IP licensing: take care when considering market practices

In commercial transactions, there are often conversations as to whether a party's particular position in negotiating or drafting contractual terms reflects "market practice".  Interestingly, a recent case management decision, The University of Sheffield vs KuDOS Pharmaceutical Limited and others [2025] EWHC 1252 (Ch), considered the circumstances in which expert evidence on "market practices" can be considered in a dispute to determine the meaning of contractual terms that were ultimately agreed.

Background

The University of Sheffield (the "University") owned patents protecting "PARP inhibitors", which are used in the treatment of cancer. The University granted an exclusive licence to allow KuDOS Pharmaceutical Limited ("KuDOS") to use its patents and associated intellectual property to develop and commercialise medicines using PARP inhibitors (the "Licence"). Pursuant to the Licence, KuDOS was permitted to sub-license its rights and, in return, it was required to pay to the University a percentage of its "Net Lump Sum Revenues".

Issue on which an application was made for expert evidence on "market practice"

One of the issues in the wider dispute was how the definition of "Net Lump Sum Revenues" should be interpreted in the Licence. The University sought permission for expert evidence to be admitted to assist with the construction of the definition. The University's case in the wider dispute had been made on the basis/assumption that the Court would admit expert evidence on "market practice".

At this case management hearing, the Court recognised that in some circumstances (but certainly not all) the Court would admit expert evidence on "market practice". However, in this instance, it found that:

The [Licence] is a contract that was drafted by skilled professionals. It does not contain any shorthand terms that fall to be construed. Instead, it is the meaning of a defined term using ordinary language that is in dispute. It follows that to be admissible the claimant has to show that expert evidence is needed to enable the court to understand the factual background by reference to market practice. However, the claimant has not in its pleaded case or in evidence produced for the CMC provided any indication of what it is about the factual background to the [Licence] that will be difficult for the court to understand without assistance or what the market practice that is relevant might be. The [Licence] relates to a patent in the context of pharmaceuticals but that is not of itself a factual background matter so out of the ordinary that additional assistance may be needed.

The Court was satisfied that expert evidence was not necessary for the High Court trial. The trial judge will itself be able to determine the meaning of the terms of the Licence  without expert evidence. At this case management hearing, the Court stated that "I have no doubt that the trial judge will not wish the trial to be burdened with expert evidence relating to the context in which the issue of construction arises because the context will be fully understood".

Impact

When negotiating contractual terms, the decision reinforces the need to critically consider whether a proposed term reflects a real "market practice" (or shorthand) or if there has been a mere general assertion without basis. If "market practice" evidence is to be relied on when litigating contractual terms, this case shows that a party should be clear that an assessment of the "market practice"  is something which does require an expert's opinion on and be able to be specific as to why this is needed, in the context of the case. As set out above, the Court will accept "market practice" evidence in some scenarios, but it will be important to clearly demonstrate why it is necessary. 

In the transactional context, deciding what is "market practice" is not always easy to ascertain or identify and therefore should be considered carefully and critically before accepting precedent drafting on that basis.

For more on IP issues in licensing and transactions generally, see our Transactional IP blog post series.