Children's Medical Center Corporation v. Celgene Corporation
Filing
124
Judge Mark L. Wolf: ORDER entered. MEMORANDUM AND ORDER(Hohler, Daniel)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CHILDREN'S MEDICAL CENTER
CORPORATION and CR REV
HOLDINGS LCC,
Plaintiffs
)
)
)
)
)
)
)
)
)
v.
CELGENE CORPORATION,
Defendant.
C.A. No. 13-11573-MLW
MEMORANDUM AND ORDER
WOLF, D.J.
This
September 30, 2016
case
concerns
an
Exclusive
License
Agreement
(the
"Agreement") under which Celgene Corporation ("Celgene") agreed
to pay royalties on certain drug sales to Children's Medical
Center Corporation ("CCMC") in return for exclusive rights to a
portfolio of CMCC patents. CMCC filed a complaint in Suffolk
Superior Court for the Commonwealth of Massachusetts alleging
that Celgene had wrongfully ceased to pay royalties on two drugs
subject to the agreement. Celgene timely removed the case to
federal court. The case was assigned to this court and referred
to Magistrate Judge Judy Dein for pretrial purposes.
CMCC moved for summary judgment. After holding a hearing on
the motion, Magistrate Judge Dein issued a report recommending
that CMCC's motion for summary judgment be allowed with respect
to royalty payments for one drug, Revlimid®, and denied with
respect to another, Pomalyst®. She also recommended that CMCC’s
motion for summary judgment be allowed as to Celgene's defense
of
patent
misuse
with
respect
to
Revlimid®
and
denied
with
respect to all other products.
For
the
reasons
explained
below,
the
Magistrate
Judge's
Report and Recommendation is being adopted in part and modified
in part. On de novo review, the court finds that the Agreement
is unambiguous as to Celgene's obligation to pay royalties on
sales of Revlimid® and ambiguous as to its obligation to pay
royalties on sales on Pomalyst®. However, the court finds that
there
are
judgment
on
material
the
disputes
issue
of
of
fact
patent
that
misuse.
preclude
CMCC's
summary
motion
for
summary judgment is, therefore, being allowed with respect to
the construction of the Revimid royalty provision and denied in
all other respects.
I.
BACKGROUND
The court adopts the facts as recited in the Magistrate
Judge's Report and Recommendation. See R&R at 2-7. The essential
facts may be summarized as follows.
CMCC is the owner of several patents for chemical compounds
known
as
Thalidomide
Analogs
Patents").
On
31,
exclusive,
worldwide
December
(collectively,
2002,
license
to
CMCC
the
the
granted
Analog
"Analog
Celgene
Patents.
an
See
Agreement §2.1. In return Celgene agreed, among other things, to
pay CMCC royalties on sales of products containing Thalidomide
2
Analogs. See id. §4.3. Those products were divided into three
categories: Amino Thalidomide Products, Revimid Products, and
other Licensed Products. See id. Each category of product was
covered by a separate royalty provision. Each such provision
specified
an
end
date
of
"later
of
the
termination
of
this
Agreement or March 1, 2013." See id. Additionally, the Amino
Thalidomide and Revimid royalties end dates were to be extended
by "the number of days equivalent to any patent term extension
granted to Celgene for [a relevant product] under 35 U.S.C. §156
with respect to March 1, 2013 only." See id. §§4.3.1 & 4.3.2. On
January 25, 2007, CMCC assigned its interest in the royalty
payments to defendant CR Rev Holdings LLC.
On March 27, 2008, Celgene obtained a patent term extension
("PTE") for one its own patents on Revlimid®, a Revimid Product
(the "Revlimid PTE"). On March 1, 2013, Celgene ceased paying
royalties on its Amino Thalidomide and Revimid Products. CMCC
sought
extended
Celgene
further
the
payments,
period
declined
to
for
pay
asserting
which
is
that
could
additional
the
Revlimid
collect
royalties.
