Sanofi-Aventis v. Sandoz, Inc. ( 2010 )

NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
__________________________
SANOFI-AVENTIS, SANOFI-AVENTIS U.S. LLC,
AND DEBIOPHARM, S.A.,
Plaintiffs-Appellees,
v.
SANDOZ, INC., TEVA PARENTERAL MEDICINES,
INC.,
TEVA PHARMACEUTICALS USA, INC., DABUR
ONCOLOGY PLC,
DABUR PHARMA LIMITED, FRESENIUS KABI
ONCOLOGY, PHARMACHEMIE B.V.,
ACTAVIS TOTOWA LLC, ACTAVIS, INC., ACTAVIS
GROUP HF,
MUSTAFA NEVZAT ILAC SANAYII A.S. (ALSO
KNOWN AS MN PHARMACEUTICALS),
PAR PHARMACEUTICAL COMPANIES, INC., PAR
PHARMACEUTICAL, INC.,
W.C. HERAEUS GMBH, ABRAXIS BIOSCIENCE,
INC.,
APP PHARMACEUTICALS LLC, NEW ABRAXIS,
INC., MAYNE PHARMA LIMITED,
MAYNE PHARMA (USA), INC., HOSPIRA
AUSTRALIA PTY LTD, HOSPIRA, INC.,
AND FRESENIUS KABI PHARMA LIMITED,
Defendants,
and
SUN PHARMACEUTICAL INDUSTRIES, LTD. AND
SANOFI-AVENTIS v. SANDOZ 2
CARACO PHARMACEUTICAL LABORATORIES,
LTD.,
Defendants-Appellants.
__________________________
2010-1338
__________________________
Appeal from the United States District Court for the
District of New Jersey in consolidated case no.
07-CV-2762, Judge Joel A. Pisano.
__________________________
Decided: December 22, 2010
__________________________
DOMINICK A. CONDE, Fitzpatrick, Cella, Harper &
Scinto, of New York, New York, argued for plaintiffs-
appellees. With him on the brief were WILLIAM E.
SOLANDER, and NINA SHREVE.
DANIEL P. SHAPIRO, Katten Muchin & Rosenman LLP,
of Chicago, Illinois, argued for defendants-appellants.
With him on the brief were HEATHER J. KUHN O’TOOLE,
AHARON S. KAYE and JENNIFER M. SABA.
__________________________
Before DYK, PROST, and MOORE, Circuit Judges.
PROST, Circuit Judge.
3 SANOFI-AVENTIS v. SANDOZ
Defendants-Appellants Sun Pharmaceutical Indus-
tries, Ltd. and Caraco Pharmaceutical Laboratories, Ltd.
(collectively “Sun”) appeal the district court’s entry of
consent judgment and an injunction enjoining it from the
manufacture and sale of generic oxaliplatin. Plaintiffs-
Appellees Sanofi-Aventis, Sanofi-Aventis U.S. LLC, and
Debiopharm, S.A. (collectively “Sanofi”) oppose and Sun
replies. We vacate entry of both the consent judgment
and the injunction and we remand for further proceed-
ings.
BACKGROUND
Sanofi filed suit on July 23, 2007 based, in part, on
Sun’s filing of an Abbreviated New Drug Application
(“ANDA”) for a generic version of the colorectal cancer
drug oxaliplatin. Around the same time, Sanofi also sued
other various generic drug manufacturers based on re-
lated ANDA filings for a generic version of oxaliplatin.
Sanofi and Sun entered into settlement negotiations and
agreed upon non-binding terms in January 2009. These
negotiations contemplated that other defendants might
commence an at-risk launch (a launch before a final court
decision) of their products. The term sheet included
provisions regarding acceleration of Sun’s Launch Date
(the later of August 9, 2012 or the day on which Sun
receives final FDA approval) of the generic drug and
exceptions that would prevent Sun from launching before
that date. One of the exceptions provided:
However, in the event a Court enters a final court
decision, finding the ’874 patent valid, enforceable
and infringed by each such At-Risk Launch, Sun
agrees that if the Court enjoins such product(s) of
each such At-Risk Launch, Sun will not sell its
product(s) until the Launch Date . . . .
