The Wisconsin Alumni Research Foundation (WARF) has won an appeal in federal court against Canadian drug company Xenon in a case clarifying that co-ownership of patents is controlled by contracts, when they exist. The lawsuit brought by WARF dealt with Xenon’s handling of patent rights to an enzyme that can lower cholesterol levels. Researchers at the University of Wisconsin discovered the enzyme in 1999 and two years later the Foundation licensed the technology to Xenon, which partially sponsored the work. The Foundation gave Xenon an exclusive license to commercialize the discovery and market any resulting products in exchange for a share of the profits. In 2005, the Foundation filed a lawsuit claiming that Xenon violated its contract rights by entering into a partnership with Swiss drug maker Novartis without paying the required fees. Xenon argued it had a right as co-owner of the patent to enter into the Novartis agreement without being subject to the terms of its deal with the Foundation. In 2006, U.S. District Judge Barbara Crabb ruled that Xenon had broken its contract and awarded the Foundation $300,000 in damages. The appeals court agreed, ruling that Xenon broke the contract and the $300,000 in damages was justified.
In his legal blog Patently-O, Dennis Crouch, associate professor at the University of Missouri School of Law, writes that Xenon’s argument is based on the law of concurrent patent ownership, which generally does not require a patent co-owner to share licensing revenue with other co-owners. The district court found that the contract between WARF and Xenon was controlling over the patent law default rule. The Seventh Circuit affirmed that ruling, making it clear that the “statutory default rule controls unless there is an agreement to the contrary.” The appellate panel went on to characterize the agreement between WARF and Xenon as an “agreement to the contrary.” The negotiated exchange between the parties provided that the Foundation would forego its right to separately license the patent in exchange for receiving a share of the profits from Xenon’s commercialization of the technology, either directly or via a sublicense to a third party. Xenon cannot avoid paying royalties or sublicense fees to the Foundation simply by labeling the Novartis transaction a “license” rather than a “sublicense.”
Sources: The New York Times and Patently-O