PTE
royalties.
The
following
month, CMCC filed this instant case, alleging breach of contract
and
breach
of
dealing.
After
answered
the
the
implied
removing
complaint.
the
covenant
case
of
good
faith
3
federal
court,
other
Among
to
things,
it
and
fair
Celgene
asserted
a
defense of patent misuse. CMCC has moved for summary judgment on
its breach of contract claim.
II.
LEGAL STANDARDS
A. Review of a Magistrate's Disposition
Rule
72(b)(3)
of
the
Federal
Rules
of
Civil
Procedure
requires the court to review "de novo any part of the magistrate
judge's
disposition
that
has
been
properly
objected
to."
"Conclusory objections that do not direct the reviewing court to
the issues in controversy" are not proper under Rule 72(b).
Velez-Padro v. Thermo King De Puerto Rico, Inc., 465 F.3d 31, 32
(1st Cir. 2006). Moreover, "[a party is] not entitled to a de
novo review of an argument never raised" before the magistrate
judge. Borden v. Sec'y of Health & Human Servs., 836 F.2d 4, 6
(1st Cir. 1987). "Parties must take before the magistrate, 'not
only their best shot but all of their shots.'" Id. (quoting
Singh v. Superintending Sch. Comm. of City of Portland, 593 F.
Supp. 1315, 1318 (D. Me. 1984).
Waiver
of
de
novo
review
by
failing
to
file
proper
objections does not entitle a party to "some lesser standard" of
review. Thomas v. Arn, 474 U.S. 140, 149–50 (1985); see also
Costa v. Hall, No. 00–12213–MLW, 2010 WL 5018159, at *17 (D.
Mass. Dec.2, 2010) ("Absent objections, the court may adopt the
report and recommendation of the magistrate judge."). However,
review by the court in such circumstances is not prohibited, and
4
some level of oversight, even if not de novo, is encouraged. See
Henderson v. Carlson, 812 F.2d 874, 878 (3rd Cir. 1987).
B. Summary Judgment
Federal Rule of Civil Procedure 56 allows a party to move
for judgment on all or part of a claim or defense at issue in a
case. Rule 56(a) provides that 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
of
law."
A
fact
is
"material"
if,
in
light
of
the
relevant substantive law, "it has the potential of determining
the
outcome
of
the
litigation."
Maymi
v.
Puerto
Rico
Ports
Auth., 515 F.3d 20, 25 (1st Cir. 2008). A factual dispute is
"genuine" if "'the evidence is such that a reasonable jury could
return
a
WellPoint,
verdict
Inc.,
for
561
the
F.3d
nonmoving
38,
43
(1st
party.'"
Cir.
Chadwick
2009)
v.
(quoting
Anderson, 477 U.S. at 248). In making this determination, the
court must "constru[e] the record in the light most favorable to
the non-moving party." Douglas v. York Cnty., 433 F.3d 143, 149
(1st Cir. 2005). The record should not, however, be scrutinized
piecemeal; rather, it must be "taken as a whole." Matsushita
Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986); Kelly v. Cort Furniture, 717 F. Supp. 2d 120, 122 (D.
Mass. 2010).
5
In a contract dispute, "[s]ummary judgment is appropriate
when [the] plain terms [of the contract] unambiguously favor
either side." Farmers Ins. Exch. v. RNK, Inc., 632 F.3d 777, 784
(1st Cir. 2011). If the contract is ambiguous, "the court must
[] ask whether the extrinsic evidence reveals a genuine issue of
material fact regarding the meaning of the ambiguous language."
Mason v. Telefunken Semiconductors Am., LLC, 797 F.3d 33, 38
(1st Cir. 2015). "If the extrinsic evidence is 'so one-sided
that
no
reasonable
person
could
decide
the
contrary,'
the
meaning of the language becomes evident" and summary judgment is
appropriate. Id. (quoting Boston Five Cents Sav. Bank v. Sec'y
of Dep't of Hous. & Urban Dev., 768 F.2d 5, 8 (1st Cir. 1985)).
