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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> University of Sheffield v Kudos Pharmaceuticals Ltd & Ors [2025] EWHC 1252 (Ch) (09 May 2025) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2025/1252.html Cite as: [2025] EWHC 1252 (Ch)

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IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)

		Rolls Building Fetter Lane London EC4A 1NL
		9 May 2025

This judgment will be handed down remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:00am on 9 May 2025
1. The first case management conference in this claim came before the court on 23 April 2025. At the hearing the claimant applied for an order granting permission to adduce expert evidence relating to the interpretation of "the 2004 Licence" made between the claimant and the first defendant. The application was refused with reasons to follow. This judgment provides my reasons.

The claim

2. The claimant, the University, owns certain patent rights covering the use of compounds known as 'PARP inhibitors' in the treatment of cancer. This potential method for the treatment of cancer was identified in research carried out at the University by Professor Thomas Helleday in collaboration with the University of Newcastle during the early 2000s. In parallel with that research, the first defendant, KuDOS, independently developed a compound for the potential treatment of cancer known as 'olaparib', which is a PARP inhibitor and as subsequently authorised is covered by the University's patent rights. KuDOS owns its own patent rights for the use of olaparib for the treatment of cancer.
3. On 25 July 2004, the parties entered into the 2004 Licence, the terms of which provided for the University to grant KuDOS an exclusive worldwide license of its patent rights and any associated intellectual property to develop and commercialise medicines using PARP inhibitors for the treatment of cancer. The 2004 Licence runs to 44 pages and is a formal commercial document.
4. KuDOS was entitled to sub-license the rights granted under the 2004 Licence, in which event it was required to pay the University a specified percentage of all 'Net Lump Sum Revenues', as defined in the 2004 Licence, within 30 days of receiving the same.
5. KuDOS was acquired by AstraZeneca in January 2006. After successful clinical trials, KuDOS secured regulatory approval for the sale of olaparib from the EMA in Europe and the FDA in the US in 2014 and it is now sold under the brand name Lynparza. As such, Lynparza is a 'Product' within the meaning of the 2004 Licence.
6. The claim arises out of an agreement, the 2017 Letter Agreement, made between the parties after a short period of negotiations. Under the 2017 Letter Agreement the University agreed to accept payment of a fixed sum specified in the agreement for agreeing that any payments received by KuDOS or any of its Affiliates in connection with an anticipated collaboration between the defendants and their "Collaboration Partner" would not constitute Net Lump Sum Revenues under the 2004 Licence.
7. The 2017 Letter Agreement also confirmed that the University would continue to receive a royalty of a specified percentage of Net Sales of Lynparza under clause 6.4 of the 2004 Licence. Eight days after signature of the 2017 Letter Agreement the defendants announced that they had entered into a collaboration agreement with another pharmaceutical company.
8. The claim principally concerns allegations of deceit arising from representations made by the defendants in the course of negotiating the 2017 Letter Agreement. However, there is an issue of construction relating to the definition of 'Net Lump Sum Revenues' in the 2004 Licence. The term is defined as meaning:

(i) any signature fee or other up-front fee due to be received by KuDOS or any of its Affiliates from a sub-licensee being appointed by KuDOS to further develop and/or Commercialise a Clinical Candidate or resulting Product always excluding any sums received by way of equity investment in KuDOS or any of its Affiliates in a related transaction; and

(ii) any milestone or other payments due to be received by KuDOS or any of its Affiliates from a sub-licensee being appointed by KuDOS to further develop and/or Commercialise a Clinical Candidate or resulting Product which payments are payable on an event to occur in relation to the development or Commercialisation thereof but always excluding sums received by KuDOS from such sub-licensee which reimburse KuDOS for the cost and expense (but only the cost and expense and no profit element) of research or development work to be undertaken by or upon behalf of KuDOS which KuDOS can demonstrate to the University satisfaction are reasonable sums for such cost and expense.

