Intercept Pharmaceuticals Inc. v. Fiorucci

Filing 141

MEMORANDUM OPINION regarding motions for summary judgment (D.I. 97 , 100 , and 111 ). Signed by Judge Richard G. Andrews on 9/28/2017. (nms)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INTERCEPT PHARMACEUTICALS, INC.,
Plaintiff,
v.

Civil Action No. 1:14-cv-01313-RGA

STEPANO FIORUCCI,
Defendant.
MEMORANDUM OPINION
Thomas C. Grimm, Esq., Jeremy A. Tigan, Esq., MORRIS, NICHOLS, ARSHT & TUNNEL LLP,
Wilmington, De, Ellen A. Scordino, Esq., Elizabeth Trafton, Esq., COOLEY LLP, Boston, MA,
Ivor Elrifi, Esq., Jonathan Bach, Esq., Scott A. Sukenick, Esq., COOLEY LLP, New York, NY,
attorneys for Plaintiff Intercept Pharmaceuticals, Inc.

George Pazuniak, Esq., O'KELLY & ERNST, LLC, Wilmington, DE, Glen M. Diehl, DIEHL LA w
LLC, Watchung, NJ, attorneys for Defendant Stephano Fiorucci

September JJ,'2017

~f.~ISTRlCT

JUDGE:

Presently before the Court is Plaintiffs Motion for Partial Summary Judgment on the
Issue oflnventorship (D.I. 97) and related briefing (D.I. 98, 114, 134), Defendant's Motion for
Partial Summary Judgment on the Issue of Ownership (D.I. 100), and Plaintiffs Cross-Motion
for Partial Summary Judgment on the Issue of Ownership (D.I. 111) and related briefing (D.I.
101, 112, 132). For the reasons that follow, Plaintiff's Motion for Partial Summary Judgment on
the Issue oflnventorship (D.I. 97) and Plaintiff's Cross Motion for Partial Summary Judgment
on the Issue of Ownership (D.I. 111) are GRANTED and Defendant's Motion for Partial
Summary Judgment on the Issue of Ownership (D.I. 100) is DENIED.
I.

BACKGROUND
Plaintiff, a biopharmaceutical company, develops and commercializes new drugs for

treating disease. (D.I. 98 at 3). Plaintiff collaborates with medical research scientists in Italy,
including Defendant and Dr. Pellicciari. (Id.). Plaintiff, Defendant, and the University where
Defendant works collaborated under a series of agreements beginning in 2002. (D.I. 99-1 at Ex.
A, Fiorucci Dep. 56:4-9, Nov. 13, 2015). The most recent of these agreements took effect in
July 2006. (D.I. 104-1 at Ex. A, Ex. B). Under these agreements, Defendant worked on ligands
to bind with the FXR and TGR5 proteins in liver cells. (D.I. 104-1 at Ex. A § 1.4).
A.

THE PATENTS

When Defendant began his relationship with Plaintiff, Dr. Pellicciari and Defendant
worked together on compounds that would treat liver disease through the FXR receptor. (D.I. 44
at ~ 9). Defendant performed tests to discover the properties and efficacy of the compounds.
(Id.). Three patents arise out of the research on the FXR ligands: U.S. Patent No. 8,546,365

("the '365 patent"), U.S. Patent No. 7,932,244 ("the '244 patent"), and U.S. Patent No.

