SmithKline Beecham Corporation, dba GlaxoSmithKline v. Abbott Laboratories

Filing 530

ORDER by Judge Claudia Wilken DENYING ABBOTTS 525 RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW AND GRANTING AS UNOPPOSED GSKS 524 MOTION TO AMEND THE JUDGMENT. (ndr, COURT STAFF) (Filed on 9/6/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SMITHKLINE BEECHAM CORPORATION,
doing business as
GLAXOSMITHKLINE,

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Plaintiff,

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v.

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ABBOTT LABORATORIES,

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Defendant.

United States District Court
For the Northern District of California

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________________________________/

No. C 07-05702 CW
ORDER DENYING
ABBOTT’S RENEWED
MOTION FOR
JUDGMENT AS A
MATTER OF LAW AND
GRANTING AS
UNOPPOSED GSK’S
MOTION TO AMEND
THE JUDGMENT
(Docket Nos. 524
and 525)

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Defendant Abbott Laboratories renews its motion for judgment

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as a matter of law.

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doing business as GlaxoSmithKline (GSK), opposes the motion and

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moves to amend the judgment to include post-verdict interest, as

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provided by New York law.

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amend.

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Having considered the papers submitted by the parties, the Court

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DENIES Abbott’s motion and GRANTS as unopposed GSK’s motion.

Plaintiff Smithkline Beecham Corporation,

Abbott does not oppose GSK’s motion to

The motions were taken under submission on the papers.

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BACKGROUND

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Because the parties are intimately familiar with the facts of

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this case, the Court provides only the background necessary to

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resolve their motions.

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I.

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Factual Background
Abbott and GSK manufacture and sell protease inhibitors

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(PIs), which are drugs used to treat human immunodeficiency

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virus (HIV) infection.

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In 1996, Abbott introduced Norvir, which contained the active

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ingredient ritonavir, as a stand-alone PI.

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release, it was discovered that, when used in small quantities

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with another PI, Norvir would “boost” the anti-viral properties of

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that PI.

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After Norvir’s

GSK desired to obtain a license from Abbott, “to promote and

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market certain of GSK’s HIV products with Ritonavir for the

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purpose of co-prescription/co-administration . . . .”

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Ex. 5, License Agreement, at 0001.

GSK’s Trial

On December 13, 2002, Abbott

United States District Court
For the Northern District of California

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and GSK executed a “Non-Exclusive License Agreement,” under which

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Abbott granted GSK a license to “recommend, label, market, use,

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sell, have sold and offer to sell one or more of the GSK Products,

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but no other product, in co-prescription and/or co-administration

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with Ritonavir . . . .”

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agreement limited the parties’ liability under the contract,

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stating that “EXCEPT AS OTHERWISE PROVIDED, NEITHER PARTY SHALL BE

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LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL

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LOSSES ARISING OUT OF OR RELATING TO THIS AGREEMENT . . . .”

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at 0015 (upper case in original).

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Id. at 0001 and 0005.

Article X of the

In 2003, GSK introduced Lexiva to the market.

Id.

Although the

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drug could be prescribed as a stand-alone PI, its daily dose was

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less if it was administered along with Norvir.

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of studies that showed Norvir-boosted doses of Lexiva had efficacy

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similar to Kaletra, another Abbott PI.

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Abbott was aware

On December 3, 2003, Abbott raised the price of 100

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milligrams of Norvir from $1.71 to $8.57, which amounted to a 400-

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percent increase.

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cost of a boosted Lexiva therapy to some consumers.

This price hike commensurately increased the

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II.

Procedural and Trial History
GSK brought a claim against Abbott for allegedly breaching

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the implied covenant of good faith and fair dealing associated

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with the parties’ December 2002 agreement.

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New York law applied to this claim.

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Under the agreement,

In its motion for summary judgment, Abbott argued, among

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other things, that Article X barred GSK from recovering lost

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profits arising from a breach of the implied covenant.

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responded that Article X did not apply because the lost profits it

GSK

United States District Court
For the Northern District of California

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sought were general, not consequential, damages.

