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You are here: BAILII >> Databases >> England and Wales High Court (Patents Court) Decisions >> Cambridge Antibody Technology v Abbott Biotechnology Ltd & Anor [2004] EWHC 2974 (Pat) (20 December 2004) URL: https://www.bailii.org/ew/cases/EWHC/Patents/2004/2974.html Cite as: [2005] FSR 590, [2004] EWHC 2974 (Pat) |
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CHANCERY DIVISION
PATENTS COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
CAMBRIDGE ANTIBODY TECHNOLOGY |
Claimant |
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- and - |
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(1) ABBOTT BIOTECHNOLOGY LIMITED (2) ABBOTT GmbH & CO KG |
Defendants |
____________________
Lord Grabiner QC, Mr Simon Thorley QC, Mr Marcus Smith and Mr Justin Turner (instructed by Freshfields Bruckhaus Deringer for the Defendants)
Hearing dates: 22, 24 – 26, 29 – 30 November, 1 – 3, 6, 9 – 10 December 2004
____________________
Crown Copyright ©
Mr Justice Laddie:
Introduction
The technical background
(i) Antibodies
(ii) Simple concepts in genetic engineering
(iii) The application of genetic engineering technology to the production of antibodies
(iv) The technology licensed by CAT
(v) Other technology relevant to this dispute
The Agreements
(i) The approach to construction
"(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 happen in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v. Eagle Star Life 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 S.A. v. Salen Rederierna A.B. [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.'" (p 912H-913E)
"The background is however very important. I should in passing say that when, in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896, 913, I said that the admissible background included "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man", I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage: "we do not easily accept that people have made linguistic mistakes, particularly in formal documents". I was certainly not encouraging a trawl through "background" which could not have made a reasonable person think that the parties must have departed from conventional usage."
"The meaning to be given to the words used in a contract is the meaning which ought reasonably to be ascribed to those words having due regard to the purpose of the contract and the circumstances in which the contract is made".
(ii) The factual matrix
(A) CAT's technology, and the history of its patents.
(B) Knoll's expertise and work relating to TNF... .
(C) Technologies offering alternative routes to Knoll to an anti-TNF... antibody.
(D) The route offered to Knoll by CAT in isolating the variable domains and encoding genes: the purpose of the collaboration.
(E) The parties' understanding of the patent environment prevailing at the time in relation to antibody gene library and phage display technology and in relation to technology subsequent to the phage display step.
(F) The nature and purpose of the parties' arrangements concerning the MRC Patents.
(G) The respective roles of CAT and Knoll in the collaboration and, in particular, in the development of HUMIRA.
(iii) The relevant terms of the 1993 Agreement
"Knoll and CAT wish to enter into a collaborative development program aimed at isolating human neutralising antibodies to certain human antigens, beginning with TNF. Knoll is to take an exclusive, worldwide license to various patents and know-how in the Exclusive Field as defined below relating to phage-antibody technology. The collaboration and the license are to be on the terms and conditions set out in this Agreement."
"'Exclusive Field' means the isolation, development, manufacture, use and sale of the Antibodies and all antibodies (excluding mAb 32) and molecules derived using the technology covered by the Patents for human in vivo use.
'The Antibodies' mean antibody molecules or fragments or derivatives thereof, identified, produced or derived under the Research Program binding to The Antigen.
'The Antigen' means human tumour necrosis factor (() (TNF... )
'Patents' mean PCT applications WO 90/5144 (Winter 2) except as pertaining to single variable domains as described in claims no. 32 – 40, as published on May 17, 1990, and WO 92/1047 (McCafferty), the patents when granted, including any patents which derive from the Patents and any divisions, renewals, continuations, continuations-in-part, extensions or reissues.
'Research Program' means the research program aimed at the identification, production and development of The Antibodies to be conducted under Article 2 of this Agreement"
"BBC [i.e. Knoll] to convert lead clones into full-length antibodies if not already. Optimisation of expression. Initiate phase I/II trials."
"3.01 Knoll will pay CAT a non-refundable fee to fund the Research Program of £xxx within thirty (30) days of the Effective Date.
