Judge Andrews issued an interesting opinion on opposing summary judgment motions yesterday in Takeda Pharmaceuticals U.S.A., Inc. v. Mylan Pharmaceuticals Inc., C.A. No. 19-2216-RGA (D. Del.).
The parties settled a patent infringement suit years ago in a way that permitted the defendant to nonetheless launch its drug product if the patent claims were asserted against a third party and found invalid or not infringed.
Some of the claims were asserted against a third party and held invalid or not infringed, and the defendant launched. The plaintiff disagreed that this permitted launch. It sued the defendant for breach of contract and, critically, for patent infringement.
Last year, the Court found that the conditions were met and that the defendant had not breached when it launched its product.
The remaining question, addressed by this motion, is whether the plaintiff breached by filing is patent claims based on its "good faith" belief that the opposing party had breached.
The Court found that yes, plaintiff breached, because there is no "good faith" exception permitting a party to bring a patent suit when it believes the opposing party has violated a settlement agreement. Instead, the plaintiff had to first sue for breach of contract, win, and then sue for patent infringement:
Takeda points to Artvale v. Rugby Fabrics Corp., 363 F.2d 1002, 1008 (2d Cir. 1966), a Second Circuit decision holding that covenants not to sue impose liability "only for suits brought in obvious breach or otherwise in bad faith." . . .
Absent language pointing to a good faith requirement, the contract is clear and unambiguous. [Plaintiff] Takeda's arguments to the contrary are unconvincing.
[I]t is doubtful that Delaware would follow the Artvale standard. This seems to be a question of first impression, . . . so neither party's cases are entirely on point, but the weight of the authority supports [defendant] Mylan's argument. In Edge of the Woods v. Wilmington Sav. Fund Soc'y, FSB, No. 97C-09-281, 2001 WL 946521, at *7 (Del. Super. Ct. Aug. 16, 2001), for example, the Delaware Superior Court granted summary judgment on a counterclaim for breach of contract where a plaintiff sued in violation of contractual promises not to do so. Takeda attempts to distinguish Edge of the Woods by arguing, "Takeda did not provide multiple covenants not to sue nor releases to Mylan in exchange for repeated benefits" . . . , but fails to explain why multiple releases or repeated benefits would be governed by a different principle than a single covenant. In both cases, "Defendant bargained for and relied on Plaintiffs' promises not to sue." Edge of the Woods, 2001 WL 946521 at *7. In LPPAS Representative, LLC v. ATH Holding Co., 2022 WL 94610, at *7 (Del. Ch. Jan. 10, 2022), the Court of Chancery rejected the argument that "advancing a reasonable position as to an ambiguous contract is not a breach," holding instead that "faith, good or bad, is irrelevant to whether [the alleged breaching party] violated a contractual obligation." Id. Takeda again attempts to distinguish—this time by arguing that the agreement in LPPAS Representative included explicit fee-shifting language . . . —but the question of availability of damages is distinct from the question of whether a breach has occurred in the first place. Takeda's response addresses the former, but not the latter, and especially in light of LPPAS Representative's unambiguous language, falls short.
When I read the Agreement as a whole, I note the narrow scope of § 1.7 of the Agreement. It does not limit litigation generally. It limits only "case[s] for [patent infringement]." . . . Takeda could have brought a breach of contract claim or otherwise sought to enforce the Agreement without even arguably breaching § 1.7 of the Agreement. If a lawsuit for breach of contract resulted in a determination that Mylan had breached the contract, Takeda would have been able to sue for patent infringement without any risk that it could be sued for breach of contract. I think this makes sense. Patent litigation is notoriously time-consuming and expensive. Contract litigation, not so much.
Takeda Pharmaceuticals U.S.A., Inc. v. Mylan Pharmaceuticals Inc., C.A. No. 19-2216-RGA, at 8-9 (D. Del. Dec. 3, 2024). Even worse for the plaintiff, the Court held that it was liable for the opposing party's attorneys fees in defending the patent infringement suit. Id. at 14.
This opinion is definitely something to keep in mind when drafting a patent settlement agreement. If, as the patentee, you want to be able to immediately sue for patent infringement following a breach, you had better set that out in the agreement.
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