly when the sales start". That had not occurred. That was not disputed, but Affymetrix applied to introduce before us fresh evidence as to Beckman's business using documents disclosed by Beckman to OGT. In view of the conclusion I have reached there is no need to consider the various applications.
36. OGT put forward alternative submissions. First that the Asset Purchase Agreement was never implemented and therefore the Consortium Agreement still binds the parties. The judge held that in practice OGT had refused to grant the licence sought by Beckman pursuant to the consortium clause. He went on to accept the evidence of Ex-Chief Justice Lucas that no formal step was needed to terminate the Consortium Agreement and that it had been replaced by the Asset Purchase Agreement. The judge went on to reject the submission that there was in fact no conclusive agreement between the parties. As he said:
"I am bound to say that I do not think it matters one way or the other. If there was no contract then the Asset Purchase Agreement was implemented by virtue of the refusal and the operation of the Precedence Letter. If there was a contract then, notwithstanding the conditions of the contract, the parties implemented the Asset Purchase Agreement."
37. Affymetrix submitted that the judge had misconstrued clause 16.2 of the amended licence. The word "business", as used in that clause, should not be confined to an enterprise which carried out sales or was about to. Adopting the words of Jessel MR in Smith v Anderson [1880] 15 Ch 247 at page 250 "anything which occupies the time and attention and labour of a man for the purpose of profit is a business. It is a word of extensive use and indefinite signification." If there was doubt as to the meaning of clause 16.2, it was settled by recital 2.2 which stated that "licensee [Beckman] is in the business of designing, developing, manufacturing and selling bioanalytical and diagnostic instrument systems ..." The words "business in products licensed hereunder" in clause 16.2 were used to distinguish those assets and activities of Beckman relating to the licence from other assets and activities of Beckman. Clause 16.2 was a clause permitting assignment if Beckman sold its business. There was nothing in the amended licence to suggest that there was to be a prohibition on transfer unless and until commercial sales were possible. If Beckman had a "business", it could not be doubted that it was transferred. Also the judge wrongly looked back to the Isis agreement; but in any case nothing could be derived from the fact that it contained a reasonable endeavours clause. No doubt such a clause required Beckman to seek to arrive at a position where sales would take place, but that did not mean that Beckman did not have a business until that position was reached nor that the parties intended that clause 16.2 should be interpreted so as to result in a temporal prohibition.
38. Mr Wilson supported the construction of clause 16.2 which found favour with the judge. He drew attention to the clauses that allowed affiliates to operate. He submitted that clause 16.2 placed a temporal restriction upon transfer. The licence only passed if the transfer involved Beckman's "business in products". That required Beckman to have moved from mere research and development to the stage when products were available for commercial sale or use. He also drew our attention to what actually happened. No premises were handed over, no personnel from Beckman went to Affymetrix and very little was actually handed over or subsequently used by Affymetrix.
39. In my view there are three important issues. First what is the true construction of clause 16.2? Does it require the relevant activity of Beckman to have progressed to the stage of commercialization, as the judge held? Second, did Beckman have a "business in products" as required by clause 16.2? Third, did the Asset Purchase Agreement result in a transfer of the "business in products" of Beckman? If so, it does not appear to me to matter what Affymetrix did with the business they acquired. If they succeeded to the business, the licence passed whether or not they "moth balled" that business whilst proceeding to pursue its photolithographic process.
40. As was pointed out by Jessel MR in Smith v Anderson (supra) the word "business" is extensively used and of indefinite signification. A man who sets up a company to carry out research and development with an aim of commercializing a method or product would be surprised to be told that he had not set up a business. The word does not import any limitation as to the stage of research and development. However that does not determine the meaning of the words "its business in products licensed hereunder" which appear in clause 16.2. They have to be construed as part of the whole agreement and in context. The task of the court is that stated by Lord Hoffmann in ICS v West Bromwich Society [1998] 1 WLR 896 at 912:
"I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 WLR 1318, 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows:
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Manna Investments Co. Ltd v Eagle Star Assurance Co. Ltd [1997] AC 749.
(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Redierna AB [1985] AC 191, 201:
"if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.""
41. The amended licence has its origins in the Isis agreement. That contained an identical term and it would be reasonable to believe that it had the same meaning in both agreements as they had many terms in common and were between the same parties.
