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Sanofi-Aventis U.S. LLC, et al. v. Sandoz

September 15, 2011

SANOFI-AVENTIS U.S. LLC, ET AL. PLAINTIFFS,
v.
SANDOZ, INC. DEFENDANTS.



The opinion of the court was delivered by: Pisano, District Judge.

NOT FOR PUBLICATION

OPINION

I. Introduction

In this Hatch-Waxman patent infringement action, plaintiffs Sanofi-Aventis U.S. LLC, Sanofi-Aventis, Debiopharm, S.A. (collectively "Sanofi") alleged that defendants Sun Pharmaceutical Industries Ltd. and Caraco Pharmaceutical Laboratories, Ltd. (together, "Sun" or "Defendant") and others infringed United States Patent No. 5,338,874 (the " '874 patent"). The '874 patent relates to the chemical compound oxaliplatin. On October 2, 2009, in response to a motion by Sun to enforce a settlement, this Court found that Sanofi and Sun entered into a settlement agreement resolving all the claims in this litigation. However, a dispute has arisen as to the scope of a particular component of the parties' settlement agreement, as discussed more fully below. An evidentiary hearing on the disputed issue was held, and the Court herein sets forth its findings and conclusions.

II. The Dispute

In 2007, Sanofi sued Sun and several other generic drug manufacturers alleging, inter alia, they had infringed the '874 patent relating to oxaliplatin, a drug developed and manufactured by Sanofi and used in the treatment of colorectal cancer. Beginning sometime in 2008, Sanofi and Sun engaged in settlement discussions to resolve the litigation. After many months of negotiations and repeated exchanges of revised drafts of settlement documentation, in June of 2009, the parties reached a settlement agreement.

After the parties had reduced their settlement agreement to writing but prior to the parties obtaining all the requisite signatures on the execution copies, on June 18, 2009, the Court issued a decision granting a motion for summary judgment of noninfringement of the '874 patent. Thereafter, Sanofi refused the consummate the settlement and did not deliver executed copies of the settlement agreement to Sun. Sun moved this Court to enforce the settlement agreement, and the Court granted the motion on October 2, 2009.*fn1

The settlement agreement between Sun and Sanofi contained a proposed Consent Judgment and Order and a License Agreement. The proposed Consent Judgment and Order included a provision enjoining Sun from manufacturing, using, offering to sell, or selling within the United States, or importing into the United States, their generic oxaliplatin product "absent authorization by Plaintiffs in [Section 3.5 of] the License Agreement."*fn2 Section 3.5 of the License Agreement permitted Sun to launch its generic oxaliplatin product if other defendants went on the market with generic oxaliplatin prior to a "Final Court Decision" (i.e., if other defendants launched "at-risk"). Section 3.5 further provided that if Sun were to launch its product and a Court "subsequently enters a decision(s) enjoining" each of the other defendants from marketing their generic product, Sun was required to come off of the market as well. See Ex.18, Section 3.5. The original proposed Consent Judgment and Order that was part of the settlement, however, was never entered by the Court.

On August 7, 2009, the FDA granted final approval of the ANDAs held by Sun and certain other defendants. Some of the defendants began selling their generic oxaliplatin products at that time. Sun launched its generic oxaliplatin product in January 2010, several months after the Court granted Sun's motion and found that a settlement had been reached between Sanofi and Sun.

By early April 2010, Sanofi had reached settlement agreements with each of the other defendants in this case, including those that had already launched at-risk. In accordance with the terms of each of these settlements, the parties requested that the Court make certain factual findings and enter judgments which, among other things, enjoined each of the settling defendants from selling generic oxaliplatin after June 30, 2010. The Court entered these consent judgments on April 14, 2010.

As noted above, the proposed Consent Judgment and Order that originally accompanied the Sanofi/Sun settlement was never entered by the Court. After the Court's decision finding that a binding settlement had been reached between Sanofi and Sun, and in light of the on-going developments in the litigation, Sanofi had presented the Court with an alternative, revised consent judgment, which, as compared to the original Consent Judgment and Order, added the following finding of fact:

Under the License Agreement, if an injunction is entered preventing the other defendants from selling their Eloxatin product at risk, then Sun is obligated to stop selling its generic Eloxatin product at risk. If all defendants are enjoined as of June 30, 2010, then Sun will be enjoined as of that date.

