The University of Sheffield v KuDOS Pharmaceuticals Limited

MASTER MARSH:

1. I am delivering this judgment in the course of a case management conference today. This is the first time the claim has come before the court.

2. The judgment deals with three issues: first, the refusal by the court earlier today to grant an adjournment of consideration of part of the defendant's application to amend their defence; secondly, reasons for granting the amendment; and thirdly, a number of discrete issues that arise in connection with disclosure.

3. The claim is very helpfully summarised in an agreed case summary. I adopt the case summary and incorporate it in this judgment (with redactions to take into account confidentiality). “ Factual Summary (i) The Licence

1. 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 as a result of 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, 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.

2. On 25 July 2004, the parties entered into the 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.

3. KuDOS was entitled to sub-license the rights granted under the Licence, in which event it was required to pay the University [blocked out] of all ‘Net Lump Sum Revenues’, as defined in the Licence, within 30 days of receiving the same. As set out further below, there is a dispute between the parties as to the proper construction of the Licence and, in particular, as to what payments constitute ‘Net Lump Sum Revenues’.

4. 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 Licence. (ii) The 2017 Letter Agreement

5. On 27 July 2017, AstraZeneca announced that it had entered into a Collaboration Agreement with Merck , another pharmaceutical company, for the joint development and commercialisation of Lynparza and an unrelated compound that was also being developed by AstraZeneca known as selumetinib (which does not involve the use of the University’s patent rights). Under the collaboration, Merck agreed to pay AstraZeneca US$1.6 billion upfront, US$750 million for certain license options and up to US$6.1 billion contingent upon the successful achievement of future regulatory and sales milestones (i.e., up to US$8.5 billion in total), in return for an equal share of the gross profits generated from Lynparza and selumetinib.

6. A few weeks before that announcement, on 6 July 2017, KuDOS/AstraZeneca contacted the University indicating that it had been approached by a potential sub-licensee (which was not named) and sought confirmation that KuDOS/AstraZeneca could provide the sub-licensee with a copy of the Licence (which the University gave).

7. On 10 July 2017, KuDOS/AstraZeneca opened negotiations with the University, which led to the signature of the 2017 Letter Agreement on 19 July 2017 (eight days before the announcement of the collaboration with Merck). Those negotiations, which were conducted in telephone calls, emails and one meeting, were carried out by Dr Srinivasan and Mr McIlveen for KuDOS and AstraZeneca and involved Ms Jones, Ms Grocutt and Ms Dingle for the University.

8. Pursuant to the 2017 Letter Agreement, the University agreed to receive [blocked out] in return for agreeing that any payments received by KuDOS or any of its Affiliates in connection with the anticipated collaboration with the ‘Collaboration Partner’ (whose identity had been disclosed to Ms Jones of the University under a separate confidentiality agreement signed on 18 July 2017) would not constitute Net Lump Sum Revenues under the Licence. The 2017 Letter Agreement also confirmed that University would continue to receive a royalty of [blocked out] of Net Sales of Lynparza under clause 6.4 of the Licence. (iii) The Merck Collaboration

9. According to the Defendants, Merck paid KuDOS US$1.6 billion in July 2017, of which [blocked out] related to Lynparza and [blocked out] related to selumetinib. The MSD Invoice which has been provided by the Defendants to the Claimant’s lawyers sets out a breakdown of the US$1.6 billion in upfront payments across each set of intellectual property rights licensed or sub-licensed under the collaboration. Of the [blocked out] that Merck paid to KuDOS in respect of the licensing or sub-licensing of intellectual property relating to Lynparza, [blocked out] was paid by Merck in respect of a Sub-Licence of the University’s IP dated 26 July 2017.

10. Since then, Merck is said to have made further payments to KuDOS/AstraZeneca such that the total payments made in relation to the development or commercialisation of Lynparza to date total [blocked out]. Claims and Defences (i) The proper construction of the Licence Under clause 6.2 of the Licence, KuDOS was required to pay the University [blocked out] of all ‘Net Lump Sum Revenues’ within 30 days of receiving the same. ‘Net Lump Sum Revenues’ were defined in clause 1.1.37 as: ‘(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.’