The issue of construction

9. The University seeks a declaration that the Net Lump Sum Revenues comprise:

(a) any signature or other up-front fees due to be received by KuDOS or its Affiliates from a sub-licensee in respect of the further development or commercialisation of a Clinical Candidate or Product; and

(b) any milestone or other payments due to be received by KuDOS or its Affiliates from a sub-licensee being appointed by KuDOS further to develop or commercialise a Clinical Candidate or Product which are payable on an event to occur in relation to the development or commercialisation thereof.

10. The Defendants contend that the Net Lump Sum Revenues comprise:

(a) any signature or other up-front fees due to be received by KuDOS or its Affiliates from a sub-licensee appointed by KuDOS further to develop and/or commercialise a Product in respect of a sub-licence of the University IP (that is, any relevant sum properly due and payable specifically for the sub-licence of the University's IP under an agreement between KuDOS and any sub-licensee to that effect); and

(b) any milestone or other payments due to be received by KuDOS or its Affiliates from a sub-licensee appointed by KuDOS to further develop and/or commercialise a Product in respect of a sub-licence of the University IP (that is, any relevant sum properly due and payable specifically for the sub-licence of the University's IP under an agreement between KuDOS and any sub-licensee to that effect).

Expert evidence

11. The claimant sought an order for permission to adduce "expert evidence in the field of the licensing agreements in relation to the proper construction of the definition of the term Net Lump Sum Revenues in the 2004 Licence." The proposal put forward by the claimant did not specify the qualifications and/or experience that the proposed expert would need to possess.
12. The claimant proposed that the expert should address the following lengthy list of issues:

1. What forms do licensing agreements typically take in the pharmaceutical context and what are the main commercial and legal factors that influence their terms?

2. To what extent is each alternative construction of clauses 1.1.37(i) and 1.1.37(ii) (as set out at Issues 1 and 2 of the List of Issues) consistent with (i) the commercial purpose of the Licence and (ii) business common sense? In that regard:

(1) Would a reasonable person in the position of the parties at the time of the Licence have understood that the University's entitlement under clause 6.2 of the Licence to XX% of any Net Lump Sum Revenues:

(i) was to reflect the anticipated contribution of the University's Patent Rights in securing such fees, taking into account the work already done by KuDOS in respect of the development of the Product (as is the University's case);

(ii) was to provide the University with some additional financial remuneration if KuDOS decided to further sub-licence the University IP to a third party (with KuDOS taking on the administrative obligations associated with doing so) (as is the Defendants' case)?.

3. To what extent is either construction of clauses 1.1.37(i) and 1.1.37(ii) supported by the following facts:

(1) That KuDOS was entitled to sub-license the rights under the Licence without the prior approval of the University and without informing the University of what fees would be payable under such sub-licence?

(2) That insofar as KuDOS simply sub-licensed the University's Patent Rights to another party, there is no reason why the University, as the owner of those rights, should have been entitled to only XX% of any payments made by the sub-licensee for those rights?

(3) That, pursuant to clause 11.1 of the Licence, if either party terminated the Licence in circumstances where a sublicence that KuDOS had granted was also terminated (and the relevant sublicensee was not at fault), the University was obliged to enter into a direct licence with the sub-licensee concerning the University IP on financial and other terms equivalent to those set out in the Licence, and under which the sub-licensee would reasonably be expected to pay only the fees attributable to the University IP, and not attributable to intellectual property belonging to other parties?

(4) That any sums paid by a sub-licensee to reimburse KuDOS for the cost and expense of research or development work were expressly excluded from the scope of Net Lump Sum Revenues?

4. Would the University's proposed construction of clauses 1.1.37(i) and (ii) be contrary to commercial sense, in that it would involve the University deriving an economic benefit from a component of a wider transaction relating to other assets (for example, a sum payable pursuant to a sub-licence of a third party's intellectual property)?