However,
if
the
extrinsic
evidence
is
"contested
or
contradictory," there is a material dispute of fact and "summary
judgment will not lie." Id. (internal quotations omitted).
III. DISCUSSION
In
her
Report
and
Recommendation,
Magistrate
Judge
Dein
found that "the clear and unambiguous language of §4.3.2 [of the
Agreement] provides that Celgene must continue to make royalty
payments on Revlimid® for an additional 1,167 days from March 1,
2013."
R&R
at
16.
However,
she
found
the
Agreement
to
be
ambiguous as to Celgene's obligation to pay royalties past March
1, 2013, on any other products. See id. at 25-26. She then found
that "patent misuse is not a defense to Celgene’s obligations to
6
pay royalties on Revlimid® through May 11, 2016," but declined
to make any such finding regarding other products. Id. at 27.
In light of Celgene's objections, the court has reviewed
these conclusion de novo. For the reasons stated below, it is
adopting in part and modifying in part the Magistrate Judge's
Report and Recommendation.
A. The Revimid Royalty Provision
Section 4.3.2 of the Agreement requires Celgene to pay CMCC
royalties on sales of Revimid Products. The parties disagree
about
when
this
obligation
ended.
The
disputed
provision
provides:
In further consideration for the rights and license
granted herein with respect to Revimid, Celgene shall
pay to CMCC, until the later of the termination of
this Agreement or March 1, 2013 plus the number of
days equivalent to any patent term extension granted
to Celgene for a Revimid Product under 35 U.S.C. §156
with respect to March 1, 2013 only, a royalty equal to
one percent (1.0%) of the Net Sales Revenue received
by Celgene for sales of a Revimid Product.
Agreement §4.3.2 (the "Revimid Royalty Provision"). CCMC argues
that the Revlimid PTE, as a "patent term extension granted to
Celgene for a Revimid Product," extended the March 1, 2013,
expiration date to May 11, 2016. Celgene argues that only PTEs
for CMCC's Analog Patents, and not PTEs for its own patents,
would
cause
such
an
extension
to
take
effect.
The
question
before the court is whether the Revimid Royalty Provision is
ambiguous in that respect. See Farmers Ins. Exch., 632 F.3d at
7
784. The Magistrate Judge concluded that it is not. See R&R at
13. The court agrees.
Under Massachusetts law, a contract is ambiguous if "'an
agreement's terms are inconsistent on their face or where the
phraseology can support reasonable differences of opinion as to
the meaning of the words employed and obligations undertaken.'"
Farmers Ins. Exch., 632 F.3d at 783 (quoting Bank v. Int'l Bus.
Machines
Corp.,
145
F.3d
420,
424
(1st
Cir.
1998)).
"[T]he
question whether a provision can reasonably support a proffered
interpretation is a legal one, to be decided by the court."
Fleet Nat. Bank v. Anchor Media Television, Inc., 45 F.3d 546,
556
(1st
Cir.
"[c]ontract[]
1995).
must
.
.
In
.
making
be
read
this
as
a
determination,
whole."
McAdams
the
v.
Massachusetts Mut. Life Ins. Co., 391 F.3d 287, 298 (1st Cir.
2004). If the contract is unambiguous, the court must interpret
it according to its plain terms. See Bank, 145 F.3d at 424. If
the
contract
evidence,
is
ambiguous,
including
the
the
court
parties'
may
consider
negotiations,
extrinsic
course
of
performance, and prior dealings. See Den Norske Bank AS v. First
Nat. Bank of Boston, 75 F.3d 49, 52-53 (1st Cir. 1996). However,
extrinsic evidence may not be introduced "to create an ambiguity
when the plain language is unambiguous." Gen. Convention of New
Jerusalem in the U.S. of Am., Inc. v. MacKenzie, 449 Mass. 832,
835 (2007).