12. There is a dispute between the parties as to the proper construction of these provisions. In brief summary: (1) 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. (2) 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).

13. Based on its construction of the Licence, the University contends that, but for the 2017 Letter Agreement, the [blocked out] paid by Merck (to date) in respect of Lynparza would have constituted Net Lump Sum Revenues and, on that basis, the University would have been entitled to [blocked out] of that sum, being [blocked out].

14. The Defendants claim that: (1) Adopting their construction of the Licence, then assuming that (1) the parties had not entered into the 2017 Letter Agreement but (2) AstraZeneca and Merck had nonetheless entered into their Collaboration Agreement and (3) KuDOS and Merck had nonetheless concluded the Sub-Licence, the University would only have been entitled to [blocked out] of such sums as were properly due and payable by Merck specifically for the sub-licence of the University’s IP under the agreement between KuDOS and Merck. (2) The sum of [blanked out] was the amount properly due and payable under that Sub Licence, to which the University would have been entitled to [blocked out], being [blocked out]. (ii) Claims in Misrepresentation

15. The University claims that it was induced to enter into the 2017 Letter Agreement by certain express or implied Representations made by KuDOS and AstraZeneca over the period from 10 July 201720. These are: (1) The Structuring Representation : that KuDOS had a choice as to whether to structure the proposed transaction with Merck as a sub-licence or a share transfer. (2) The Clause 6.2 Representation : that KuDOS and AstraZeneca believed that the definition of Net Lump Sum Revenues was “confusing” and that the University was only entitled under clause 6.2 of the Licence to [blocked out] of any fees payable in respect of any sub-license of the University’s IP. (3) The Difficulty of Valuation Representation : that the primary reason for KuDOS to offer the lump sum payment of [blocked out] was that it would be complicated and costly to attempt to understand the respective contributions of the University’s technology and of AstraZeneca’s technology to Lynparza or to any arising combination treatment and therefore to attribute to each entity a suitable share of the payments made by the proposed collaboration partner. (4) The [blocked out] Fee Representation : that KuDOS and AstraZeneca believed that the [blocked out] lump sum offered by KuDOS in substitution for any payments due to the University under clause 6.2 was a fair and reasonable estimate of the sums to which the University would otherwise be entitled in the event that the proposed transaction went ahead. (5) The No Transaction Representation : that KuDOS and AstraZeneca’s intention was that, if no agreement could be reached with the University within two weeks, they would not proceed with the proposed transaction or any transaction that would result in the University receiving any payment under clause 6.2 of the Licence. (6) The Confidentiality Representation : that aside from the identity of the proposed collaboration partner (which could be disclosed to Ms Jones under a separate confidentiality agreement), KuDOS and AstraZeneca were prevented from providing any further information about the nature of the proposed transaction on grounds of confidentiality and that there was no prospect of any existing confidentiality obligations being relaxed for that purpose.

16. In this context, the University says that it was assuming during those negotiations that KuDOS and AstraZeneca were complying with an alleged obligation, arising under clause 8.1.3 of the Licence, to disclose all information material to the University’s decision to enter into the 2017 Letter Agreement, and with an alleged duty of good faith, which the University contends is to be implied into the Licence on the basis that it is a relational contract.

17. The University claims that each of the Representations was false and was made fraudulently, alternatively negligently, and was relied upon by the University when deciding to enter into the 2017 Letter Agreement.

18. On that basis, the University seeks rescission of the 2017 Letter Agreement and claims to be entitled to [blocked out] of all Net Lump Sum Revenues under clause 6.2 of the Licence. Alternatively, the University claims damages from KuDOS and/or AstraZeneca for fraudulent misrepresentation or under section 2(1) of the Misrepresentation Act 1967 .

19. The Defendants deny any liability in misrepresentation and deny that the University is entitled to any of the relief sought.

20. The Defendants deny that the Licence was a relational contract or that they owed any implied duty of good faith, and deny that they owed any obligation under clause 8.1.3 of the Licence in relation to the 2017 Letter Agreement.

