Wisconsin Alumni Research Foun v. Xenon Pharmaceutical ( 2010 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 08-1351 & 06-3901
W ISCONSIN A LUMNI R ESEARCH FOUNDATION,
Plaintiff-Appellee/
Cross-Appellant,
v.
X ENON P HARMACEUTICALS, INC.,
Defendant-Appellant/
Cross-Appellee.
Appeals from the United States District Court
for the Western District of Wisconsin.
No. 05 C 242—Barbara B. Crabb, Chief Judge.
A RGUED D ECEMBER 8, 2008—D ECIDED JANAURY 5, 2010
Before E ASTERBROOK, Chief Judge, and B AUER and
S YKES, Circuit Judges.
S YKES, Circuit Judge. This case arises out of a complex
set of contractual relationships between the Wisconsin
Alumni Research Foundation, the patent-management
entity for the University of Wisconsin; certain research
2 Nos. 08-1351 & 06-3901
scientists at the University; and Xenon Pharmaceuticals, a
Canadian drug company. The Foundation and Xenon
jointly own the patent rights to an enzyme that can lower
cholesterol levels in the human body. The enzyme’s
cholesterol-reducing benefits were discovered and con-
firmed by scientists at the University whose research
was sponsored in part by Xenon. In 2001, pursuant to an
option agreement between the Foundation and Xenon,
the Foundation gave Xenon an exclusive license to com-
mercialize this discovery and market any resulting prod-
ucts in exchange for a share of the profits.
The Foundation brought this suit against Xenon
alleging violations of its contract rights and seeking
damages and declaratory relief. First, the Foundation
alleged that Xenon sublicensed its interest in the patented
enzyme to a third party but refused to pay the Founda-
tion a percentage of the sublicense fees as required under
the 2001 license agreement. Second, the Foundation
alleged that Xenon wrongly asserted ownership over a
set of therapeutic compounds developed from the jointly
patented enzyme; the Foundation claimed that it owned
rights to these compounds pursuant to its network of
written agreements with Xenon and the University re-
searcher who confirmed the therapeutic benefits of the
compounds. Xenon counterclaimed against the Founda-
tion, and on cross-motions for summary judgment,
the district court ruled in the Foundation’s favor on the
breach-of-contract claim and in Xenon’s favor on the
dispute over ownership of the compounds. A jury awarded
$1 million in damages for the breach of contract; the
Foundation accepted $300,000 after Xenon successfully
moved for remittitur. Both parties appealed.
Nos. 08-1351 & 06-3901 3
We affirm in part and reverse in part and remand
for entry of judgment consistent with this opinion. The
district court properly granted summary judgment for
the Foundation on the breach-of-contract claim. Xenon
breached its license agreement with the Foundation by
granting a sublicense in the jointly patented enzyme to a
third party without paying the Foundation its share of
the sublicense fees. A subsidiary issue is whether
Xenon’s breach triggered the Foundation’s right to termi-
nate the agreement. We conclude that the district court
should not have voided the Foundation’s attempt to
do so; the Foundation was entitled to and properly termi-
nated the agreement. We also conclude the district court
erroneously entered judgment for Xenon on the issue of
the Foundation’s claim to an ownership interest in the
compounds. Under the web of contracts at issue here,
the Foundation was entitled to a declaration of its owner-
ship interest in the compounds.
I. Background
Researchers at the University of Wisconsin became
interested in an enzyme called Stearoyl CoA Desaturase
(“SCD”) because of its potential to help treat diabetes,
obesity, and other diseases by lowering cholesterol. In
1999 the researchers discovered that suppressing SCD
levels in the human body lowered cholesterol levels.
Pursuant to University policy, the researchers dis-
closed their research results to the Foundation and in
January 2000 signed a Memorandum Agreement
assigning all their rights in the discovery to the Founda-
4 Nos. 08-1351 & 06-3901
tion. The next month, the Foundation filed a provisional
patent application for the discovery.
Meanwhile, Xenon, a Canadian pharmaceutical
company that was collaborating with the University on
research into a separate enzyme, learned of the Univer-
sity’s discoveries and expressed interest in jointly
pursuing SCD research. The University and Xenon
entered into a series of research agreements (referred to
as Research Agreements 1, 2, and 3) in which Xenon
agreed to jointly sponsor various SCD research projects
with the University. Each research agreement identified
the scope of the research, the principal researcher, the
expected cost, and the period of performance.1 These
agreements also referred to a separate Sponsor Option
Agreement between the Foundation and Xenon that
governed ownership of any discoveries arising from the
joint research program. The Sponsor Option Agreement
cross-referenced the contracts between the Foundation
and the individual University researchers requiring the
researchers to assign to the Foundation any property
rights in the discoveries emanating from the research and
gave Xenon an exclusive option to license any resulting
1
The joint research program ran into problems in November
2002 when Xenon and the University became embroiled in a
funding dispute. The University claimed that Xenon had
fallen behind on payments for the sponsored research, and as
a result the University had to turn to federal funds to fill the
gap. Xenon denied that it owed the University any additional
money. A year later, Xenon and the University settled this
dispute and signed a Settlement and Release Agreement.
