UK: Cambridge Antibody Technology V Abbott Biotechnology Limited

In one of the year’s most valuable contract claims to come before the UK Patents Court, the CAT v Abbott dispute demonstrates the importance of properly understanding both the extent of existing IP rights and the nature of the protected technology, when drafting commercial agreements in technically complex fields.

Under two collaboration agreements (the "Agreements") Abbott was licensed to use CAT's patented technology in order to develop an antibody to a protein known as TNFa - a protein thought to play a large part in rheumatoid arthritis. The case concerned a dispute over the amount of royalties payable in relation to Abbott's sales of HUMIRA, a blockbuster biologic rheumatoid arthritis drug that utilises the TNFa antibody. CAT brought an action claiming that Abbott was not entitled to offset the royalties owed to CAT under the Agreements against royalties paid by Abbott to third parties for other patented technology.

Large quantities of antibodies can in theory be made and given to a human patient in order to boost his or her immune system. One of the problems in doing this is that injection of these antibodies may generate an immune response by the patient's own system that results in the artificial antibodies being broken down. It is possible to make antibodies to a foreign protein such as TNFa by injecting it into an animal and waiting for the animal's immune system to start producing the antibodies. These antibodies can then be harvested from the animal, adapted and used in human patients. However, these antibodies are only effective, if at all, for a short period of treatment as the human immune system quickly recognises the antibody's original animal characteristics and, not being human, generates its own response to break the antibody down.

At the time of entering into the contract with Abbott, CAT was the proprietor of two patent applications that concerned stages in the genetic engineering of artificially synthesised antibodies that a patient's immune system accepted as being totally human. Specifically, the first patent claimed a way to generate a large number or "library" of various DNA sequences from which various antibodies are then produced. The different DNA sequences produced will ultimately be suitable for combating different foreign proteins such as TNFa. The second patent teaches a way to use "phages" (virus-like particles) to search rapidly through a library of different DNA sequences (as produced by practising the first patent) and to identify the ones that are most suitable for producing a specified antibody.

In addition to the steps covered by CAT's patents, Abbott also had to carry out other processes, patented by third parties, in order to produce the finished product ready for sale. Moreover, it was anticipated that third party licences might be required to carry out certain procedures included in CAT's patents.

Under the Agreements, CAT was entitled to a maximum royalty payment of 6% of the net sales of HUMIRA, subject to the following provision:

The effect of this clause was the central issue in dispute. Abbott took various licences under third party patents that it needed to produce the finished product and argued it was entitled under the above provision to offset those licence payments so as to reduce CAT's royalty to the 2% minimum. CAT contended that the right to offset under the provision only extended to royalties that Abbott was required to pay to third parties in order to use CAT's patented technology.

Both sides put forward arguments supporting their construction of this contractual provision. CAT also contended that if its construction was incorrect, Abbott should be stopped from asserting its construction and the Agreements should be rectified on grounds of common or unilateral mistake.

In making his decision, Mr Justice Laddie emphasised that only the factual background is relevant when construing a contract; the subjective intent of the parties is not. In contrast, when considering rectification, the intention of the parties and the documents supporting it are central.

In finding for CAT, Laddie J said that CAT's construction was both consistent with the wording of the Agreement and made commercial sense. CAT had only contributed its "library" and "phage" technologies to the project with Abbott and had no role in the other stages of producing HUMIRA. Outside of the CAT technology, Abbott was not under any obligation to inform CAT of either the licences it procured or the royalty rates it would accept for such licences.

Accordingly, there was no reason to decide that CAT should bear the royalty burden for those parts of the technology for which only Abbott had responsibility.

Having found for CAT on construction it was not necessary for Laddie J to consider evidence relating to the negotiations and intentions of the parties that were submitted in support of the claim for rectification. However, anticipating an appeal, Laddie J provided a detailed analysis of the relevant evidence and again found that the facts would have supported CAT's claim for rectification.

This case highlights the importance of careful contractual drafting when structuring collaboration agreements that involve the licensing of patented inventions in technically complex fields. Here, the technical nature of the overall process, the ownership of the various patented technologies and the specific roles of the respective parties all gave rise to ambiguity in the written agreements. In construing the contractual wording, Laddie J made it clear that in such circumstances it was right to analyse the overall commercial context of the Agreements in order to determine the obligations on each party.

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