7,858,608 ("the '608 patent") (collectively "the FXR patents"). (D.I. 44 at ii 9). Both Dr.
Pellicciari and Defendant are named as joint inventors, and the patents are assigned to Plaintiff.
In 2003, Dr. Pellicciari started developing chemical compounds to develop a TGR5
agonist, which would bind with the TGR5 receptor to treat metabolic and inflammatory
disorders. (D.I. 99-1 at Ex. E, Pruzanski Dep. 39:6-40:8, Apr. 28, 2016). Dr. Pellicciari began
working with Plaintiff on the development of these compounds in 2006. (Id. at 50:9-16).
Defendant was provided with the compounds in 2007 in order to screen the compounds and
perform efficacy tests. (Id.). Plaintiff filed patents on the TGR5 compounds starting in 2009.
(D.I. 44 at ii 17). There are five patents arising from the TGR5 research: U.S. Patent No.
8,114,862 ("the '862 patent"), U.S. Patent No. 8,410,083 ("the '083 patent"), U.S. Patent No.
8,445,472 ("the '472 patent"), U.S. Patent No. 8,796,249 ("the '249 patent"), and U.S. Patent
No. 8,999, 964 ("the '964 patent") (collectively "the TGR5 patents"). (D.I. 44 at ii 17). Dr.
Pellicciari is named as the sole inventor on these patents, and all are assigned to Plaintiff.

B.

THE AGREEMENTS

There are three agreements at issue: the 2006 Consulting Agreement ("the CA"), the
2006 Sponsored Research Agreement ("the SRA"), and a 2008 final Letter Agreement ("the
LA"), which terminated the relationship between the parties. The SRA was executed
contemporaneously with the CA. All three Agreements state that Delaware law shall apply.
(D.I. 104-1 at Ex. A §7.8, Ex. B §8.13, Ex. D ii 1 l(d)).
The CA was an agreement between Plaintiff and Defendant under which Defendant was
hired by Plaintiff to work on ligands to bind to FXR, TGR5, and other proteins. (D.1. 104-1 at
Ex. A § 1.4). Under the CA, Defendant was to design and implement research plans, lead
compound screening efforts, and coordinate patent preparation, among other responsibilities.

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(Id. Appendix A). Defendant assigned the rights to any inventions created during the term of the
agreement to Plaintiff and agreed to execute any documents necessary to complete such
assignment. (Id. §4.1). In return, Plaintiff was to pay Defendant a quarterly services fee and a
yearly intellectual property fee. (Id. §§3.1, 3.2).
The SRA was executed between Plaintiff, the University, and Defendant. The SRA
defined "Research Parties" as the "University and Principal Investigator [i.e., Defendant]
collectively or individually as the context requires." (D.I. 104-1 at Ex. B § 1.4). The SRA
repeatedly referred to both the "University," the "Principal Investigator," and the "Research
Parties." Under the SRA, Defendant was to investigate ligands for the FXR and TGR5 proteins,
in addition to ligands for other proteins. (Id. §2.1 ). Plaintiff, in return, would sponsor the
research by paying a fee to the University and providing materials to Defendant. (Id. §2.4). The
SRA also stated that the Research Parties would assign all rights in the project and all patent
rights associated with the project to Plaintiff:
Research Parties hereby assign to Sponsor all rights title and interest in and to all
Research Project Patent Rights and Research Project Technology upon creation,
each such assignment to be effective as of the date of creation. Research Parties
shall cooperate with Sponsor in providing assistance and executing any
documentation necessary to perfect such assignment .... Each of the Research
Parties will cooperate with Sponsor in any such filing, prosecution or
maintenance.

(Id. §4.2). The Research Project Patent Rights were defined as "any and all patent applications
and patents owned or otherwise controlled, in whole or in part, by Research Parties worldwide,
covering any invention conceived and/or reduced to practice by Principal Investigator [i.e.,
Defendant] .... " (Id. §1.6).

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In November 2007, Plaintiff sought to terminate the CA. (D.I. 44

at~

19). Plaintiff

made a final payment of €75,000 to Defendant in March 2008. (D.1. 99 at Ex. E, Pruzanski Dep.
69:14-25).
The LA was executed between Plaintiff, the University, and Defendant on April 2, 2008,
terminating all previous agreements. (D.I. 104-1 at Ex. D). The Agreement stated that it
"constitutes the entire understanding and agreement between the parties ... and cancels all
previous oral and written negotiations, [and] agreements .... " (D .I. 104-1 at Ex. D ~ 11 (e) ). The
LA provided that the Research Parties would fully release, remise, and discharge Plaintiff and its
subsidiaries from any and all claims the Research Parties may have had against them. (Id.