Nos. 08-1351 & 06-3901 5
technology.2 Attached to the Sponsor Option Agreement
were the individual contracts between the Foundation
and the University researchers.
At the same time that Xenon signed its first research
agreement with the University, Xenon also entered into
a series of short-term consulting agreements with individ-
ual researchers at the University who worked on SCD
projects. In exchange for consulting fees, these scientists
undertook specific research projects for Xenon and agreed
to assign any discoveries arising from these consulting
projects to Xenon.
In February 2001 Xenon and the Foundation filed a
joint patent application deriving from the provisional
patent application the Foundation had filed in 2000. The
application covered, among other things, the SCD enzyme
itself and a method (called an assay) of using the enzyme
to identify compounds that lower SCD levels. A patent
issued for the assay, but the patent application covering
the remaining claims is still pending. Also in
February 2001, Xenon exercised its option under the
Sponsor Option Agreement to an exclusive license for
any discoveries arising from the Xenon-sponsored SCD
research at the University. As a result Xenon and the
Foundation entered into an Exclusive License Agree-
ment giving Xenon an exclusive right to make, use, and
sell patented products under the joint patent application
within the field of human healthcare. In exchange for
2
The Sponsor Option Agreement was executed in February
2000 but backdated to September 1999.
6 Nos. 08-1351 & 06-3901
these exclusive rights, Xenon agreed to pay the Founda-
tion a percentage of any product sales, royalties, or
sublicense fees it received.
After receiving the exclusive license, Xenon worked
with Discovery Partners, Inc., to help identify compounds
that inhibit the SCD enzyme. Using the jointly patented
assay, Discovery Partners screened thousands of com-
pounds and identified a set of 20 (referred to as the PPA
compounds) with the potential to suppress SCD levels.
Xenon shipped the PPA compounds to Mark Gray-Keller,
a University researcher with whom it had a consulting
agreement, for confirmatory testing. Gray-Keller success-
fully confirmed the inhibitory potential of the PPA com-
pounds and thereafter assigned any interest he had in
the compounds to Xenon. In 2002 Xenon filed a patent
application covering the PPA compounds.
The Foundation objected, claiming that it had an owner-
ship interest in the PPA compounds under the various
interlocking agreements among the parties. More specifi-
cally, the Foundation noted that Gray-Keller had
assigned all his rights in SCD discoveries and any improve-
ments to the Foundation in his 2000 Memorandum Agree-
ment. The Foundation also noted that the Sponsor Option
Agreement between it and Xenon specifically acknowl-
edged that Gray-Keller was required to assign his
interest in any inventions arising from the jointly spon-
sored research to the Foundation. Alternatively, the
Foundation claimed it had title to the compounds under
the Bayh-Dole Act, 35 U.S.C. §§ 200 et seq., because
federal funds had been used in the research and develop-
ment of the compounds.
Nos. 08-1351 & 06-3901 7
Relations between Xenon and the Foundation con-
tinued to deteriorate in 2004 when Xenon signed a
license agreement with Novartis Pharma AG (“Novartis”),
a Swiss corporation. This agreement gave Novartis a
license to the technology covered by the joint patent
application and purported to transfer ownership of the
PPA compounds. After learning of this agreement (via a
press release), the Foundation demanded a percentage
of the sublicense fees from Xenon under the terms of the
Exclusive License Agreement. Xenon refused, claiming it
had the right to license its undivided interest in the joint
patent application without being subject to the terms of
its license agreement with the Foundation.
The Foundation then brought this suit claiming that
Xenon violated the terms of the Exclusive License Agree-
ment and owed the Foundation a percentage of the
sublicense fees it received from Novartis. The Foundation
also claimed that it, not Xenon, owned Gray-Keller’s
interest in the PPA compounds. The Foundation sought
damages and declaratory judgment. Xenon responded
with counterclaims against the Foundation. The district
court, on cross-motions for summary judgment, entered a
series of rulings on all issues except damages. The
judge held that Xenon breached the Exclusive License
Agreement by granting a sublicense to Novartis without
notifying the Foundation or conforming the sublicense
to the terms set out in the license agreement. The judge
also held that Xenon owed royalties or sublicense fees
to the Foundation under the terms of the license agree-
ment. The judge further held that in light of Xenon’s
breach, the Foundation had a right to terminate the
license agreement.
8 Nos. 08-1351 & 06-3901
The court also ruled in Xenon’s favor on several issues.