42. Isis was a company which exploited ideas by licensing. The purpose of the Isis agreement was just that. Both parties knew that Beckman would need to do a substantial amount of research and development before the ideas of Professor Southern could be commercialised. By 1996, Professor Southern was dissatisfied with Beckman's progress. Thus the amended licence with the removal of the reasonable endeavours clause and the change from an exclusive to a non-exclusive licence.
43. As I have said, Mr Wilson submitted that the agreements should be read as imposing a temporal limitation on licence transfer: nothing could happen until Beckman had got to commercialization. Mr Leaver QC who appeared for Affymetrix submitted to the contrary. Of course the parties were interested in commercialization, but anybody reading the licence would realise that both parties contemplated that commercialization might be some years off. Mr Leaver submitted that clause 16.2 envisaged the licence passing upon a company reorganisation, which might happen at any time and neither party could have contemplated that in such a case the licence would not pass. No doubt the "affiliate" procedure could come into effect, but clause 16.2 explicitly makes provision for transfer of the licence upon such a reorganization.
44. The words "business in products licensed hereunder" in clause 16.2 do not suggest any limitation as to the type of business in products that are licensed. The products licensed are those referred to in clause 5.1 which grants the licence. They are all products covered by a claim asserted in good faith in the licensed patent rights. Thus the licence covers the manufacture, use, sale and offer for sale of products. There is no requirement that such activity has to have reached the stage of commercialization. That is made clear by clause 6. Clause 6 requires an upfront advance and also provides for royalties after commercialization. Thus the licence covers the period both before commercialization and thereafter so that the words "products licensed hereunder" in clause 16.2 include products made other than for commercial use. Clause 16.2 appears to provide for transfer of the licence upon a succession of the business of Beckman even before commercialization. That conclusion is, I believe, supported by the recitals. Recital 1 records that Isis is formed to exploit inventions and know-how developed by Oxford University. Recital 2 records that Beckman is in the business of "designing, developing and manufacturing and selling ..". Thus the parties accepted that there can be a business in designing and developing.
45. The judge concluded in paragraph 55 of his judgment that the existence of the reasonable endeavours clause in the Isis agreement indicated that the parties intended there to be a temporal restriction upon transfer of the licence if, for instance, Beckman went through a company reorganisation. I do not understand why. The purpose of a reasonable endeavours clause is to protect a licensor from lack of endeavour by an exclusive licensee. Surely that would best be achieved by the person carrying on Beckman's business in licensed products.
46. Upon the judge's findings of fact, Beckman did have, at the date of the Asset Purchase Agreement, a business in products within clause 16.2 as I have construed these words. He said in paragraph 42 of his judgment that over the first four years of the Isis agreement Beckman did development work. That resulted in some patents and some unpublished research information. After the commencement of the amended licence some more development work was done. There was a dispute as to how much, but the judge accepted the evidence of Mr Coassin that since May 1996 little had been achieved. He went on to record that some of the work of twelve people (four full-time and eight part-time) on another project was directed to development of the Southern patent.
47. Against that background I turn to consider whether the Beckman business that existed was transferred to Affymetrix. I conclude it was. Clause 2 (a) stated that Beckman shall "sell, transfer and convey and deliver to [Affymetrix] and purchase, acquire and accept from [Beckman] all of its rights, title and interest in the Acquired Assets". They are defined as: "all of the right, title and interest that the seller possesses and has the right to transfer in and to the BCI Technology, the Equipment and the business associated herewith ...".
48. Mr Wilson advanced two arguments to the contrary. The first was that the Asset Purchase Agreement had never become legally binding upon Beckman and Affymetrix. He submitted that it was a condition precedent to implementation of the Asset Purchase Agreement that the Consortium Agreement should be terminated. It never had been as there had been no act of termination as required.
49. It is slightly unreal for a third party, OGT, to submit that an agreement between Beckman and Affymetrix was not terminated without support from either of the parties to the agreement. Parties to a contract can agree to alter, vary or disregard any term. I believe that the judge looked at what happened and came to a conclusion which accorded with the intention of the parties to the agreement. He said:
"65. Ex-Chief Justice Lucas gave evidence on the point. At first he seemed to be of the opinion that a notice of termination was necessary before the termination would be effective, but when pressed he said in response to my question as to what the parties had to do to terminate the Consortium Agreement:
"I am not sure they have to do anything except agree between themselves that as far as they are concerned, their licensing conditions have not been met, have been refused and that they belong to the Asset Purchase Agreement."
