England and Wales High Court (Patents Court) Decisions

1. Human growth hormone (hGH) is a protein (i.e. a string of amino acids called by scientists a "polypeptide") 191 amino acids long. This case is concerned with a licence about making it by genetic engineering techniques. One does not need to know much about these for present purposes. The general method is to put the gene which encodes for the protein into a cell and cause that cell to reproduce in a fermentation vessel. The cell then makes the protein encoded by the gene. Owing to the technique used to get the gene into the cell, there are some extra amino acids tagged on at one end of the string. You need to cut these off, using a chemical which recognises the join and cuts ("cleaves") at the right place, namely just before the hGH proper begins. Such a chemical is called an enzyme. A suitable such enzyme is called DAP-1. Another is called d-DAP.

2. The licence the subject of the dispute is a written document dated 3rd June 1993. Each side says it should be rectified, but in different ways. Failing rectification, the claimant ("Lilly") claims relief on a variety of grounds namely estoppel, or misrepresentation, or breach of contract. Since rectification lies at the heart of the parties' cases, it is necessary to go into the history leading to the written contract.

3. In May 1990 the European Patent Office granted patent No. 217,814 to the defendant ("Novo"). The main claim as granted, shortly paraphrased was for a process for producing hGH by using DAP-1 to chop off the extension. At that time (or shortly thereafter) the claimant ("Lilly") was using that process. So they opposed (i.e. sought revocation) of the patent in the EPO. In 1992 Lilly decided to try to reach an accommodation with Novo. They had no information about any US patent corresponding to '814, but they supposed there would be such an application still pending in the US Patent Office.

4. I must explain that last fact in more detail. US patent grant procedure, unlike that of Europe and most other countries, does not provide for early publication. The patent is not published until granted. And grant can take a considerable time if the patentee so wishes. He can achieve this by filing a variety of alternatives which lead to delay, namely a "continuation in part" (CIP), a "file wrapper continuation" (FWC) or a "continuation" (CON). A CIP involves a fresh filing based on the earlier filing but including added matter. Claims of CIPs if granted can take the date of the earlier filing unless they are based on the added matter, in which case they take the date of filing of the CIP. A FWC is simply a refiling of an existing pending application - its effect being to give a new number and more time for examination and discussion with the examiner. A CON is much the same, save that you may get a new examiner. Any of these can be superseded by further CIPs, FWCs or CONs. And a single original application may get split up leading to a number of patents. Thus, in the US, patents can be granted (and first published) many years after the first filing was made. US patent lawyers call such patents "submarine patents": they suddenly surface into what has become an established industry. Until recently such patents would run for 17 years from "surfacing" but now US patents can only run for 20 years from the date of the original patent filing upon which any patent is based, thus aligning US law with that in other countries in respect of term.

5. Turning back to the story, Lilly decided to contact Novo about '814 and its foreign equivalents in early 1992. Their immediate concern was the fact that they were using DAP-1. They thought they could win the opposition (and any corresponding future disputes). But there was no guarantee of success and it would be better to take a licence at an acceptable rate if this were possible. It so happened that Lilly and Novo had friendly relations and a meeting in Copenhagen about another topic had been scheduled for 4th June. Mr Noonan was the man at Lilly who had contacts with Novo so he made the initial approach, suggesting a further meeting on that date. He briefly gave evidence but neither side suggested he really played any relevant part or had any relevant knowledge or intention.

6. The meeting duly took place on 4th June 1992. Lilly's team was led by Mr Ashbrook who was then Assistant General Patent Counsel for Lilly. He left Lilly in 1994 for a similar position with Warner-Lambert, where he still is. The team also included Mr Noonan and a Mr Parrish who had some detailed knowledge of the opposition proceedings, Mr Ashbrook not being concerned with this. Novo's team was led by Mr Thorup who was Vice President of Marketing and Business Development of the Biopharmaceuticals Division. Also present were Mr Hansen who, at the time, was head of Process and Product Development in that Division and Mrs Secher who was Director of Corporate Patents. Mr Hansen was there to provide any technical advice and Mrs Secher to provide any information about the European Patent, which, in the event was not needed.