21. As to the alleged Representations: (1) The Defendants admit that the Structuring Representation was made, and claim that it was true, on the basis that it was possible for AstraZeneca to structure the proposed collaboration with Merck as a share transfer, albeit that this would have been a different transaction to that agreed on 27 July 2017. (2) They do not admit that the Difficulty of Valuation Representation was made, but aver that, if made, it was made in relation to the need, for the purposes of clause 6.2 of the Licence, to value the respective contributions of the University’s IP and other intellectual property rights to the development of Lynparza (on which basis, it was true). (3) They deny making any of the other Representations and deny that, if made, they were false.

22. The Defendants deny that any of the Representations, if made, were made fraudulently. They do not admit that the University relied on the Representations when deciding whether to enter into the 2017 Letter Agreement.

23. The Defendants therefore deny that the University is entitled rescind the 2017 Letter Agreement or that they are liable in damages for misrepresentation. The Defendants further say that, if the University is not entitled to recission, but is entitled to damages for misrepresentation reflecting the position that it would have been in had the 2017 Letter Agreement not been concluded, then any valuation of the University’s loss would need to take into account (among other things) the probability, as at the date of the 2017 Letter Agreement that AstraZeneca and Merck: (1) would not have entered into the Collaboration Agreement at all; (2) would have entered into a collaboration with a different structure to that in fact agreed and, if so, what that structure may have been; and (3) would have entered into a collaboration with the same structure as that in fact agreed.

25. The Defendants also rely on clause 18.1 of the Licence, as incorporated into the 2017 Letter Agreement, as a defence to the claim brought under section 2(1) of the 1967 Act . The University says that such clause is void under UCTA 1977 . The Defendants deny that the Act applies and maintain, in any event, that the clause satisfies the requirement of reasonableness.”

4. I note that the claim has a very high value and the allegations made by the University against the defendants involve allegations in deceit. The University relies upon six representations said to have been made in the course of negotiations with the first defendant that took place over a short period of time in 2017. To the extent that it is necessary, I will adopt the abbreviations in the case summary in respect of the representations. Adjournment

5. I deal first with the adjournment application. I note that the case management conference has been in the diary for some time. I also note that it has been listed during the vacation. However, that is simply a fact in relation to which the parties have had to make accommodation. It has not been suggested that the case management conference overall should be adjourned.

6. The defendants sought permission to amend the defence and gave notice to the claimant on 15 April 2025 in respect of proposed amendments that included an to paragraph 110.2 in the defence. The other amendments put forward by the defendants were accepted by the claimant.

7. The short point about the adjournment is that Mr. Parker, who appears for the claimant, said that the claimant had not had sufficient opportunity to consider the proposed amendment to paragraph 110.2. I accept that the amount of time afforded to the claimant has been limited albeit that the period of notice complied with the requirements of the CPR. On the other hand, the proposed amendment is not a complicated one. The defendants in paragraph 110.2, as originally put forward, asserted that two clauses in the 2017 Letter Agreement, if they fell within the 1967 Misrepresentation Act, satisfied the test in section 11(1) of the Unfair Contract Terms Act 1977 . No particulars were provided of that case.

8. The amendment seeks to explain why it is said that the relevant clauses were reasonable. It follows that the defendants were not seeking to put forward a new case by this amendment but merely to particularise a part of its case which might have been said to be deficient. It seemed to me that there is no possible realistic basis upon which the claimant could oppose the proposed amendment. Indeed, the particulars provided were, if anything, helpful to the claimant, providing clarification of the defendants' case. I could see no good reason why the hearing in respect of that part of the amendment should be adjourned to a later date. In reaching that decision, I had in mind the provisions of the overriding objective including the importance of proper use of court resources. The balance came down firmly in favour of dealing with the issue today. Amendment

9. In light of that decision, Mr. Parker did not actively oppose the application for permission to amend paragraph 110.2. I was satisfied that it was an appropriate amendment that sought to clarify the defendants' case. It could not be said that the application to amend was made at a late stage of these proceedings, and it was an appropriate amendment for the court to approve. There was no proper basis upon which permission to amend could have been refused. Disclosure

10. I now turn to deal with issues relating to disclosure. As an initial observation, it is clear that the parties have undertaken a great deal of work prior to the case management conference in seeking to agree issues for disclosure in relation to this claim. There has been full engagement. However, they have not been able to reach agreement in respect of all the proposed issues for disclosure.