His final position was that no formal step had to be taken.
66. I accept that evidence. I think the phraseology of the Precedence Letter viewed from a business sense is that it was the refusal by OGT to grant a licence which was the triggering event. It follows from the Precedence Letter that the Consortium Agreement was replaced by the Asset Purchase Agreement. So, from the refusal onwards (i.e. from the commencement of proceedings), the Asset Purchase Agreement came into effect."
To decide otherwise would have meant that the parties had wrongly implemented the Asset Purchase Agreement.
50. The judge also, rightly in my view, rejected the submission that the Asset Purchase Agreement did not result in Affymetrix becoming the successor to Beckman's business in the relevant products because of Clause 3(b) of the Asset Purchase Agreement. That clause, if implemented, would Mr Wilson submitted result in the business passing back to Beckman. I am not sure that I agree with the premise of that submission, but the answer is that stated by the judge in paragraph 60 of his judgment.
"60. The defendants' answer to this point was that the LLC had not been implemented and that there was no present intention to do so. Therefore, if and to the extent that the LLC arrangement would undo the assignment of a business, it is simply irrelevant. I accept that submission. But, in so accepting, I think the fact that the LLC was not set up is a further indication of the fact that no real business was ever assigned. For if it had been, Beckman, at least would have had a strong interest in the LLC being implemented so that it could enjoy the benefits of the business."
The question for the Court was - did Affymetrix succeed to the business referred to in clause 16.2? What they might do with it in the future was not material.
51. Finally it was submitted that the letter of 5th June 1999 did not properly implement the Asset Purchase Agreement. The answer by the judge, again consistent with the intention of the parties was:
"67. The letter purports to impose conditions upon the coming into effect of the Asset Purchase Agreement. There was a dispute as to whether, given the acceptance of those conditions, there was a concluded contract between the parties. Points were made on the basis that one of the conditions (return to status quo) was impossible of fulfilment and the rule of Californian law requiring that there be a real consideration for a binding contract. Affymetrix said there was no contract, whereas OGT contended otherwise. I am bound to say that I do not think it matters one way or the other. If there was no contract then the Asset Purchase Agreement was implemented by virtue of the refusal and the operation of the Precedence Letter. If there was a contract then, notwithstanding the conditions of the contract, the parties implemented the Asset Purchase Agreement. Whether, if I were wrong on the Consortium point, they can somehow revert to the Consortium model is not necessary to decide; though it would seem difficult to do so without a fresh agreement."
The logic of that paragraph is, I believe, correct.
52. For the reasons given I would allow the appeal in part so as to answer
question 1(b) of Laddie J's order to the effect that Affymetrix have a licence
as a result of the purchase of the business of Beckman.
BROOKE LJ:
53. I agree.
SEDLEY LJ:
54. I also agree.
Order: Affymetrix's appeal allowed in part, so as to answer question 1(b) of Laddie J's order to the effect that Affymetrix have a licence as a result of the purchase of the business of Beckman; Oxford Gene Technology to pay Affymetrix's costs here and below; dispute as to the costs of the applications to introduce fresh evidence be adjourned to come on for hearing when the judgment on the patent matter is handed down; detailed assessment of costs; costs order below varied so that those costs be aid forthwith; permission to appeal to the House of Lords refused; counsel to lodge a draft minute of order within 7 days.
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LORD JUSTICE ALDOUS: For the reasons given in the judgments handed down, we will allow the appeal in part - that is the appeal by Affymetrix - so as to answer question 1(b) of Laddie J's order to the effect that Affymetrix have a licence as a result of the purchase of the business of Beckman.
Yes?
MISS BINGHAM: My Lord, we are very grateful to the court for considering and handed down its judgment so very promptly. But subject to your Lordship's approval, the parties have agreed to defer any argument as to costs until the court hands down its judgment in the second of the appeals held by your Lordships. But there is, however----
LORD JUSTICE ALDOUS: Is there a major dispute on costs?
MISS BINGHAM: My Lord, we say "no", but....
LORD JUSTICE ALDOUS: At the moment it would seem that Beckman lost...
MISS BINGHAM: Yes.
LORD JUSTICE ALDOUS: ...and Oxford Gene Technology won against Beckman, but lost against you.
MISS BINGHAM: Indeed, my Lord. We say the proper order is an order that Affymetrix be granted its costs here and below.