3.02 In addition to the payment to be made pursuant to sub-clause 3.01 above, Knoll will pay CAT milestone payments within thirty (30) days of CAT achieving each of the CAT Technical Milestones 1 – 3 identified in Schedule II to this Agreement. Payments are to be made as follows: …
3.03 Knoll may, in addition to the payments to be made pursuant to sub-clause 3,01, 3.02 and 3.04 herein, make the following payments to CAT or be subject at CAT's option to conversion of the exclusive license granted by this Agreement to a non-exclusive license, all other terms of this Agreement remeining (sic) the same:
(a) … within 30 days of achievement of CAT Technical Milestone 4 or twelve (12) months after the achievement of CAT-Technical Milestone 3, whichever is earlier.
(b) … within thirty (30) days of initiating the first human clinical studies for the first Product, or within 30 months of achievement of CAT Milestone 4, whichever is earlier; and
(c) … within thirty (30) days of Knoll's receipt of formal PLA approval for the first Product in any given country other than the United States of America, or within nine years of the IND filing in the United States for that Product, whichever is earlier.
3.04 Knoll will, in addition to the payments to be made pursuant to the foregoing, make the following payments to CAT:
(a) … within thirty (30) days of the start of Phase III clinical studies of the first Product:
(b) … within thirty (30) days of Knoll's receipt of formal PLA approval in the United States of America for the first Product, said payment to be reimbursable as follows …"
" 'PLA' means a Product Agreement Application, or other application approving the marketing of the Product, which is submitted to the FDA."
" 'Product' means any pharmaceutical composition containing one or more of the Antibodies."
" 'First Commercial Sale' means the first sale or other disposition for value of the Products, in a final dosage form packaged for the ultimate consumer, to an independent third party following regulatory approval. The term 'First Commercial Sale' shall not include sales and disposals for experimental purposes or for purposes of clinically or otherwise testing any Product."
"a drug which is made, isolated and/or developed by Knoll and/or its Affiliates wholly or partly using The Antibodies or derived from The Antibodies"
"that it will use all commercially reasonable efforts to … develop saleable Products of good merchantable quality and to bring those Products to market within the time usually taken to bring products of a similar nature to market and to satisfy the market demand for those Products."
"SCHEDULE 2*
M1: isolation of ten or more "human antibody fragments: which bind specifically to human TNF... i.e. do not bind with Ka's ( 105 M-1 to a panel of ten other human antigens)
M2: Isolation of four or more "human antibody fragments" that bind specifically to human TNF... with Ka's ( 107 M-1 and neutralize 50% of TNF( bioactivity in vitro with a MAb:TNF( molar ratio of ( 100:1
M3: Isolation of two or more "human antibody fragments:" that specifically bind to human TNF... with Ka's ( 108 M-1 and neutralize 50% of the TNF( bioactivity in vitro with MAb:TNF( molar ration of 10:1
M4: Generation of two or more intact IIF human anti-TNF... antibodies with Ka's ( 109 M-1 and which neutralise 50% of TNF( bioactivity in vitro with a MAb:TNF( molar ration of ( 10:0. These antibodies are produced by eukaryotic cell lines at greater or equal 100 pg/cell/day.
*Milestones M1 through M4 shall be deemed met upon delivery of the specified materials to Knoll or an Affiliate thereof and verification of the specified properties."
"ARTICLE 4
LICENSE GRANT
4.00 CAT grants to Knoll and its Affiliates a world-wide exclusive license under the Patents and Know-How in the Exclusive Filed to manufacture, use, sell, have manufactured, have used and have sold the Product(s) and/or Drug, with the right to sublicense.
4.02 CAT agrees that this Agreement is conditioned on the grant by the Medical Research Council to Knoll and its Affiliates of a sublicense under the Neuberger Patent and the Boss Patent on license terms set out in Schedule III to this Agreement.
4.03 Knoll grants an antigen-based sublicence in the Exclusive Field to CAT under the Neuberger Patent to the extent necessary to permit CAT to conduct its activities under the Research Program, on the terms set out in Schedule IV to this Agreement."
"1.14 "Know-how" means all unpatented information, whether or not patentable, relating to materials, methods, processes, techniques and data for the development, manufacture, use or sale of a Product and which any such party is free to transfer or disclose without violating contractual obligations to any third party. Know-how shall include, but not be limited to, regulatory data, market research, marketing strategies and analyses, and other commercial information relating to a Product."
"ARTICLE 5
ROYALTIES
5.01 Knoll shall pay to CAT royalty payments based upon the combined Net Sales of Product(s) by Knoll and its Affiliates and sublicensees as follows:
6% of the amount of combined Net Sales of up to one hundred million pounds sterling (£100,000,000) in a given year:
5.5% of the amount of combined Net Sales of over one hundred and fifty (sic) million pounds sterling (£100, 000,000) to one hundred and fifty million (£150,000,000) in a given year;
5% of the amount of combined Net Sales of over one hundred and fifty million pounds sterling (£150,000,000) in a given year.
