Mylan Inc. v. Smithkline Beecham Corp.
2013 U.S. App. LEXIS 14772
| 3rd Cir. | 2013Background
- GSK and Mylan executed a 2007 Patent License and Settlement Agreement giving Mylan exclusive rights to market and sell generic paroxetine (including sales of GSK‑manufactured authorized generic (AG) product) for the remainder of the GSK patent term; the agreement was later amended (Second Amendment) to address FTC concerns.
- The Second Amendment created two exceptions to Mylan’s exclusivity: (1) an ANDA Clause allowing GSK to grant nonexclusive licenses to third parties that had filed ANDAs and (2) an Authorized Generic Clause permitting GSK or an affiliate to market and sell AG paroxetine beginning two years after Mylan launched.
- In 2010 GSK settled with Apotex in unrelated antitrust litigation and agreed to supply Apotex with GSK‑produced AG paroxetine under an Exclusive Supply & Distribution Agreement (S&D Agreement) as part of in‑kind payments.
- Mylan sued GSK and Apotex alleging GSK breached the License Agreement (and the implied covenant) by supplying Apotex with AG product that Apotex could market to downstream customers; Mylan also sued Apotex for tortious interference.
- The District Court granted summary judgment to GSK and Apotex, holding the Authorized Generic Clause unambiguous and permitting GSK to sell AG paroxetine to whomever it chose after Mylan’s two‑year period; the District Court declined to consider extrinsic evidence.
- On appeal, the Third Circuit reversed as to the breach‑of‑contract claim (finding a latent ambiguity that required consideration of extrinsic evidence and a trial), affirmed dismissal of the implied covenant claim, and affirmed dismissal of tortious interference as to Apotex (though on different reasoning regarding knowledge and malice). The Court remanded the contract claim to trial and vacated denial of GSK’s motion to strike Mylan’s damages report for reconsideration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Authorized Generic Clause permits GSK to supply a third‑party generic (Apotex) with GSK‑produced AG for downstream marketing and sales | The Clause should be read to allow only GSK (or an affiliate) to market/sell AG to downstream customers; supplying a third‑party reseller to compete with Mylan is barred | Clause is clear and unambiguous: after two years GSK (or affiliate) may market and sell AG to whomever it chooses, including third parties | Reversed district court: Clause is latently ambiguous; extrinsic evidence must be considered and breach claim goes to trial |
| Whether GSK breached the implied covenant of good faith and fair dealing by entering the S&D Agreement | GSK’s conduct frustrated Mylan’s expected benefits and indicates bad faith | GSK acted within contractual rights and lacked bad motive; no evidence of intent to deprive Mylan of contract fruits | Affirmed: no evidence of bad faith or improper motive; claim fails as a matter of law |
| Whether Apotex tortiously interfered with Mylan’s contract by entering S&D Agreement with GSK | Apotex knew (or was willfully blind to) Mylan’s exclusive contractual rights and intentionally interfered | Apotex lacked actual knowledge of the contract terms and did not act fraudulently or illegally | Affirmed: Apotex lacked requisite knowledge and malice; summary judgment for Apotex proper |
Key Cases Cited
- Int’l Union, UAW v. Skinner Engine Co., 188 F.3d 130 (3d Cir. 1999) (extrinsic evidence cannot be used to contradict a clearly unambiguous contract under certain circumstances)
- Conway v. 287 Corp. Ctr. Assocs., 901 A.2d 341 (N.J. 2006) (New Jersey permits broad use of extrinsic evidence to ascertain contract intent)
- Sumitomo Mach. Corp. v. AlliedSignal, Inc., 81 F.3d 328 (3d Cir. 1996) (courts must consider extrinsic evidence when interpreting integrated agreements)
- Schor v. FMS Fin. Corp., 814 A.2d 1108 (N.J. Super. Ct. App. Div. 2002) (when uncertainty or need for parol evidence exists, contract interpretation is for the jury)
- Wilson v. Amerada Hess Corp., 773 A.2d 1121 (N.J. 2001) (implied covenant breach requires bad motive to prevent other party from receiving contract benefits)