Rocep-Lusol Holdings LTD against Lindal Dispenser GmbH (Court of Session)

Factual and Procedural Background

The dispute arises from a License Agreement entered into between Company A (the Licensor and Pursuer) and Company B (the Licensee and Defender) on various dates in September 2015, with a commencement date of 1 January 2016. The contract granted an exclusive license for certain patented technologies related to aerosol cans and actuators, with royalty payments structured over time, including reduced rates after patent expiry dates. The key issue is whether the Defender is liable to pay royalties for the period from 1 October 2022 to 31 December 2023.

The Defender paid royalties and provided reports and certificates as required by the contract until 30 September 2022 but then ceased payments and reporting. The contract automatically ended on 31 December 2023 without prior termination by either party.

The Pursuer initiated legal action seeking an accounting and payment of royalties for the disputed period or, alternatively, a fixed sum. The commercial judge ordered the Defender to produce an accounting and subsequently ordered payment of the amount disclosed. The Defender appealed against these interlocutors.

Legal Issues Presented

1. Whether, on proper construction of the License Agreement, the Defender is obliged to pay royalties for products commercialised after 22 December 2020, the expiry date of the later group of Licensed Patents.
2. Whether the Pursuer breached its obligation under the contract to grant an exclusive license after 22 December 2020, entitling the Defender to withhold performance of its obligations including royalty payments and reporting.

Arguments of the Parties

Defender's Arguments

• The obligation to pay royalties under § 3(2) ceases after the expiry of the last Licensed Patents on 22 December 2020, as the products sold thereafter do not "fall under one or more of the Licensed Patents" within the meaning of the contract.
• Post-expiry, there is no obligation to keep records or provide reports and certificates under §§ 4 and 5, as these duties relate to products manufactured under the Licensed Patents.
• The Defender contends that the Pursuer was in breach of its § 2(1) obligation to grant an exclusive license after 22 December 2020, justifying withholding of performance by the Defender.
• If there were an obligation to pay royalties post-expiry, it would be unenforceable as contrary to competition law provisions (Competition Act 1998 and EU Treaty Articles 101 and 102).
• The Defender submits that the phrase "falling under the scope of protection of one or more of the Licensed Patents" should be interpreted strictly to mean products protected by unexpired patents.
• The Defender acknowledged a unilateral error regarding the expiry date of one patent but accepted this is irrelevant to contract interpretation.

Pursuer's Arguments

• The contract period was from 1 January 2016 to 31 December 2023, and the contract was not terminated early.
• § 3(2) clearly obliges the Defender to pay royalties for the period from 1 January 2021 to 31 December 2023, with reduced rates reflecting patent expiry.
• The phrase "falling under one or more of the Licensed Patents" means products that fall within the claims of the Licensed Patents, regardless of patent expiry.
• The contract contemplates ongoing obligations and benefits post-patent expiry, including provisions in §§ 2(4), 7, and 10, which confer significant rights and duties beyond patent expiry.
• The Pursuer denies breach of § 2(1), asserting that the obligation to grant an exclusive license applies only during the patents' subsistence, and the contract reflects this limitation.
• The contract should be construed as a whole, considering the parties' reasonable understanding and background knowledge.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lagan Construction Group Ltd v Scot Roads Partnership Project Ltd [2023] CSIH 28, 2024 SC 12	Principles of contractual interpretation focusing on the parties' intention as gleaned from the contract language, especially in complex, professionally negotiated contracts.	The court applied textual analysis as the primary interpretive tool, emphasizing the objective meaning of the contract language.
FES Ltd v HFD Construction Group Ltd 2025 SC 51	Reinforces the approach to contract interpretation focusing on the language used and rejecting alternative meanings absent ambiguity.	The court relied on this precedent to support the textualist approach to interpreting the License Agreement.
Arnold v Britton [2015] UKSC 36, [2015] AC 1619	Objective meaning of contract language based on reasonable person with background knowledge; importance of context in interpretation.	The court cited this to confirm the approach of considering the contract as a whole and the factual matrix in establishing meaning.
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101	Clarifies that contract interpretation is objective and takes into account the commercial purpose and context.	Used to underpin the principle that interpretation is a unitary exercise considering language and context.
Bondax Carpets Ltd v Advance Carpet Tiles [1993] FSR 162	Definition and scope of exclusive license under patent law.	The court referenced this case to explain the meaning of "exclusive license" in relation to patent rights.
Oxford Nanopore Technologies Ltd v Pacific Biosciences of California Inc [2018] Bus LR 353	Exclusive license remains exclusive even if there is an option for others to obtain a license, unless exercised.	Applied to confirm the exclusivity of the license granted to the Defender during the patents' subsistence.
Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173	Comprehensive explanation of contract interpretation principles, including textualism and contextualism as complementary tools.	The court adopted the guidance to balance textual analysis with contextual factors in interpreting the License Agreement.
Bristol Repetition Limited v Fomento (Sterling Area) Limited (No 2) [1961] RPC 222	Interpretation of licensing agreements relating to patents and the effect of patent expiry on royalty obligations.	The court relied on this to support the interpretation that royalties may continue post-patent expiry under certain contractual arrangements.
Hansen v The Magnavox Electronics Co Ltd [1977] RPC 301	Common arrangements in patent licensing where royalties continue after some patents expire.	Used to illustrate that royalty payments extending beyond patent expiry are commercially sensible and not unusual.

Court's Reasoning and Analysis

The court undertook a detailed textual and contextual analysis of the License Agreement. It emphasized that the parties, represented by skilled professionals, negotiated a moderately complex contract that should be primarily interpreted by the language used, supplemented by relevant background facts.

The court found that the contract clearly contemplated the expiry of the Licensed Patents on two distinct dates, with the later expiry on 22 December 2020. The contract included provisions for reduced royalties payable after this date until the contract's termination on 31 December 2023.

The court rejected the Defender's strict interpretation that royalties and reporting obligations ceased upon patent expiry. Instead, it accepted the commercial judge's view that the phrase "falling under the scope of protection of one or more of the Licensed Patents" means products that fall within the claims of the patents, whether or not the patents have expired. This interpretation gives effect to § 3(2) and ensures consistency across related contractual provisions (§§ 4 and 5).

The court also held that the Pursuer was not in breach of its obligation to grant an exclusive license after patent expiry because the obligation logically only extends during the patents' subsistence. The Defender was therefore not entitled to withhold performance of its obligations.

The court found the Defender's competition law arguments irrelevant and did not rely on business common sense as an interpretive aid, although it noted that the contract's commercial arrangement was sensible.

Holding and Implications

The court REFUSED the Defender's reclaiming motion (appeal), upholding the commercial judge's decision that the Defender must account for and pay royalties for the period from 1 October 2022 to 31 December 2023, and comply with reporting obligations.

The direct effect is that the Defender remains liable under the contract for royalty payments and associated duties through the contract's full term despite the expiry of the Licensed Patents. No new legal precedent was established beyond confirming established principles of contractual interpretation and patent licensing.