Vectura Share Discussion Threads

[popper joe] 16/2/2017 16:01

I've struggled to understand VEC's position with regard to GSK being asked to pay ongoing royalties for use of a patent that has expired. I can only think that they have a licence agreement that specifically states that royalties will continue beyond expiration. However, as per this case from 2002/2003 concerning Dolby noise reduction technology, such an agreement may be unlawful. Copied and pasted:

Scheiber Meets Brulotte

Peter Scheiber, inventor of the “surround sound” audio system, held several patents on this technology both in the United States and in Canada. Scheiber’s last United States patent was scheduled to expire in 1993, while his last Canadian patent was scheduled to expire in 1995. In 1983, Scheiber sued Dolby for infringement. Rather than undertaking the expense of litigation, the parties agreed to settle on a licensing contract. During negotiations Dolby proposed to Scheiber that in exchange for lower royalty payments (and hence, increased sales), it would continue paying beyond the expiration of the United States patents until 1995, when the last Canadian patent expired. Scheiber agreed to these terms. However, upon expiration of the United States patents in 1993, Dolby discontinued its royalty payments and Scheiber filed suit.

Dolby rationalized its actions based on the Brulotte rule: “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” In Brulotte, the Thys Company sold hop-picking machines incorporating several of its patents. In addition to the flat sum for the physical machines, Thys also licensed the machines based on the machines’ incorporation of the patents. Under this license, the purchasers paid royalties to Thys in various amounts depending upon their use of the machines. Since the license extracted
royalties extending beyond the term of the patent grants, the purchasers discontinued payment when the patents expired.

Over the dissent of Justice Harlan, Justice Douglas’ majority opinion invalidated the license agreement as “a bald attempt to exact the same terms and conditions for the period after the patents have expired as they do for the monopoly period.” While recognizing the legitimacy of using the patent as leverage to exact royalties as high as possible during the life of the patent,the Court deemed it improper to use that same leverage to exact lower royalties for a term extending beyond the life of the patent. The Court analogized post-expiration royalty agreements to tying arrangements, whereby a monopolist uses its power in one market to leverage
itself into another market. In other words, since the patentee has a monopoly in the preexpiration market for his product, a patentee cannot use that monopoly as leverage into the postexpiration market. Although the Court seemed to acknowledge that equality of bargaining power could exist between a patentee and licensee in entering into this type of agreement, it nevertheless erected an insurmountable barrier by creating a per se rule of invalidity.

Thus, under the Brulotte rule, Dolby had a virtual slam-dunk because Chief Judge
Posner’s opinion for the court found the two cases to be “indistinguishable.”


So it may well be the case that GSK are not acting unethically, but rather they are hamstrung by the law.

[dontay] 16/2/2017 14:11

... and there lies the conundrum! Will VEC/GSK amicably settle the litigation proceedings? Will the Asian COPD trial report be to VEC's advantage? Will the USA report due in May turn out to be a dud? All that uncertainty stops the share price from being able to re-rate. But then you don't get potentially fabulous growth stories at cheap prices without those sorts of uncertainties!

[carpadium] 16/2/2017 13:27

Would like to think failure to win dispute well and truly priced in although market reaction to negative news always promotes fresh pessimism on the day. On the other hand a positive outcome for Vectura could see an immediate 10p+ rise.

Maybe an update in the finals 4/5 weeks off, maybe even comment on Kinnovata progress but wouldn't bet on either.

[alexchry] 16/2/2017 13:27

Looking at GSK's results it looks like they sell a billion pounds worth of Ellipta products, you'd have thought that £13M was not worth breaking sweat over. However, they seem to spend well over £100M on litigation so must find things for their lawyers to do.

[dontay] 16/2/2017 13:18

The length of time that has passed since the GSK issue was publicised... without any news of a court date being set or ANY news being forthcoming... hopefully suggests that negotiations to compromise and settle out of court are continuing.

