The patent statute provides that “in the absence of any agreement to the contrary,” each joint owner of a patent enjoys the right to exercise the patent rights without accounting to the other owners. The key phrase here is “in the absence of any agreement to the contrary.” If there is an agreement between joint owners, the agreement controls. (Wisconsin Alumni Research Foundation (WARF) v. Xenon Pharma)
WARF and Xenon were joint owners of several pharmaceutical patents. WARF granted an exclusive license to Xenon pursuant to which Xenon agreed to pay WARF a portion of any royalties or sublicense fees it received. Xenon proceeded to license the patents to Novartis Pharma AG. When WARF demanded its portion of the sublicense fees from Xenon, Xenon refused, claiming (a) that its agreement with WARF did not explicitly revoke its statutory right to license its interest freely and, therefore, it had the right to license its interest in the jointly owned patents without accounting to WARF, and (b) it had no obligation to pay anything to WARF because the agreement between itself and Novartis was a “license,” not a “sublicense.”
Not so, said the court. Xenon lost the right of free use of the patents when it entered into the exclusive license agreement with WARF, which was a “contrary agreement.” Moreover, Xenon “cannot avoid paying royalties or sublicense fees to [WARF] simply by labeling the Novartis transaction a ‘license’ rather than a ‘sublicense.’”
THE LESSON TO BE LEARNED: Courts will look beyond the specific language of an agreement to determine its substance.