Cambridge Antibody Technology was a company undertaking research and development work and licensing of its technology, in relation to the production of antibodies. The first defendant was the holding company of the second defendant which was one of a group of pharmaceutical companies. The parties entered into a collaborative agreement in 1993, whereby the claimant granted the defendants the right to use its technology in the production of a genetically-engineered human antibody for use in the treatment of rheumatoid arthritis.

Two years later in 1995, the parties substituted the first agreement for a second one on substantially the same terms. As a result of the collaboration, the defendants produced a product known as HUMIRA.

In accordance with the agreements, the defendants agreed to make royalty payments to the claimant at a rate of just over 5% of the net sales of HUMIRA, subject to an offset or royalty-sharing provision. This provision allowed the defendants to deduct from the royalties due to the claimant half the royalties due under licences from third parties for certain categories of technology. This was subject to the payment by the defendants of a minimum royalty provision of 2%. The interpretation given to the royalty provisions in the agreements came in dispute.

The defendants claimed that they were entitled to offset, against what was due to the claimant, 50% of the royalty payments paid to third parties in relation to other patented technology used in the development of HUMIRA. They argued that having taken licences from a number of third parties that owned patents; the offset had reduced the amount payable to the claimant to the minimum payment of 2%. Accordingly, they had calculated the royalty payments due to the claimant as 2%. The claimant accepted that the agreements contained an offset provision but argued that it applied only to royalties which the defendants needed to pay to third parties in respect of the use of the licensed technology by the claimant. They contended that all of the licences relied on by the defendants related to patents covering parts of the HUMIRA production process rather than that involving the claimant`s technology. Therefore the offset provision was not triggered. The claimant submitted that the defendants should have been paying a royalty for the bulk of their sales of HUMIRA at the rate of just over 5% and not at the rate of 2%.

The claimant`s claim was allowed. The judge held that on the true construction of the agreements, the construction put forward by the claimant was correct - that was the only construction which was consistent with all the other provisions of the agreements and made commercial sense in the factual matrix within which the agreements had been made.

Accordingly, the royalties` payable by the defendants should have been calculated on the basis of the full royalty of approximately 5%.

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© RT COOPERS, 2005. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.