5.03 Royalties paid to third parties, other than to the Medical Research Council, in order to license rights needed to practice or to have practiced the technology claimed in the Patents, will be borne equally by the parties provided that CAT's royalty pursuant to 5.01 is not less than 2% (two percent) of Net Sales. The 2% royalty to be paid to the Medical Research Council under the Boss Patent and Neuberger Patent shall be paid directly by Knoll to the Medical Research Council and shall be directly offset against the 4%-6% (sic) royalties due CAT by Knoll.
ARTICLE 6
PAYMENTS
6.00 Knoll shall make payments to CAT with respect to the sale of Product by Knoll, its sublicensees and its Affiliates, on a country-by-country basis, commencing six months after the First Commercial Sale and to continue every six months thereafter. …"
ARTICLE 12
INFRINGEMENT
12.01 If a third party in any country where the Product is being imported, manufactured, used or sold, notifies any of the parties, their Affiliates or licensees that such activity infringes or is alleged to infringe any issued patent either assigned to or licensed to such third party, then:
(a) the party so notified shall promptly notify the other parties in writing; and
(b) within thirty (30) days of receipt of notice of the alleged infringement, CAT will notify Knoll that it will either:
(i) indemnify Knoll and its Affiliates against any and all awards, judgments and settlements which require Knoll or its Affiliates to pay money to such third party and that it will defend the action at its sole expense, or
(ii) grant Knoll the right to defend, in its sole discretion, the action and allow Knoll to take as a credit, on an ongoing basis during the action, one half the cost of its external legal expenses and any damages which may be awarded, against the royalties due to CAT from Net Sales in the countries in which the claim of infringement is made, up to a maximum credit of 1% of such Net Sales. Such credit may not be taken by Knoll where the action involves a claim or right of a third party based upon activities such as packaging of the Product or improvements to the Product which are beyond the scope of the technology described in the Patents.
12.02 In the event Knoll must pay royalties or license fees to third parties under one or more claims of one or more patents to enable Knoll to utilise or have utilised the inventions of the Patents, half the amount of such payments actually made shall be credited to Knoll's royalty obligations to CAT for sales in that country where the patents exist. However, Knoll's royalty obligation to CAT on Net Sales in any given country shall not be reduced below 2% of such Net Sales by operation of the offset of this section 12.02. This offset shall not include royalties or licence fees which are beyond the scope of the technology described in the Patents, for example fees paid to third parties for delivery systems.
ARTICLE 14
WARRANTIES
14.03 CAT gives no warranty, express or implied, that the technology covered by the Patents will work when applied to any particular purpose.
ARTICLE 16
TERM AND TERMINATION
16.04 In the event that Knoll is unable to license on commercially reasonable terms any patent rights necessary to practice or have practiced the inventions disclosed in the Patents, which patent rights would be infringed by the making, using or selling of a Product, Knoll shall have the right, at its election, to terminate the Research Program(s) being conducted hereunder on sixty days written notice."
" 'Net Sales' mean the amounts invoiced on the sales of Product by Knoll, its sublicensees and Affiliates to independent, unrelated third parties in bona fide arms length transactions, less the following deductions properly documented actually allowed and taken by such third parties and not otherwise recovered or reimbursed by Knoll, its Affiliates or sublicensees…"
"Prior to the execution of this Agreement, the parties have had numerous discussions, conversations and negotiations, and have generated correspondence, writings and other memoranda with respect to the subject matter of this Agreement; notwithstanding which, this Agreement (including its Exhibits) is intended to define the full extent of the parties respective agreements, arrangements and obligations with respect to the subject matter hereof, and each party represents that it is not relying on any such other discussions, conversations, negotiations, correspondence, writings and memoranda in executing and delivering this Agreement or performing its respective obligations hereunder."
"5.02 Royalties paid to third parties, other than to MRC under the MRC-Patents, to license rights needed by Knoll, its Affiliates or permitted sublicensees, to practice or to have practiced the technology claimed in the Patents, will be borne equally by CAT and Knoll, provided, however, that the royalty payable to CAT pursuant to Section 5.00 shall not be reduced below two percent (2%) of Net Sales in any year for which a royalty is owed to CAT. The two percent (2%) royalty to be paid to MRC under the MRC-Patents shall be paid directly by Knoll to MRC and shall be directly offset against the 5%-6% royalties due to CAT pursuant to Section 5.00".