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that, even if its lost profits were consequential damages,

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Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377 (1983),

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provided that Article X could be rendered unenforceable based on

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Abbott’s bad faith.

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be consequential damages but denied Abbott’s motion as to GSK’s

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implied covenant claim because there was a triable issue as to

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whether GSK could recover such damages notwithstanding Article X.

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See Safeway Inc. v. Abbott Laboratories, 761 F. Supp. 2d 874, 899-

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901 (N.D. Cal. 2011).

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GSK also argued

This Court held GSK’s alleged lost profits to

GSK’s implied covenant claim and its claims under the Sherman

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Act and North Carolina’s Unfair and Deceptive Trade Practices Act

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(UDTPA) were tried before a jury.

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Abbott moved for judgment as a matter of law.

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it was entitled to judgment on GSK’s implied covenant claim

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because the trial record did not support a conclusion that it

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breached the implied covenant.

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GSK proved a breach, it could not recover lost profits, reasoning,

At the close of evidence,
Abbott argued that

Abbott also asserted that, even if

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The license precludes “special, incidental, indirect or
consequential losses arising out of or relating to this
agreement.” Under New York law, a contractual
limitation of liability clause precludes lost profits
damages absent proof of a “breach of a fundamental,
affirmative obligation the agreement expressly imposes
on the contractee.” GSK has not alleged or presented
sufficient evidence of breach of an “affirmative
obligation” of the license. This Court held that the
license’s consequential damage limitation could be
overcome, and lost profits awarded, if GSK proved that
the alleged breach resulted from “intentional
misrepresentations, . . . willful acts or gross
negligence.” GSK has not met its burden. Mere
“intentional nonperformance of [an] Agreement motivated
by financial self-interest” would not be enough.
Abbott’s Rule 50(a) Mot. for J. as a Matter of Law (Docket No.

United States District Court
For the Northern District of California

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482) at 19-20 (citations omitted).

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Rule 50(a) motion all arguments it had made in its motions to

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dismiss, motion for summary judgment, motions in limine and

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objections to jury instructions.

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Rule 50(a) motion and submitted the case to the jury.

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Abbott incorporated into its

The Court did not grant Abbott’s

The Court incorporated into the jury’s instructions on GSK’s

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implied covenant claim an element accounting for the level of

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culpable conduct necessary for Article X to be negated.

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was instructed that, to prevail on its implied covenant claim for

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lost profits, GSK was required to prove that (1) “Abbott’s conduct

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directly destroyed or injured GSK’s alleged right to receive

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benefits under the license agreement that a reasonable party in

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GSK’s position would have understood the license agreement to have

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included;” (2) “Abbott engaged in grossly negligent conduct;” and

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(3) “Abbott’s conduct constituting a breach of the implied

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covenant of good faith and fair dealing was a proximate cause of

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the injury to GSK’s business.”

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485) at 26.

The jury

Final Jury Instructions (Doc. No.

The instructions defined “grossly negligent conduct”

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to involve “intentional wrongdoing or a reckless indifference to

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the rights of others.”

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Id.

With respect to GSK’s implied covenant claim, the jury found

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that Abbott “committed an act that showed a lack of good faith and

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fair dealing, injuring GSK’s right to receive the benefits that a

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reasonable party would have been justified in understanding were

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included in the license agreement.”

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at 4.

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negligent conduct when it breached the implied covenant of good

United States District Court
For the Northern District of California

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Verdict Form (Docket No. 487)

The jury also found that Abbott engaged “in grossly

faith and fair dealing.”

Id.

In connection with GSK’s claim under the UDTPA, the jury was

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posed special interrogatories.

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“[d]uring the negotiation of the Norvir Boosting License, Abbott

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was considering how to use its control over Norvir to limit

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competition with Kaletra and deliberately withheld this from GSK.”

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Verdict Form at 5.

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show that this conduct caused it harm.

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show that “Abbott inequitably asserted its power over Norvir by

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increasing Norvir’s price by 400 percent to undermine and disrupt

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Lexiva’s launch and future sales.”