~5).

Similarly, Plaintiff and its subsidiaries were to
fully, forever, irrevocably and unconditionally release, remise and discharge
[Defendant] ... from any and all Claims that they ever had or now have against
[Defendant]; provided, however, that, notwithstanding anything to the contrary in
this Agreement, [Defendant is not] released from any of [his] obligations under
this letter agreement or related to this letter agreement or from any Claims arising
out of this letter agreement.
(Id.

~

6). Under the LA, it was stipulated that Research Parties did "acknowledge and reaffirm

that, except as amended by this letter agreement, their obligations pursuant to [the assignment
clause and other clauses of the SRA] remain in full force and effect." (Id.

~

8).

Plaintiff filed this suit in the United States District Court for the District of Delaware
claiming Defendant breached the CA, SRA, and LA by failing to execute formal assignment
documents relating to the FXR and TGR5 patents and seeking a declaratory judgment that
Defendant was not an inventor of the TGR5 patents. (D.I. 1 at 12-15).

II.

ANALYSIS
A.

SUMMARY JUDGMENT STANDARD

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"The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter oflaw." Fed. R.
Civ. P.56(a). When determining whether a genuine issue of material fact exists, the court must
view the evidence in the light most favorable to the non-moving party and draw all reasonable
inferences in that party's favor. Scott v. Harris, 550 U.S. 372, 380 (2007); Wishkin v. Potter,
476 F.3d 180, 184 (3d Cir. 2007). A dispute is "genuine" only ifthe evidence is such that a
reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, 477
U.S. 242, 247-49 (1986).

B.

INVENTORSHIP

For Plaintiffs Motion for Summary Judgment on the issue oflnventorship (D.I. 97), the
issue is whether Defendant is a joint inventor of the TGR5 patents.
When a patent has been issued, there is a presumption that the named inventors are the
true and only inventors. Ethicon, Inc. v. US Surgical Corp., 135 F.3d 1456, 1460 (Fed. Cir.
1998). A party that seeks to be added as an inventor must show that he is an inventor by clear
and convincing evidence. Id at 1461. He must demonstrate that he contributed to conception of
the invention in a specific way and must provide corroborating evidence, which can include
contemporaneous documents prepared by the putative inventor or oral testimony by someone
who is not the putative inventor. BJ Servs. Co. v. Halliburton Energy Servs., Inc., 338 F.3d
1368, 1373 (Fed. Cir. 2003); Ethicon, 135 F.3d at 1461; Burroughs Wellcome Co. v. Barr Labs.,

Inc., 40 F.3d 1223, 1228 (Fed. Cir. 1994). A putative inventor's testimony "cannot, standing
alone, rise to the level of clear and convincing proof." Ethicon, 135 F.3d at 1461 (internal
citations omitted).

