By Donald Zuhn --
Last week, in Sanofi-Aventis v. Sandoz, Inc., the Federal Circuit vacated the entry of a consent judgment and an injunction by the District Court for the District of New Jersey, which enjoined Defendants-Appellants Sun Pharmaceutical Industries, Ltd. and Caraco Pharmaceutical Laboratories, Ltd. ("Sun") from manufacturing and selling a generic version of the colorectal cancer drug oxaliplatin. The appeal arose from a dispute between Sun and Plaintiffs-Appellees Sanofi-Aventis, Sanofi-Aventis U.S. LLC, and Debiopharm, S.A. ("Sanofi") following Sun's filing of an Abbreviated New Drug Application (ANDA) for generic oxaliplatin and Sanofi's filing of suit against Sun in response to Sun's ANDA filing. Sanofi also filed suit against other generic drug manufacturers who filed ANDAs for generic oxaliplatin.
After Sanofi filed suit against Sun, the parties entered into settlement negotiations, eventually agreeing to a license that contained the following provision (i.e., Section 3.5, with emphasis added by the Federal Circuit):
At-Risk-Launch. In the event that, during the term of the Licensed Patents and without Sanofi's permission, any defendant in the Consolidated Eloxatin Patent Litigation sells a generic version of a Sanofi NDA Product in the Territory prior to a Final Court Decision ("At-Risk-Launch"), [Sun] will have the option of selling its Generic Equivalent prior to the Launch Date. Should Sun exercise such an option and a Court subsequently enters a decision(s) enjoining each such At-Risk Launch product(s), Sun agrees that Sun will not sell its Generic Equivalent from the time the Court enters an injunction(s) against each such At-Risk Launch Product(s) until the Launch Date.
The license agreement was submitted by the parties to the District Court with a proposed consent judgment and order. Pursuant to the consent judgment and order, which incorporated Section 3.5 of the license agreement, Sun could market its version of generic oxaliplatin if other generic drug manufacturers were marketing their generic version of the drug, but if a "Court subsequently enter[ed] a decision(s) enjoining" other generic manufacturers from marketing a generic version of oxaliplatin, Sun would also be enjoined.
Two days after Sanofi and Sun reached the settlement agreement, the District Court denied summary judgment of invalidity and granted summary judgment of noninfringement of Sanofi's U.S. Patent No. 5,338,874. A series of challenges to the original license agreement followed.
While the parties attempted to resolve the enforceability of the original agreement, the other generic drug manufacturers launched at-risk versions of generic oxaliplatin. Sanofi responded by negotiating settlement agreements with the other defendants that included a proposed consent order with a provision requiring that Sun be enjoined from marketing a generic equivalent of oxaliplatin by a certain date, and allowing the other defendants to reenter the market if Sun was not enjoined. Sanofi then sought entry by the District Court of a revised version of the original consent judgment, with the revised version containing a provision stating that "[u]nder the License Agreement, if an injunction [was] entered preventing the other defendants from selling their Eloxatin product at risk, then Sun [was] obligated to stop selling its generic Eloxatin product at risk." In response, Sun argued that the revised consent judgment was not the same as the original and that Sun had not agreed to the revised version. Notwithstanding Sun's objections, the District Court entered the consent judgment and order proposed by Sanofi.
On appeal, Sun argued that the District Court had erred by entering a consent judgment to which it did not agree. Sanofi countered that the revised consent judgment was correctly entered because it was consistent with the license agreement. The dispute centered on the meaning of Section 3.5 of the license agreement. Sanofi contended that under Section 3.5, Sun was required to cease sales of generic oxaliplatin after entry of an injunction against the other defendants -- even if the injunction is the result of a consent judgment agreed to by any of the other defendants. Thus, the term "decision(s) enjoining" in Section 3.5 is synonymous with "orders enjoining" or "judgments enjoining." Sun, however, argued that it had a right to continue selling generic oxaliplatin, even if other defendants settle and consent to an injunction, because an injunction entered by consent is not the result of a court decision.
Looking at the disputed section, the Federal Circuit determined that "[t]he language 'decision(s) enjoining' in Section 3.5 is ambiguous as to whether a 'decision' 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." The panel noted that while Sanofi argued that the language of the section clearly includes consent judgments, "Sanofi now represents to this court that the license agreement is clear and unambiguous, despite its earlier need to 'clarif[y] Sun’s obligations [via the revised consent judgment],'" adding that "Sanofi's own recognition that the agreement required clarification is itself powerful evidence of ambiguity." As a result of this ambiguity, the panel found that the District Court had erred by not affording Sun "a full and fair hearing as to material disputed language of the agreement." The panel noted that "[m]aterial terms of a consent judgment that are objectively ambiguous and clearly contested prior to entry of the consent judgment require a determination by the court as to the parties' obligations under those terms before entry of that revised consent judgment." The Federal Circuit therefore vacated the consent judgment and remanded the case with instructions 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.
Sanofi-Aventis v. Sandoz, Inc. (Fed. Cir. 2010)
Panel: Circuit Judges Dyk, Prost, and Moore
Opinion by Circuit Judge Prost