First, the judge dismissed as moot the Foundation’s claim
that Xenon breached its duty of good faith by failing to
abide by the terms of the license agreement. Second, the
judge held that the Foundation had not given Xenon
proper notice or an opportunity to cure before invoking
its right to terminate the license agreement. Third, the
court denied the Foundation’s claims to quiet title in
the PPA compounds, for conversion of those same com-
pounds, and for a declaratory judgment that Gray-
Keller’s purported assignment of his rights in the com-
pounds to Xenon was void. The court held that the Foun-
dation could not claim title to the compounds under
either the Memorandum Agreement with Gray-Keller, the
Sponsor Option Agreement with Xenon, or the Bayh-Dole
Act. Later, the court vacated its ruling regarding the
Foundation’s right to terminate the license agreement;
the judge agreed with Xenon that the Foundation had
not properly developed this argument in its opening
summary-judgment brief.
The case proceeded to a jury trial on the question of
damages for Xenon’s failure to pay royalties or
sublicense fees. The jury awarded $1 million, but on
Xenon’s motion for remittitur the court reduced the
award to $300,000, which the Foundation accepted. The
parties cross-appealed from the judgment, challenging
various of the district court’s rulings on summary judg-
ment; Xenon also challenges the sufficiency of the
evidence on damages.
Nos. 08-1351 & 06-3901 9
II. Discussion
We review the district court’s grant of summary judg-
ment de novo. Clancy v. Geithner, 559 F.3d 595, 599 (7th
Cir. 2009). Summary judgment is appropriate when there
is no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law. See F ED. R. C IV.
P. 56(c). On review of cross-motions for summary judg-
ment, we view all facts and inferences in the light most
favorable to the nonmoving party on each motion. See
Tate v. Long Term Disability Plan for Salaried Employees of
Champion Int’l Corp. #506, 545 F.3d 555, 559 (7th Cir.
2008). For organization and ease of discussion, we divide
the issues on appeal into two groups: (1) those that relate
to the rights of the parties under the Exclusive License
Agreement, and (2) those that relate to the rights of the
parties regarding the PPA compounds.
A. Exclusive License Agreement
1. Xenon’s Transfer of Rights to Novartis
We begin by addressing Xenon’s contention that it did
not violate the terms of the Exclusive License Agree-
ment when it licensed its interest in the joint patent
application to Novartis without paying the Foundation
its share of the licensing fee. As a threshold matter, Xenon
argues that this dispute is resolved by federal patent law,
not by contract law. The district court did not address
the question whether Xenon retained a federal statutory
right to freely license its interest without regard to the
Foundation’s contract rights. The court resolved the
10 Nos. 08-1351 & 06-3901
parties’ disputes based solely on the terms of their
various contracts, holding that Xenon effectively executed
a sublicense with Novartis and that this transaction
fell within the provision of the Exclusive License Agree-
ment governing sublicenses. Xenon contends that federal
law—specifically, 35 U.S.C. § 262—gives it the right to
freely license its undivided one-half interest in the joint
patent application without accounting to the Foundation
under the terms of the Exclusive License Agreement.
We disagree.
Federal law provides that joint patent owners, like the
Foundation and Xenon, have control over the entire
property, and each co-owner may freely use the
patented technology without regard to the other. See 35
U.S.C. § 262. We have previously observed that under
this principle of patent law, “each co-owner is ‘at the
mercy’ of the other in that the right of each to license
independently ‘may, for all practical purposes, destroy
the monopoly and so amount to an appropriation of the
whole value of the patent.’ ” Rail-Trailer Co. v. ACF Indus.,
Inc., 358 F.2d 15, 17 (7th Cir. 1966) (quoting Talbot v.
Quaker-State Oil Ref. Co., 104 F.2d 967, 968 (3d Cir. 1939)).
This statutory rule is subject to an important exception,
however: Joint patent owners may vary their rights by
contract. The statute provides that “[i]n the absence of any
agreement to the contrary, each of the joint owners of a
patent may make, use, offer to sell, or sell the
patented invention . . . without the consent of and without
accounting to the other owners.” 35 U.S.C. § 262 (emphasis
added). The statutory default rule therefore controls
unless there is an agreement to the contrary.
Nos. 08-1351 & 06-3901 11
Here, the Foundation and Xenon modified the
statutory default rule by contract; the Exclusive License
Agreement plainly qualifies as “an agreement to the
contrary” for purposes of § 262. That agreement provides:
“[The Foundation] hereby grants to Xenon an exclusive
license, limited to the [field of human healthcare,] . . .
under the Licensed Patents to make, use and sell Prod-
ucts.” In exchange Xenon agreed to pay the Foundation a
percentage of any payments, royalties, or sublicense fees
it received by commercializing the technology itself or
sublicensing the technology to a third party to commer-
cialize. Under the terms of the agreement, sublicenses
are expressly permitted—provided Xenon pays the Founda-
tion the specified percentage of any royalties or sub-
license fees—but assignments are prohibited without the
Foundation’s prior written consent.3
Xenon argues that nothing in the Exclusive License
Agreement explicitly revokes its statutory right to license
its interest freely. True, but the agreement’s provision
requiring that Xenon pay the Foundation a share of the
fees derived from any sublicense plainly undermines
Xenon’s claim that it retained an unfettered right under
§ 262 to transfer its interest in the technology to third
parties. So does the agreement’s provision prohibiting
assignment of the license without the Foundation’s con-
3
The Exclusive License Agreement states: “This Agreement is
not assignable by either party except with the prior written
consent of the other party, which consent shall not be unrea-
sonably or arbitrarily withheld.”