8
The
equal
to
Revimid
"the
royalty
number
of
provision
days
provides
equivalent
to
for
any
an
extension
patent
term
extension granted to Celgene for a Revimid Product." Agreement
§4.3.2. A "Revimid Product" is any product that contains Revimid1
as an active ingredient. Id. §§1.10-11. Nothing in the Revimid
Royalty Provision or the definition of a Revimid Product limits
the
phrase
"any
patent
term
extension
.
.
.
for
a
Revimid
Product" to CMCC's patents. Accordingly, the plain language of
the Revimid Royalty Provision provides that it is to be extended
whenever Celgene obtains a PTE on a product containing Revimid,
without reference to whether the PTE is for one of CMCC's Analog
Patents. The parties agree that Revlimid® is a Revimid Product.
Celgene argues that two features of the Revimid Royalty
Provision render it ambiguous. It argues that the phrase "with
respect to March 1, 2013 only" could reasonably be read to limit
the phrase "any patent term extension." See Obj. to R&R at 3-8.
Consequently, "Celgene's interpretation of the royalty provision
is that the royalty obligation extends beyond March 1, 2013 only
if Celgene obtained a PTE on a patent that otherwise expired on
March 1, 2013, e.g., an Analog Patent." Id. at 4. It goes on to
argue that the Magistrate Judge erred by failing to consider
this interpretation. Id. at 4-6.
1
Revimid is a compound with a certain chemical structure defined
in §1.10 of the Agreement.
9
As an initial matter, the record supports the conclusion
that
the
Magistrate
Judge
fully
considered
Celgene's
interpretation of the Revimid Royalty Provision before rejecting
it. See Oct. 21, 2015 Hr. Tr. at 32:3-38:2, 59:22-61:17. In any
event, the court's de novo review leads to the same conclusion.
In essence, Celgene interprets the phrase "with respect to March
1, 2013 only" to mean "with respect to Analog Patents only."
Viewing the Agreement as a whole, McAdams, 391 F.3d at 298, that
interpretation
is
unreasonable.
The
term
"Analog
Patents"
is
defined in §1.5 of the Agreement. That definition does not refer
to patent expiration dates. The parties use the term "Analog
Patents" throughout the Agreement to refer to CMCC's patents.
Celgene's interpretation would, therefore, require the court to
infer that the parties chose to use the phrase "with respect to
March 1, 2013 only" to mean "Analog Patents" in the Revimid
Royalty
Provision,
but
not
elsewhere
in
the
Agreement.
This
inference is not reasonable. Because Celgene has not "provide[d]
a
plausible
Provision,
alternative
it
has
failed
meaning"
to
show
for
the
that
Revimid
the
Royalty
Provision
is
ambiguous. Coffin v. Bowater Inc., 501 F.3d 80, 98 (1st Cir.
2007).
Celgene
also
argues
that
because
the
Revimid
Royalty
Provision was entered into "[i]n further consideration for the
rights and license granted herein with respect to Revimid," it
10
can only be extended for PTEs to licensed patents, i.e., Analog
Patents. See Obj. to R&R at 10-13. The court assumes, without
finding, that the consideration given for each royalty agreement
is at least ambiguous. However, Celgene offers no support for
the principle that a parties obligations under a contract are
limited
by
the
consideration
it
received.
As
the
Magistrate
Judge correctly observed, Celgene's argument "seeks to connect
unrelated
principles."
R&R
at
14.
Accordingly,
the
Revimid
Royalty Provision is not ambiguous on this ground either.