LORD JUSTICE ALDOUS: And Beckman pay.
MISS BINGHAM: Indeed, my Lord, in respect of its appeal.
LORD JUSTICE ALDOUS: Yes. What else is there? I understand, yes.
MISS BINGHAM: My Lord, aside from that there is an application by Mr Wilson for permission to appeal.
LORD JUSTICE ALDOUS: Of course. Well, if we have to - I mean, it is all agreed that you are going to have to come back again. It seems rather putting an imposition upon the clients to have to pay another round of costs for the lawyers to come back again.
MR WILSON: It has been suggested that it may all be sorted out, because in fact in an agreement your Lordship is not aware of, Beckman pay our costs, we pay Affymetrix's costs but Affymetrix pay Beckman's costs because of an indemnity between them. So the money going round in a circle, it may in fact stay exactly where it is.
LORD JUSTICE ALDOUS: But so far as the court's order is concerned, what happens between the parties cannot be of any relevance to us.
MR WILSON: It may be if your Lordships were not invited to make any order as to costs if the parties can agree they should just lie exactly where they fall - which has not yet been discussed----
LORD JUSTICE ALDOUS: If we make the order, then you could subsequently make that agreement.
MR WILSON: Well, indeed. My Lord, there are other issues as to costs which need to be ventilated.
LORD JUSTICE ALDOUS: Such as?
MR WILSON: In particular, my Lord, we were put to very considerable expense by the applications to put in further evidence, which your Lordships have not----
LORD JUSTICE ALDOUS: We could possibly deal with that today.
MR WILSON: My Lord, we would be happy for your Lordships to do so, yes.
LORD JUSTICE ALDOUS: I do not want to accede to an agreement which just means - I see rows of solicitors sitting behind and three rows of counsel. It is clocking up probably £200 or £300 an hour per party when you all come back again. If we can----
LORD JUSTICE BROOKE: The effect of assessing costs enables the judges to know quite how much this litigation now does cost, the ultimate decision. The lawyers put in for hundred of pounds per hour. We really are worried now we are seeing assessments of costs, as so often about limiting costs of this kind of hearing.
MR WILSON: Well, my Lord, I think it is fair to say nobody has come before your Lordships today with any figures on which your Lordships can assess costs.
LORD JUSTICE BROOKE: I appreciate that. But simply suggesting you should all come back another day...
LORD JUSTICE ALDOUS: It is going to cost £10,000 to come here today, very nearly.
MR WILSON: I am happy - I should say----
LORD JUSTICE ALDOUS: Can we not attempt to do it? If we run out of time, we will call a halt. But can we not deal with costs if we can? Let us try.
MR WILSON: I am sure we can, my Lord, if you tell us to. The parties agreed not to, so I do not think I can really step----
LORD JUSTICE ALDOUS: It is just we would like to try and deal with costs today.
I understand Miss Bingham you say, straight up, you should have your costs here and below, and that is all you are interested in.
MISS BINGHAM: My Lord, yes it is. If his Lordship is minded to hive off the costs----
LORD JUSTICE ALDOUS: Well we will hear Mr Wilson on his application----
MISS BINGHAM: I am grateful, my Lord. That is exactly the order I seek.
LORD JUSTICE ALDOUS: I understand Mr Wilson you ought to go next, I think, because you are going to want your costs against Beckman?
MR WILSON: My Lord, I do not see how we can resist our costs against Beckman.
LORD JUSTICE ALDOUS: Just here, because they are dealt with below.
MR WILSON: We have already got our costs in effect below. Yes, my Lord, I am told that a small amendment would be desirable to the order made below so far as costs are concerned, which at the moment it is not a "forthwith order". If your Lordships were minded to order costs forthwith, then it need not await the outcome of the trial; a trial which may never take place in the light of your Lordships' decision.
LORD JUSTICE ALDOUS: You pay OGT's costs in this court and you want to change the order for costs below to be paid forthwith.
MR WILSON: My Lord, yes. My Lord, in addition to that there are the two very substantial applications which were made at the last minute for certain additional evidence to be produced in the case. I do not know if your Lordships had an opportunity to read the skeleton arguments which were put in on the point. But there were very serious objections to the admission of that evidence on the McNaughton version of Ladd v Marshall principles. The evidence had been available, we say, or at least was known about, for a long time and the application was made very late in the day and, not only that, but the evidence simply, we would say, did not help and would not have helped on any basis.