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persuade the jury that “Abbott manipulated the timing of the 400-

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percent Norvir price increase in order to disrupt Lexiva’s launch

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and undermine Lexiva’s future sales.”

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In response, the jury found that

However, according to the jury, GSK did not
Id. at 6.

Id. at 5.

Nor did GSK

GSK also failed to

Id.

In accordance with the jury’s verdict, judgment was entered

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in favor of GSK on its implied covenant claim and in favor of

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Abbott on GSK’s other claims.

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which was the sum of $3,486,240.00 and interest provided under New

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York law.

GSK was awarded $4,549,590.96,

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LEGAL STANDARD

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A motion for judgment as a matter of law after the verdict

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renews the moving party’s prior Rule 50(a) motion for judgment as

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a matter of law at the close of all the evidence.

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P. 50(b).

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granted only when the evidence and its inferences, construed in

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the light most favorable to the non-moving party, permits only one

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reasonable conclusion as to the verdict.

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443 F.3d 1050, 1062 (9th Cir. 2006).

Fed. R. Civ.

Judgment as a matter of law after the verdict may be

Josephs v. Pac. Bell,

Where there is sufficient

United States District Court
For the Northern District of California

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conflicting evidence, or if reasonable minds could differ over the

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verdict, judgment as a matter of law after the verdict is

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improper.

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772, 775 (9th Cir. 1990); Air-Sea Forwarders, Inc. v. Air Asia

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Co., 880 F.2d 176, 181 (9th Cir. 1989).

See, e.g., Kern v. Levolor Lorentzen, Inc., 899 F.2d

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DISCUSSION

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Abbott argues that insufficient evidence supports the jury’s

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verdict that it breached the implied covenant.

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contends that, based on the trial record and the jury’s findings,

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Article X is enforceable against GSK’s claim for lost profits.

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I.

Abbott also

Breach of the Implied Covenant

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“The implied covenant of good faith and fair dealing between

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parties to a contract embraces a pledge that ‘neither party shall

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do anything which will have the effect of destroying or injuring

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the right of the other party to receive the fruits of the

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contract.’”

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W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153

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(2002)).

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reasonable person in the position of the promisee would be

Moran v. Erk, 11 N.Y.3d 452, 456 (2008) (quoting 511

The implied covenant encompasses “‘any promises which a

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justified in understanding were included.’”

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N.Y.2d at 153 (quoting Rowe v. Great Atl. & Pac. Tea Co., 46

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N.Y.2d 62, 69 (1978)); accord M/A-COM Sec. Corp. v. Galesi, 904

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F.2d 134, 136 (2d Cir. 1990) (stating that the implied covenant

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doctrine is used to “effectuate the intentions of the parties, or

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to protect their reasonable expectations”) (citation omitted).

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Jennifer Realty, 98

The trial record supports the jury’s verdict that Abbott

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breached the implied covenant of good faith and fair dealing

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associated with the parties’ December 2002 agreement.

As noted

United States District Court
For the Northern District of California

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above, under the agreement, Abbott granted GSK the right to

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“recommend, label, market, use, sell, have sold and offer to sell

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one or more of the GSK Products, but no other product, in co-

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prescription and/or co-administration with Ritonavir . . . .”

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License Agreement at 0005.

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right included an implied promise that Abbott would not use “its

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control over Norvir to interfere with GSK’s ability to promote and

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market boosted Lexiva.”

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presented at trial supports this theory.

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in seeking an agreement, GSK desired to promote its products with

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Norvir.

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John Poulos indicated at trial that, during negotiations, he

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assured GSK representatives that Abbott would not cease

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manufacturing Norvir.

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negotiators that Abbott had no interest in diminishing its

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reputation with HIV patients.

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Abbott understood that its licensing program enabled Abbott’s

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competitors to compete with Kaletra.

The theory of GSK’s case was that this

GSK’s Opp’n at 17 n.6.