Finally,
consideration
Celgene
of
objects
extrinsic
the
evidence
Magistrate
in
her
Judge's
Report
and
Recommendation. See Obj. to R&R at 8-10. The Magistrate Judge
found that the Revimid Royalty Provision is unambiguous on its
face
and,
therefore,
she
should
not
have
considered
any
extrinsic evidence. See Mason, 797 F.3d at 38; Gen. Convention
of New Jerusalem, 449 Mass. at 835-36. On de novo review, the
court has reached the same conclusions as the Magistrate Judge
without consideration of extrinsic evidence. Accordingly, the
court is adopting §III.B of the Magistrate Judge's Report as
modified in this Memorandum. The court is also adopting the
Magistrate
entered
in
unambiguous
Judge's
CMCC's
language
recommendation
favor
of
§
that
declaring
4.3.2
11
summary
that
provides
"the
that
judgment
be
clear
and
Celgene
must
continue to make royalty payments on Revlimid® for an additional
1,167 days from March 1, 2013." R&R at 16.
B. The Amino Thalidomide Royalty Provision
Section 4.3.1 of Agreement requires Celgene to pay CMCC
royalties on sales of Amino Thalidomide Products. The structure
of this provision is essentially the same as the Revimid Royalty
Provision. See Agreement §4.3.1 (the "Amino Thalidomide Royalty
Provision"). The Magistrate Judge concluded that the Agreement
was ambiguous as to whether the Revlimid PTE extended the term
of the Amino Thalidomide Royalty Provision. See R&R at 25-26.
Neither party has objected to this finding. Moreover, the court
finds
the
Magistrate
Judge's
analysis
to
be
thorough,
thoughtful, and persuasive. Accordingly, the court is adopting
without modification §III.C of the Report and Recommendation and
denying summary judgment as to the interpretation of §4.3.1.
C. Patent Misuse
Celgene asserts that any obligation it had to make royalty
payments on Revimid or Amino Thalidomide Product sales after
March 1, 2013, would constitute patent misuse. See Answer ¶¶ 3239. Any such royalties, it argues, are "unlawful per se and
unenforceable as a matter of federal patent law." Id. ¶39. The
Magistrate Judge concluded that "patent misuse is not a defense
to Celgene’s obligations to pay royalties on Revlimid® through
May 11, 2016." R&R at 27. As to the other royalty provisions,
12
she recommended that "given the uncertainty of the termination
date of Celgene’s other royalty payment obligations, this court
recommends that a ruling on the applicability of the doctrine of
patent misuse otherwise be deferred." Id. at 26. For the reasons
explained earlier, the court agrees with the Magistrate Judge
that the termination date of the Revimid Royalty Provision is
unambiguous.
overall
However,
structure
of
because
the
of
other
Agreement,
ambiguities
summary
judgment
in
the
on
the
issue of patent misuse is not justified.
The doctrine of patent misuse exists "to prevent a patentee
from using the patent to obtain market benefit beyond that which
inheres in the statutory patent right." Mallinckrodt, Inc. v.
Medipart, Inc., 976 F.2d 700, 704 (Fed. Cir. 1992). Under this
doctrine, "a patentee's use of a royalty agreement that projects
beyond the expiration date of the patent is unlawful per se."
Brulotte v. Thys Co., 379 U.S. 29, 32 (1964). However, as the
Supreme Court recently explained:
[P]arties have [] more options when a licensing
agreement
covers
either
multiple
patents
or
additional
non-patent
rights.
Under
Brulotte,
royalties may run until the latest-running patent
covered in the parties' agreement expires. See 379
U.S., at 30, 85 S. Ct. 176. Too, post-expiration
royalties are allowable so long as tied to a nonpatent right—even when closely related to a patent.
See, e.g., 3 Milgrim on Licensing § 18.07, at 18–16
to 18–17.
Kimble v. Marvel Entm't, LLC, 135 S. Ct. 2401, 2408 (2015).
13
Celgene argues that, under Brulotte, Revlimid® constitutes
a "defined product." Obj. to R&R at 14. Therefore, it argues,
once
the
patents
covering
Revlimid®
expired,
continued
enforcement of the Revimid Royalty Provision would constitute
patent
misuse.
petitioners
had
See
id.