11. The starting point is paragraph 7.6 of Practice Direction 57AD. It is an important provision. It provides that issues of disclosure should be as short and concise as possible, reflecting the Chancellor's guidance in McParland . It then states that: “Issues for Disclosure' means for the purposes of disclosure only those key issues in dispute, which the parties consider will need to be determined by the court with some reference to contemporaneous documents in order for there to be a fair resolution of the proceedings. It does not extend to every issue which is disputed in the statements of case by denial or non-admission.”

12. The essential elements in paragraph 7.6 are that the key issues in dispute should be identified so that disclosure is not to be given in respect of every issue and that those key issues which are identified must be those for which disclosure is required for there to be a fair resolution of the proceedings.

13. There are four issues of disclosure which are not agreed between the parties. The first is issue 9. The issue the claimant wishes to put forward is: “Did the collaboration between KuDOS and AstraZeneca and Merck require a sub-licence or could it have been structured as a share transfer and, if so, how much time and money would this have required?”

14. The thrust of this issue is in connection with the structuring representation that is relied upon by the claimant. However, I have come to the conclusion that issue 9 does not identify an issue for disclosure as that term is understood in paragraph 7.6. It is instructive to contrast issue 9 with agreed issues 10 and 11 and in particular issue 11. Issue 11 is defined in relation to what actual consideration was given by KuDOS and AstraZeneca to alternative ways of structuring the collaboration with Merck, including by way of a share sale. So it involves, as drafted, a subjective review of documents that relate to the issue.

15. By contrast, issue 9 looks objectively at whether the collaboration between KuDOS and AstraZeneca and Merck could have been structured by way of share transfer. The short point is that this is simply not an issue, and not a key issue, in the claim. Furthermore, to the extent there are documents that relate to such a consideration, they will be produced by reference to searches arising under issues 10 and 11. In my judgment, issue 9 does not in fact add to the scope of disclosure, even if it were an issue for disclosure.

16. Issue 12 proposed by the claimant is: “What time pressure was there for KuDOS/AstraZeneca to enter into the proposed transaction with Merck in July 2017 and to what extent was AstraZeneca motivated by a desire to announce the Merck transaction at the same time as publishing its half year results?”

17. The thrust of this issue, according to the claimant, is about the timing of the negotiations and their conclusion. The claimant says the timing was critical and that in an indirect way informs or relates to questions of falsity.

18. The defendants' response is that it relies upon an admission to the effect that AstraZeneca's preference was to publicly announce the Merck transaction at the same time as publishing its half year results. It does not accept, however, that timing was critical.

19. I consider that issue 12 can properly be regarded as an issue for disclosure. The admission made by the defendants is only a partial admission. It does not entirely meet the claimant's case. The extent to which there was pressure upon those representatives of the defendants who attended discussions and the meeting is a material issue in the claim and it documents that go to such time pressure ought properly to be disclosed to the extent that they do not already respond to other issues that have been defined.

20. Issue 14 has two elements. Only part of the issue is in dispute. It is accepted there is an issue about what non-legal advice KuDOS and AstraZeneca sought and received in relation to the definition of “Net Lump Sum Revenues” in clause 6.2 of the licence. However, the claimant seeks to go further and to extend the issue for disclosure by adding: “Did KuDOS or AstraZeneca seek and/or receive internal and/or external legal advice in relation to clause 6.2 and/or the definition of ‘Net Lump Sum Revenues’ in the Licence?”

21. It is important to note that the claimant has defined this issue not so as to seek the advice that is sought but merely by reference to the question of whether advice was sought. It does not follow from seeking documents about whether advice was obtained that the documents themselves, including the advice, would necessarily form part of a disclosure exercise.

22. It is, of course, not an answer to disclosure to say that all the documents would necessarily be privileged. That may be a proper response to requests for production in respect of each of the documents that are disclosed, but it is not a reason of itself to refuse to approve an issue for disclosure.

23. However, it is not in fact in dispute between the parties that the defendants sought advice. There is an admission to that effect on the face of the statements of case. It follows that the additional scope of issue 14 that is sought by the claimant cannot be properly regarded as an issue for disclosure. It is not a key issue because it is not in dispute between the parties.

