England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (PATENTS COURT)
Mr Justice Laddie
HC 04 C00999

		Royal Courts of Justice Strand, London, WC2A 2LL
		21 October 2004

Jacob LJ :

1. This appeal is from a judgment of Laddie J of 18^th June 2004 refusing an application by MedImmune for a stay of Celltech's claim against them. Having refused that application, Laddie J then gave directions for a streamlined trial. It is due to be heard in March 2005.
2. Although Laddie J refused permission to appeal, I granted it on the basis that a point of some general importance to intellectual property licensing appeared to be involved.
3. Celltech's claim is based on a patent licence dated 19^th January 1998. They say in this action that MedImmune are liable to pay royalties in respect of their US manufacture and sales of their product "Synagis." MedImmune deny any such liability. As will be seen below liability depends on whether a "Valid Claim" as defined in the agreement covers the product.
4. There have been two previous actions concerning claims for royalties in respect of Synagis sales. In these, Celltech alleged that Synagis was covered respectively by the US and German versions of one of the licensed patents called "Adair 1." This Court held (2003 EWCA Civ 108) that the US version of Adair 1 did not cover Synagis. Laddie J has held (2004 HC 1124 (Patents)) that the German version of Adair 1 does not either. An appeal from that decision is pending.
5. The present claim is for royalties said to be due for use of a second US patent called "Adair 2" granted to Celltech on 14^th October 2003. It does not have the same limitation (about the residue at position 23), which caused the earlier claims to fail. On 30^th January 2004 MedImmune commenced proceedings in the US District Court for the District of Columbia for declarations that US Adair 2 is invalid and that Synagis does not infringe it.
6. Celltech's response to this was twofold – to ask the US court to decline jurisdiction over the claim for a declaration of non-infringement and to bring the present proceedings in the courts of England and Wales ("the English courts"). The basis of each of these claims is Celltech's contention that the licence agreement confers jurisdiction over a question of whether or not a product is covered by a licensed patent upon the courts of England and Wales. In each of the earlier proceedings MedImmune were content that the question should be adjudicated here and did not take the point now taken. It is not, however, suggested that they are now debarred because they did not raise the point in the earlier proceedings.
7. Thus two points arise:

(1) Does the agreement confer jurisdiction on the English courts to decide whether Synagis is covered by the claims of US Adair 2?

(2) If so, should the court nonetheless in its discretion decline jurisdiction.

8. Laddie J rejected both points. Mr Floyd QC for MedImmune reasserts both. Mr Kitchin QC for Celltech accepts that if the agreement does not confer jurisdiction over the scope of the claims, then a stay is appropriate.

The scope of the jurisdiction clause

9. I accordingly turn to the first issue: The relevant provisions of the agreement read:

1.10 "Valid Claim" shall mean a claim of an issued, unexpired patent included within the Adair patent Rights which has not been held invalid or unenforceable in an unappealed or unappealable decision of a court or competent body having jurisdiction thereof.

3.3 In further consideration of the licences granted in Clause 2 the Licensee shall pay to Celltech a royalty at the rate of two percent (2%) of Net Receipts from all Products sold where the manufacture or sale of the Product in a country of the Territory would, but for the licence granted hereby, infringe a Valid Claim.

13.1 The validity, construction and performance of this Agreement shall be governed by English law.

13.2 All disputes, claims or proceedings between the parties relating to the validity, construction or performance of this Agreement shall be subject to the jurisdiction of the laws of England to the jurisdiction of whose courts the parties hereto submit. Each of the parties consents to the award or grant of any relief in any such proceedings before the High Court of Justice in England. Either party shall have the right to take proceedings in any other jurisdiction for the purposes of enforcing a judgment or order obtained from a Court of Justice in England.