D.I. 661, Findings of Fact ¶ 9. Sanofi also revised paragraph 5 of the Consent Judgment and Order, which, as revised, read as follows:

If all other defendants are enjoined as of June 30, 2010, or on some later date, then Sun, . [is] hereby enjoined as of June 30, 2010 . from manufacturing, using, offering to sell, or selling within the United States, or importing into the United States, the oxaliplatin for injection defined by ANDA No. 78-818.

D.I. 661, Consent Judgment and Order ¶ 5. As noted by the Federal Circuit, "[t]he effect of these revisions was to read out the term of Section 3.5 of the [L]icense [A]greement requiring a "decision(s) enjoining" an at-risk launch by the other defendants." Sanofi-Aventis v. Sandoz, Inc., 405 Fed. Appx. 493, 496-497 (Fed. Cir. 2010).

Sun opposed entry of the revised Consent Judgment and Order. Over Sun's objections, on April 22, 2010, the Court entered the revised Consent Judgment proffered by Sanofi. Sun appealed, arguing on appeal that the revised Consent Judgment and Order was inconsistent with Sun's obligations under Section 3.5 of the License Agreement, which allowed Sun to sell generic oxaliplatin unless "a Court subsequently enters a decision(s) enjoining" the other defendants' at-risk launches. In particular, Sun argued that Section 3.5 permits Sun to continue selling generic oxaliplatin even if the other defendants settle and consent to entry of an injunction because an injunction entered by consent is not a final court decision or a decision on the merits and, thus, is not a "decision(s) enjoining." It was Sanofi's contention, on the other hand, that Sun was required under Section 3.5 to cease sales of generic oxaliplatin even if an injunction was entered as the result of a consent judgments agreed to by the other defendants. Finding that Section 3.5 of the License Agreement was "objectively ambiguous," the Federal Circuit vacated the consent judgment entered by this Court and instructed the Court "to provide the parties an opportunity to conduct discovery and present their evidence as to the proper resolution of the ambiguous language in the license agreement that is incorporated into the parties' original proposed Consent Judgment." 405 Fed. Appx. at 500.

The Federal Circuit has framed the issue to be addressed by this Court as follows: [W]hether a "decision" [as contained in the phrase "decision(s) enjoining" in Section 3.5 of the License Agreement] includes a consent judgment and injunction resulting from a settlement between parties or whether it requires an injunction issued by a court following a decision on the merits. 405 Fed. Appx. at 498. It is Sanofi's position that "decision(s) enjoining" under Section 3.5 of the License Agreement means a judicial act -- including entry of a consent judgment -- that results in an injunction. Sun's position, on the other hand, seems to be something of a moving target. At oral argument, Sun's counsel stated that Sun was "not taking the position that a 'decision' constitutes a decision on the merits with respect to the validity of the patent. ... not taking the position . that a 'decision' means a decision with respect to the validity and enforceability of a patent." Tr. 6:12-13, 20-22. However, Sun stated in its post-hearing brief that "[i]t is Sun's position that 'decision' under Section 3.5 of the License Agreement means a determination on the merits by the Court." Sun's Post-Hearing Proposed Findings of Fact, D.I. 738.

The parties have undertaken the requisite discovery on the issue. An evidentiary hearing was held, and the parties each presented two witnesses. Testifying for Sanofi were (1) Dominick Conde, Sanofi's outside counsel, who was involved in the settlement negotiations between Sanofi and all defendants including Sun; and (2) Martin Travers, Associate General Counsel for Sanofi at the time of settlement negotiations. Testifying for Sun were (1) Scott Feder, Sun's outside counsel, who was involved the settlement negotiations between Sanofi and Sun; and (2) Dr. Ratnesh Shrivastava,*fn3 a vice-president at Sun at the time of the settlement negotiations between Sanofi and Sun.

The Court has considered the testimony and documentary evidence introduced by the parties and sets forth herein its findings of fact and conclusion of law. For the reasons below, the Court finds that, contrary to the contentions by Sun, the injunctions entered against the settling defendants fall within the scope of the disputed language of Section 3.5 of the License Agreement.

III. Relevant Legal Principles

1. The language in Section 3.5 of the License Agreement, specifically, "decision(s) enjoining," is ambiguous, as it is reasonably susceptible to two different interpretations. "The language . is ambiguous as to whether 'decision' includes a consent judgment and injunction resulting from a settlement between the parties or whether it requires an injunction issued by the court following a decision on the merits." 405 Fed. Appx. at 498.