12 Nos. 08-1351 & 06-3901
sent. The bargained-for exchange between the parties
provided that the Foundation would forego its right to
separately license the patent in exchange for receiving a
share of the profits from Xenon’s commercialization of
the technology—either directly or via a sublicense to a
third party. Xenon received a significant benefit from
the agreement—the exclusive right to exploit the tech-
nology protected by the joint patent application. Xenon
cannot avoid paying royalties or sublicense fees to the
Foundation simply by labeling the Novartis transaction
a “license” rather than a “sublicense.”
Accordingly, the terms of the Exclusive Licensing
Agreement, not 35 U.S.C. § 262, govern the parties’ rights
and responsibilities here. Under that agreement Xenon
held an exclusive license to develop the SCD discovery
for commercial purposes and a corresponding obligation
to share proceeds with the Foundation. The agreement
gives Xenon three options: (1) commercialize the technol-
ogy directly and pay royalties to the Foundation;
(2) sublicense the technology to a third party and pay a
percentage of the sublicense fees to the Foundation; or
(3) assign its exclusive licensing rights to a third party
with the prior consent of the Foundation.
Xenon suggests in the alternative that it never actually
gave Novartis a license to the Foundation’s interest in the
jointly patented technology. The district court properly
rejected this argument. The Xenon-Novartis agreement
provides that Xenon grants to Novartis an exclusive
license to all Xenon technology in the field of human
and animal healthcare. Xenon technology includes “Xe-
Nos. 08-1351 & 06-3901 13
non’s interest in all Patent Rights in the Field, as specifi-
cally described in Schedule B,” and Schedule B promi-
nently lists the joint patent application owned by Xenon
and the Foundation—first out of four listed patents. Xenon
argues unpersuasively that the phrase “patent rights” does
not include rights it obtained through the Exclusive
License Agreement. In the warranty clause of the Xenon-
Novartis agreement, Xenon represents that “it is the
owner or licensee of all rights, title and interest in and to
the Xenon Patent Rights.” (Emphasis added.) Ac-
cordingly, Xenon granted Novartis any interest it held
in the joint patent application by specifically including it
in Schedule B. Put another way, Xenon effectively
sublicensed its exclusive license rights in the jointly
patented technology. The district court correctly con-
cluded that the Xenon-Novartis agreement is subject to
the terms of the Exclusive License Agreement governing
sublicenses.
2. Sublicense Fees
After concluding that Xenon granted Novartis a
sublicense in the jointly patented technology, the district
court held that Xenon violated the terms of the Exclusive
License Agreement by failing to pay the Foundation a
share of the sublicense fees. Xenon argues that it is not
obligated to make payments to the Foundation until
products are actually brought to market and sold as a
result of the sublicense. Because no products have yet
been sold, Xenon claims it does not owe the Foundation
anything. Again, we disagree. The Exclusive License
14 Nos. 08-1351 & 06-3901
Agreement requires Xenon to pay the Foundation license
fees, milestones, and royalty payments as soon as they
are received.4
Section 4 of the Exclusive License Agreement, titled
“Consideration,” lays out the payment details and sched-
ule. Subsection (B)(i) of that section states: “For all Prod-
ucts sold directly by Xenon, Xenon shall pay to [the Founda-
tion] . . . a royalty calculated as a percentage of the Selling
Price of Products . . . .” (Emphasis added.) It goes on to
specify that royalties are earned on either the date the
product is actually sold, the date an invoice is sent, or
the date the product is transferred to a third party for
promotional reasons—whichever comes first. The next
subsection—the provision most relevant to this dis-
pute—states:
For all Products sold by Xenon sublicensees, Xenon
shall pay to [the Foundation] a percentage of any
license fees, milestones, and royalty payments
received by Xenon as consideration for the sublicense
granted to such sublicensees under Section 2B. The
percentage shall remain fixed at a rate of ten percent
(10%) for years one (1) and two (2) of this Agreement
and seven and one-half percent (7.5%) thereafter
until this Agreement is terminated.
Because both subsections begin with the phrase “[f]or all
Products sold” (emphasis added), Xenon argues that it
4
Technically, the contract stipulates that Xenon must pay the
Foundation on a quarterly basis, as specified in Section 4(E)(i)
of the Exclusive License Agreement.
Nos. 08-1351 & 06-3901 15
does not owe the Foundation any payments for the
Novartis sublicense until products are actually brought
to market and sold.
