PATENT APPEAL DETERMINES MEANING OF "IN CONNECTION WITH"

Yesterday the IPKat mentioned a new patent case. That case is the Court of Appeal decision in DSM Anti-Infectives BV and DSM Anti-Infectives Sweden AB v Smithkline Beecham Plc and Smithkline Beecham Corporation [2004] EWCA Civ 1199.

SKB, an English company, appealed from the dismissal of its application for a stay of the proceedings brought by DSM, Dutch and Swedish companies that sold and made ingredients for pharmaceutical products. SKB also manufactured ingredients for pharmaceutical products. SKB and DSM both developed strains of a bacterium used in the manufacture of an antibiotic. In 1996 SKB, concluding that DSM was infringing its patent on a strain of bacterium called SC7, sued DSM in the Netherlands for patent infringement.

In 1997 the parties entered into an agreement to settle those proceedings. This agreement, in which SKB reserved its rights in respect of the US, covered both patent infringement and misuse of confidential information. Clause 15 conferred exclusive jurisdiction on the English courts with respect to all disputes "in connection with" the agreement. In 2002 companies in the SKB group commenced US proceedings, alleging wrongful use of SC7, in which DSM were joined as defendants to those proceedings. DSM challenged the jurisdiction of the US court and issued proceedings in England, relying on provisions of the settlement agreement. DSM sought declarations that it was not wrongly using SC7 and that the US proceedings had been brought in breach of clause 15 of the settlement agreement.

SKB sought a stay of the English proceedings on forum grounds. The trial judge held that the exclusive jurisdiction clause applied to the subject matter of the dispute in the US proceedings so far as it affected DSM and that, under Council Regulation 44/2001 Art.2, he had no jurisdiction to stay the proceedings against SKB on forum grounds. He declined a stay under the court's case management powers on the ground that there was no good reason not to uphold the jurisdiction clause. SKB submitted that the judge had erred (i) in concluding that the subject matter of the US proceedings was covered by the jurisdiction agreement, (ii) in giving insufficient weight to DSM's delay in bringing the English proceedings and (iii) in giving insufficient weight to the risk of the trial courts in different jurisdictions giving inconsistent decisions.The Court of Appeal dismissed the appeal.

1. The judge was right to hold that the English proceedings were to litigate disputes or a dispute "in connection with" the settlement agreement. The central issue was whether DSM had been using its own strain of the bacterium (to which SKB could not object) or whether it was wrongly using SC7.

2. The words "in connection with" had a wide meaning and English courts normally gave them a generous interpretation.

3. The agreement covered alleged patent infringement and misuse of confidential information. Where a dispute arose as to whether DSM was using its own strain or SC7, the parties agreed that it should be litigated in England. Any such dispute was connected with the agreement because the agreement prevented SKB from objecting to the use of DSM's own strain.

4. The fact that the agreement reserved SKB's rights in the US did not entitle SKB to have the issue of whether DSM had been using SC7 determined in the US contrary to clause 15. DSM were thus exercising their contractual right to bring proceedings in England.

5. The judge had not erred in principle in rejecting the alleged prejudice to SKB from the delay in bringing proceedings as a weighty factor in the exercise of his discretion. DSM was served with the US proceedings in September 2003, objected to the jurisdiction in October of that year and commenced the English proceedings in December.

6. On the facts the possibility of the US and English proceedings producing results that might be inconsistent was remote.

The IPKat thinks this decision is absolutely right. Any other result would make businesses wonder how tightly they could ever draft a dispute settlement agreement without seeing their apparent intentions destroyed.

Good bacteria here and here
Bad bacteria here and here
SKB: where are they now?
DSM here, here and here