12.00 If a third party in any country where the Product is being imported, manufactured, used , or sold, notifies any of the parties, their Affiliates or licensees that such activity infringes or is alleged to infringe any issued patent wither assigned to or licensed to such third party, then … (b) within thirty (30) days of receipt of notice of the alleged infringement, CAT will notify Knoll that it will … (ii) grant Knoll the right to defend, in its sole discretion, the action and allow Knoll to take as a credit, on an ongoing basis during the action, one half the cost of its external legal expenses and any damages which may be awarded, against the royalties due to CAT from Net Sales in the countries in which the claim of infringement is made, up to a maximum credit of 1% of such Net Sales. Such credit may not be taken by Knoll where the action involves a claim or right of a third party based upon activities such as packaging of the Product or improvements to the Product which are beyond the scope of the technology described in the Patents.
12.01 In the event Knoll or its Collaborators must pay royalties or license fees to third parties under one or more claims of one or more patents to enable Knoll or its Collaborators to utilize or have utilized the inventions of the Patents, half the amount of such payments actually made shall be credited to Knoll's royalty obligations to CAT for sales in that country where the patents exist. However, Knoll's royalty obligation to CAT on Net Sales in any given country shall not be reduced below 2% of such Net Sales by operation of the offset of this Section 12.01. This offset shall not include royalties or license fees which are beyond the scope of the technology described in the Patents, for example fees paid to third parties for delivery systems."
The Parties' arguments and construction
"8(2) … The MRC-Patents (including Boss) were examples where royalties would be paid to third parties in order to license rights needed by Knoll to practice or have practiced the technology claimed in the Patents. They were treated differently from other third party rights only in the sense that a full 2% deduction was to be made from the royalties payable to CAT.
12(4) … This construction accords with the purpose and intent of the 1995 Agreement and is consistent with the fact that the MRC-Patents (including Boss) are expressly stated to be examples where royalties would be paid to third parties in order to license rights needed to practice or have practiced the technology claimed in the Patents."
(1) "the technology claimed in the Patents" in Articles 5.03/1993 and 5.02/1995,
(2) "the inventions of the Patents" in Articles 12.02/1993 and 12.01/1995,
(3) "the technology described in the Patents" in Articles 12.02/1993, 12.01(b)(ii)/1993, 12.01/1995 and12.00(b)(ii)/1995,
(4) "the technology covered by the Patents" in Articles 14.03/1993 and 14.02/ 1995 and
(5) "the inventions disclosed in the Patents" in Article 16.04/ 1993 Agreement.
Conclusions on construction
"32. Construction, whether of a patent or any other document, is of course not directly concerned with what the author meant to say. There is no window into the mind of the patentee or the author of any other document. Construction is objective in the sense that it is concerned with what a reasonable person to whom the utterance was addressed would have understood the author to be using the words to mean. Notice, however, that it is not, as is sometimes said, "the meaning of the words the author used", but rather what the notional addressee would have understood the author to mean by using those words. The meaning of words is a matter of convention, governed by rules, which can be found in dictionaries and grammars. What the author would have been understood to mean by using those words is not simply a matter of rules. It is highly sensitive to the context of and background to the particular utterance. It depends not only upon the words the author has chosen but also upon the identity of the audience he is taken to have been addressing and the knowledge and assumptions which one attributes to that audience. I have discussed these questions at some length in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896."
"Abbott's case is that when construing Article 5.02, the question is what is claimed in the Patents. But, as one might expect, the technology described in the Patents does not differ significantly from what is claimed in the Patents."
Rectification
Common mistake – the law
"133. There was no dispute as to the applicable principles for rectification … In the case of common or mutual mistake the party seeking rectification must show that the concluded instrument does not represent the common intention of the parties, and must show some outward expression of accord or evidence of a continuing common intention outwardly manifested: Frederick E Rose Ltd v. William H Pim & Co Ltd [1953] 2 QB 450, 461-462 (CA); Joscelyne v. Nissen [1970] 2 QB 86, 97 (CA).
134. There has to be outward accord for otherwise - "there could be no certainty at all in business transactions if a party who had entered into a firm contract could afterwards turn round and claim to have it rectified on the ground that the parties intended something different": (Denning LJ in Frederick E Rose (London) Ltd v. Wm H Pim & Co Ltd [1953] 2 QB 450 at 462).