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For conception to be complete, the inventor does not have to know ifthe invention
works, but must have a "specific, settled idea, a particular solution to the problem at hand," and a
clear idea of the form of the invention. Burroughs Wellcome, 40 F.3d at 1228. Confirmatory
testing or screening of compounds does not constitute a contribution to conception, but is
considered reduction to practice. Id. at 1229-30; Applegate v. Scherer, 332 F.2d 571, 573-74
(C.C.P.A. 1964).
Plaintiff and Defendant do not dispute the following facts: (1) Dr. Pellicciari began
researching compounds to bind to the TGR5 protein in 2003 outside of his work for Plaintiff
(D.I. 99 at Ex. F 39:6-40:8); (2) Defendant received already existing and newly synthesized
compounds for testing from Dr. Pellicciari in 2007 (id. at Ex. 0 164:23-25); (3) Defendant did
not synthesize or create any compounds (id. at Ex. 0 79:3-80:1); (4) Defendant selected and
conducted tests on the compounds sent by Dr. Pellicciari to determine their efficacy (id.); and (5)
Plaintiff began filing patent applications for the compounds, but only filed on the compounds
Defendant determined had good efficacy (D.I. 102 at if 11).
Defendant contends that he suggested that compounds created as ligands for the FXR
protein might have efficacy for the TGR5 protein as well, thereby contributing to conception.
(D.I. 114 at 5). This fact is supported only by Defendant's own declaration, and is not
corroborated by any other evidence. (D.I. 44 if14). Thus, there is insufficient corroborating
evidence for Defendant's statement that he contributed to conception to create a disputed
material fact on that issue.
Plaintiff argues that just as Defendant's alleged suggestion cannot render him an inventor
due to a lack of corroborating evidence, Defendant cannot be an inventor of the TGR5 patents by
virtue of Defendant's performance of efficacy testing, because efficacy testing is not a

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contribution to conception. (DJ. 98 at 10-11 ). Plaintiff contends that Defendant's testing merely
confirmed that the compounds worked, which is reduction to practice, not conception-even if it
eliminates some uncertainty. (Id. at 11; D.I. 134 at 7-8). Defendant counters by asserting that he
is an inventor of the TGR5 patents because without his testing, Plaintiff would not know which
compounds to patent, meaning that conception was not complete until after Defendant performed
the efficacy tests. (D.I. 114 at 10). Defendant also argues that Burroughs Wellcome, which
holds that confirmatory testing or screening of compounds does not constitute a contribution to
conception, should be distinguished because the patents in that case were prepared before testing
was performed, but in this case, the patents were prepared years later. (Id at 13). This
difference in filing time is not material because Defendant's testing was not a contribution to
conception given the undisputed facts of this case When Defendant received the compounds,
they had already been created, and Dr. Pellicciari had a clear idea of the form of the compounds.
(D.I. 99 at Ex. 0 164:23-25). Defendant's testing amounted to screening and confirmation that
the compounds worked. That is reduction to practice, not conception.

C.

OWNERSHIP

Plaintiff and Defendant dispute ownership of both the FXR and TGR5 patents. Since
Defendant is not a joint inventor of the TGR5 patents, he has no ownership claim to them. Only
the FXR patents are at issue. Under the contracts, Delaware law applies. (D.I. 104-1 at Ex. D ~

l l(d)).
The inventor is presumed to be the owner of an invention and its corresponding patent
rights. Teets v. Chromalloy Gasturbine Corp., 83 F.3d 403, 407 (Fed. Cir. 1996). Contract law,
however, allows the inventor to assign her rights to an invention and its patent to another person
or entity. Id. Ownership of patent rights is determined by state, not federal law, but whether

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patent assignment is automatic is a matter of federal law because it is tied up with the question of
standing in patent cases. Sky Techs. LLC v. SAP AG, 576 F.3d 1374, 1379 (Fed. Cir. 2009).
When an individual assigns rights in an invention before the invention is created, the assignee is
considered to have an expectant interest in the invention. Filmtec Corp. v. Allied-Signal, Inc.,
939 F.2d 1568, 1572 (Fed. Cir. 1991). The assignee then holds an equitable title until the
invention is created and a patent application is filed, at which point, the assignee has a legal title
to the rights. Id. Whether such an assignment is automatic upon creation of the invention
depends on the language of the contract. DDB Techs., LLC v. MLB Advanced Media, LP, 517
F.3d 1284, 1290 (Fed. Cir. 2008). Language like "does hereby grant and assign" rights to future
inventions is considered to automatically assign rights upon the creation of the invention. Id. An
assignment, even one that was automatic, may be declared null and void if there is a forfeiture
provision in the contract or if there is a provision of state law to support voiding the assignment.
Jim Arnold Corp v. Hydrotech Sys., Inc., 109 F.3d 1567, 1577 (Fed. Cir. 1997).
Plaintiff argues that the assignment provisions in the CA were automatic assignment
provisions because the contract stated that "Consultant [i.e., Defendant] hereby assigns to the
Company all Inventions and any and all related patents .... " (D.I. 104-1 Ex. A §4.l(a)).
Defendant does not dispute that the assignment was automatic, but argues that the assignment of
the patents should be rescinded for three reasons. First, Defendant argues that payment was a
condition upon which assignment was premised. (D.I. 101at12-14). Second, Defendant
contends that Plaintiffs failure to pay constituted a failure of consideration. (Id.). Third,
Defendant argues Plaintiffs failure to pay was a material breach of the contract. (Id.). However,
these arguments regarding rescission of the contract are irrelevant due to the later letter
agreement.