7. No-one suggests that any concluded agreement was reached at this meeting. Mr Ashbrook had no specific recollection of DAP-1 being mentioned, though the Novo team think it was. It probably was. After all it was EP '814 which had led to the meeting. It is common ground that Lilly did not disclose they were actually using DAP-1 at the time, though Novo had strong suspicions they were. Lilly were not directly asked the question. There was discussion about money. Lilly offered ½%, which Novo thought was derisory. Lilly indicated that they had in mind an alternative process so that what they wanted was no more than an "insurance." It was agreed that Novo should produce the first draft of a proposed licence. It was for Novo to make the first formal offer capable of being accepted.

8. Following the meeting Novo sent Lilly a draft licence. as had been agreed. The first draft which was sent (I ignore an earlier internal draft) was sent by Mr Thorup to Mr Ashbrook on 11th September 1992. Two definition clauses read as follows:

2. The draft licence was to be world-wide. Novo asked for 3% royalty plus a $1m minimum royalty and an initial $1m signing fee. Novo offered, by clause 9 to make its best efforts to obtain the Patent Rights. So far as the US is concerned, the Schedule only referred to one US application, No. 595,783. The Schedule had been prepared by Mrs Secher. She had gone to the Novo database and prepared it from that. In her first (internal) draft of the Schedule she put in two US applications, Nos. '783 and another, namely '602. She removed the latter because at the time she thought it excluded hGH from its claims and so was apparently not relevant to the proposed licence, limited as it was to be, to hGH. Actually '602 did include making hGH using DAP-1 but went wider than this to include making other proteins (of a specified kind) using DAP-1 as a cleaver. It is clear that Lilly had to rely upon Novo to identify the relevant US patent application. As I have said it had no means of knowledge of its own by which any US application could be identified. Lilly had not and did not ask to see the relevant US application and Novo did not offer to disclose it.

9. There was, it is agreed, a further meeting in November. Only Mrs Secher could remember such a meeting taking place, but she could not remember anything specific about it. Further negotiations took place at long distance. They were essentially about the money and not about the subject matter of the proposed licence. Mr Ashbrook did not want to pay on any sales of hGH unless there was a relevant granted patent. So the term "Licensed Product" was modified from the first draft by causing clause 1.2 to read:

10. Novo, in return, succeeded in increasing the royalties. There was 2.5% on sales, a minimum annual royalty of $4m and a signing fee of $1m. Throughout the negotiations no further attention was paid to clause 1.1.

11. The agreement was finalised on 3rd June 1993. Actually there were two documents, one for the US and one for the rest of the world. This was done for tax reasons only. The parties are agreed that that in substance there was only one agreement. Each agreement had its own "Exhibit I". That for the US referred simply to Application No. '783, whilst that for the rest of the world referred to the remainder of the patents and countries identified by Mrs Secher in the original "Exhibit 1".

12. I now turn to the events leading up to this dispute. At some point Lilly stopped using DAP-1 and now used d-DAP. That, of course, is outside the scope of the patent which led to the negotiations, namely EP 814. But in the US Novo have succeeded in getting patents of wider scope. The parties have produced an agreed diagram showing the various US patents and patent applications of Novo which I reproduce here.

13. It will be seen that there eventually emerged no less than 5 US patents. The claims of these are not limited to hGH made by enzymatic cleavage using DAP-1, the scope of the EP which initially led to the negotiations Some go much wider. A good instance is claim 1 of US 5,633,352 which is simply to:

14. In October 1997 Novo sued Lilly in New Jersey under these US patents. Lilly claimed they were licensed because the patents sued upon were CIPs or CONs of the patent US application referred to (or which should be referred to) in the licence. So the real question is whether they have such a licence. The problem arises because the only US patent or application referred to in the 3rd June 1993 licence is US application No. '783. But, unknown to the parties at the time of the licence (and at the time of the first offer of a licence) '783 had been abandoned. Doubtless Novo could have found out from their US attorneys who were prosecuting their US patents what the position was, but Mrs Secher worked from a computer database which indicated that the relevant US application in respect of DAP-1 was '783. Thus '783 has no CIPs or CONs and the agreement as it stands cannot help Lilly.

15. So Lilly came to this court to seek rectification of the licence. There was first what is becoming routine in many intellectual property disputes, namely a dispute about where the dispute should take place. That was resolved by Laddie J and the Court of Appeal who each held, hardly surprisingly, that, given that the contract was governed by English law and contained a provision referring disputes to the courts of London, England, that the dispute was rightfully here. Failing rectification Lilly claim other sorts of remedy, as I have indicated above.