135. The party seeking rectification does not have to meet more than the civil standard of balance of probabilities, but convincing proof is required to counteract the cogent evidence of the parties' intention displayed by the instrument: Thomas Bates and Sons v. Wyndham's Ltd [1981] 1 WLR 505, 521 (CA); Grand Metropolitan plc v. William Hill Group [1997] 1 BCLC 390 at 394.
136. Rectification may be available if the document contains the very wording that the parties intended it to contain, but it has in law or as a matter of true construction an effect or meaning different from that which was intended: Re Butlin's Settlement [1976] Ch 251, 260; Grand Metropolitan plc v. William Hill Group [1997] 1 BCLC 390 at 394. Contrast Harlow Development Corp v. Kingsgate (Clothing Productions) Ltd (1973) 226 Est Gaz 1960 (CA).
137. It is not necessary that the parties should at the material time have formulated the words which it is sought to insert by rectification. It is sufficient that the parties had the necessary common continuing intention as to the substance of that which would be achieved by the rectification sought: Crane v. Hegeman-Harris Co Inc [1971] 1 WLR 1390 at 1399; Grand Metropolitan v. William Hill Group, at 394-5".
"Abbott's case is that the only material which is legally admissible for the purpose of deciding whether or not an agreement or common understanding was reached is that which crossed the line. The internal ruminations of the parties or either of them are inadmissible and irrelevant: what matters is whether and, if so, how they have "outwardly manifested" their alleged agreement or common intention. Significant time was taken up at the trial by counsel for CAT reading out to witnesses extracts from a very large number of documents which, for the most part, never crossed the line. Those documents and the opinions of witnesses as to what those documents meant or what their respective thought processes were at the time are simply inadmissible and therefore irrelevant to the legal inquiry which has to be conducted by the Court in the case of common mistake rectification."
"Any difference between the instrument and the terms previously agreed may be due not to mistake but to a decision by the parties to depart from those terms. A claim for rectification must therefore establish that the parties intended the instrument merely to carry out those terms and not to vary them. If one of the parties denies that the instrument was contrary to his intention this accordingly has considerable weight; but like other evidence in cases of rectification, this evidence must be directed to the intention existing when the instrument was executed, or earlier, and not at some later time."
"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." (emphasis added)
"This judgment in the High Court of Australia in Grant's case contained also the observation that the surrounding circumstances to be taken into account include the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and "the actual intention of the releasor". For many years the accepted wisdom has been that evidence of the actual intention of the parties is not admissible on the interpretation of a written agreement, although such evidence is admissible for other purposes, for example, on a claim for rectification. In Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896, 913, my noble and learned friend Lord Hoffmann pointed out that the exclusion from evidence of the previous negotiations of the parties and their declarations of subjective intent is for reasons of practical policy. He added that the boundaries of this exception are in some respects unclear." (paragraph 31, emphasis added)
"In ordering rectification the court does not rectify contracts, but what it rectifies is the erroneous expression of contracts in documents. For rectification it is not enough to set about to find out what one or even both of the parties to the contract intended. What you have got to find out is what intention was communicated by one side to the other, and with what common intention and common agreement they made their bargain." (emphasis added)
"The judge held, and I respectfully concur with his reasoning and his conclusion, that it is sufficient to find a common continuing intention in regard to a particular provision or aspect of the agreement. If one finds that, in regard to a particular point, the parties were in agreement up to the moment when they executed their formal instrument, and the formal instrument does not conform with that common agreement, then this court has jurisdiction to rectify, although it may be that there was, until the formal instrument was executed, no concluded and binding contract between the parties. That is what the judge decided, and, as I say, with his reasoning I wholly concur, and I can add nothing to his authority in the matter, except that I would say that, if it were not so, it would be a strange thing, for the result would be that two parties binding themselves by a mistake to which each had equally contributed, by an instrument which did not express their real intention, would yet be bound by it. That is a state of affairs which I hold is not the law, and, until a higher court tells me it is the law, I shall continue to exercise the jurisdiction which Clauson J., as I think rightly, held might be entertained by this court."
Common mistake – the facts
The witnesses
"3. From early 1993 until 2000, almost 80% of my working day was devoted to various aspects of the collaboration with CAT including the contractual arrangements for, and the research and development of, both D2E7 (Humira®) and J695 (a monoclonal antibody to IL-12). Even today I still spend probably one third of my time on these CAT-related matters. I have some good recollections of events surrounding the drafting and negotiating of the 1993 Agreement, although only from January 1993 when I became a member of the negotiating team. I was less involved in the drafting and negotiating of the 1995 Agreement, but remember certain issues that arose in that context.
