Licensee Fails To Wriggle Out Of Badly Drafted Licence

Oxonica Energy v Neuftec

This was a dispute over a patent and know-how licence for fuel additives which the Court of Appeal said was "appallingly drafted". The licensee (Neuftec) was due to pay royalties for any product "falling within the scope of the clams in the Licensed Application (which meant Oxonica's PCT application and divisionals and foreign counterparts etc.) or the Licensed Patent (which meant any patents issuing from the aforesaid)".

The problem with this definition was the alternative second part ("or") because, as is typical, the granted patents in some jurisdictions were of much narrower scope than the PCT application. The license agreement was drafted when the patent application was pending in various countries. The Licensor agreed to pass its know-how to the Licensee, and the Licensee agreed to manufacture the product according to subject matter of the patent application. The Licensee initially developed a first commercial product falling within the narrower scope of the claim granted in Europe, and paid royalties. Subsequently, the Licensee found another source of supply which was a second product which fell outside the scope of the claim granted in Europe, and claimed that royalties were not payable. The High Court held that royalties were payable on the second product. The Court of Appeal affirmed the decision. Whilst severely criticising the agreement as poorly drafted, the big picture indicated that there was no intention for the Licensor to grant the Licensee free use of its know-how in countries where there was no patent or a restricted patent.

Comment:

Parties to license agreements should always get experts to draft and review agreements at an early stage, especially if the license agreement is entered into before patents have been granted.