We agree with the district court that Section 4, read as a
whole, requires payment of the Foundation’s share of
the sublicense fee independent of any actual sales of
products. The apparent point of the prefatory phrase “[f]or
all Products sold” in each of the two subsections
governing payment is to distinguish between payments
required when Xenon commercialized the technology
itself and payments required when Xenon issued a
sublicense to a third party to do so. In the former circum-
stance, the payment due the Foundation is a royalty
based on products sold; in the latter circumstance, the
payment due the Foundation is a specified percentage
of the sublicense fee Xenon receives, plus “milestones” and
royalties. Because the Novartis transaction falls under
the second subsection, payment is due on receipt of a
sublicense fee, not on the occurrence of product sales.
This reading of the payment provision is the most
plausible for several reasons. Although both subsections
use the same introductory phrase, the first subsection
also says that payment is due upon actual product sale
while the second subsection—governing sublicenses—does
not include similar language. Instead, the second sub-
section states that Xenon owes the Foundation a
percentage of any license fees and “milestones,” in addi-
tion to royalty payments, stemming from any sub-
license. As the district court noted, sublicense fees and
milestone payments are not contingent upon a sale; they
16 Nos. 08-1351 & 06-3901
are paid immediately or on an ongoing basis by a
licensee or sublicensee in exchange for the right to make
sales of products developed in the future. Finally, the
parties agree that it generally takes about 15 years to
bring a drug product to market. Yet the Exclusive
License Agreement specifies that Xenon must pay the
Foundation 10% of any license fees, milestones, and
royalty payments received during the first two years of
the agreement and 7.5% thereafter. This provision would
make little sense if no payment was required on
a sublicense until a product was brought to market.
Accordingly, the district court properly concluded that
Xenon breached the Exclusive Licensing Agreement by
failing to pay the Foundation its share of the fee from
the Novartis transaction.5
3. Damages
The district court entered summary judgment on liabil-
ity; damages were tried to a jury. Xenon’s agreement
5
After concluding that Xenon breached the Exclusive License
Agreement, the district court dismissed the Foundation’s
claim for breach of the implied duty of good faith as moot. The
Foundation claims this was error. It was not. Under Wisconsin
law a duty of good faith is implied in every contract. See
Market Street Assocs. Ltd. P’ship v. Frey, 941 F.2d 588, 592 (7th
Cir. 1991) (applying Wisconsin law). But because Xenon is liable
for breach of the license agreement’s express terms, there is
no reason to resort to—or separate factual basis to support—a
claim for breach of the implied duty of good faith.
Nos. 08-1351 & 06-3901 17
with Novartis purported to grant a license to: (1) the joint
patent agreement; (2) the PPA compounds; (3) several
other patent applications; and (4) Xenon’s “know-how.”
Novartis paid Xenon $4 million in cash and another
$11 million in stock as part of a separate Stock Purchase
Agreement signed the same day. The question for the
jury was how much of this fee was payment for the joint-
patent-agreement sublicense and the PPA compounds
as opposed to the other pieces of the package.6 As we
have noted, the Exclusive License Agreement stipulated
that the Foundation should receive 7.5% of “any license
fees, milestones, and royalty payments received by
Xenon as consideration for the sublicense.” (Emphasis
added.) In a special verdict, the jury awarded nothing
for the sale of the PPA compounds and $1 million for the
sublicense—just under 7.5% of the $15 million in cash
and equity Xenon received from Novartis.
Xenon moved posttrial for remittitur, which the
district court granted. The judge held that “the jury had
sufficient evidence to award plaintiff 7.5% of the full
6
While the district court concluded that Xenon owned the
PPA compounds, it also held that the PPA compounds fell
under the terms of the Exclusive License Agreement and that
Xenon owed the Foundation fees for these compounds as
well. We need not address the apparent incongruity in these
conclusions; the jury made no award for the portion of the
sublicense fee that included the PPA compounds. Moreover, as
we explain, infra pp. 24-28, we are reversing the district court’s
determination that the Foundation had no ownership interest
in the compounds.
18 Nos. 08-1351 & 06-3901
$4,000,000 that Novartis paid in cash for defendant’s
intellectual property.” But the judge concluded there
was insufficient evidence to support inclusion of a per-
centage of the $11 million in stock, which the evidence
suggested was part of a separately negotiated agreement.
The district court offered the Foundation a remittitur
of $300,000—7.5% of the $4 million cash fee—which the
Foundation accepted.
On appeal Xenon argues that the Foundation did not
provide sufficient evidence of damages to justify even a
$300,000 damages award. We review sufficiency-of-the-
evidence challenges de novo, viewing the evidence in
the light most favorable to the prevailing party and
drawing all inferences in its favor. Lopez v. City of Chicago,
464 F.3d 711, 718 (7th Cir. 2006). Under Wisconsin law a
plaintiff must present enough evidence to provide a
reasonable basis for calculating damages; the evidence
will be sufficient if it enables the jury to make a fair
and reasonable approximation of damages. See Olympia
Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1372
(7th Cir. 1990); Brogan v. Indus. Cas. Ins. Co., 392 N.W.2d
439, 444 (Wis. Ct. App. 1986).