2. Under New York law,*fn4 where the terms of a contract are ambiguous and susceptible of more than one meaning, the court may consider evidence outside of the contract as an aid to interpret the meaning of the language chosen by parties. See Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993). "Parol evidence of conversations, negotiations and agreements made prior to or contemporaneous with the contract in question and relating to the subject matter of the contract, the purpose or object of the contract, or of a specific provision of the contract, and of industry custom and usage, is admissible to explain an ambiguity." Winston v. Mezzanine Investments, L.P., 648 N.Y.S.2d 493, 499 (N.Y. Sup. 1996) (citations omitted). See also Lawrence v. Cohn, 197 F. Supp. 2d 16, 25 (S.D.N.Y. 2002) ("In discerning the proper construction of this contractual language, it is useful to explore four questions: (1) Have the parties by their conduct manifested a practical interpretation of the pertinent terms? (2) Is there a recognized custom and usage in the drafting of partnership agreements that give meaning to the pertinent terms?

(3) Does case law furnish guidance in the interpretation of the pertinent terms? (4) Can one of the two competing interpretations be characterized as more rational in the context of the overall contractual scheme?); Rudman v. Cowles Commc'ns, Inc., 30 N.Y.2d 1, 11, (1972) (stating that, when a contract is ambiguous, "the court may and should look to the prior negotiations [of the parties] to determine what was intended"); Kitching v. Brown, 180 N.Y. 414, 420 (1905) ("One of the familiar rules applicable to the interpretation of ambiguous covenants and agreements is to ascertain, as nearly as may be, the situation of the parties, their surroundings and circumstances, the occasion and apparent object of their stipulations, and from all these sources to gather the meaning and intent of their language.").

3. As both parties point out, ultimately, proper construction of ambiguous contractual language "involves an application of the doctrine of common sense." Lawrence, 197 F. Supp. 2d at 25.

4. "[A] contract should not be interpreted to produce a result that is absurd, commercially unreasonable or contrary to the reasonable expectations of the parties." Greenwich Capital Fin. Prods., Inc. v. Negrin, 903 N.Y.S.2d 346, 348 (App. Div. 2010).

III. The Parties' Negotiation History as well as the Language and Purpose of the Relevant Documents Establish That The Scope Of The Term "decision(s) enjoining" Is Broad

A. Early Discussions

5. Sanofi initiated settlement talks with each of the defendants in spring of 2008 after the Magistrate Judge ordered the parties to determine whether settlement was possible and instructed Sanofi to submit an ex parte report to the Court on status of the settlement negotiations by July 2008. Tr. 24:16-24. Sanofi informed Sun that it was serious about settling the action with Sun as well as each of the other defendants, and provided Sun with a general structure for settlement. Tr. 26:11 to 27:10. Sanofi also informed Sun that this general structure would apply to each defendant and that it was having the same conversation as to the proposed structure with each of the defendants. Id.

6. Sanofi further told Sun that any settlement agreement would involve negotiation of a "launch date," i.e., a license agreement in which Sanofi would permit each defendant to sell their generic oxaliplatin product prior to the expiration of the patent exclusivity for Eloxatin. Tr. 26:2 to 27:10. Sanofi informed Sun that all of the defendants would have the same launch date and would be treated equally in that respect. Tr. 26:13-19; 31:14-17. The "launch date" was an essential feature of the settlement because it provided certainty to both Sanofi and the defendants. See, e.g., Tr. 30:11-18.

7. In its settlement negotiations with other defendants, Sanofi was permitted to disclose to the other defendants the launch date agreed to between Sun and Sanofi. Letter of Intent, Ex. 13 at SUNP0004114. The License Agreement expressly permitted Sanofi to disclose the contents of the Settlement Agreement and License Agreement, with the exception of Section 3.5 of the License Agreement, to the other defendants. License Agreement, Pl. Ex. 18 at 4.4.

8. Sanofi and Sun discussed the benefits that settlement would provide to both parties. Under the general framework of the proposed settlement, Sun and the other defendants would be able to launch their generic products on a date certain before the patents at issue expired. A defendant that did not settle potentially would not be able to get on the market until patent exclusivity for Eloxatin ended. See Tr. 30:9 to 31:11. As far as the potential benefit to Sanofi, the settlement ...


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