SANOFI-AVENTIS v. SANDOZ 4
J.A. 209 (emphasis added). Following a series of negotia-
tions to determine the final terms to be incorporated in
the settlement documents, the license agreement included
a section corresponding to the term sheet provision
quoted above. Specifically, Section 3.5 of the license
agreement provided:
At-Risk-Launch. In the event that, during the
term of the Licensed Patents and without Sanofi’s
permission, any defendant in the Consolidated
Eloxatin Patent Litigation sells a generic version
of a Sanofi NDA Product in the Territory prior to
a Final Court Decision (“At-Risk-Launch”), [Sun]
will have the option of selling its Generic Equiva-
lent prior to the Launch Date. Should Sun exer-
cise such an option and a Court subsequently
enters a decision(s) enjoining each such At-Risk
Launch product(s), Sun agrees that Sun will not
sell its Generic Equivalent from the time the
Court enters an injunction(s) against each such
At-Risk Launch Product(s) until the Launch Date.
J.A. 237–38 (emphasis added). The parties completed
their negotiations and reached a final agreement on June
16, 2009.
Attached to the settlement documents submitted to
the district court was a proposed consent judgment and
order agreed upon by both parties. The proposed consent
judgment and order included a provision at Paragraph 5
that defined the scope of an injunction preventing Sun
from manufacturing, using, offering to sell, or selling
within the United States, or importing into the United
States, the generic drug “absent authorization by Plain-
5 SANOFI-AVENTIS v. SANDOZ
tiffs in the License Agreement” under Section 3.5. The
effect of this provision was to incorporate by reference the
language in Section 3.5 of the license agreement. The
language of Section 3.5 allowed Sun to market its version
of the generic drug if other defendants were also on the
market prior to a “Final Court Decision” in the suit
against other defendants. However, Sun would thereafter
be enjoined from marketing its version of the generic drug
if a court entered a “decision(s) enjoining” defendants
from marketing their “At-Risk-Launch products.” In sum,
if generic drug manufacturers were marketing a generic
version of oxaliplatin, Sun could also market its version.
If a “Court subsequently enter[ed] a decision(s) enjoining”
other generic manufacturers from marketing a generic
version of oxaliplatin, Sun would also be enjoined.
Two days after Sanofi and Sun reached a settlement
agreement, the district court denied summary judgment
of invalidity but granted summary judgment of non-
infringement of U.S. Patent No. 5,338,874. Sanofi-
Aventis U.S. LLC v. Sandoz, Inc., No. 07-2762, 2009 WL
1741571, at *1 (D.N.J. June 18, 2009). Thereafter, Sanofi
refused to deliver a fully-executed version of the agreed-
upon settlement documents to Sun. A series of challenges
to the original settlement agreement ensued.
On July 22, 2009, Sun filed a Motion for Miscellane-
ous Relief requesting the district court recognize that a
binding settlement agreement had been reached between
Sanofi and Sun. The court granted Sun’s motion, holding
that “[t]he Court finds that the parties reached a binding
settlement agreement.” Sanofi-Aventis U.S. LLC v.
Sandoz, Inc., No. 07-2762, 2009 WL 3230867, at *2
(D.N.J. Oct. 2, 2009). Having lost that challenge, one
week later, Sanofi filed a motion requesting an Order that
the Sun settlement agreement was unenforceable under
SANOFI-AVENTIS v. SANDOZ 6
the statute of frauds. Sanofi also requested that the court
defer entry of the Consent Judgment until after deciding
its pending motion. The court denied that motion, con-
firming that the settlement agreement was enforceable.
Sanofi-Aventis U.S. LLC v. Sandoz, Inc., No. 07-2762,
2010 WL 697367, at *2 (D.N.J. Mar. 1, 2010).
While the parties worked through challenges to the
enforceability of the original settlement agreement, other
defendants launched at-risk versions of generic ox-
aliplatin in August 2009. Sanofi-Aventis U.S. LLC v.
Sandoz, Inc., 345 Fed. Appx. 594, 596 (Fed. Cir. 2009).
Following at-risk launches by other defendants, in Janu-
ary 2010, Sun launched a licensed version of generic
oxaliplatin pursuant to the settlement and license agree-
ments reached with Sanofi on June 16, 2009. Thereafter,
Sanofi executed settlement agreements with various
defendants. Each settlement included a proposed consent
order with a specific provision requiring that Sun be
enjoined from marketing a generic equivalent of ox-
aliplatin by June 30, 2010. They also provided that if Sun
were not enjoined by various dates after June 30, 2010,
the other generic defendants could reenter the market.
Before those consent judgments were entered, however,
Sanofi contacted Sun to determine whether Sun would
immediately cease sales of the generic drug upon entry of
injunctions against the other defendants pursuant to
consent judgments. Sun responded that it would comply
with the terms of the previously negotiated settlement
and license agreements, but did not affirmatively indicate
that it would cease generic sales. Sun also reminded the
district court by letter that it had not yet entered the
Consent Judgment agreed upon by the parties that was
attached to the original settlement agreement.