17. Given that the document does not reflect either party's intention, I have to discern whether they had a common intention which was not written down accurately. Both sides accept that this is the correct legal principle which I must apply:

3. If I find no common intention, then it follows that I cannot grant rectification. The agreement would then stand. Lilly would go on to say that Novo were liable in at least one of the other ways I have mentioned above. Mr Silverleaf, for Novo, alternatively suggests that given the parties are agreed that the document as it stands is wrong, if I can find no common intention as to what it should be, then I should conclude there is no agreement at all.

18. I therefore turn to the crucial question, was there a common intention, and if so what was it? I have come to the firm conclusion that there was. It was to give Lilly a licence for making hGH under any patent which emerged from Novo's existing US application concerning the use of DAP-1 or was a CIP or CON arising from such an application. I turn to discuss my reasons based on the evidence in more detail

19. It is quite clear that what both sides were actually concentrating on was DAP-1. That is what Lilly were actually using and what Novo suspected them to be using. All contemporaneous documents bear this out. On the part of Novo Mr Thorup thought that all that would be licensed would be DAP-1. And I rather think that DAP-1 was all that Mr Ashbrook expected would in the end be the result of the licence. I say that because all his documents only refer to DAP-1. I do not need to refer to all (though there are not many) of them. A couple will suffice. He wrote by hand on a fax sent from Novo in August just before Novo sent first draft licence "re DAP-1". And shortly after the licence was concluded he wrote a summary of the agreement, oddly under the word "Diabetes", the following words "Novo grants Lilly non-exclusive licence to use DAP-1 in manufacture of hGH."

20. Mr Silverleaf QC for Novo pressed Mr Ashworth hard on these and other documents. He went so far as to suggest that Mr Ashworth was not telling the truth - the truth being that all that Lilly intended to take by way of a licence was DAP-1. I reject that suggestion. What Mr Ashbrook intended to take, after it had been offered, was a licence in respect of hGH under whatever emerged from Novo's US application corresponding to the EP. That is what he was offered and that offer was never varied. Whether or not the claims would go wider than DAP-1 was not a matter he specifically considered, though he was aware generally of the sort of thing that can happen in US prosecution and also of the possibility that claims might have a generous interpretation under the doctrine of equivalents. None of that means he intended to accept a licence limited to DAP-1. It is difficult indeed to see what motive he would have had to limit the permission which Lilly would be granted by the licence.

21. At one point I wondered whether this was not so based on a document (not in fact one of Mr Ashworth's) dated 31st March 1993. It was a document of Lilly's Technology Acquisition Committee and reads:

4. It is a fair inference from this document that its authors were considering that a process change might mean that Lilly would not have to pay royalties on an alternative process (which was d-DAP and perhaps some other). But it does not follow that Lilly only intended to pay royalties if they used DAP-1 and so were not intending to take any wider licence. It was simply that there was no expectation at the time that Novo would ever get claims or patents going wider than DAP-1.

22. The position was the same at Novo. They considered that all they would be licensing by their offer document was DAP-1. But this is not because it was intended that the licence would be so limited, but because they thought the rights they would obtain and so could be licensed would be so limited. In fact the references to CIPs, CONs and so on in the original offer got there because a junior in the legal department had copied them from some precedent. Mr Thorup and the rest of the team did not really know what the references meant. That is not to say they did not intend to offer whatever those terms objectively meant. They did. There is a difference between writing into the contract the wrong thing and not understanding the full implications of what the parties did intend to write.

23. Mr Silverleaf contended that I should consider the position as of the date of the initial meeting and that the scope of the proposed licence was settled there. He said that all the parties had in mind there was DAP-1. That I rather think was so, but I do not think it right or fair to say that the parties at that meeting intended to set in stone the scope of the licence. No choate offer had even been made at that stage. The parties' intentions must extend to what was actually offered by Novo and accepted by Lilly: those intentions include the references to CONs and CIPs.

24. I therefore conclude that Lilly are entitled to the rectification they seek and Novo are not entitled to the further rectification which they seek. In so concluding I think there is a considerable amount of broad justice. So far as making hGH is concerned the only live application, '856, disclosed no more about making it than that which was disclosed in the abandoned application, namely using DAP-1. The fact that Novo went on to get broader claims relating to hGH might equally have happened if '783 had not been abandoned and had instead been the basis from which the various CONS were granted.

25. I will hear counsel as to the form of the order.