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Neurim/Flynn v Mylan – who is an exclusive licensee?

Posted on 28 April 2022

Updated 10 May 2022

We have previously reported on the complex and long-running dispute between Neurim/Flynn and Mylan - from the initial interim injunction (here and here), trial and consequences (here and here), to subsequent prosecution and claim for infringement of a divisional patent (here).

The latest substantive developments in this case have taken place in the Court of Appeal, with Neurim/Flynn's appeal against the finding that Flynn was not an exclusive licensee under the second medical use patent relating to Circadin ('the Patent') and against the order to pay Mylan's costs of the proceedings. Given that the Patent had been revoked by the European Patent Office (EPO) just after the UK trial, these remain relevant issues for the subsequent (and ongoing) proceedings which concern a divisional of the Patent ('the Divisional Patent').

Exclusive licensees

Under the Patents Act 1977, an exclusive licensee "shall have the same right as the proprietor to bring proceedings" in respect of infringement of a patent. An exclusive licensee is defined in the Act as a licensee who holds a licence conferring any right in respect of the invention to the exclusion of all other persons, including the patent proprietor. There may be multiple exclusive licensees under the same patent if they have licences to sub-divisions of the patent monopoly, to the exclusion of each other. A classic and clear example is a pharmaceutical product with medical and veterinary dosage forms granted to two different manufacturers.

Neurim's licence from Flynn was a licence to distribute the Circadin product containing 2mg of melatonin. Mylan argued at first instance that this was not an exclusive licence since it was not co-extensive with a claim of the Patent (given that the Patent's claims are broader than that product definition in the licence). Mylan's argument was rejected both at first instance and in the Court of Appeal. The Court of Appeal confirmed that there could indeed be a multiplicity of licensees, even in respect of a single claim: whilst "there may be a limit as to how far one can salami-slice the monopoly in a claim", this case, where the license was coextensive with the market authorisation for Circadin, was nowhere near that limit.

The key point of interest in relation to exclusive licensees was the question of Flynn's standing to bring infringement proceedings. The licence between Neurim and Flynn provided that both parties "will jointly take appropriate steps to enforce any Neurim Patent". Further, Neurim would take the lead ("initiation, prosecution and control") in any proceedings, and Flynn would provide reasonable assistance. On appeal, the parties did not dispute the lower court's finding that that this contractual term meant that Flynn was not able to bring proceedings for infringement of the Patent independently of Neurim.

Mylan's argument that this meant that the licence was not an exclusive one was accepted at first instance. Although the trial judge recognised that Flynn's ability to bring proceedings was a consequence of exclusive licensee status, rather than a necessary condition for that status, he nonetheless held that Flynn's role in enforcing the Patent was "as little more than a cypher", with Neurim being the true driving force.

This finding was reversed in the Court of Appeal. The contractual effect of the terms was to confer a licence to Flynn to the exclusion of Neurim – "the key requirement for an exclusive licence". In relation to Flynn's ability to bring proceedings, the Court noted that the effect of the Act is to give the exclusive licensee a right of action in respect of a patent that they would not otherwise have. It did not follow that this had to amount to the ability to take action independently of Neurim. Indeed, the Act requires the patent owner to be a party to any proceedings brought by the exclusive licensee. Finally, taking a purposive approach, the Court of Appeal considered that the point of the provision allowing exclusive licensees to bring proceedings was to allow the licensee to recover their losses from an infringement. Mylan's arguments would defeat that purpose.

Costs

As noted in our previous coverage, the facts of this case are unusual – the Patents Court found the Patent valid and infringed but, just days later, it was revoked by the EPO. The usual general rule of litigation costs, that the loser pays the winner's costs, was turned on its head. At the end of the Patents Court trial, Neurim had apparently won but, following the revocation of the Patent, the effect was that Neurim/Flynn had legally and commercially failed. The trial judge therefore awarded Neurim/Flynn to pay Mylan's costs of the proceedings.

The Court of Appeal decided that Mylan should pay Neurim/Flynn their costs on the exclusive licence issue, but otherwise there should be no order to costs, meaning that each party bears their own costs. This was a reflection of the Court's disapproval of both parties for not seeking an adjournment of the UK proceedings and informing the court of the timing of the EPO proceedings in respect of the Patent. This case has been an important cautionary tale in emphasising that UK and EPO proceedings are not "hermetically sealed" from each other, and reminds all parties in litigation of their obligations to notify the court of all external circumstances that could have a bearing on ongoing litigation.

Ongoing proceedings

Proceedings in respect of the Divisional Patent are ongoing. Neurim sought an injunction against Mylan and the Court of Appeal has granted a stay of that injunction to preserve the status quo pending Mylan's appeal. Separately, other generics such as Teva are also preparing to launch, with Teva recently successfully resisting an interim injunction sought by Neurim against them.

It had been noted by the Court of Appeal when granting the stay of the injunction against Mylan that the same consideration of preserving the status quo may (without prejudging the question) point in favour of granting an interim injunction against Teva. The proceedings have a tangible relationship to each other as the judge had to consider the effect of Mylan and Teva causing a downward "price spiral" ahead of expiry of the Divisional Patent in August of this year. In the event, however, the High Court refused the interim injunction, holding that damages would be an adequate remedy for Neurim prior to the expiry of the Divisional Patent, but would not be an adequate remedy for Teva either pre- or post- expiry, and that maintaining the status quo would leave Teva on the market.

We will report on further developments of interest in this case in due course.

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