Under this lenient standard, the evidence is easily
sufficient to sustain the damages award. The Foundation
argued to the jury that the joint patent application was
the only item in the Xenon-Novartis package with any
real value, and thus the price Novartis paid reflected its
fair market value. The Foundation relied on a sales-
pitch letter Xenon sent to Novartis offering to sell the
technology covered by the joint patent application; the
Nos. 08-1351 & 06-3901 19
letter made no mention of the PPA compounds or any
other patented technology. The Foundation also noted
that the joint patent application is listed first in the
Novartis agreement, arguably demonstrating priority
over the other listed patent applications. Moreover, the
Foundation noted that Xenon transferred only about
100 grams of the PPA compounds to Novartis—“left over”
material that was so insignificant that Xenon did not
price it or invoice it. Finally, the Foundation suggested
that Xenon’s “know-how” was valueless because the
phrase was defined in such a way as to include
nothing beyond what was already covered under “Xenon
Patent Rights.” Viewed in the light most favorable to the
Foundation, this evidence was sufficient to sustain the
damages award.
Xenon complains that the Foundation did not ade-
quately establish the precise market value of the sub-
license for the joint patent application as compared to the
other parts of the package. But Wisconsin law provides
that a contracting party that causes an uncertainty of proof
cannot demand a more precise measure of damages. See
Novo Indus. Corp. v. Nissen, 140 N.W.2d 280, 285 (Wis. 1966).
Xenon had a duty under the Exclusive Licensing Agree-
ment to make an accounting to the Foundation on a
quarterly basis, to disclose any payments received, and
to explain how any amounts owed to the Foundation
had been calculated. It did not do so. Under these cir-
cumstances the Foundation was not required to estab-
lish a more specific measure of damages.
Xenon also argues that proving damages in this case
required the use of expert testimony, citing a number of
20 Nos. 08-1351 & 06-3901
Wisconsin cases holding that expert testimony is
required in complex or technical cases where the issue is
outside the common knowledge of a jury. See, e.g., Weiss
v. United Fire & Cas. Co., 541 N.W.2d 753, 757 (Wis. 1995)
(“The court has long recognized that certain kinds of
evidence are difficult for jurors to evaluate without the
benefit of expert testimony.”). Here, although the inter-
locking contracts were obviously technical and complex,
the issue of damages was not beyond a lay juror’s under-
standing. The Foundation was entitled to prove the
value of the sublicense essentially by a process of elimina-
tion—by showing that the other items in the Xenon-
Novartis transaction had little or no value. This method
of proving damages dispensed with any need for expert
testimony regarding the market value of the joint
patent application.
4. The Foundation’s Right to Terminate the Exclusive
License Agreement
In addition to damages, the Foundation also asked for
a declaration that it had a right to terminate the
Exclusive License Agreement based on Xenon’s breach.
The district court granted summary judgment for the
Foundation on this claim, and on May 17, 2006, the
Foundation sent Xenon a letter terminating the Exclusive
License Agreement. Xenon responded with two
motions, one for reconsideration of the district court’s
decision and the other for a stay of execution of the judg-
ment pending disposition of Xenon’s motion for recon-
sideration. The district court granted Xenon’s motion
Nos. 08-1351 & 06-3901 21
to stay enforcement of the judgment, holding that the
Foundation’s purported termination of the Exclusive
License Agreement was void because the Foundation had
not given Xenon notice and 90 days to cure its breach, as
the agreement required. The court further held that once
the Foundation filed this lawsuit, its right to terminate
the license agreement depended on a finding of breach
by the court. The judge concluded as follows: “[A]ny
attempted termination of the agreement that has already
occurred is suspended until the court has ruled on the
post-trial motions and plaintiff may not take renewed
action to terminate the agreement until that time.” A
month later, the district court granted Xenon’s motion
for reconsideration, agreeing that the Foundation had not
properly moved for summary judgment on this claim.
However, the judge also said that if the Foundation
wanted to terminate the Exclusive License Agreement, it
could now do so—because Xenon had been found in
breach—but that the Foundation was first required under
the terms of the agreement to give Xenon notice and
90 days to cure.
On appeal the Foundation challenges the district
court’s conclusion that its right to terminate the agree-
ment did not arise until the court found Xenon in breach
of the agreement. The Foundation maintains that its
right to terminate was triggered by Xenon’s breach and
was not contingent upon the court’s finding of breach. The
Foundation also argues that it properly terminated the
agreement. We agree on both counts.
