Kim & Chang represented Alvogen Korea Co., Ltd. (the “Plaintiff”) in a lawsuit to collect royalties from a counterparty in a joint development agreement (the “Defendant”) on the basis that the royalties were a consideration in exchange for R&D data provided by the Plaintiff, which was necessary for obtaining drug approval, not for the grant of a patent license. In this case, the district court rendered a decision partially in favor of the Plaintiff, and the appellate court eventually ordered the Defendant to pay approximately KRW 11.1 billion in royalties (about USD 8.4 million) as a result of a court-mediated settlement on appeal. This was the first case in Korea to enforce payment of royalties for R&D data for drug approval under a joint development agreement.

Pharmaceutical companies in Korea commonly utilize joint development agreements, where one party conducts R&D for a pharmaceutical product (including the manufacturing process setup and clinical studies) and grants the other party a license to use such data for drug approval purposes. In exchange for the license, the other party pays a lump sum and/or running royalty and executes a contract manufacturing agreement to buy the product from the party that undertook the R&D for at least a certain initial period.

In this case, the Defendant was granted a license to use the data generated by the Plaintiff under a joint development agreement in order to obtain the approval of the drug product developed by the Plaintiff, and distributed the drug product for three years under a contract manufacturing agreement. However, once the contract manufacturing agreement ended, the Defendant refused to pay any further royalties to the Plaintiff, on the basis that the Defendant was selling a slightly modified version of the product that was no longer within the scope of the Plaintiff’s patent on the product. The issue in this case was whether the Defendant’s obligation to pay royalties was dependent simply on (i) the provision of R&D data by the Plaintiff under the joint development agreement, or on (ii) whether the Defendant actually sold products within the scope of the Plaintiff’s patent rights.
 

The Plaintiff conducted R&D to obtain the data necessary for drug approval of an incrementally modified drug (“IMD”) containing rosuvastatin-ezetimibe, a drug for treating hyperlipidemia. The Plaintiff then obtained a patent for the related technologies and entered into a joint development agreement with the Defendant (the “JDA”). Based on the data provided by the Plaintiff, including clinical study data, the Defendant obtained drug approval for its product from the Ministry of Food and Drug Safety during the re-evaluation (or post-marketing surveillance, “PMS”) period for said product. The Defendant distributed in Korea products manufactured and supplied by the Plaintiff under a contract manufacturing agreement, resulting in considerable profits to the Defendant. However, once the three-year mandatory supply period under the contract manufacturing agreement ended, the Defendant modified certain excipients of the product, obtained a modified drug approval for the modified product, and stopped paying any further royalties or fees to the Plaintiff. The Defendant claimed that due to the modification, the new product was outside the scope of the Plaintiff’s patent and therefore not covered by the JDA, and that therefore the Defendant was no longer obligated to pay royalties to the Plaintiff.
 

We filed a lawsuit on behalf of the Plaintiff seeking payment of royalties from the Defendant under the JDA. We presented the following arguments to the lower court and emphasized that by receiving clinical trial and other data from the Plaintiff, the Defendant was materially enriched, as had been the goal of the agreement.
 

The Seoul Central District Court accepted the Plaintiff’s arguments and found the Defendant liable for payment of royalties to the Plaintiff. The IP High Court (the appellate court) affirmed this finding and rendered a settlement decision that ordered the Defendant to pay royalties for future profits in installments for six years in an amount corresponding to the Plaintiff’s claim. This decision was not further appealed.
 

This was the first case in Korea where the court reviewed the issue of whether a party that developed the data necessary for drug approval under a joint pharmaceutical development agreement is entitled to receive royalties from the counterparty even if the product sold by the counterparty is outside the scope of the data developer’s patents. The decision in this case is significant as it should protect the rights of parties conducting important pharmaceutical research in Korea and encourage further use of JDAs to develop drugs in the future.