The evidence

Abbott was aware that,

Consistent with this awareness, Abbott’s head negotiator

Poulos also represented that he told GSK

Further, evidence showed that

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Evidence likewise supports the conclusion that the Norvir

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price increase interfered with GSK’s ability to market and sell

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Lexiva.

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to discern GSK’s marketing message concerning Lexiva because of

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the Norvir price hike.

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effect the price increase had on doctors’ perception of Lexiva.

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Thus, the record presented to the jury supports its finding that

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Abbott injured GSK’s right to receive the benefits GSK reasonably

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believed it was entitled to under the parties’ agreement.

United States District Court
For the Northern District of California

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Witnesses testified to the medical community’s inability

Witnesses also testified to the negative

Abbott cites Silvester v. Time Warner, Inc., 763 N.Y.S.2d 912

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(2003),1 which is distinguishable and does not support its

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position.

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recording artists, alleged that the defendant music labels

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breached the implied covenant by “digitalizing recordings and

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allowing or facilitating distribution of recordings over the

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internet, without protecting plaintiffs’ rights to royalties and

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licensing fees.”

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defendants with “the unrestricted right to manufacture, use,

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distribute and sell sound productions of the performances recorded

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hereunder made by any method now known, or hereafter to become

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known.”

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royalties.

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covenant claims because there was no allegation “that defendants

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intentionally interfered with plaintiffs’ rights to obtain

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royalties under their contracts.”

In that case, the plaintiffs, who were individual

Id. at 915.

Id. at 916.
Id.

The parties’ contracts provided the

In exchange, the plaintiffs received

The court dismissed the plaintiffs’ implied

Id. at 258.

Here, in contrast,

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Abbott represents that the New York Court of Appeals, the
state’s high court, rendered this decision. This is incorrect. A
state trial court made the decision.
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the trial record shows that Abbott interfered with GSK’s right to

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market and sell Lexiva with Norvir, a right was expressed in the

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December 2002 agreement.

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Abbott also points to various contractual disclaimers

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indicating that it did not have a duty to promote Lexiva with

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Norvir or a partnership, joint venture or agency relationship with

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GSK.

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that Abbott would not interfere with GSK’s right to market and

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sell Lexiva with Norvir.

United States District Court
For the Northern District of California

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These provisions, however, do not negate the implied promise

GSK does not argue that Abbott had an

affirmative duty to market Lexiva.

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Finally, Abbott contends that New York does not permit a

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plaintiff to bring an implied covenant claim if a breach of

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contract claim is not also asserted.

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argument in its order denying Abbott’s motion to dismiss GSK’s

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implied covenant claim.

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F. Supp. 2d 995, 1007 (N.D. Cal. 2008).

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The Court rejected this

Meijer, Inc. v. Abbott Laboratories, 544

Consequently, the Court concludes that sufficient evidence

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supports the jury’s verdict that Abbott engaged in conduct

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constituting a breach of the implied covenant of good faith and

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fair dealing.

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II.

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Enforceability of Article X
As explained above, to recover lost profits for a breach of

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the implied covenant, GSK was required to prove that Abbott

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engaged in conduct sufficiently culpable to override Article X’s

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limitation on liability.2

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Abbott contends the trial record and

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GSK insists that Article X is inapplicable because its lost
profits were direct, not circumstantial, damages. This argument
was rejected in the Court’s Order on Abbott’s motion for summary
judgment. Safeway Inc., 761 F. Supp. 2d at 899-900.
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the jury’s responses to specific interrogatories show that GSK

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failed to do so.

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New York law provides that exculpatory clauses, like Article

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X, are contrary to public policy in that State to the extent that

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they exempt “willful or grossly negligent acts.”

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Inc., 58 N.Y.2d at 385.

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Court of Appeals concluded that a trial court’s jury charge did

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not encapsulate the conduct necessary to nullify an exculpatory

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clause.

Id. at 386.

Kalisch-Jarcho,

In Kalisch-Jarcho, Inc., the New York

In that case, a plaintiff contractor brought

United States District Court
For the Northern District of California

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a breach of contract claim against a city, alleging that it

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suffered damages because the city’s conduct delayed the completion

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of a construction project.

