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CJEU confirms arbitral award in international patent license dispute

by David Perkins on 26 Jul 2016

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As discussed in an earlier post, the Court of Justice of the European Union confirmed that its function is not to review findings of an Arbitrator or his interpretation of a Patent License Agreement: Genentech, Inc. v Hoechst GmbH/ Sanofi Aventis GmbH, Case C-567/14 (Judgment of the Court: 7 July, 2016).

Commenting on this decision, David Perkins finds that the position remains: international arbitral awards must be compatible with EU law and, consequently, it may be necessary to apply EU law when interpreting and applying the contract in issue.

On the facts of the Genentech case, Art.101(1) TFEU does not preclude imposing on a licensee an obligation to continue paying royalties for the use of patented technology for the entire period in which the agreement is in effect, notwithstanding the revocation or non-infringement of a licensed patent. As noted, this is subject to the proviso that the licensee is freely able to terminate the agreement by giving reasonable notice.

For patent lawyers, the case provides guidance in two respects. First, that Ottung remains good law and that, consequently, to ensure enforceability of royalty obligations post termination or revocation of the licensed patents, the Patent License must entitle the licensee to terminate it on reasonable notice. Second, that – at least under German law – when interpreting patent license agreements, one must avoid a literal interpretation which is contrary to the "commercial objectives" of the parties. Under English law, interpretation of contracts is governed by the House of Lords (now, Supreme Court) judgments in the West Bromwich Building Society and Chartbrook cases, respectively (1998 1 WLR 896) and (2009 UKHL 38).

A full text of this post is available via the Kluwer Arbitration Blog.

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Topics: International Arbitration, ADR

David Perkins

Written by David Perkins