5. Would the Defendants' proposed construction of clauses 1.1.37(i) and (ii) be contrary to commercial sense, in that any amount payable to the University would be dependent on the amount specifically payable under any sub-licence in respect of the University's IP, in circumstances where: (a) the University would not be involved in the negotiation between KuDOS and the sub-licensee; (b) there is nothing in the Licence setting out the basis upon which such amount should be determined; and (c) such amount could therefore be fixed arbitrarily and apparently without reference to the value to KuDOS and the sub-licensee of developing and commercialising a Clinical Candidate or Product?

13. The claimant's case is that its construction reflects not just the plain meaning of the words used in both limbs of the definition but also that its construction is more consistent with the 'commercial purpose' of the 2004 Licence and 'commercial sense'. The defendants' case is that their construction is preferable by reference to the licence's 'commercial purpose' and 'business common sense'.
14. The claimant put its case for expert evidence on the following basis (extracted from the claimant's skeleton argument):

In the circumstances, the University believes that the Court will be assisted by expert evidence concerning the usual features and mechanisms of licensing agreements at the relevant time and as to the extent to which each party's construction is consistent with the commercial purpose of the Licence and business common sense. What constitutes "commercial sense" and "business common sense" will be informed by the wider context and the commercial imperatives applicable to parties to this kind of licence agreement.

15. It is not in doubt that the relevant words in the 2004 Licence have to be construed in their context and that this includes matters which were known to the parties or were reasonably available to the parties. The claimant's case was developed and put forward on the basis that the court is entitled to have regard to expert evidence about 'market practice' as an aid to construing a contract.

The law

16. Expert evidence is governed by section 3(1) of the Civil Evidence Act 1972 which provides that:

Subject to any rules of court made in pursuance of this Act, where a person is called as a witness in any civil proceedings, his opinion on any relevant matter on which he is qualified to give expert evidence shall be admissible in evidence.

17. The starting point in relation to expert evidence is whether the evidence is admissible. The claimant seeks to justify evidence from an expert in relation to the issues of construction on the basis that the court is entitled to have regard to evidence of 'market practice' in an appropriate case. It is common ground between the parties that the determination of an issue of construction is a question of mixed fact and law.^[1]
18. It is also common ground that there are circumstances in which the court will admit expert evidence about 'market practice'. They disagree, however, about the scope of that principle. The leading decision is Crema v Cenkos Securities plc [2011] 1 WLR 2066 (CA) [42]-[45]. In giving the leading judgment Aikens LJ said at [43]:

In my experience, it has been common practice for the Commercial Court to hear evidence of market practice, which does not amount to evidence of an alleged trade usage or custom, in order to assist the court with a full understanding of the factual background to the proper construction of a written contract.

19. Having referred to what he described as the landmark decision of the House of Lords in Prenn v Simmonds [1971] 1 WLR 1381 he went on to discuss in paragraph [44] the decision in American Airlines Inc v Hope [1973] 1 Lloyds Rep Vol 1 at 223 which followed on shortly after Prenn v Simmonds:

Extensive evidence was heard by the judge from witnesses experienced in the Lloyds aviation insurance market on the surrounding circumstances as an aid to the construction of the laconic Lloyds slips which contained the relevant insurance terms. The evidence also covered negotiations and the past history of the terms. In the Court of Appeal [1973] 1 Lloyds Rep 233, Roskill LJ said that evidence was plainly . . . admissible to explain the meaning of the insurance market shorthand of the slip, for the purpose of converting it from shorthand to longhand . He referred to the recent decision of Prenn v Simmonds [1971] 1 WLR 1381 and confirmed that surrounding circumstances pointing to the correct construction might legitimately be proved by oral evidence strictly limited to that purpose, but that there should not be evidence of negotiations [1973] 1 Lloyds Rep 233, 245. This use of expert evidence from witnesses familiar with the shorthand used in the aviation market was approved without comment by Lord Diplock, who gave the leading speech on the case when it reached the House of Lords [1974] 2 Lloyd s Rep 301, 305.