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agreed with the city, however, “to make no claims for delay

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damages caused by any act or omission to act by the city.”

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384.

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than that ‘the delay was caused by conduct constituting active

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interference,’” the jury found for the contractor.

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The New York Court of Appeals found this instruction to be in

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error.

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first explained,

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Id. at 380-81.

The contractor had

Id. at

Based on the instruction that it “would have to find no more

Id. at 382.

Recapitulating “announced public policy,” the high court

[A]n exculpatory clause is unenforceable when, in
contravention of acceptable notions of morality, the
misconduct for which it would grant immunity smacks of
intentional wrongdoing. This can be explicit, as when
it is fraudulent, malicious or prompted by the sinister
intention of one acting in bad faith. Or, when, as in
gross negligence, it betokens a reckless indifference to
the rights of others, it may be implicit.

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Id. at 385 (citations omitted).

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Applying this policy to the case,

the court explained,

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United States District Court
For the Northern District of California

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It was against the background of these policies and
principles that, as summarized above, the claim against
the city centered on the extraordinarily long delay, the
immense number of drawing revisions with which Kalisch
was confronted and the failure to co-ordinate the
contractors. By attributing all of this to the
misconduct of the city, even absent any evidence of
malice, Kalisch's proof, if credited, would have to
establish that the city’s conduct amounted to gross
negligence.
To support such a conclusion, however, the jury would
have to find more than “active interference”, which,
incidentally, was not a contract term. For whether
conduct is “active” or “passive” does not determine
wrongdoing, and “interference”, which most commonly
translates as “intervention”, does not connote
willfulness, maliciousness, abandonment, bad faith or
other theories through which runs the common thread of
intent. So, taken at face value by the jury, the charge
was calculated to expose the city to liability for
conduct within the umbrella of the exculpatory clause.
Accordingly, although the request to charge perhaps
could have been more precisely put, the city, at the
very least, was entitled to the amplifying instruction
that unless Kalisch-Jarcho proved that “the City acted
in bad faith and with deliberate intent delayed the
plaintiff in the performance of its obligation”, the
plaintiff could not recover.
Id. at 386.
In Sommer, the New York high court again addressed the gross

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negligence necessary to negate an exculpatory clause.

There, a

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building owner sought to recover contract damages from an alarm

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company that failed to notify the fire department of a signal from

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the building indicating it was on fire.

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parties’ contract imposed on the alarm company a “duty to make

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timely reports to the fire department.”

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contract precluded liability against the alarm company for “losses

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or damages . . . caused by performance or nonperformance of

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obligations imposed by this contract or by negligent acts or

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omissions.”

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trial court granted summary judgment in the alarm company’s favor,

79 N.Y.2d at 548-49.

Id. at 551.

However, the

Id. at 549 (internal quotation marks omitted).

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The

The

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concluding that the exculpatory clause precluded relief because a

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jury could not conclude that the alarm company committed gross

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negligence.

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reiterated,

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The high court reversed.

First, it

It is the public policy of this State . . . that a party
may not insulate itself from damages caused by grossly
negligent conduct. This applies equally to contract
clauses purporting to exonerate a party from liability
and clauses limiting damages to a nominal sum.

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Gross negligence, when invoked to pierce an agreed-upon
limitation of liability in a commercial contract, must
“smack[] of intentional wrongdoing.” It is conduct that
evinces a reckless indifference to the rights of others.

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United States District Court
For the Northern District of California

Id. at 549-50.

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Id. at 554 (citations omitted).

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evidence suggesting that the alarm company’s dispatcher, “without

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verification or investigation,” reached an erroneous conclusion,

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“recklessly indifferent to the consequences that might flow from a

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misperception.”

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issue as to whether the alarm company was grossly negligent.

Id. at 555.

The building owner adduced

As a result, there was a triable
Id.

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Here, the trial record supports a conclusion that Abbott, at

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the least, acted with reckless indifference to GSK’s rights under

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the contract.

