The Moçambique principle and challenging the validity of a foreign patent: GW Pharma v Otsuka [2022] EWCA Civ 1462

Whilst a bit different from PatKat's stable Katfood of EPO case law, the recent decision from the Court of Appeal in GW Pharma v Otsuka ([2022] EWCA Civ 1462) is nonetheless food for thought. The decision considered whether the UK courts are able to hear a dispute over whether royalties are due under a US patent in view of a contract governed by US law (GW Pharma v Otsuka, [2022] EWCA Civ 1462). This decision is very timely, given the discussion at the recent CIPA life science conference surrounding the possibility that UK courts might be used to torpedo the validity of Unitary Patents. However, as GW v Otsuka confirms, established UK case law currently prevents direct challenges to the validity of foreign patents outside of a contractual dispute and it is unclear why this would change for Unitary Patents. 

Case background

The defendant in the case in question was GW Pharma, a UK based pharma company focused on cannabis derived medicines. The claimant was the Japanese pharma company Otsuka. GW and Otsuka had entered into a research agreement to identify new cannabinoid drug candidates. During the collaboration term, both parties had the option to take ownership of any new drug candidates identified in the collaboration. Upon launch of any resulting medicine, royalties would then be payable to the non-owning party. However, neither GW or Otsuka exercised this option during the collaboration term.

5 years later GW launched the new drug Epidiolex, a cannabinoid for treating epilepsy. Epidiolex has been approved around the world and GW's overall revenue from the drug is reportedly over USD 1.4 billion.

Choosing a jurisdiction

Otsuka subsequently brought a case against GW in the UK that they were owed significant royalties from GW from the sale of Epidiolex. Otsuka argued that Epidiolex had been developed under the collaboration agreement. The dispute itself boiled down to two questions. First, whether Epidiolex had indeed been developed as part of the collaboration or had instead been developed independently by GW. Second, whether Epidiolex was covered by a Valid Claim of a relevant patent (US 9,066, 902) under which the royalties would be due. 

The decision in GW Pharma v Otsuka ([2022] EWCA Civ 1462) does not tackle the royalty dispute itself, but instead relates to a jurisdictional challenge from GW. GW argued that the case should not be heard in the UK, first because the case related the validity of the foreign US patent, according to the Moçambique principle, and because the agreement itself was governed by New York Law and the New York State Courts were therefore a more appropriate forum. 

Legal Background: The Moçambique principle

The Moçambique principle is derived from a 19th century case ([1893] AC 602), in which it was found that an English court had no jurisdiction to entertain an action about matters to do with foreign land. The Moçambique principle is extended to foreign IP rights as a matter of general principle. 

Application of the Moçambique principle follows the Supreme Court decision in Lucasfilm v Ainsworth ([2011] UKSC 39) and its application in Chugai v UCB ([2017] EWHC 1216 (Pat)). According to Chugai, the Moçambique principle does not prevent the courts of England and Wales considering cases related to the infringement of a foreign patent, except in cases where the defendant directly challenges the validity of the foreign patent (Chugai). 

There is also an exception to the Moçambique principle for claims which relate to a contract. Particularly, if a case relates to the enforcement of contractual obligations between parties, the validity of a foreign patent may be considered. Particularly, the question of a foreign patent validity can be considered if and only to the extent that this is needed in order to to decide on the parties' contractual obligations.

When is the challenge to a foreign patent "direct"? 

In the present case Lord Justice Birss (Birss LJ) considered whether GW's defence in the contractual dispute would amount to a direct challenge to the validity of the foreign patent. GW argued that the first instance judge had failed to appreciate the prominence of GW's invalidity defence in GW's case overall. According to GW, the issue of validity of the foreign patent would inevitably arise, given that the invalidity of the US patent would be a necessary consequence of construing the US patent claims so broadly so as to cover Epidiolex (para. 51 & 52). 

Birss LJ dismissed these arguments. First, Birss LJ found that the first instance judge had considered the issues as a whole, and had not blindly adopted an approach based on which arguments were pleaded first. Birss LJ also noted that GW had important defences that were entirely independent of the validity question surrounding the US patent, namely that Epidiolex had been developed independently outside of the scope of the research collaboration with Otsuka. As such, "the most that could be said is that challenges to validity might (or might not) arise as the case develops" (para. 54). Birss LJ also noted that GW's squeeze arguments could not be a jurisdictional bar, given that such arguments could not be considered a "direct" challenge to patent validity. Birss LJ also found that the contract exception to the Moçambique principle would also apply in this case. 

GW's appeal based on the Moçambique principle was therefore dismissed. 

Forum non conveniens

GW also argued that the first instance judge had failed to take account of other factors which would make a US court more appropriate for the dispute. Particularly, the agreement between GW and Otsuka stated that it was governed by New York Law. As such, New York law expert evidence would be needed (para. 76). GW also argued that many of the potential witnesses might be based in the US, and that the first instance judge's finding that most of the witnesses would be UK based was misplaced. Otsuka noted in response that there was doubt as to whether the New York State Court would itself hear the case. 

Birss LJ sided with Otsuka and found no issues with the first instance judge's analysis. First, Birss LJ considered the UK Patents Court perfectly capable of handling disputes governed by foreign law (para. 80). Furthermore, Birss LJ noted that "a dispute of this kind, concerning an international patent licence, ought to be able to be resolved somewhere if at all possible, thereby minimising the need for parties to take proceedings on a country by country basis to resolve what is in truth a single dispute. Accordingly the lack of certainty about whether the only other candidate forum (the New York State Court) had jurisdiction to deal with the whole dispute was another important factor,". 

Birss LJ therefore dismissed all of GW's grounds of appeal. 

Final thoughts

The decision in GW v Otsuka includes a separate discussion on what it means for royalties to be due under a "Valid Claim" of a patent. Birss LJ noted case law under which "Valid Claim" in contracts is understood as a patent claim that has not been revoked or held in valid by a competent court. Given this definition, Birss LJ noted that an invalidity argument lodged by GW against the patent could not in and of itself provide a defence against Otsuka's claims. The patent was still in force, and if GW wished to challenge the patent they would need to bring separate invalidity proceedings. 

Finally, for the patent attorneys out there who find it difficult to get excited about the Moçambique principle, GW Pharma v Otsuka is worth taking note of. Whilst the judge in this case accepted that the royalty dispute between the parties could be heard in the UK, this was conditional on the case not being primarily concerned with a direct invalidity challenge to the foreign patent. This Kat found no hint in the judge's reasoning that he might have considered rethinking the Moçambique principle's applicability to foreign patents. 

Admittedly, the contractual exception to the Moçambique principle which the judge found relevant in this case, must be remembered. If a contractual dispute does require consideration of a unitary patent's validity, then a UK court may indeed find that a unitary patent is invalid without having to reconsider the Moçambique principle. However, in such a case, the Unitary Patent would of course still remain in force until directly challenged before the Unitary Patent Court. 

There is thus a possibility that UK judges may decide the question of a unitary patent's validity if this becomes necessary for deciding a contractual dispute. However, the opportunities for torpedoing a unitary patent's validity from the UK courts are currently very limited. Given GW Pharma v Otsuka, the particular possibility of the UK courts rethinking the Moçambique principle, might reflect a certain degree of litigator wishful thinking.

The Moçambique principle and challenging the validity of a foreign patent: GW Pharma v Otsuka [2022] EWCA Civ 1462 The Moçambique principle and challenging the validity of a foreign patent: GW Pharma v Otsuka [2022] EWCA Civ 1462 Reviewed by Rose Hughes on Monday, December 05, 2022 Rating: 5

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