10. The licensed patent rights – the Adair patent Rights – include US Adair 2. It may be noted that there are many countries in which licensed rights subsist. They are set out in a Schedule to the agreement and include the US, Japan and most of the (and all commercially important) countries of the European Patent Union as it stood in 1998 and many others. Those drafting the agreement would have been well aware that in many of the countries concerned there are non-expert patent courts of variable quality and speed of decision.
11. Before going any further I observe that in the jargon of the patent world, whether or not a product "infringes" can have two distinct meanings. It can mean merely "fall within the scope of protection assuming the patent is valid" or "fall within the scope of a valid patent." Only in the latter case is making or selling the product wrongful. Which meaning it has will normally be apparent from context. Thus in the expressions "you cannot infringe an invalid patent" (per Laddie J in Coin Controls v Suzo [1997] FSR 660 at p.669) and "no man can infringe an invalid patent" (per Aldous J in Plastus Kreativ v 3M [1995] RPC 438 at p.447) the second meaning is apparent. On the other hand MedImmune's application to the US court for a declaration that Synagis "does not infringe any valid claim" of US Adair 2 really means a declaration that Synagis does not fall within a valid claim – if it does fall within such a claim it cannot infringe in the sense of being wrongful because it will be licensed.
12. Returning to the Agreement, royalties are due on products "where the manufacture or sale … would, but for the licence granted hereby, infringe a Valid Claim" (3.3). The definition of "Valid Claim" means that a claim is regarded as valid unless and until it is finally decided to be invalid (1.10). Thus I think it is clear that "infringe" in clause 3.3 has the first meaning. Royalties are payable under all products falling within granted Adair patents if the product falls within the scope of a claim of such a patent, irrespective of its validity, unless and until it is finally declared invalid.
13. To those unfamiliar with the world of patents this might sound irrational – why should royalties be payable (and apparently be unrecoverable) for a licence under a patent claim ultimately held invalid? There is a rational answer to this. Everyone knows that patent law can, at least at its edges, be uncertain – and that different results can arise in parallel litigation in different countries. By taking such a licence MedImmune have achieved a number of clear desirable commercial objectives: (1) they know they are free to develop and market products irrespective of the question of validity; (2) they are free so to do across the globe; and (3) their competitors may have to face litigation from Celltech in a variety of jurisdictions whereas they, MedImmune, stand in the shelter of the patents, valid or invalid. It is not irrational that they should pay for such benefits.
14. It is against that background that clause 13 falls to be considered. The key words – "validity", "construction" and "performance" of the Agreement are to be found in both clauses 13.1 and 13.2. Mr Floyd argues as follows:

i) It is common ground that the question of jurisdiction does not depend on the validity or construction of the agreement. The question is whether its "performance" is involved;

ii) The clause is unusual in that it lacks a catch-all phrase such as "any claim arising out of or concerning this agreement" or the like;

iii) "Performance" must have the same meaning in each clause;

iv) So far as cl. 13.1 is concerned it is a nonsense to say that the scope of foreign patents is to be determined by English law;

v) It follows that "performance" has a restricted meaning – covering things like the administration of royalties but not the underlying question of the scope of the licensed patents which are governed by various foreign laws;

vi) This is confirmed by the consideration that is most unlikely that the parties would have wanted to allow for adjudication of a dispute about the scope of the foreign patent to take place in the UK while an adjudication on validity takes place in the country of the patent concerned – and all the more so since often questions of validity and scope are intertwined.

15. I would reject that argument. Firstly as a matter of plain language "performance" must include the basic obligation to pay royalties due under the agreement. Celltech say MedImmune are not performing their obligation, MedImmune deny that. There is a dispute about the performance of the Agreement and that is to be governed by English law and subject to the jurisdiction of the English courts.
16. I see no difficulty in the fact that in applying English law, English law will apply the appropriate foreign law as to scope. It is a simple matter of renvoi. It has already been done twice (applying respectively US and German law) for the purposes of this very agreement without undue difficulty.
17. Moreover if "performance" were limited in the manner suggested, it would be of very limited effect – the English court would be precluded from determining any dispute (such as this) as to whether royalties were properly payable. That is improbable in an agreement intended to have global effect.
18. This is reinforced by the fact that the agreement covers patents from many different jurisdictions. It makes sense for the parties to select a jurisdiction with a specialist, experienced court to decide matters, as I think they have done.
19. Nor am I impressed by the possibility of parallel litigation, about validity in the country of the patent and in England about scope. The parties clearly contemplated that there might be litigation in the country of the patent concerned about its validity – either instigated by MedImmune or by a third party. In providing that royalties are payable unless and until such litigation results in a determination against validity, they clearly had this in mind. If they had wanted to provide that any dispute about scope should also be in the country concerned they would have done so by excluding such a dispute from "performance."
20. The point about the form of the words again is of no assistance. If the exclusive jurisdiction clause had said "any dispute arising out of or concerning this agreement" the argument would have been the same, as Buxton LJ pointed out in the course of argument.
21. In the result I agree with the view of Laddie J and essentially for the reasons given by him. I particularly endorse what he said in paragraphs 24 and 25:

"24. To have all issues of infringement determined by one court gives rise to a greater chance of consistency. It will in many cases reduce the amount of litigation involved and it will mean that only one court, and perhaps in some cases only one judge, need be educated so as to understand the patented technology involved.

25. It appears to me that those considerations apply here. Although it is not strictly necessary to do so, one can see that it makes good commercial sense for the parties to have agreed that rather than have the issue of infringement determined in up to 24 different countries where MedImmune may sell its products, all the issues of infringement should be determined in one court which could effectively become a specialist in determining that issue."