[rogerrail] 16/2/2017 13:18

As I understand it , the litigation concerns two patents associated with the addition of various micro-particle additives to Ellipta products and the related manufacturing process. These additives assist in the dispersion of the dry powder inhaler making it more effective for longer. Its not clear what GSK's case is for continuing to use the ip without paying royalties, have they found a loop hole in the patent, modified the process or relying on their commercial clout to disregard the underdog? Whatever the situation is, ethically their behavior is shameful.

[alexchry] 16/2/2017 12:28

diesel-hard to know what the basis of the litigation is, it just refers to patents associated with formulation technologies, the licensing of which ended last year. Presumably, GSK are continuing to sell the products with different formulation technologies. Losing £13M a year is a big blow when VEC might have been hoping for a renewal of the licensing with a higher cap, it's no wonder the share price has dropped significantly since July. VEC have said nothing more on this so hard to guess when it will get resolved but, as the existing agreement ended last year, I hope we hear something soon.

[pooroldboy55] 16/2/2017 12:04

Could i be wrong today hope so!!!!!!!!!!!!!!!!

[best1467] 16/2/2017 11:40

I would settle for two out of three ,preferably the last two

[pooroldboy55] 16/2/2017 10:49

Should be back in the red by end of day .

[diesel] 16/2/2017 09:44

Alex, good comments, wrt the litigation, I'm still not totally clear the grounds on which it is based, how do you se it?

[alexchry] 16/2/2017 09:32

N Y Boy-the news flow over the next few months could dramatically change the prospects for VEC and see the share price getting much closer to the predictions of the analysts. What I'm hoping for is a satisfactory resolution to the GSK litigation, a successful outcome to the China COPD trial, a takeover of a marketing company that is earnings enhancing and the Advair generic getting a good report on May 10th. Definitely worth a gamble in my opinion and I'm holding on to all of my substantial holding.

[cumnor] 16/2/2017 09:26

Rather gracious of you, nyboy.

[ny boy] 16/2/2017 09:15

Like the look of these for growth, might have a few later

[alexchry] 16/2/2017 09:15

Qackers-Of much more significance is the £13M a year they are going to lose than getting, maybe, around £1M extra this year. I do hope that VEC are making some progress on their dispute with GSK.

[qazwsxedc69] 16/2/2017 08:41

Absolutely Qackers that is my inference.

"It has achieved the GBP9 million calendar year royalty cap on net sales of these products in 2016, a year earlier than previously guided."

At the very least it underscores continued strong sales.

[qackers] 16/2/2017 08:28

Doesnt it also show that this product is performing above expectations.

[alexchry] 16/2/2017 08:26

As I understand it the £9M is not a payout but simply the maximum amount that GSK will pay in any one calendar year. Useful to have reached the limit early but not particularly significant financially. What is of real interest is the state of the litigation with GSK, a satisfactory resolution of that would be significant.

[fhmktg] 16/2/2017 08:20

Time to kiss and make up with GSK!

[davidbirkett] 16/2/2017 08:06

Great news today 9 mill payout from tsk 12 month early

[alexchry] 15/2/2017 07:37

pob-I wouldn't have minded a small retrenchment, a down day often follows an up day, but the share price dropped a bit more than I hoped, I'd have been happy to close on 144. It is important to have a good day today to continue the recent upward trend.

[pooroldboy55] 14/2/2017 14:27

Was thinking yesterday to good to be true and it was.

[saxula] 14/2/2017 14:09

Seems like 'static volatility' (if that isn't too much of an oxymoron) between 130ish and 150ish since September. I've been holding for years, but sometimes I wish I could see these channels earlier and trade between them. Guaranteed if I start now the share price will rocket!

[pooroldboy55] 14/2/2017 14:06

Ah good point but who knows.

[diesel] 14/2/2017 13:58

Are we in a long term downtrend starting last Feb, or have we returned to the small uptrend starting last Sep, confusing times.