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10 November 2022Staff writer

English appeals court rejects jurisdiction challenge over cannabis sativa collab

Case concerns epilepsy drug patent and medical cannabis R&D collaboration | Dispute between Japanese and Irish pharma firms will be heard in London due to arbitration carve-out clause.

In a victory for Tokyo-headquartered  Otsuka Pharmaceutical, the English Court of Appeal has concluded that the English courts have jurisdiction to hear a dispute over a cannabis sativa collaboration.

Lord Justice Birss, in the ruling handed down on November 8, affirmed the English High Court’s finding that it would be able to hear the dispute between Otsuka and two subsidiaries of Ireland-based  Jazz Pharmaceuticals, and was a more suitable forum than New York.

In 2007, Otsuka entered into a collaboration and licence agreement with Jazz’s subsidiaries—GW Pharma and GW Pharmaceutical (GW)—to research and develop pharmaceutical preparations based on botanical extracts from the chemovars, or chemotypes, of cannabis sativa, for the treatment of central nervous system conditions and cancer indications.

While the agreement was governed by New York law, the arbitration clause within the agreement states that arbitration would proceed in London if Otsuka initiated the dispute, or in New York if GW initiated the dispute. There is a carve-out from the arbitration clause, excluding issues of "patent scope, validity or infringement”.

At the end of the research period in 2013, Otsuka decided not to pursue the clinical development of any product candidate.

GW, however, did proceed with development but in these proceedings, it argued that there was no connection between the collaboration with Otsuka and GW’s current product,  Epidyolex.

The active ingredient in Epidyolex (of which worldwide sales so far have exceeded $1.4 billion) is cannabidiol and the drug is used to treat seizures associated with various conditions or epileptic syndromes.

Patent family scope

While GW alleged that Epidyolex wasn’t connected to the collaboration, Otsuka argued that the drug falls within the scope of at least two jointly owned patent families that arise from the collaboration, and that GW should pay royalties on sales of the product.

In response, GW contested jurisdiction, prompting the English High Court to consider whether it has jurisdiction to hear a dispute about a patent licence in circumstances where the licensee has indicated it will challenge the validity of licensed patents granted outside the UK.

In May this year, the English High Court concluded that patent validity was not the principal issue in the case and that a court may be able to decide the dispute before having to consider a validity argument.

Now, the Court of Appeal has affirmed the decision and dismissed GW’s appeal.

Judge ‘misplaced’ reliance on fact

GW put forward a series of arguments, including that the judge had discounted the significance of the fact that the agreement is governed by New York law and the fact that a dispute is governed by foreign law is a prima facie reason why the courts of that jurisdiction are more appropriate.

GW also claimed that the judge's reliance on the fact that the “agreement provided for arbitration proceedings to be held in London if commenced by Otsuka was misplaced because it would be subject to New York governing law and US discovery proceedings anyway”.

In response, Otsuka said there was a serious dispute about whether the New York State Court would permit GW Pharma to rely upon the invalidity defence for any of the patents (even the US patent), let alone all of them (all the non-US patents).

“The judge was right (at paragraph 92) to rely on this lack of certainty about the New York jurisdiction,” said Justice Birss.

Birss added: “Otsuka submits that there is no basis for interfering with the judge's conclusion that GW Pharma failed to show that the New York State Court was clearly or distinctly a more appropriate forum.

“The judge weighed the factors identified by the parties before reaching his conclusion and so the court should be slow to interfere with the conclusion unless it has identified an error in the reasoning, which it has failed to do.”

According to the Court of Appeal, the High Court judge had conducted an “appropriately holistic evaluation of all of the potentially relevant factors and the interplay between them”.

“He came to a conclusion which was plainly open to the court on the material,” said Birss.

LSIPR has contacted the parties for comment.

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