22. In so holding I am not expressing a view that clause 13.2 is an exclusive jurisdiction clause. Mr Kitchin in his skeleton argument advances the view that it is and Mr Floyd's skeleton argument and oral submissions assumed that it is. But Celltech have not followed the logic of that contention up by seeking to restrain MedImmune from pursuing their application in the US for a declaration of non-infringement. It is not necessary to decide the point.

Discretion

23. It is common ground that there must be "strong reasons" for granting a stay where there is a contract giving jurisdiction to the court. That is for the obvious reason that jurisdiction is the parties' bargain. Moreover, since stay or no is essentially a matter for the court's discretion, on appeal it must be shown that the judge erred in exercising his discretion. This brings into play the usual rules: did the judge take into account matters he should not have done, omit to take into account matters he should have done, or exercise his discretion in a manner in which no reasonable tribunal, taking into account all relevant matters, could have done?
24. So Mr Floyd has a double hurdle – he must overcome the "strong reasons" test and make good an attack on the exercise of discretion. So far as I can see he does not suggest that there are any factors which the Judge took into account which he should not have done or that he omitted any factors which he should not have done. His attack is essentially that the Judge so misweighed certain of the factors that he could not reasonably have come to the conclusion he did and that there are indeed such powerful factors in favour of US trial of the scope of the patent that the agreed forum of England should stand aside.
25. The factors relied upon in Mr Floyd's skeleton argument are as follows:

(a) Only the US Court can try the issue of validity of the Adair 2 patent.

(b) Since Celltech has not challenged the jurisdiction of the US Court (and could not in any event), the US Court will try the validity of the US patent whatever happens in England.

(c) In doing so the US Court will construe the claims.

(d) A US Court is plainly the best Court to construe a US patent. It is the natural forum to decide on the proper scope and validity of granted monopoly of that state. All the issues are governed by US law.

(e) It is not in the interests of justice for both the US and English Courts to construe the claims. The risk of inconsistent decisions would be extremely high.

(f) MedImmune's case is in part a "squeeze". What this means is that if the claims are construed widely enough to cover Synagis, then they cannot at the same time be valid. Or to put it the other way, if the claims are narrow enough to distinguish the prior art on which MedImmune relies, those claims cannot also cover Synagis. In the circumstances of a case of this kind, it is particularly dangerous to have two different courts deciding construction: one on infringement and the other on validity. The risk of an injustice is particularly high.

(g) It is inherently undesirable for reasons of costs, labour and disruption for the same issue of construction to be litigated twice if it can be avoided.

(h) The US Court is able to try validity and infringement in a single proceeding: the English Court is not.

(i) If the English Court were to construe the claims in accordance with US law, and that decision were binding between the parties by way of issue estoppel, then when applied to validity it could lead to the conclusion that the US patent was invalid. It would be wrong for the English Court to make a decision which could have the effect of invalidating a US patent.

26. In his oral submissions Mr Floyd clearly voiced his client's fears: that the English court (of course applying US law) would construe the patent widely enough to cover Synagis but that the US court would find the patent valid but on the basis of a narrower construction. Mr Floyd said his client was exerting a "squeeze" on Celltech's case – if the patent covers Synagis then it is invalid. He demonstrated in some detail the nature of the squeeze and the ways in which MedImmune also argue non-"infringement." It is not necessary to set these out – the Judge was prepared to assume he was right and I am too.
27. Mr Floyd submitted that it is highly unsatisfactory for MedImmune to be exposed to the risk of inconsistent decisions. Indeed if they were to happen, MedImmune might find themselves paying royalties for the life of the patent even though Synagis was not covered by the claims of the patent as construed in the US Court.
28. Mr Floyd particularly relied upon the decision of the House of Lords in Donohue v Armco [2002] 1 Lloyds Rep 425. There, in very simplified summary, US proceedings had been commenced by a group of related companies against a number of British individuals and companies alleging a major fraud. Some of the claims, against only some of those defendants, were based on matters covered by an exclusive jurisdiction clause. The defendants in the US proceedings applied here for an anti-suit injunction to restrain the US proceedings. It was refused. Lord Bingham, giving the leading speech, said in para. 25:

"But the general rule is clear: where parties have bound themselves by an exclusive jurisdiction clause effect should ordinarily be given to that obligation in the absence of strong reasons for departing from it. Whether a party can show strong reasons, sufficient to displace the other party's prima facie entitlement to enforce the contractual bargain, will depend on all the facts and circumstances of the particular case."

29. He then went on to say (para. 27):

"The authorities show that the English court may well decline to grant an injunction or a stay, as the case may be, where the interests of parties other than the parties bound by the exclusive jurisdiction clause are involved or grounds of claim not the subject of the clause are part of the relevant dispute so that there is a risk of parallel proceedings and inconsistent decisions."