Section 7 of the Exclusive License Agreement governs
the Foundation’s right to terminate:
22 Nos. 08-1351 & 06-3901
If Xenon at any time defaults in the timely payment of
any monies due . . . or commits any breach of any
other covenant herein contained, and Xenon fails to
remedy any such breach or default within ninety (90)
days after written notice thereof by [the Founda-
tion,] . . . [the Foundation] may, at its option, terminate
this Agreement by giving notice of termination to
Xenon.
In March 2005 the Foundation sent Xenon written notice
that it considered the Xenon-Novartis transaction to be a
sublicense of the joint patent application and that
Xenon owed the Foundation sublicense fees. The
relevant portion of the letter states:
Our analysis has led us to conclude that the Novartis
agreement is, in fact, a sub-license of rights granted
by [the Foundation] to Xenon and we also require
that Xenon remit . . . payment of any amounts owed to
[the Foundation] under the Agreement. In the event
that Xenon contends that no amounts are owed to [the
Foundation] or that the Novartis agreement is not a
sublicense as contemplated by the Agreement, Xenon
must immediately provide . . . a detailed written
explanation as to why such amounts are not owed or
why the Novartis agreement is not a sublicense . . . .
This letter plainly gave Xenon notice that the Foundation
considered it to be in breach of its payment obligations
under the Exclusive License Agreement. Notably, Xenon
does not disagree. Instead, Xenon argues that the Founda-
tion did not provide 90 days to cure the breach because
the Foundation filed suit a month after sending Xenon
Nos. 08-1351 & 06-3901 23
this letter. The March 2005 notice, Xenon says, was there-
fore ineffective under the termination provision of the
Exclusive License Agreement.
We disagree. A contractual obligation to provide notice
and an opportunity to cure a default prior to terminating
a contract does not necessarily affect the aggrieved party’s
right to sue for breach. See Ameritech Info. Sys., Inc. v. Bar
Code Res., Inc., 331 F.3d 571, 573-74 (7th Cir. 2003). Here,
nothing in the Exclusive License Agreement prevented
the Foundation from suing for breach within the 90-day
cure period, id. at 574, nor was the Foundation’s right
to terminate somehow suspended by the filing of this
lawsuit. Having filed the suit, the Foundation’s right to
terminate did not become contingent upon the court
finding Xenon in breach. A contracting party’s right to
terminate arises under the terms of the contract and
need not await a formal declaration of the contracting
parties’ rights.
Here, the district court issued a stay of the execution of
its summary-judgment ruling pending disposition of
Xenon’s posttrial motions. A stay, unlike an injunction,
operates only on the judicial proceeding itself and does
not otherwise prohibit the parties from acting. See Nken
v. Holder, 129 S. Ct. 1749, 1757-58 (2009) (“An injunction
and a stay have typically been understood to serve dif-
ferent purposes. The former is a means by which a court
tells someone what to do or what not to do. . . . By contrast,
instead of directing the conduct of a particular actor, a
stay operates upon the judicial proceeding itself.”). Some
of the court’s language in the stay order is suggestive of
24 Nos. 08-1351 & 06-3901
an injunction: “[A]ny attempted termination of the agree-
ment that has already occurred is suspended until the
court has ruled on the post-trial motions and plaintiff
may not take renewed action to terminate the agreement
until that time.” But if this was meant to be an injunction,
it was an improper one. As a procedural matter, injunc-
tions must comply with the requirements of Rule 65(d) of
the Federal Rules of Civil Procedure; a court issuing
an injunction must, among other things, give advance
notice to the adverse party, hold a hearing on the matter,
explain why the injury that would occur without the
injunction is irreparable, and specify the scope of the
injunction in reasonable detail. The district court’s stay
order did not comply with these requirements.
Accordingly, the district court erroneously concluded
that the Foundation’s right to terminate the agreement
was contingent upon the court’s finding that Xenon had
breached the Exclusive License Agreement. The Founda-
tion was entitled to terminate the agreement based on
Xenon’s breach, and it properly did so under the agree-
ment’s termination provision. The Foundation’s
March 2005 letter was sufficient to give notice to Xenon
that the Foundation considered it in breach. More than
90 days elapsed between the time of this notice and the
Foundation’s letter—on May 17, 2006—terminating the
license agreement. Nothing more was required.
B. PPA Compounds
We move now to the second set of issues on appeal
concerning the ownership rights to the PPA compounds.
Nos. 08-1351 & 06-3901 25
The Foundation brought several claims pertaining to its
interests in the PPA compounds: It sued for a declaratory
judgment that Gray-Keller’s assignment to Xenon of his
interest in the compounds was void; it sought to quiet
title in the PPA compounds; and it sued for conversion
of its property rights. The parties filed cross-motions for
summary judgment on each of these claims, and the
district court entered judgment for Xenon on all three
claims. On appeal the Foundation reasserts its entitle-
ment to an ownership interest in the PPA compounds.
