Enforcing licence option rights: is it worth it?

The recent decision in Exelogen Inc v. University of Birmingham highlights the challenges of enforcing option agreements for intellectual property rights and the difficulties of proving loss of profit-earning opportunities. The court dismissed Exelogen's claim for damages against the University, despite the University admitting breaching the option agreement.

An option agreement is a contract that gives the right, but not the obligation, to enter into a further contract, usually within a specified time and on specified terms. In this case, the University granted Exelogen an exclusive option to negotiate for a licence of the University's patent and orphan drug designation rights related to using Exenatide, a drug for diabetes, to treat a rare condition called idiopathic intracranial hypertension. 

The court found the University breached the option agreement by negotiating with Invex Therapeutics regarding the Exenatide rights and ultimately assigning its patent rights to Invex. But this was not contested - the University admitted this breach. However, the parties disagreed on whether the breach caused Exelogen losses and, if it did, the amount of those losses.

Exelogen claimed it had lost a valuable opportunity to develop and commercialize Exenatide. Exelogen valued its option at $7.5m and even produced expert evidence that its lost profits could be valued at more than $65m.

However, the court dismissed the claim on the ground that Exelogen failed to prove the University’s breach caused it any loss. Exelogen only had a speculative chance of profiting from Exenatide, even if the University had not breached the agreement. Factors such as the availability of funding, risk of failure of clinical trials and regulatory approval weighed against the likelihood of Exelogen successfully commercialising Exenatide.

The court found that even if the University’s breach had caused Exelogen's lost opportunity, it would have assessed the damages at $771,000 – significantly less than the millions Exelogen claimed.

The case demonstrates that enforcing intellectual property licensing options is difficult, particularly in early stage life sciences companies. To enforce an option right, you need to provide clear evidence of causation and damages, taking into account factors that could affect the likelihood and value of obtaining a licence and successfully marketing a product.

Both universities and life sciences companies should bear this case in mind when drafting future option agreements and consider different option mechanisms to avoid disputes and litigation.