30. Lord Bingham pointed out that there was a conflict between the prima facie right conferred by the exclusive jurisdiction clause to be sued here and the right of the foreign plaintiff to sue abroad on matters not covered by the clause. There was a balancing exercise to be performed. Mr Floyd relied upon the way it was performed by Lord Bingham so I set it out:

"33. Thus Mr Donohue's strong prima facie right to be sued here on claims made by the other parties to the exclusive jurisdiction clause so far as the claims made fall within that clause is matched by the clear prima facie right of the Armco companies to pursue in New York the claims mentioned in the last three paragraphs. The crucial question is whether, on the fact of this case, the Armco companies can show strong reasons why the court should displace Mr Donohue's clear prima facie entitlement. If strong reasons are to be found (and the need for strong reasons is underlined in this case by the potential injustice to Mr Donohue, already noted, if effect is not given to the exclusive jurisdiction clauses) they must lie in the prospect, if an injunction is granted, of litigation between the Armco companies on one side and Mr Donohue and the PCCs on the other continuing partly in England and partly in New York. What weight should be given to that consideration in the circumstances of this case?

34. I am driven to conclude that great weight should be given to it. The Armco companies contend that they were the victims of a fraudulent conspiracy perpetrated by Messrs Donohue, Atkins, Rossi and Stinson. Determination of the truth or falsity of that allegation lies at the heart of the dispute concerning the transfer agreements and the sale and purchase agreement. It will of course be necessary for any court making that determination to consider any contemporary documentation and any undisputed evidence of what was said, done or known. But also, and crucially, it will be necessary for any such court to form a judgment on the honesty and motives of the four alleged conspirators. It would not seem conceivable, on the Armco case, that some of the four were guilty of the nefarious conduct alleged against them and others not. It seems to me plain that in a situation of this kind the interests of justice are best served by the submission of the whole dispute to a single tribunal which is best fitted to make a reliable, comprehensive judgment on all the matters in issue. A procedure which permitted the possibility of different conclusions by different tribunals, perhaps made on different evidence, would in my view run directly counter to the interests of justice."

31. Here, submitted Mr Floyd, the position was essentially the same: there is a real risk of inconsistent decisions between the English court and the US court. That is a matter of "great weight" and the Judge did not give enough weight to it. Moreover here there could be a serious injustice in the way I have described above. By way of contrast if the proceedings are stayed, and the US Court eventually rules in Celltech's favour, all that will have happened is that Celltech will have had payment of their royalties delayed, a matter that can be covered by interest.
32. I would reject that argument. The Judge was well aware of all the points canvassed before us and took them all into account. I set forth here the points taken into account by the Judge and also deal with some of the points made by Mr Floyd:

(a) The parties bargained to give jurisdiction to the English court concerning the scope of the licensed patents;

(b) That bargain expressly recognised that the issue of validity of the licensed patents could only be tried by the court(s) of the relevant country(ies) – that is what the definition of Valid Claim is about. What was agreed was not only foreseeable but foreseen by the very terms of the agreement. That is a highly material factor in deciding whether the court should permit a party from departing from his bargain, see e.g. per Waller J in British Aerospace v Dee Howard [1993] 1 Lloyd's Rep. 405

(c) This case, unlike Donohue or The El Amria [1981] 2 Lloyds Rep. 119, only involves the parties to the bargain.

(d) The nature of the issues in this case is very different from those in Donohue. There the case was highly fact-sensitive – at the heart of the claims were allegations of fraud. Here the case largely turns on documents. True it is that technical expert evidence may be given but it will largely, if not wholly, consist of the kind that is to instruct the court in the technology rather than a conflict of technical opinion. I can say that with some confidence having been the trial judge of the earlier first English action. I would hope the parties can simply agree a "primer", as is so often helpful in patent actions.

(e) The possibility of different constructions of the claim is in fact very remote: Mr Kitchin made it perfectly clear that his clients will not advance different constructions in each country (wide here to catch Synagis, narrow in the US to save the patent). It is, of course possible in theory, that the US court would find a narrower construction than that contended for by Celltech. But it is wholly improbable that a US court, aware of what had happened here (assuming a wide construction was reached) would depart from it, even without Mr Kitchin's assurance. Indeed, as a matter of US law (I do not know) Celltech might be estopped from contending for any other construction.

(f) There are significant time advantages in the English proceedings going ahead. As I have said trial is fixed for next March; the US case would, it seems, take a year longer. If the English court holds that Synagis does not "infringe" that would very probably be an end of the dispute; the question of validity in the US would have become academic as between the parties.

33. So I think there is no basis for saying that the Judge exercised his discretion wrongly. Indeed if I were exercising the discretion afresh I would have exercised it in the same way. I would dismiss this appeal.

Lord Justice Buxton:

34. I agree.

Lord Justice Potter:

35. I also agree.
ORDER: Appeal dismissed with the costs of appeal summarily assessed out £45,000. (Order does not form part of approved Judgment)