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The LA states, and the parties do not dispute, that
[the LA] contains and constitutes the entire understanding and agreement between
the parties hereto with respect to the subject matter hereof (including their funding
payments and the settlement claims against the Company) and cancels all
previous oral and written negotiations, agreements, commitments, writings in
connection therewith. Nothing in this paragraph, however, shall modify, cancel
or supersede their obligations set forth in paragraphs 3, 4, 5, 6, 8, 9, or 10 herein.
(Id.~

1 l(e)). As a result, the LA supersedes the earlier CA and SRA. The LA further states that

"the Research Parties ... hereby fully, forever, irrevocably and unconditionally release, remise
and discharge the Company and its subsidiaries ... from any and all claims, charges, complaints
[etc.] ... of every kind and nature ... that they ever had or now have against the Company .... "
(Id.~

5). When "the language of the release is clear, it will be given effect." Corp. Prop.

Assocs. 6 v. Hallwood Grp. Inc., 817 A.2d 777, 779 (Del. 2003). The LA released Plaintiff from
any payment obligations and all claims that Defendant may have had under the previous
agreements, including the claims that the CA was rescinded. (D .I. 104-1 at Ex. D ~ 6, D .I. 112 at
8). Whether the CA was rescinded thus becomes irrelevant under the LA.
The LA states that "[t]he Research parties hereby acknowledge and reaffirm that, except
as amended by this letter agreement, their obligations pursuant to Articles 2.3, 2.5, 3.2, 4, 5, 7
and 8 of the [SRA] remain in full force and effect."

(Id.~

8). Defendant, however, contends that

he should not be subject to this clause because he was released from previous obligations,
including an obligation to assign his patent rights, in the LA. (D.I. 101 at 15). Paragraph 6 states
that Plaintiff and its subsidiaries "hereby fully, forever, irrevocably and unconditionally release,
remise and discharge" Defendant from any claims Plaintiff had against Defendant. (DJ. 104-1 at
Ex. D ~ 6). Plaintiff notes that Defendant's release provides an exception for obligations under
the LA, which states "that notwithstanding anything to the contrary in this Agreement, no
[Defendant] is released from any of its obligations under this letter agreement or any claims
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arising out of this letter agreement." (D .I. 112 at 12; D .I. 104-1 at Ex. D ii 6). In interpreting a
contractual release, the court will determine the intent of the parties from the overall language of
the release. Fox v. Rode/, Inc., 1999 WL 588293, at *6 (D. Del. Jul. 14, 1999). Just as the clear
language of a release must be given effect, when a carve out of or exception to a release is
unambiguous, it must also be given effect. Id. at *7. The language of Defendant's release under

ii 6 of the LA is not ambiguous, nor is the exception to it.