4. I have read documents from the files at BBC (including my own files concerning the contracts with CAT and the patent issues), the files at Knoll, the files provided by BASF Corporation and CAT's List of Documents. Not all of the documents look familiar. Furthermore, I do not remember the exact events and details recorded in some of the documents. Where relevant, I have been asked to refer, in this statement, to documents that will help explain events. I have tried to indicate where the documents themselves and/or their contents do not form part of my personal recollections."
"5.03 Royalties paid to third parties, other than to MRC pursuant to the MRC-Knoll-Agreement to license rights needed by Knoll, its Affiliates or permitted sublincesees, to make, use or sell Antibodies, Product(s) or Drug, will be borne equally by CAT and Knoll, provide, however, that the royalty payable to CAT pursuant to Section 5.01 shall not be reduced below one percent (1%) of Net Sales in a any year for which a royalty is owed to CAT. The two percent (2%) royalty to be paid to MRC under the MRC-Patents shall be paid directly by Knoll to MRC and shall be directly offset against the royalties due to CAT pursuant to Section 5.01" (emphasis added)
The real intention and agreement of the parties
"34. The issue of the royalty offset in relation to the TNF? project was discussed at Board level within CAT. This was an important project and these were clearly key commercial issues. I do not remember seeing the final legal agreement, but the commercial principle that we should be responsible for sharing the pain for patents that might cover our technology was fully discussed and accepted. These sorts of issues were often discussed in pre-meetings of the Board, and the Board meetings themselves were reserved for formal decisions."
"It is likely that Cabilly will win some aspects of the interference, at least for chimaerics, because of the ability to demonstrate invention from notebooks"
"The risks of additional royalties being paid to third parties because of licences needed to practice CAT's technology to be shared. Royalties will be reduced by 50% of third party royalties down to a minimum of 5%." (Emphasis added)
CAT'S proposal | BASF/Knoll response | |
3rd Party royalties | The risk of additional royalties to be paid to 3rd parties for licenses needed to practice CAT's technology to be shared. Royalties will be reduced by 50% of third party royalties down to 5% | The risk of additional royalties (i.e. royalties in addition to those presently understood to be due to Celltech.MRC) to be paid to 3rd parties for licenses needed to practice CAT's technology and to develop and market products to be apportioned as follows: Royalties due to 3rd parties because of licenses to practice or have practiced CAT's technology to are to be borne by CAT All other royalties due to 3rd parties because of licenses needed to market the products are to be paid by BASF/Knoll |
"Our difficulty with your suggestions concerning third party royalties is, however, a major one. Your proposal could lead to a situation where CAT had provided the know-how for the products and our patents had issued but, nevertheless, CAT would receive no royalties.
…However, biotech patents being what they are, there can be no certainty about any position until very late in the day. We therefore have to establish a reasonable view of the patent risk associated with this technology. CAT is certainly prepared to take some of the patent risk for its technology whilst avoiding situations where our partners can effectively negotiate away our royalties in the event that even a small piece of the technology requires another licence." (Emphasis added)
"We propose dealing with these groups separately such that royalties due from the low risk patents are not subject to any reduction. That is 2% from Neuberger/Boss plus 2% from Winter 2. CAT would then shoulder the whole risk arising from third party licences needed to practice McCafferty et al."
"We propose the approach whereby the CAT royalty rate due to McCafferty et al is reduced by 50% of any third party royalties due to licencees needed to practice this part of the technology. Thus if third party royalties are 2%, McCafferty royalties would be reduced to 1% but Knoll's overall royalty rate would be increased from 6 to 7%; if third party royalties were 4% McCafferty royalties would be reduced to zero but Knoll's overall rate would have been increased to 8%. This approach allows CAT to feel that it is in Knoll's interests to negotiate hard and in good faith
To summarise, if these proposals are agreed the CAT royalty rate would be 6% but that this would be reduced by 50% of third party royalties needed to practice McCafferty et al until the CAT royalty rate of 4% was reached." (emphasis added)
"The only concern we still have is handling the risk and splitting of third party royalty payments. Nevertheless we will strongly consider this issue as addressed by you. We have transferred your information concerning third party licenses to our patent department which will work out their opinion as quickly as possible"
"this Article should make it clear that it refers to the technology covered by the Patents only, not any technology covered by other patents referring to the target."
