AstraZeneca UK Limited v Tesaro Inc

A patent licence does not carry a presumption that its royalty obligation matches the scope of the patent claims. Parties may agree a broader royalty for convenience, but the court must construe the wording actually chosen. Where the licence grant and royalty provisions use the same definition, that definition may align both obligations with the licensed claims. Prospective wording such as ‘may be’ can reflect pending patents and future exploitation; it is not a probability threshold or a basis for charging royalties on every possible use. The absence of a contractual mechanism for measuring infringement does not displace that construction. A lawful interpretation is preferred where the alternative risks patent misuse. Cross-referenced head licences and relevant commercial communications may confirm the same scope.

AstraZeneca granted Tesaro sub-licences under patent rights concerning PARP inhibitors, including niraparib. The licence agreements required royalties on sales of licensed products. Tesaro argued that royalties were payable only for sales involving uses or treatments within the claims of the licensed patents. AstraZeneca contended that royalties were payable on all sales of niraparib for cancer treatment.

Richards J held that royalties were calculated by reference to total sales of niraparib for cancer treatment: [2023] EWHC 803 (Ch). Tesaro appealed. The central issue was the proper construction of the definition of ‘Compound’, particularly the words ‘may be’, and its relationship with the licence grant, royalty obligation and head licences.

1. Disposition. The appeal was allowed. The royalty obligation was not a royalty on all net sales of niraparib used as a cancer treatment. It was tied to sales for uses or treatments within the scope of the claims of the licensed patents.
2. Contractual construction. A patent licence is generally needed only for acts which would otherwise infringe the patent, so the scope of the licence is in principle coextensive with the claims. That does not create a presumption that the royalty obligation has the same scope. The parties may rationally agree a broader royalty, but the question is determined by the wording they agreed.
3. The definition of ‘Compound’ governed both the licence grant and the royalty clause. The words referring to use being claimable or covered by the licensed patents had to be given meaning and effect. Clauses 5.5.1 and 5.5.2, which linked the commencement and expiry of royalties to granted patents and valid claims, reinforced the claim-based construction.
4. Arnold LJ treated ‘may be’ as prospective language reflecting uncertainty about future patent grants and successful exploitation. Birss LJ regarded the lower court’s construction as tenable and understood the words as referring to a genuine possibility existing at the contract date, but preferred Tesaro’s construction overall. King LJ considered that the outcome did not depend on choosing between those formulations.
5. The absence of a contractual mechanism for measuring which sales fell within the claims did not displace the construction. A lawful interpretation was preferred because the total-sales interpretation carried a serious risk of patent misuse. The cross-referenced head licences and communications stating that downstream royalties matched upstream royalties supported the same reading. The lower court’s cancer-treatment distinction had no textual basis and would have exceeded AstraZeneca’s power under the head licences.
6. Birss LJ additionally referred to Merrell Dow v Norton [1995] UKHL 14 and Lilly ICOS v Pfizer [2000] EWHC Patents 49 as illustrating uncertainty surrounding second medical use claims. He also noted Unwired Planet v Huawei [2015] EWHC 1029 (Pat) as an example of a royalty-bearing event not necessarily being coextensive with the licence scope. Those observations did not alter the result.

1. Court of Appeal (Civil Division): Tesaro’s appeal was allowed.
2. High Court of Justice, Business and Property Courts, Business List (ChD): Richards J held that the licence agreements required royalties calculated by reference to total sales of niraparib for cancer treatment: [2023] EWHC 803 (Ch).