As a result, Defendant is still subject

to obligations under the LA, including the obligations of the SRA that are affirmed.
Defendant argues that he should not be subject to the SRA's assignment clauses for four
reasons.
First, Defendant argues that if he is subject to the assignment clause and other
obligations, he is not being unconditionally released, as ii 6 of the LA states. (D.1. 101 at 16).
Therefore, the reaffirmation of the assignment clause cannot apply to him without conflicting
with the plain language ofil 6. (Id.). As noted above, Defendant's release in ii 6 creates an
exception, which must be given effect. Thus, Defendant is still subject to obligations under the
LA, including the assignment clause.
Second, Defendant argues that even if his discharge does not release him from
obligations under the LA, he is only subject to obligations that are newly created under the LA,
not obligations that have been reaffirmed from previous agreements. (D.I. 132 at 9). The LA
does not contain language to support this assertion, since the contract states that Defendant is not
"released from any of its obligations under this letter agreement or relating to this letter
agreement .... " (D.1. 104-1 at Ex. D ii 6). It does not make any reference that could reasonably
be interpreted as drawing a distinction between existing and newly created obligations.

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Third, Defendant asserts that the assignment clause of the SRA does not apply to him.
(D.1. 101 at 12). The SRA defines Research Parties as the University and Defendant together or
individually as the "context" requires. (D .I. 104-1 at Ex. B § 1.4). Under Delaware law, when
two related contracts are executed contemporaneously, they should be read as a single contract.
Ashall Homes Ltd. V ROK Entm 't Grp. Inc., 992 A.2d 1239, 1250-51, n. 56 (Del. Ch. 2010).
Defendant therefore contends that since the CA and SRA were executed simultaneously and
refer to the same subject matter, they must be read together. (D.I. 101 at 12). Since his
assignment obligations were set forth under the CA, Defendant reasons that the assignment
clause of the SRA, which refers to Research Parties, must mean only the University. (Id. at 2122). Thus, when the LA preserves the assignment clause of the SRA, it does not preserve
Defendant's assignment obligations. (Id.).
I disagree. Delaware law states that contractual language should be interpreted in a way
that gives effect to all terms, "so as not to render any part of the contract mere surplusage."
Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 397 (Del. 2010). Additionally,
the contract must be read as a whole, and contractual provisions must be interpreted in a way that
"give[s] effect to every term of the instrument and reconcile[s] all provisions of the instrument."
Energy Partners, Ltd. v. Stone Energy Corp., 2006 WL 2947483, at *13 (Del. Ch. Oct. 11,
2006). Defendant is a separate party to the SRA, and is identified as one of the Research Parties.
(D.1. 112 at 11; D.I. 104-1 at Ex. B §1.4). The SRA also states in the assignment clause that
"[e]ach of the Research Parties will cooperate with Sponsor," suggesting that more than one
Research Party is subject to the clause. (D.I. 104-1 at Ex. B §4.2). The rights being assigned are
the Research Project Patent Rights, which are rights to any inventions created by Defendant. (Id.
at Ex. B §§1.6, 4.2). In order to give effect to all terms of the assignment clause, reconciling

11

them with the other terms of the Agreement, and to avoid rendering any term as mere surplusage,
the assignment clause must be read as applying to Defendant. Thus, it is not just the University,
but also Defendant, who is subject to the assignment clause.
Fourth, Defendant argues that the affirmation of the assignment clause under the LA is
subject to an exception. (D.I. 101 at 22). The language of the contract states that the parties

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reaffirm, except as amended by the LA, certain obligations under the SRA. (D .I. 104-1 at Ex. D

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if 8).

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Defendant claims that his release and discharge of obligations is considered an amendment

to the obligations, such that he is not subject to the assignment clause. (D.I. 132 at 14).
Although Defendant is correct in stating that the LA anticipates that there may be exceptions to
the reaffirmed obligations, Defendant's reading of the language ignores the fact that no exception

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applies, and he is therefore not released from obligations under the LA. Defendant's reading
does not give effect to every term of the contract, and thus, Defendant is required to assign the
patents to Plaintiff.

III.

CONCLUSION
For the reasons stated herein, Plaintiffs Motion and Cross Motion for Partial Summary

Judgment are granted and Defendant's Motion for Partial Summary Judgment is denied.
A separate order will be entered.

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