LORD JUSTICE ALDOUS: To be paid by - you say the costs of the application to introduce fresh evidence....
MR WILSON: Should be made by those who made the applications. One was made by each side.
LORD JUSTICE ALDOUS: So OGT's costs of the applications to introduce fresh evidence should be paid by....
MR WILSON: Beckman and Affymetrix respectively.
LORD JUSTICE ALDOUS: ....making the application.
MR WILSON: Beckman's has of course been withdrawn, as you Lordships know. Affymetrix's never strictly was.
LORD JUSTICE ALDOUS: But even so, there would be costs expended.
MR WILSON: There certainly were significant costs expended. My Lord, we put in an affidavit.
LORD JUSTICE ALDOUS: Okay. Now do you resist Miss Bingham's application?
MR WILSON: No.
LORD JUSTICE ALDOUS: No. And you ask for - that is right.
Now what about leave to appeal?
MR WILSON: My Lord, there are - my Lord, before I get to that, there is one preliminary point which I should perhaps mention. That is two related points in fact. The order your Lordships propose to make to the effect that Affymetrix have a licence is of course unexceptional in the light of your Lordships' judgment. But the parties did discuss before your Lordships came in the date as from which they had that licence, which is potentially of considerable significance in a situation where Affymetrix have been infringing prior to the succession to that licence. My Lord, it is a difficult point and it raises the next issue which I wanted to mention, which is that your Lordships did not, in your Lordships' judgment, deal with an argument I did raise before your Lordships and which was in the skeleton, to the effect that the whole of Beckman's business was not transferred to Affymetrix because of the - or based on the evidence of Mr Grant that the documentation did not assign the know-how and the know-how never did get round to being assigned because the presentation never took place.
LORD JUSTICE ALDOUS: Yes.
MR WILSON: My Lords, that argument is not dealt with except silently in your Lordships' judgment. But it bears on the issue of when the business was actually transferred, when Affymetrix did in fact succeed to it. Your Lordships I think in your Lordships' judgment have----
LORD JUSTICE ALDOUS: Well we certainly did not hear any submissions on the date.
MR WILSON: No, you did not.
LORD JUSTICE ALDOUS: And we have not decided that.
MR WILSON: No.
LORD JUSTICE ALDOUS: And it does not arise on the question posed by the judge, Laddie J.
MR WILSON: Well in so far as Laddie J was concerned about the extent to which the licence----
LORD JUSTICE ALDOUS: It does not arise on the question that the court was asked to - the preliminary question. I mean if it has got to be litigated on some other - in some other way, but it does not arise. I mean I checked Laddie J's - the question that the court had to answer.
MR WILSON: Well, your Lordship is quite right----
LORD JUSTICE ALDOUS: So the parties did not ask for that point to be decided.
MR WILSON: My Lords, I recall what was said.
LORD JUSTICE ALDOUS: I have looked at the order.
MR WILSON: Well no, my Lord, it is not reflected in his order. But I think all concerned were anxious that any factual issue could be ventilated.
LORD JUSTICE ALDOUS: Quite. But you will have to go back to Laddie J for that, I think, if there is going to be a dispute, not Jacob J.
MR WILSON: Not to Jacob J?
LORD JUSTICE ALDOUS: No, "to Jacob J".
MR WILSON: To Jacob J, yes. Very well.
LORD JUSTICE ALDOUS: I mean, if there is an issue on the point, then it has got to be raised. We are certainly not going to deal with it today.
MR WILSON: My Lords, that does bring me to the question of leave to appeal to the House of Lords.
LORD JUSTICE ALDOUS: Yes.
MR WILSON: There are a number of points on the assignment agreement. There is the question of construction of the agreement, which perhaps in itself does not raise particularly fundamental issues of law and your Lordships have decided it on conventional principles of construction, although of course there is room for two views on the correct construction.
But, my Lord, what one might call "the additional points" do, I would submit, raise very important issues. In particular, the significance of the existence of what perhaps I might refer to as a device to ensure that the business, although ostensibly assigned to Affymetrix, quickly found its way back into the hands of Beckman, or was intended to, and a network of agreements existed in order to achieve that. And the question of whether that kind of arrangement can legitimately be fitted into the framework of Clause 16.2 and the issue of the interpretation of Clause 16.2 in relation to such a combination of agreements is, I would submit, a point of quite considerable interest and importance.