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negotiating for the December 2002 agreement, was considering how

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to limit competition with Kaletra and did not disclose this to

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GSK.

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was highly likely that GSK’s right to market and sell Lexiva with

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Norvir, in accordance with their agreement, would be harmed by an

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unprecedented Norvir price increase.

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raised Norvir’s price by 400 percent, which evinced a reckless

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indifference to GSK’s rights under the agreement.

GSK presented evidence that Abbott, while

Based on its investigations of options, Abbott understood it

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Despite this risk, Abbott

Both Kalisch-

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Jarcho, Inc. and Sommer provide that, under New York law, reckless

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indifference is sufficient.

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Abbott insists that New York law requires intentional,

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willful conduct.

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that avoidance of an exculpatory clause requires proof of “willful

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or grossly negligent acts.”

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Indeed, the court stated that the requisite misconduct “smacks of

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intentional wrongdoing.”

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trace, vestige, or suggestion.”

United States District Court
For the Northern District of California

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2149 (1993).

Kalisch-Jarcho, Inc. teaches otherwise, stating

58 N.Y.2d at 385 (emphasis added).

“Smacks” is defined to mean “to have a
Webster’s 3d New Int’l Dictionary

The court did not require intentional wrongdoing.

Metropolitan Life Insurance Co. v. Noble Lowndes Int’l Inc.,

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84 N.Y.2d 430 (1994), does not require a contrary conclusion.

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that case, the New York Court of Appeals was required to interpret

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an exculpatory clause that permitted liability for damages arising

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out of “willful acts or gross negligence.”

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the plaintiff proceeded on a theory that the defendant committed

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willful acts for which liability was not precluded by the

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exculpatory clause.

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Id. at 433.

In

At trial,

Here, Abbott’s gross negligence is at issue.

Abbott also points to the special interrogatories related to

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GSK’s UDTPA claim.

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jury’s finding on GSK’s implied covenant claim that Abbott

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committed, at least, acts of reckless indifference.

However, those answers do not negate the

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Finally, for the first time in this action, Abbott argues

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that Kalisch-Jarcho, Inc.’s and Sommer’s holdings that grossly

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negligent conduct can pierce an exculpatory clause pertain only to

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cases in which there are “separate tort claims -- not where, as

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here, the sole surviving trial claim sounds only in contract.”

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Renewed Mot. for J. as a Matter of Law at 7:6-7.
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It points to

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language in Kalisch-Jarcho, Inc., in which the court stated that

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the city was entitled to a jury instruction that, for the

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contractor to prevail, it would need to prove the city “acted in

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bad faith and with deliberate intent.”

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that instruction was pertinent to the circumstances of that case,

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in which the trial court gave the erroneous “affirmative

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interference” explained above.

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statement, the court noted that the contractor “would have to

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establish that the city’s conduct amounted to gross negligence” to

58 N.Y.2d at 386.

But

In the paragraph preceding this

United States District Court
For the Northern District of California

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prevail and that the trial court’s “affirmative interference”

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instruction did not reflect this requirement.

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Kalisch-Jarcho, Inc. and Sommer state that a breaching party’s

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reckless indifference can warrant an award of damages

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notwithstanding an exculpatory clause.

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Id. at 386.

Both

Accordingly, because evidence supports a conclusion that

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Abbott acted with at least reckless indifference when it raised

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Norvir’s price, judgment is not warranted in Abbott’s favor on

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GSK’s implied covenant claim for lost profits.

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CONCLUSION
For the foregoing reasons, the Court DENIES Abbott’s renewed

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motion for judgment as a matter of law and GRANTS as unopposed

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GSK’s motion to amend the judgment.

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judgment to include $112,181.69 in post-verdict, pre-judgment

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interest, as provided under New York law.

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shall issue forthwith.

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IT IS SO ORDERED.

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Dated: 9/6/2011

The Clerk shall amend the

An amended judgment

CLAUDIA WILKEN
United States District Judge
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