"the outcome was that we agreed with Knoll that it was clear that the scope of the royalty sharing provision in this article was limited to CAT's technology only, not any technology covered by other patents referring to the target or to antibody formatting or to manufacturing methods; in other words, the article was clear as drafted and did not need to be amended."
"only if infringement occurs [because] using McCafferty/Winter 2"
"This illustrates my understanding that a royalty offset would only arise where there would be an infringement of a patent owned by a third party as a result of using the technology of the McCafferty and Winter 2 patents."
"Both routes BBC intends to follow (complete antibody or fragment) will be covered by Boss, i.e. we will have access to these rights via CAT. There is, however, an interference between Boss and Cabilly in the USA. If Cabilly succeeds, there is a risk of facing broad claims in the USA. In Europe Cabilly does not touch us, since we do not use chimeric antibodies.
This issue is not a specific CAT problem, but it concerns many other companies as well due to the fact that the basic biotechnology know-how is involved."
"The patent environment was reviewed with regard to the intended CAT-BBC project. Potentially relevant patent applications are held by Affymax, Protein Engineering Corp, Celltech (Boss) and Genentech (Cabilly). All patent issues involving Affymax would be resolved if a proposed business relationship between CAT and Affymax is consummated. Risks from Protein Engineering Corp are difficult to quantify at present because the scope of patent claims likely to be granted to PEC is difficult to predict, especially in Europe. Both Affymax and PEC patent risks would be shared by CAT and Knoll under the proposed agreement. While Knoll would have a license under Celltech's Boss patent, it is possible that in the US (only) broader relevant claims may issue to Cabilly (Genentech). The likelihood that such claims will be granted to Genentech is difficult to assess at the moment since relevant documents are kept confidential by the patent office during the pendency of a Boss-Cabilly interference." (Emphasis added)
"A. Well, I mean, reading this document now, and interpreting what I said is difficult, but I think for me, and I assume for the team as well, it was clear that we had to share, let us say, all the burden until the antibody is there, and then of course share the benefit, hopefully 10 years later.
Q. I suggest to you that that was never your intention, Dr Muller-Neumann, and never the intention of Knoll?
A. Well, sorry, sir, this is what you propose, but I would like to reject this because there is no proof of this and there is no proof of that. This is just what you say. I can just tell you my impression we had and what was our approach, to be open to all the people as good as we can, to incorporate everything we could, to share all the burden and to share all the benefits and to have at the end of the project a product.
Q. The proof was, Dr Muller-Neumann, that on 8th February 1993, you had put forward a draft which simply extended the royalty sharing from McCafferty to CAT's patents, meaning McCafferty and Winter II, and you had never suggested to CAT, and you have never suggested to CAT throughout the negotiations in 1993, that downstream patents would be shared with them?
A. I mean, without -- if I may say, Mr Vos, I am pretty sure about one thing, that when we went to CAT in the very first meeting in October, and certainly in the course of the negotiations, we must have talked about these basic genetic engineering patents, because we very freshly had this experience with TNF and Genentech. It was so fresh, not only in my mind, but I am sure also in the team's mind, that we certainly have raised this right in the beginning. So if you say we did never discuss this, this is what you state, I would say we must have discussed this, because it was evident, genetic engineering is always needed and it was also needed in this project. So if it is not specifically mentioned, maybe it was clear for everybody that it was so, and maybe we have a document from CAT rejecting that, I do not know, but for me it was clear, and I am sure for the team as well. Somewhere I have seen when we went yesterday through these documents there was a quite strange looking document which was hardly readable -- I do not know where it is in the stack -- where it seems that the team as well is agreeing there is more than these CAT patents. We have this broad approach from the very start of the idea to the final antibody, and that is the project, and whatever we need, we can clarify as good as we can, but there are some questions open. The basic patents were always an issue, I am very sure on that. If I remember one thing, only one thing, it is that -- what I said this morning -- "ceterum censeo" -- we always said: let us not forget about all this genetic engineering stuff we need for every project. We can see this in Bieberbach's correspondence and Kahlstorff, and so on.
Q. Dr Muller-Neumann, you have no recollection of ever suggesting to CAT that basic genetic engineering downstream patents would be shared with them, do you, no recollection, as you sit here today?
