IP claims case study: Contract confusion
A biotech company is accused of patent infringement by one of their suppliers
A biotech company*, founded in 2014, focuses on the research and development (R&D) of proprietary cancer treatments.
To support their R&D programme they work with a number of universities and other third-party suppliers. One of their suppliers is a protein technology provider who provides licensing of technology patents and services to the biotech. This working partnership has been outlined and agreed in a contract and licence agreement.
After working together for a few months, the protein technology supplier began to have concerns about the biotech working with some of their competitors. They believed this conduct amounted to a breach of exclusivity provisions stated in their contract, however, the biotech maintained the contract language was ambiguous on this point.
Despite trying to reach an amicable resolution, the biotech decided to terminate the contract, so the protein technology supplier alleged patent infringement against the biotech. The biotech was insured by CFC’s intellectual property (IP) insurance. The defence part of the wording includes coverage for defence of patent infringement allegations in contract disputes with licensors.
The biotech worked with CFC’s claims handlers to appoint a suitable legal representative. Although they were able to source their own legal representative, as per the terms of the policy, they instead chose one of CFC’s recommendations due to the lawyer’s extensive experience handling life sciences patent disputes in the relevant legal jurisdiction.
The legal representative offered a range of defensive strategies for the patent infringement allegation, these included challenging the validity of the patent, arguing they had not infringed the patent, or attempting to reach a settlement.
All these defence strategies would have been valid and are indemnifiable on the IP insurance policy, including court hearing costs should the dispute proceed that way.
After 18 months of negotiations, the supplier and the insured agreed to settle the matter out of court with a new commercial agreement. The biotech agreed to pay the protein technology supplier a global settlement of $1m to dispose all legal disputes between them. They also secured a patent license agreement which stated they would pay royalties going forward and future milestone payments if certain sales targets were achieved by the biotech.
CFC’s IP insurance policy paid out for legal costs and compensation relating to the IP infringement element of the biotech’s situation. This was a fundamental part of the contract dispute and would not have been possible to insure on any other type of insurance.
The proportion of the dispute relating to IP infringement was agreed between the biotech and CFC and the policy paid $400,000 towards the $650,000 total legal expenses incurred in the dispute and $800,000 towards the $1m settlement figure. Without the policy in the place, the biotech would have had to cover the dispute themselves, which would have impacted R&D funding and caused mass business interruption.
*The companies and circumstances in this case study are fictional, but the scenarios are based on claims we have handled.