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7 July 2016Big Pharma

CJEU: patent licensee must pay royalty even for non-infringement

The Court of Justice of the European Union (CJEU) has said the beneficiary of a patent licence must pay the agreed royalty rate even if it does not infringe the patented technology.

In a decision handed down today, July 7, the court said that since the royalty constitutes the price to be paid in order to protect the licensee against infringement proceedings, and the licensee may at any moment terminate the agreement, the payment is due.

The ruling stems from the Genentech v Hoechst and Sanofi-Aventis Deutschland case, currently pending in the Paris Court of Appeal (Cour d’appel de Paris).

In 1992, Behringwerke, a German company that was subsequently taken over by Sanofi-Aventis Deutschland, granted Genentech a worldwide non-exclusive licence to use a patented human cytomegalovirus enhancer, which enhances cell-type-specific expression from lentiviral vectors.

Genentech used the enhancer to facilitate the transcription of a DNA sequence necessary for the production of a medicinal product, Rituxan (rituximab).

Because it used the enhancer in a way that did not infringe the licensed patents, Genentech refused to pay part of the agreed royalty.

The Paris court asked the CJEU whether, in such circumstances, the payment of the royalty imposes costs on the licensee that cannot be justified under EU law.

In today’s ruling the CJEU said the costs were justified.

According to the court, EU law does not prohibit the obligation to pay a royalty for the use of technology, even when the use does not give rise to an infringement.

The court said the royalty is the price to be paid for “commercial exploitation of the patented technology”.

It added: “The fact that the agreement may be freely terminated by the licensee makes it possible to reject the contention that payment of the royalty undermines competition by restricting the licensee’s freedom of action or by giving rise to market foreclosure effects.”

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