A brief recap of the relevant facts is in order: Xenon, with
the help of Discovery Partners, used the jointly patented
assay to screen thousands of compounds for therapeutic
potential. Xenon and Discovery Partners identified a set
of 20 “PPA compounds” with the potential to lower SCD
levels in the human body, and Xenon sent these com-
pounds to Gray-Keller for confirmatory screening. Gray-
Keller confirmed the cholesterol-inhibiting potential of
the PPA compounds and in July 2003 purported to
assign his rights to Xenon pursuant to the terms of his
consulting agreement.
The Foundation contends that the interlocking network
of contracts among the parties gives it ownership of Gray-
Keller’s interest in the PPA compounds, and therefore
Gray-Keller’s assignment is void.7 We agree. Under the
7
Xenon argues that the Foundation is barred from bringing a
claim for ownership of the PPA compounds by the Settle-
ment and Release Agreement signed by Xenon and the Univer-
(continued...)
26 Nos. 08-1351 & 06-3901
Sponsor Option Agreement, all University researchers
working on the Xenon-funded research program agreed
to assign to the Foundation their rights to any inventions
that they “conceived of or reduced to practice . . .
whether solely or jointly with others.” Each University
researcher, including Gray-Keller, signed an individual
Memorandum Agreement to that effect, and copies were
attached to and incorporated as part of the Sponsor
Option Agreement. The scope of the joint research
program was defined by three separate research agree-
ments—Research Agreements 1, 2, and 3.
The Foundation maintains that Gray-Keller’s work on
the PPA compounds fell within the scope of Research
Agreement 2, and therefore Gray-Keller was required to
assign his interest in the compounds to the Foundation.
Research Agreement 2 generally covers research to
identify compounds that will influence SCD levels in the
human body for therapeutic effect on cholesterol levels.
While the scientific language and acronyms keep the
contract from being readily understandable to a
layperson, the scope of the research program is clear
enough. First, Exhibit A to Research Agreement 2 is titled
“Stearoyl CoA Desaturase (SCD) as a Target for
7
(...continued)
sity in 2003. We need not spend much time on this argument.
As we have explained, supra n.1, the 2003 settlement per-
tained to a funding dispute between the University and Xenon;
it had nothing to do with who owns the intellectual-property
rights to the discoveries resulting from the jointly sponsored
research.
Nos. 08-1351 & 06-3901 27
Elevation of HDL.” It states that its overall goal is to
“evaluate SCD as a target for the development of drugs
that would increase the levels of HDL in plasma and
decrease triglycerides (which should have a therapeutic
impact on cardiovascular disease).” It then lists a handful
of more specific goals, such as to “[s]creen and rank order
substrates/inhibitors of SCD1 activity for impact on SCD1
transcription in vitro” and to “[e]valuate lead sub-
strates/inhibitors from in vitro screen for their effect on
SCD1 transcription, SCD1 enzyme activity and HDL
metabolism in vivo.”
Gray-Keller’s work identifying and confirming the
therapeutic potential of the PPA compounds derived from
the SCD enzyme was expressly contemplated by
Research Agreement 2, which broadly covered research
“to validate SCD as a target for screening novel com-
pounds that may elevate HDL levels in vivo.” Gray-Keller
performed his research on this project at the University
using University resources and was required under his
Memorandum Agreement to assign his interest in any
discoveries to the Foundation. The fact that his work was
conducted partly under Xenon’s sponsorship and at its
behest is not dispositive. Under the Sponsor Option
Agreement and each of the individual agreements
attached to it, the Foundation was entitled to ownership
of any discoveries “conceived of or reduced to practice”
by the researchers under the joint research program;
Xenon was entitled to an exclusive license to com-
mercialize the discoveries. Accordingly, the district court
erred in granting summary judgment to Xenon on the
claims pertaining to the Foundation’s ownership interest
28 Nos. 08-1351 & 06-3901
in the PPA compounds. Under the Sponsor Option Agree-
ment, the Memorandum Agreement, and Research Agree-
ment 2, the Foundation was entitled to a declaration of
its ownership interest in the PPA compounds.8
III. Conclusion
For the foregoing reasons, we A FFIRM the judgment for
the Foundation on its claim that Xenon breached the
Exclusive License Agreement, as well as the district court’s
order entering judgment on the remittitur in the amount
of $300,000. We R EVERSE the district court’s recon-
sideration order regarding the Foundation’s right to
terminate the Exclusive License Agreement; under the
terms of the agreement’s termination provision, the
Foundation was entitled to and properly terminated the
agreement. Finally, we R EVERSE the judgment in favor
of Xenon on the Foundation’s claims to quiet title and
for declaratory judgment that Gray-Keller’s purported
assignment of his interest in the PPA compounds to
Xenon is void. On these claims, we R EMAND with instruc-
tions to enter judgment in favor of the Foundation.
8
Our holding in this regard makes it unnecessary to consider
the Foundation’s alternative argument that it had a right to
an ownership interest in the PPA compounds under the Bayh-
Dole Act.
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