In
licensed
Brulotte,
the
use
379
of
U.S.
at
patented
29-30,
the
hop-picking
machines. Although the licenses listed 12 patents, only 7 were
used in the machines. The Court held that royalties could not be
assessed "after expiration of the [seven] patents incorporated
in the machines," even though the five unused patents had not
expired. In doing so, it distinguished Automatic Radio Mfg. Co.
v. Hazeltine Research, 339 U.S. 827, 833, in which the Court
held that royalties could be assessed on "a privilege to use [a]
patent" even if the patents was not used. See Brulotte, 379 U.S.
at 33. It relied on the factual differences between the two
cases: the petitioners in Brulotte were "licensees . . . using
[patented inventions]," while the petitioners in Automatic Radio
were "manufacturers buying the right to incorporate patents into
their manufactured products." Brulotte, 379 U.S. at 33 n.5.
The relationship between the three royalty provisions and
the rest of the Agreement is ambiguous, at least for the purpose
of
the
patent
misuse
analysis.
On
one
hand,
the
Agreement
purports to be a single license for all 77 Analog Patents. See,
e.g.,
Agreement
at
Recitals
(granting
14
Celgene
"an
exclusive,
worldwide license under the Analog Patents"), §2.1 (licensing
"CMCC's entire right, title and interest in and to the Analog
Patents").
On
the
other
hand,
"nothing
in
the
Agreement
expressly links obligations for royalty payments for one Product
to
royalty
payments
for
another."
R&R
at
17.
If,
as
CMCC
contends, the parties intended to define a single license for
all Analog Patents, Automatic Radio may permit royalties to be
assessed after March 1, 2013. If, as Celgene argues, the parties
intended to subdivide the Analog Patents into three categories
based on the relevant patents, Brulotte may prohibit such an
extension. Furthermore, the Agreement is ambiguous as to whether
Celgene agreed to pay royalties solely in consideration of the
exclusive
patent
licenses,
rights.
or
See
also
Kimble,
in
135
consideration
S.
Ct.
at
of
other,
2408
non-
("[P]ost-
expiration royalties are allowable so long as tied to a nonpatent right.").
Resolution of these ambiguities will require consideration
of extrinsic evidence, including the parties' negotiations and
prior dealings. See Den Norske Bank, 75 F.3d at 52-53. However,
there are material disputes of facts regarding that extrinsic
evidence. See, e.g., CMCC Stmt. of Facts (Docket No. 84) ¶8
(describing
scope
of
rights
in
Agreement);
Celgene
Stmt.
of
Facts (Docket No. 94, sealed) ¶8 (disputing CMCC’s description).
A reasonable fact finder could resolve these disputes in either
15
party's favor. Accordingly, summary judgment is not justified on
Celgene's defense of patent misuse. See Mason, 797 F.3d at 38.
The court is, therefore, modifying §III.D of the Report and
Recommendation as explained this Memorandum. Summary judgment is
being denied with respect to patent misuse as to all products.
IV.
ORDER
In view of the foregoing, it is hereby ORDERED that:
1.
The attached Report and Recommendations (Docket No.
116) is ADOPTED in part and MODIFIED in part, as described in
this Memorandum and Order, pursuant to 28 U.S.C. §636(b)(1).
2.
For
the
reasons
stated
in
the
Report
and
Recommendation and in this Memorandum and Order, CMCC's Motion
for Summary Judgment (Docket No. 82) is ALLOWED with respect to
the construction of §4.3.2 of the Agreement and DENIED in all
other respects.
3.
This
case
is
REFERRED
to
the
Magistrate
Judge
for
further proceedings, if any, until the case is ready for a pretrial conference or, if the parties consent, for all purposes.
/s/ Mark L. Wolf
UNITED STATES DISTRICT JUDGE
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?