520 F.Supp.3d 514
S.D.N.Y.2021Background
- Novartis and Incyte entered a 2009 Collaboration and License Agreement: Incyte has U.S. commercialization rights for ruxolitinib (Jakafi); Novartis has rights elsewhere; each pays royalties to the other on sales in their respective territories.
- Section 8.3(c) defines the royalty "Royalty Term" as the longer of (i) last-to-expire Valid Claim of Licensed Patent Rights, (ii) ten years after first sale, or (iii) expiration of Regulatory Exclusivity; it also provides a 50% "step down" of royalties if the Royalty Term continues solely due to clause (ii) or if Generic Competition exists.
- Incyte paid full royalties through 2018. After the orphan drug exclusivity (ODE) for the myelofibrosis indication expired in November 2018, Incyte in May–June 2019 unilaterally reduced payments by 50% and paid only half of the Q1 2019 amount, citing the step-down.
- Novartis sued for breach and declaratory relief (filed Jan. 15, 2020); Incyte moved to dismiss for failure to state a claim.
- The dispute centers on contract interpretation: (1) whether loss of ODE for one indication means Incyte lost "Regulatory Exclusivity" (so clause (iii) expired), and (2) whether the defined term "Licensed Patent Rights" in clause (i) unambiguously limits the relevant patents to those licensed to the paying party.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Incyte retained "Regulatory Exclusivity" after the ODE for the myelofibrosis indication expired | Novartis: Incyte retains regulatory exclusivity because it still can exclude competitors for other FDA-approved indications; "any" means "at least one" activity or indication | Incyte: Loss of ODE for the myelofibrosis indication means it can no longer exclude third parties from commercializing the product for that use; "any" in the definition requires the ability to exclude all commercialization activities — losing that for any indication means Regulatory Exclusivity is gone | Court: "Regulatory Exclusivity" unambiguously requires the ability to exclude third parties from any commercialization (i.e., all such activities); Incyte lost Regulatory Exclusivity for Jakafi when the ODE expired for myelofibrosis |
| Whether clause (i)'s reference to the "last to expire of any Valid Claim of Licensed Patent Rights" unambiguously refers only to the patents licensed to the paying party (i.e., directional application of the definition) | Novartis: "Licensed Patent Rights" should be read broadly to include all patent rights covering the Licensed Product — expiration requires the last valid claim across both parties' licensed patents | Incyte: Definition uses directional language ("with respect to") creating two separate cases; only the patents licensed to the paying party should govern that party's royalty obligations | Court: The meaning is ambiguous — the contract language supports plausible readings on both sides; because ambiguity exists, dismissal is improper and factual development is needed |
Key Cases Cited
- Orlander v. Staples, Inc., 802 F.3d 289 (2d Cir. 2015) (elements required to plead breach of contract)
- W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157 (N.Y. 1990) (whether a writing is ambiguous is a question of law)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (courts need not accept legal conclusions as true on a motion to dismiss)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Chesapeake Energy Corp. v. Bank of N.Y. Mellon Tr. Co., 773 F.3d 110 (2d Cir. 2014) (contract interpretation aims to effect parties' intent; give plain meaning to words)