7 SANOFI-AVENTIS v. SANDOZ
Because of the ongoing uncertainty regarding the ob-
ligations created by the license agreement terms, Sanofi
sent several letters to the district court seeking entry of a
revised version of the Consent Judgment. In a March 26,
2010 letter to the court, Sanofi stated that “[its] version of
the Consent Judgment takes full account of the current
status of the litigation, finally resolves the issues between
the Plaintiffs and Sun, and most important, clarifies
Sun’s obligations under the Settlement Agreement and
License Agreement as incorporated into the Consent
Judgment.” J.A. 467. Sanofi’s unilateral revision to the
findings of fact that accompanied its revised Consent
Judgment included a provision stating that “[u]nder the
License Agreement, if an injunction [was] entered pre-
venting the other defendants from selling their Eloxatin
product at risk, then Sun [was] obligated to stop selling
its generic Eloxatin product at risk.” J.A. 473. Sanofi
also altered the terms of Paragraph 5 of the Consent
Judgment and Order. The effect of these revisions was to
read out the term of Section 3.5 of the license agreement
requiring a “decision(s) enjoining” an at-risk launch by
the other defendants. Compare J.A. 227–30 with J.A.
471–74 and J.A. 237–38. Sanofi further notified the
district court that if Sun was not enjoined, the injunctions
imposed by consent judgments reached upon settlement
with other defendants would be lifted, allowing them to
resume marketing of generic oxaliplatin.
Sun responded to Sanofi’s letters to the court with let-
ters of its own on March 31, 2010, and April 15, 2010.
Sun noted to the court that Sanofi’s request urged the
court to enter a Consent Judgment that was not the same
Consent Judgment agreed upon by the parties pursuant
to the settlement documents. Thus, Sun opposed entry of
the revised Consent Judgment. Sun also noted that if
Sanofi elected to continue its efforts to revise the Consent
SANOFI-AVENTIS v. SANDOZ 8
Order, Sun would “cooperate with the Court to establish
an appropriate schedule for briefing and for presentation
of evidence and argument to uphold the Consent Order
agreed to by the parties.” J.A. 551.
On April 22, 2010, the district court entered the Find-
ings of Fact and Consent Judgment and Order proposed
by Sanofi but opposed by Sun. 1 J.A. 1–4. The district
court did not allow for additional discovery or conduct a
formal hearing prior to entering the opposed Consent
Judgment. Sun timely appealed entry of the revised
Findings of Fact and Consent Judgment and Order. We
have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).
DISCUSSION
On appeal, Sun argues that the district court erred by
entering a consent judgment to which it did not agree.
The entered consent judgment, Sun argues, is inconsis-
tent with its obligations under the license agreement,
which allows it to sell generic oxaliplatin unless “a Court
subsequently enters a decision(s) enjoining” the other
defendants’ at-risk launches. Sanofi asserts that the
language of Section 3.5 of the license agreement is “clear
and unambiguous,” and that the court correctly deter-
mined that Sun was required to cease sales of generic
oxaliplatin “‘from the time the Court enters injunction(s)’”
against other defendants’ at-risk products. Appellee Br.
20–21, 31. Therefore, in Sanofi’s view, the revised Con-
sent Judgment was correctly entered because it is consis-
tent with the parties’ license agreement. Sun disagrees
1 Failure to enjoin Sun could have rendered
“null and void” the executed settlement agreements and
entered Consent Judgments and Orders enjoining the
other defendants from selling generic oxaliplatin. See
J.A. 476–482.
9 SANOFI-AVENTIS v. SANDOZ
with Sanofi’s interpretation, however, and further argues
that its due process rights were violated when the district
court enter a contested consent judgment and injunction
without affording Sun a meaningful hearing regarding
the ambiguity as to its obligations under the license
agreement and proposed consent judgment. Appellant
Reply Br. 3.
“Generally, interpretation of a settlement agreement
is not an issue unique to patent law, even if arising in the
context of a patent infringement suit.” Novamedix, Ltd. v.
NDM Acquisition Corp., 166 F.3d 1177, 1180 (Fed. Cir.
1999). Accordingly, we apply the law of the appropriate
regional circuit, which in this case is the Third Circuit.