20. The admissibility of expert evidence about market practice was discussed more recently in Lewison LJ's judgment in In Re LB Holdings Intermediate 2 Ltd (In Administration) [2002] Bus LR 10 at [28]. Having referred to Wood v Capita Insurance Services Ltd [2017] AC 1173 he made four points of emphasis including:

First, the instruments that we are asked to interpret have clearly been drafted by skilled professionals and are at the high end of sophistication. Textual analysis is therefore likely to be the principal method of analysis: Wood, para 13.

…

Fourth, the court may admit expert evidence of market practice in order to explain shorthand terms used in that market; or to enable the court to understand the factual background: Crema v Cenkos Securities plc [2011] 1 WLR 2066.

Disposal

21. The 2004 Licence is a contract that was drafted by skilled professionals. It does not contain any shorthand terms that fall to be construed. Instead, it is the meaning of a defined term using ordinary language that is in dispute. It follows that to be admissible the claimant has to show that expert evidence is needed to enable the court to understand the factual background by reference to market practice. However, the claimant has not in its pleaded case or in evidence produced for the CMC provided any indication of what it is about the factual background to the 2004 licence that will be difficult for the court to understand without assistance or what the market practice that is relevant might be. The licence relates to a patent in the context of pharmaceuticals but that is not of itself a factual background matter so out of the ordinary that additional assistance may be needed.
22. In my judgment the claimant has not made out a case to show that expert evidence of market practice is admissible in this claim. There is no identified market practice about which evidence could be provided. Issue 1 in the list of issues for the expert could, taking a very broad view, be seen as evidence about the form of licensing agreements in the pharmaceutical context but it is entirely unclear how that evidence might be an aid to the court. There is no indication about whether the form of the 2004 Licence is usual or unusual. The form pharmaceutical licences generally take or the factors that influence that form are not background issues that are material to a dispute of construction where it is the meaning of the words carefully chosen in the process of drafting that has to be determined.
23. The remaining issues put forward by the claimant invite the expert to usurp the function of the court in determining the meaning of the agreement.
24. Even if the proposed evidence is admissible and CPR rule 35 is engaged, I do not consider that the court should exercise its discretion to permit expert evidence. The court is under an obligation to restrict expert evidence to that which is reasonably required to resolve the proceedings. It is helpful to apply the three-stage analysis suggested by Warren J in British Airways PLC v Spencer [2015] Pens LR 519 at [68]. The court should ask itself:

(i) Is the expert evidence necessary to decide an issue rather than being merely helpful?

(ii) If it is not necessary, will it assist the judge in determining an issue? If it would assist but is not necessary, then the court should consider;

(iii) Is expert evidence reasonably required to determine the proceedings?

25. I am wholly unpersuaded either that expert evidence about market practice is necessary in this case or that it will (or might) assist the court. There are many instances of the court being required to construe contracts that have been produced in specialist contexts. This claim is not on all fours with American Airlines in which expert evidence was needed to understand the laconic Lloyds slips. A shorthand had been used with a meaning particular to that market. In Crema expert evidence about market practice was admitted to assist the court in determining whether a sub-broker was entitled to be paid commission before the defendant stockbroker and corporate finance adviser had been paid by their client.
26. Here the court has to construe a particular term in a patent licensing agreement. I have directed that the trial of this claim is to take place before a High Court judge with experience of patent cases. I have no doubt that the trial judge will not wish the trial to be burdened with expert evidence relating to the context in which the issue of construction arises because the context will be fully understood. I am satisfied that the expert evidence, if it is admissible, is neither necessary nor will it assist the court.
27. I am satisfied that there is no proper basis upon which the court should permit expert evidence of the type proposed by the claimant.

Note 1   Chitty on Contracts 35th ed. para 16-050    [Back]