A. I have no specific recollection on this, but I am very sure that we talked about it because it was apparent that we needed these rights, so we must have talked about this internally repeatedly, and I do not see any reason why we should not have mentioned this in the discussion with CAT. This would not make sense because ...
Q. Dr Muller-Neumann, I am asking you very specific questions. I will just ask it once again: you have no recollection of discussing sharing downstream royalties with CAT at all, do you, actual recollection?
A. What do you mean downstream?
Q. Sharing basic genetic engineering patents like Cabilly and Axel and others with CAT -- you have no actual recollection of saying to CAT, "We are going to share Cabilly, we are going to share other basic genetic engineering patents"?
A. I do not have a specific recollection, we talked about it at a specific date whatsoever, but I am pretty sure that we mentioned this issue during the course of the three-quarters of the year.
Q. I suggest to you, Dr Muller-Neumann, that that was never suggested and that the negotiations proceeded as I have put to you over the last two days, starting with the three letters in 1992 which made it clear that all you were sharing, or considering sharing, or ever considered sharing, was royalties payable in respect of CAT's own patents, McCafferty and Winter II?
A. I am sorry, this is your interpretation. I would not like to add anything more than I said. I cannot specifically recall all these details. What I can recall, I think, my Lord, I made, hopefully, clear to you and other people here." (Day 8 p 81 et seq)
"A question has been raised pertaining to Section 5.03. The original agreement with CAT allows for a direct offset of the 2% royalty paid to the MRC for the Boss patent regarding antibody expression technology. The question is, if Boss patent is declared invalid and the Cabilly patent is in force in the United States, would it be possible to amend the wording of the CAT agreement to reflect this potentiality (I.e. offset for either Boss or Cabilly patents at the 2% level). Other royalties to third parties needed to practice the phage display technology are to be born equally between CAT and Knoll" (emphasis added)
"Although we have not proposed any modification to reflect this, we do wish to bring to your attention a concern we have with respect to Section 5.03. As you know, there is an interference involving MRC's Boss patent and Genentech's Cabilly patent. It is reasonable to assume that Genentech will prevail. If so, we are confronted with a 2% payment to MRC based on the Neuberger patent which is offset against the royalty due to CAT pursuant to Section 5.01, and a likely 3% royalty to Genentech which is not offset. We would appreciate CAT's support in addressing this issue with MRC as well as an open discussion of how this might affect Section 5.03" (emphasis added)
"141. Knoll and CAT had been aware of the interference proceedings between the Boss patent and the Cabilly patent for some considerable time - they were referred to in Patent Confid and (as recorded in Knoll's minutes of the meetings on 8 February 1993 (DJC1/101-104)) had been discussed in at least one of the meetings in 1993. At no time, so far as I was aware, over the course of the negotiations between CAT and Knoll did Knoll ever suggest that the Cabilly patent would or did fall within the scope of the royalty sharing provision in Article 5.03 or Article 12.02 of the 1993 Agreement ( or their corresponding provisions in the 1995 Agreement). Had Knoll done so or had I understood Bob Shaw's letter as contending that the Cabilly patent fell within the royalty sharing provisions, this would have raised a major issue. I would have had to report it to CAT's Board of Directors. Had Knoll persisted in an understanding of the Article which entailed the Cabilly patent falling within the royalty offset provisions, we would have had to open the discussion for the new agreement against the backdrop of Knoll contending Article 5.03 meant something different to the meaning which CAT understood Article 5.03 to have and which CAT understood Knoll to have agreed to in the negotiation of the 1993 Agreement."
"We propose to take licenses under pending patents that we may or may not need for the antibody project in the future.
To Genentech: … In the US only an interference of [the Boss] patent with a Genentech patent (the 'Cabilly patent') has been pending for years. Because there has been no resolution yet – and we want to position ourself for any outcome prior to embarking on manufacturing – we propose to take a license under the 'Cabilly patent' for TNF... and IL-12 this year, that would be effective once the interference has been resolved. The specifics are outlined in the attachment.
To Enzon: We have a complete set of licenses through CAT to all phage display patents owned by the MRC and CAT. The (sic) is one patent application in the area that predates the CAT applications. That patent is owned by Enzon and is called the 'Ladner 1' patent; … The BASF legal department also has good reason to believe that the Ladner 1 patent is unlikely to issue in the US in the current broad form.
We propose to position ourself again for any outcome and to take a license just in case. The royalties under such a patent are to be offset against royalties due CAT anyway." (Emphasis added)