LORD JUSTICE BROOKE: What general public interest is there, though?
MR WILSON: My Lord, it certainly is the case that there is, on the face of it, an assignment as your Lordships have held. The issue is whether a contract, Clause 16.2, which refers to the succession of a business must be construed as confining one's attention to the mere fact that the business has been assigned, or whether in construing that clause one can look more widely at the transaction and, rather than dissecting it into its individual parts and saying, "There is an assignment, that is an end to the matter", whether Clause 16.2 should be, as a matter of contractual construction, looked at more broadly and what is, as a matter of strict law, an assignment should be regarded as not an assignment within the meaning of that clause properly construed. But I appreciate it is a matter of construction of Clause 16.2. But it is a different and more significant point of construction than the simple question of what is meant by a business. My Lord, but of course if leave to appeal were to be given on that, it would be convenient for their Lordships to consider the underlying preliminary question of what is meant by business and product before coming on to that.
LORD JUSTICE ALDOUS: Yes, thank you.
Now Mr Fancourt.
MR FANCOURT: My Lord, I am only concerned with costs, I think.
LORD JUSTICE ALDOUS: Yes.
MR FANCOURT: So far as the main costs of Beckman's appeal are concerned, I cannot resist the order that those costs should be paid to OGT.
LORD JUSTICE ALDOUS: Yes.
MR FANCOURT: So far as the application is concerned, I am in a rather embarrassing and difficult position, I am afraid. My understanding was that no question of costs were going to be dealt with this morning. That is not - simply an understanding that has arisen.
LORD JUSTICE ALDOUS: That is my fault, Mr Fancourt. You are absolutely right.
MR FANCOURT: I have a letter - there was some discussion between your Lordship's clerk and my learned leader.
LORD JUSTICE ALDOUS: Yes, that is quite right. If there was going to be difficulty over it, then quite clearly we would adjourn it. But if we can deal with it----
MR FANCOURT: My Lord, can I explain what our position would be on the costs of that application, so your Lordship knows where the difficulty arises. Our application was in relation to documents which should have been disclosed, we say, in front of the judge and were not disclosed as a serious breach of the obligations of disclosure. Therefore we would say that even if, as it turned out, the documents were not used and were not necessary on the appeal, nevertheless we should either have our costs of the application because of the circumstances in which it was made, or at least there ought to be no costs of the application. We certainly should not have to pay OGT's costs.
LORD JUSTICE BROOKE: When was the application made?
MR FANCOURT: My Lord, the application was made about two weeks before the hearing.
LORD JUSTICE ALDOUS: It was very shortly before the hearing. They kept coming in.
MR FANCOURT: It came after Affymetrix's application was made. That was a little earlier.
LORD JUSTICE ALDOUS: Thank you.
Yes, Miss Bingham?
MISS BINGHAM: Yes, my Lord. We say, beginning with the question of the costs of the application to introduce fresh evidence, we say that the proper order is no order as to costs on that. The court did not decide the application. Like Mr Fancourt, we say that the evidence in question was not reasonably available to us previously so we were not at fault in putting that application in late. We say the proper order is "no order as to costs".
LORD JUSTICE ALDOUS: Thank you.
Mr Wilson, do you wish to add anything?
MR WILSON: Yes, my Lord. Both the points made by my learned friends were hotly disputed in our skeleton argument. The issue of whether those documents were discovered that was disputed. We said they were not because they were totally irrelevant.
As to the Affymetrix evidence, there were two classes of evidence. One was the five boxes of documents, which it is fair to say they had not looked at but they had known all about since the trial. The other was certain documents which had become available in the United States proceedings, as to which we say of course they were not available to Affymetrix earlier, but we say they were wholly irrelevant to these proceedings.
LORD JUSTICE ALDOUS: Yes, I remember.
MR WILSON: So my Lord, we say they were, in both cases, wholly misconceived.
LORD JUSTICE ALDOUS: There was a complete dispute about this, as I understand it. That was your case and we never decided it. Thank you.
I hope I have not put counsel in great difficulty, but I think it would be best if we did decide the point of costs today. We will rise for a moment.
Can I just say this. Thank you for attempting to produce the corrections to the judgment. The fax machine has ground to a halt. Could the parties provide the copies of the corrections, and we will try and put them in today so you can have the actually approved judgment by the end of today.
