IS MY COMMERCIAL CONTRACT FIT FOR PURPOSE? LESSONS FROM TEVA V ASTRAZENECA

Over the last few years English courts have shifted back to construing commercial contracts in a strict, literal way. This approach departs from the more business-minded, common sense approach that judges here had adopted previously.

It is therefore now more important than ever to make sure that you double and even triple check those commercial agreements before you sign on the dotted line. A recent case shows why paying attention to the fine detail of your contract really does matter. We discuss this case, Teva v AstraZeneca [2017] EWCA Civ 2135, below.

BACKGROUND

AstraZeneca owned the patent on a pharmaceutical compound. It had also acquired a Supplementary Protection Certificate (‘SPC’) for the product, which provided similar protection for pharmaceutical products.

Teva had produced a generic version of AstraZeneca’s pharmaceutical compound, had obtained market authorisation and intended to sell it in Portugal.

AstraZeneca issued arbitration proceedings against Teva seeking an order to prevent it from selling their product in Portugal. As part of its defence Teva sought to question the patent’s validity.

The parties subsequently entered into a settlement agreement, governed by English law. As part of the deal Teva was to take its product off the market in Portugal until 3^rd July 2017 (the date that AstraZeneca’s SPC was due to expire). In return AstraZeneca agreed to withdraw its actions against Teva.

THE DISPUTE

Following the settlement, a dispute arose between the parties: AstraZeneca obtained what’s known as a ‘Paediatric Extension’ (a licence that extends the SPC’s duration and protection for up to a further 6 months). The primary purpose of a Paediatric Extension is to enable investigations into whether a particular drug can be used on children or not. Provided the necessary conditions are met, a 6-month extension may be applied to an SPC.

Meeting the necessary conditions for a Paediatric Extension, AstraZeneca’s SPC was extended from 3^rd July 2017 to 29^thDecember 2017. As a result it sought to prevent Teva from launching their generic version of the product in Portugal until after the SPC’s extended date. That is, for five months more than agreed under the settlement described above.

THE ARGUMENTS

AstraZeneca sought to rely on the fact that its Paediatric Extension meant that it was entitled to continue to enforce its intellectual property rights under the SPC – despite the settlement agreement.

Teva on the other hand sought to rely on the settlement agreement, which it said entitled them to launch the generic product after 3^rd July 2017.

THE DECISION

The initial ruling was made in AstraZeneca’s favour. The judge stated that:

·      The settlement agreement and the Paediatric Extension were separate; and

·      It would be “commercially absurd” for AstraZeneca when entering into the agreement to allow Teva to be able to launch its generic product before the Paediatric Extension had expired.

However the Court of Appeal overturned this decision finding that the Paediatric Extension was only an extension and not a separate right in relation to the SPC. Moreover, the settlement agreement clearly stated 3^rd July 2017 as the date on which Teva could launch the generic product.

THE IMPLICATIONS

The case of Teva v AstraZeneca is only one of many where the courts have shown their tendency to rely on the natural meaning of words in a commercial agreement as opposed to deciding whether a particular interpretation makes sense in a commercial context. This is particularly the case where the disputed agreement is complex and was negotiated by skilled professionals.

Clearly no one should enter in to an agreement blindly. But there are occasions when, despite having taken a cautious approach to a contract, individuals later discover an agreement was not what they intended. It’s worth considering for example what the Court of Appeal’s decision in Teva v AstraZeneca would have been if the settlement agreement did not explicitly say 3^rd July 2017. Or if the launch date was conditional upon a Paediatric Extension being obtained.

These are the sorts of considerations an experienced contract lawyer will anticipate, removing ambiguity and ensuring your contracts are fit for purpose.

To speak to an experienced solicitor call Nath Solicitors- commercial law firms London today on 0203 670 5540. We’ll always take account of your commercial objectives before advising you.