Licence To Litigate

The recent case of Oxonica Energy v.

Neuftec1 is a telling example of how expensive

litigation can ensue from drafting an intellectual property licence

that is not fit for purpose.

Neuftec, who had a background in the motor industry, wanted to

develop a fuel additive that would reduce fuel consumption and

engine emissions. Neuftec wanted to use lanthanide oxides as active

ingredients but these were known to clog filters and damage

engines. They saw that the solution would be to make use of

extremely small particles of cerium oxide coated with a lipophilic

(oil-loving) substance to aid disbursement of the particles in the

fuel. Neuftec approached Oxonica to manufacture the particles, who

were a young nanotechnology company spun out from Oxford

University.

The parties incorporated a joint venture company to develop the

additive which combined Neuftec's know how of the motor

industry and general commercial acumen with Oxonica's expertise

in nanoparticles. The additive was developed successfully and

Neuftec made an international patent application under the Patent

Cooperation Treaty (PCT Application).

The parties then decided to structure the business relationship

in a different way to allow Oxonica to take advantage of certain

financial benefits. It was agreed that Neuftec would license its

intellectual property to Oxonica who would exploit the technology

and pay licence fees back to Neuftec. This arrangement was put into

effect by two documents: a main agreement covering the operation of

the business and an exclusive licence (the Licence Deed) giving

Oxonica the right to use Neuftec's technology and know how in

relation to lanthanide oxide fuel additives and the motor

industry.

The Licence Deed stated that licence fees would be payable on

the sale of Licensed Products and included the following

definitions:

"Licensed Application: "the

application appended in the Schedule hereto [i.e. the PCT

Application] and any continuation, continuation-in-part or

divisional applications thereof as well as foreign counterparts and

re-issues thereof";

Licensed Patent: "any patent issuing

from the Licensed Application thereof as well as foreign

counterparts and re-issues thereof";

Licensed Products: "any product,

process or use falling within the scope of claims in the Licensed

Application or Licensed Patent".

Oxonica used the licensed technology and know how to develop a

commercial fuel additive called "Envirox". The company

began to sell this product and...