The Court of Appeal in the case of Oxonica Energy Limited v Neuftec Limited (2009) has delivered a stern warning to patent licence draftsmen.
In this case Neuftec owned an international patent for a fuel additive. During the early stages of the patent application Neuftec entered into an exclusive licence agreement (‘Licence Agreement’) with Oxonica granting to Oxonica exclusive patent and know-how rights.
However during the application process, due to one piece of prior art in particular, the scope of the claims became materially narrowed over the claims in the original application.
Separately, Oxonica developed a second generation product which product fell within the scope of the claims set out in the patent application, but outside the scope of the narrowed claims. This then led to a dispute as to what “Licensed Products” in the Licence Agreement meant – did it mean products that fell within the scope of the claims of the patent application as it was at the time the Licence Agreement was entered into, or did it vary with time, and territory, as the patenting process continued?
The Court of Appeal stated that the Licence Agreement had been drafted using an unsuitable precedent by someone who lacked expertise in patent licences.
The Licence Agreement defined the extent of the licence and the royalty provisions by reference to “Licensed Products” and the Licensed Products in turn was defined by “Any product, process or use falling within the scope of claims in the Licensed Application or the Licensed Patent” with Licensed Application and Licensed Patent in turn being defined.
The Court of Appeal held that the definition of Licensed Product has to be interpreted depending on the context in which it is used.
In the context of the granting of the licence, it was clear that the parties intended that Oxonica would have exclusive use of Neuftec’s invention throughout the world (this included any patents and know-how). Therefore for the purpose of the grant “Licensed Application or Licensed Patent” would be given its widest possible meaning.
However, in the context of defining the class of royalty-bearing products, while often it would be the same, in this case the Court concluded that “or Licensed Patent” should not be read into the definition of Licensed Product as it made no sense or was an unreasonable sense in that context.
Jacob LJ, giving the leading decision made clear his initial uneasiness in ignoring the words “or the Licensed Patent” in the definition of Licensed Product, but came to the conclusion that it had “to be done to make rational sense of this appallingly drafted document”.