24. I turn to deal with issue 17, being conscious that there are elements of the issue which are regarded as confidential and, in referring to the issue in this judgment, it would not be appropriate to mention those confidential elements. It is, therefore, I think safer for the purposes of this judgment not to read issue 17 into it and my reasons will be necessarily circumscribed as a consequence.

25. It is agreed between the parties that issue 17 will have two elements to it, (a) and (b). The claimant seeks to add (c). The question that arises is whether (c) as an additional limb to this issue gives rise to or properly extends the existing issue for disclosure.

26. My conclusion on that issue is that issue (c) is not properly part of the existing issue for disclosure and not of itself an issue for disclosure such that would justify a standalone issue for disclosure on its own. I will therefore decline to add it to the disclosure review document. (For continuation of proceedings: please see separate transcript)

27. I am now dealing with a further issue relating to disclosure that has arisen today at the case management conference. In relation to three of the issues for disclosure there is a dispute between the parties about whether the court should order narrative documents to be included within the scope of Model D disclosure. Those are issues, 10, 11 and 27.

28. The parties have agreed in relation to a number of other issues either that narrative documents should be included or that they should be not included. The three issues to which I have made reference are the only ones that are in dispute.

29. In their skeleton arguments, counsel have referred to a decision of Mr Ter Haar, sitting as a Deputy High Court Judge in Bouygues UK Limited v Sharpfibre Limited [2020] EWHC 1309 (TCC) and to paragraphs 35 to 40 of that judgment. At paragraph 40 the Deputy Judge referred to a submission made by counsel for one of the parties which sought to define the circumstances in which narrative documents should be disclosed. It is not a matter which arises directly for the purposes of today other than to observe that the test which is included in the Deputy High Court Judge's judgment does not form part of the ratio of that decision. The deputy judge merely says at paragraph 42 that in his judgment there is strength in these submissions. For my part, I consider that the test summarised at paragraph 40 is overly complex and provides an overlay to Practice Direction 57AD that is not warranted. In any event, the decision in the Bouygues case pre-dates the revised version of the disclosure Practice Direction which is now PD57AD.

30. In my judgment, the proper approach to narrative documents is essentially a pragmatic one. The starting point is that there is an issue for disclosure in relation to which documents are thought to respond or to be likely to respond. The purpose of identifying narrative documents is to, where possible, avoid unnecessary disclosure which will simply not assist the parties. If it can be said that a document may help or hinder a party's case, then plainly it is a disclosable document. Narrative documents are merely documents which provide background or context.

31. It is relevant to this case to bear in mind that it is a claim in deceit. It is not said that there should be Model E disclosure which would automatically bring with it narrative documents, but nevertheless where there are allegations of deceit, it may well be that in relation to certain issues wider disclosure should apply and that the default position should be that narrative documents are included because they may be explanatory by way of background albeit not directly relevant to a party's case.

32. Taking that approach, the court should order narrative documents in relation to issues 10 and 11. Those two issues are related to the representations that are relied upon by the claimant and, in particular, the structuring representation. I consider that the default position therefore in relation to those two issues is that narrative documents should be provided.

33. I observe that ordering narrative documents in relation to those two issues may not in fact affect the volume of disclosure in any material way or at all, but it is right that disclosure should be wide in relation to those two issues.

34. Issue 27 falls into a different category. Issue 27 relates to the claim for loss and damage. I would not say that disclosure in relation to loss and damage will never warrant the inclusion of narrative documents, it is much less likely that it will do so than an issue, for example, relating to a representation in a deceit claim.

35. The court should have in mind the burden of disclosure on the parties and properly seek to restrict the volume of documents that disclosure comprises.

36. Mr. Parker has said that the claimant will not complain about the volume of documents in this case, but that is not a principled basis upon which the court should decide whether or not to include narrative documents.

37. I have come to the view, therefore, that narrative documents should not be included in relation to issue 27 in light of the position it takes within the overall scheme of the issues for disclosure and the need to restrict disclosure to that which is necessary in these proceedings. - - - - - - - - - -