The Third Circuit views consent decrees as being analo-
gous to contracts. United States v. New Jersey, 194 F.3d
426, 430 (3d Cir. 1999). Thus, traditional principles of
contract interpretation apply. See Fox v. U.S. Dep’t of
Hous. & Urban Dev., 680 F.2d 315, 319 (3d Cir. 1982)
(citing United States v. ITT Cont’l Baking Co., 420 U.S.
223, 236–38 (1975)). Under those traditional principles,
“resort to extrinsic evidence is permissible, but only when
the decree itself is ambiguous, although circumstances
surrounding its formation are always relevant to its
meaning.” See Fox, 680 F.2d at 319–20. Whether extrin-
sic evidence is required to interpret a consent decree is
itself a question of law that is reviewed de novo. See id.
at 320.
I. Ambiguity
Sanofi argues that Section 3.5 of the license agree-
ment is clear and unambiguous regarding Sun’s obliga-
tions under the language of the provision. Specifically, it
focuses on a portion of the language in the section requir-
ing that “Sun will not sell its Generic Equivalent from the
SANOFI-AVENTIS v. SANDOZ 10
time the Court enters an injunction(s) against” each of the
other defendants’ at-risk launch of generic oxaliplatin.
Sanofi contends that this language requires Sun to cease
generic sales of oxaliplatin when injunctions are entered
against other defendants that launched at risk. Sanofi
further argues that the operative language of Section 3.5
is not “decision(s) enjoining,” but is instead “from the time
the Court enters an injunction(s).” Under Sanofi’s inter-
pretation, Sun must cease sales of generic oxaliplatin
after entry of an injunction against the other defen-
dants—even if the injunction is the result of a consent
judgment agreed to by any particular defendant. Sanofi
contends that, in context, the term “decision(s) enjoining”
is synonymous with “orders enjoining” or “judgments
enjoining.” Sanofi suggests that there is no reason to
interpret the license agreement in a manner where Sun
would only be obligated to exit the market when the other
defendants were enjoined following a judicial decision on
the merits as opposed to being enjoined upon entry of a
consent judgment. Alternatively, Sanofi argues that if the
operative language of Section 3.5 is “decision(s) enjoin-
ing,” then the language clearly includes consent judg-
ments because consent judgments are “decisions of the
court.” Appellee Br. 27.
Sun disagrees with Sanofi’s interpretation of the
meaning of Section 3.5 of the license agreement. Sun
argues that Sanofi focuses on a limited portion of the
language in Section 3.5 while ignoring the requirement
that the injunction against other defendants’ at-risk sales
be predicated by a “Court . . . decision(s) enjoining” those
defendants. Appellant Reply Br. 11–12. Sun contends
that consideration of the entirety of Section 3.5 indicates
that Sun has a right to continue selling generic ox-
aliplatin, even if other defendants settle and consent to an
injunction, because an injunction entered by consent is
11 SANOFI-AVENTIS v. SANDOZ
not the result of a court decision. Sun equates the lan-
guage of the agreement—“decision(s) enjoining”—with a
final court decision or decision on the merits. Sun further
argues that it would be unreasonable to interpret the
agreement so that its right to sell generic oxaliplatin
under license would be susceptible to the business whims
of other defendants that might choose to settle by consent,
rather than litigate, for any number of reasons.
We find that Section 3.5 of the license agreement is
objectively ambiguous. See New Jersey, 194 F.3d at 430(“[A] provision in a decree is ambiguous only when, from
an objective standpoint, it is reasonably susceptible to at
least two different interpretations.”). The language
“decision(s) enjoining” in Section 3.5 is ambiguous as to
whether a “decision” includes a consent judgment and
injunction resulting from a settlement between parties or
whether it requires an injunction issued by a court follow-
ing a decision on the merits. The settlement agreement is
not drafted to prevent sales by Sun whenever the defen-
dants were barred from selling; Sanofi agrees, for exam-
ple, that Sun could continue to sell if the defendants had
agreed to cease sales without a court order. Thus, the
disputed language is reasonably susceptible to two differ-
ent interpretations.
The negotiation history further supports the objective
ambiguity of the disputed language in the agreement.
After negotiating the material terms of the license agree-
ment, the parties drafted a term sheet memorializing the
initial agreed-upon terms. The term sheet noted that Sun
agreed to cease sales of generic oxaliplatin following a
“final court decision” enjoining at-risk sales by the other
defendants. Thereafter, the parties continued to negoti-
ate the finer points of the final agreement. During nego-
tiation of the final terms, however, the language changed
SANOFI-AVENTIS v. SANDOZ 12
to require a “decision(s) enjoining” the other defendants
before Sun was required to cease manufacture and sale of
generic oxaliplatin. Compare J.A. 209 with J.A. 227–28.