LORD JUSTICE BROOKE: Mr Fancourt, as Sedley LJ cannot be here today and there is only a two-judge court and only one of them is aware of the correspondence or the messages going between Lord Justice Aldous' clerk and Mr Mackie, are there any other submissions you would want to make about the fairness or unfairness of our dealing with the matter today in the light of the information that you received?
MR FANCOURT: My Lords, in my submission, in order to consider where the costs of that application ought to lie, your Lordships would need to look at the application to some degree. Obviously not hear full argument on it, which might take some considerable time, but at least look at the nature of the application and the documents that I identified.
LORD JUSTICE BROOKE: Was it in support of your appeal or was it helping Affymetrix?
MR FANCOURT: No, no. This was in support of our appeal.
LORD JUSTICE BROOKE: I have got here, as your appeal has failed and we came to the conclusion we did not need to look at the documents, why should not Affymetrix get their costs as the successful party?
MR FANCOURT: My Lord, only because the application was brought because (a) the documents were relevant to the appeal but, more seriously, (b) they should have been disclosed - we say and we make out our case in our application, I hope - should have been disclosed at the earlier stage.
LORD JUSTICE ALDOUS: Except they would not have helped the appeal, would they?
MR FANCOURT: They would not have helped the appeal.
LORD JUSTICE ALDOUS: You would have still lost, even if they were introduced.
MR FANCOURT: My Lord, I have to accept that. But we would not have incurred the costs of making the application. Of course we did not know that before your Lordships' hearing. We optimistically thought we might win the appeal and the documents might be material.
LORD JUSTICE ALDOUS: I am conscious, my Lord has prompted it, it would not be right, I do not think, for us to decide a contentious point on costs if any of the counsel would rather we did not today. Mr Fancourt, if you wish to make that submission, I will in no way feel any discourtesy.
MR FANCOURT: My Lord, unusually and embarrassingly, I am not really in a position where I can advance all the arguments I would like to. But can I take instructions on what our stance should be?
LORD JUSTICE ALDOUS: Yes. (Pause) Yes?
MR FANCOURT: My Lord, I am instructed that there are more detailed submissions that we would like to make.
LORD JUSTICE ALDOUS: We will rise anyhow for the moment. I am very much obliged, Mr Fancourt.
(Short adjournment)
LORD JUSTICE ALDOUS: We will make today an order that: Oxford Gene Technology will pay Affymetrix's costs here and below; Beckman to pay OGT's costs in this court; the dispute as to the costs of the applications to introduce fresh evidence be adjourned to come on for hearing when we hand down the judgment on the patent matter; leave to appeal to the House of Lords is refused; there will be detailed assessments. We will also make the order requested by Mr Wilson that the orders for costs below should be varied so that the costs should be paid forthwith.
MR FANCOURT: That is subject to the detailed assessment, of course, that your Lordships have directed.
LORD JUSTICE ALDOUS: Correct. Is it possible for a minute to be drawn up and agreed between counsel within seven days? I am sure it would help the Associate in this particular case because you are much more familiar with the case. Hopefully you will be able to agree the costs on the applications to introduce fresh evidence and will not need to come back.
MISS BINGHAM: My Lord, there is one further matter. I am instructed to ask for - by way of payment on account of costs. My Lord, I am told that there is a sum in court by way of security - there is a bond in court in the sum of £210,000.
LORD JUSTICE ALDOUS: By your clients?
MISS BINGHAM: By Mr Wilson's clients. We ask for an order that that be paid out to us.
LORD JUSTICE ALDOUS: I have no idea whether £210,000 can be paid out to you. I would be very loath to do that.
MR WILSON: They owe us lots of royalties, so I think there is quite good counterclaim against it.
LORD JUSTICE ALDOUS: What is the security; put up for costs?
MISS BINGHAM: Yes, my Lord.
LORD JUSTICE ALDOUS: Why do you want it paid out? As I understand it these patents are quite valuable pieces of technology. Do you think you are going to have to whistle for your costs?
MISS BINGHAM: No my Lords, it is not that. We say the general rule now when an order for detailed assessment is made is that the court should consider whether to make an order for a payment in the meantime. It is the standard for the court to do that.
LORD JUSTICE ALDOUS: Absolutely. Delighted to make the payment on account if you had put in some sort of assessment from which we could see what your costs were.
MISS BINGHAM: Yes, my Lord. We have no written evidence before the court as to the total costs. But as a bald figure - considerably over £210,000, my Lords.
LORD JUSTICE ALDOUS: Well it might tax down - on detailed assessment might come down quite a lot. I think at the moment....
Mr Wilson, my Lord and myself are not attracted by making a payment of £210,000 on account. But we are thinking of figures of, say, £100,000.
MR WILSON: To which I would say, "Can we have one too?"
LORD JUSTICE ALDOUS: Against Beckman.
MR WILSON: Quite. My Lord, I respectfully suggest it would be tidier to leave things as they are.
LORD JUSTICE BROOKE: What sort of figure are you asking in relation to Beckman?
MR WILSON: My Lord, what is good for them is good for us. Sorry, what is good for Affymetrix is good for us.
LORD JUSTICE BROOKE: I have simply got no idea.
MR WILSON: No, (inaudible) two seconds ago.
MR FANCOURT: My Lord, that is wrong in principle in any event because Affymetrix asked for their costs below and here against my learned friend, my learned friend only has an order for costs in this court. He cannot make an application for that in this court, he can only make an application in relation to these costs.
MISS BINGHAM: My Lords, may we stand the matter over for consideration when their Lordships hand-down judgment in the second appeal, by which time my instructing solicitors would put evidence before the court as to the likely realm of the costs.
LORD JUSTICE BROOKE: Or you can reach a sensible agreement?
MISS BINGHAM: Or we can----
LORD JUSTICE BROOKE: (Inaudible) on the figures which were provided.
LORD JUSTICE ALDOUS: Yes.
LORD JUSTICE BROOKE: The one thing I am a little about anxious about is how much time may be needed if the parties cannot reach agreement. Because we sit early in the morning, but we do not like breaking into the day's work at half past 10.
MR WILSON: It did occur to me that your Lordships might be able to deal with it on the paperwork because there are of course skeleton arguments in relation to the applications for admission of evidence. If your Lordships were to (inaudible) those, you might be able to make a decision on the merits of the costs.
LORD JUSTICE BROOKE: Well, I would far rather that the parties would agree, if the parties are capable of agreeing anything, rather than have to wade through that stuff.
LORD JUSTICE ALDOUS: My Lord put a strong point to Mr Fancourt. If the evidence had been admitted, he would have still lost and therefore it was likely the costs would have been part of the costs of the appeal. We will have to take that into account as an argument.
MR WILSON: I am sure he will, my Lord.
LORD JUSTICE ALDOUS: But it is becomes different from the Affymetrix application.
MR WILSON: Yes. My Lord, it may be necessary for your Lordships to look at the merits of it in due course.
LORD JUSTICE ALDOUS: We cannot spend hours looking at the merits of it. It is going to take a couple of hours. To reconstitute this court for a couple of hours is going to be----
MR WILSON: That is my suggestion, your Lordships might care to look at the skeletons which do actually put the arguments for and against the----
LORD JUSTICE ALDOUS: We did look at the skeletons at the time and quite clearly there were substantial arguments both ways.
MR FANCOURT: In an effort to move things forward - I hope this is helpful - if the parties cannot agree it, we are content your Lordships decide the matters upon the skeleton arguments.
LORD JUSTICE ALDOUS: Or alternatively you each put in skeleton arguments on the point and we hear it on paper. And the point is decided on paper, with parties agreeing to put in a written argument on this issue alone, on the question of costs and the account, and we will then decide it on paper. That would certainly be more convenient as far as we are concerned. We are not going to tie you to it. The answer is: it is time these parties got together and worked out a sensible arrangement.
MR WILSON: Your Lordship has tied it together, so we have little option.
LORD JUSTICE ALDOUS: Thank you, Mr Wilson. The Associate has raised - the applications to introduce fresh evidence have got to be disposed of. So we either dismiss them - formally dismiss them, and perhaps you would deal with that point as well.
MR FANCOURT: We have actually withdrawn ours already.
LORD JUSTICE ALDOUS: So it is withdrawn, is it? Formally withdrawn.
MR FANCOURT: Yes.
LORD JUSTICE BROOKE: Normally when matters are formally withdrawn, then the costs flow. So I do not think we have got any problems about your costs.
MR FANCOURT: That sounds like another point I am going to take on board when formulating our submissions.
LORD JUSTICE BROOKE: (Inaudible) to tell us what the rules are on withdrawal.
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