Sanofi’s arguments notwithstanding, the parties directly
dispute the meaning and effect of the “decision(s) enjoin-
ing” language in Section 3.5 of the license agreement.
Sanofi argues that the language clearly includes consent
judgments, while Sun argues that a consent judgment is
not the result of judicial decision. One need not look
beyond the parties’ diametrically opposite arguments to
determine that the term “decision(s) enjoining” is am-
biguous. Even so, additional evidence informs the ambi-
guity analysis.
Sanofi has repeatedly challenged its settlement
agreement with Sun. Just days after reaching a binding
settlement, Sanofi refused to return fully-executed set-
tlement documents to Sun. After losing that battle,
Sanofi challenged the enforceability of the settlement
agreement. It lost that battle as well. Undeterred, how-
ever, Sanofi set out on a course to rewrite the proposed
Consent Judgment and Order. Regarding its justification
for altering the agreed-upon Consent Judgment, Sanofi
represented to the district court that “most important, it
clarifies Sun’s obligations under the Settlement Agree-
ment and License Agreement as incorporated into the
Consent Judgment.” J.A. 612. Sanofi then received what
it desired: a Consent Judgment entered by the district
court—under protest by Sun—enjoining Sun from mar-
keting generic oxaliplatin based on Sanofi’s negotiated
settlement agreements and injunctions entered into with
other defendants. With its victory at hand, Sanofi now
represents to this court that the license agreement is
clear and unambiguous, despite its earlier need to
“clarif[y] Sun’s obligations.” J.A. 612; Appellee Br. 23.
13 SANOFI-AVENTIS v. SANDOZ
Sanofi’s own recognition that the agreement required
clarification is itself powerful evidence of ambiguity.
II. Contested Consent Judgment
In light of this ambiguity, Sun urges, at a minimum,
that the district court erred by refusing to allow discovery
and an evidentiary hearing before entering a consent
judgment to which it did not consent. Sun points out that
Sanofi does not dispute that parol evidence may be used
to interpret an ambiguous agreement. Sun also contends
that Sanofi implicitly admits that Section 3.5 is ambigu-
ous because it attempted to renegotiate the original
proposed Consent Order and submitted a revised Consent
Order to the district court. Appellant Reply Br. 15.
Sanofi argues that the district court did not err be-
cause it simply enforced the parties’ contractual settle-
ment obligations and entered a consent judgment
consistent with those obligations. Sanofi asserts that
under our precedent, the district court had “inherent
power summarily to enforce a settlement agreement,”
which included the power to enter a consent judgment
that was consistent with the settlement terms. Appellee
Br. 39. Sanofi also maintains that Sun’s arguments
against entry of the revised consent judgment were fully
and fairly heard in view of several letters written to the
judge and a “hearing” the day before the district court
entered the Consent Judgment.
We agree with Sun. The district court erred by enter-
ing the contested Consent Judgment. The precedent cited
by Sanofi does not give a court inherent authority to enter
a contested Consent Judgment without a full and fair
hearing as to material disputed language of the agree-
ment. See Core-Vent Corp. v. Implant Innovations, Inc.,
SANOFI-AVENTIS v. SANDOZ 14
53 F.3d 1252, 1259 (Fed. Cir. 1995) (noting that courts
have inherent authority to summarily enforce a settle-
ment agreement where “there were not disputed issues of
material fact that required a hearing.”). Sun was denied
the opportunity to conduct formal discovery and gather
evidence regarding the proper interpretation of material
language in the license agreement. Sun was also denied
the opportunity to submit its arguments either in formal
briefing or during a hearing on the record. The Supreme
Court has recognized that “[c]onsent decrees are entered
into by parties to a case after careful negotiation has
produced agreement on their precise terms . . . and the
resultant decree embodies as much of those opposing
purposes as the respective parties have the bargaining
power and skill to achieve.” United States v. Armour &
Co., 402 U.S. 673, 681 (1971). “[I]t is the parties’ agree-
ment that serves as the source of the court’s authority to
enter any judgment at all.” Local No. 93 v. City of Cleve-
land, 478 U.S. 501, 522 (1986); Harris v. Pernsley, 820
F.2d 592, 603 (3d Cir. 1987) (“The source of the district
court’s authority to enter a consent decree is the parties’
agreement.”). Where a court enters a Consent Judgment
and Order that is not the product of an agreement by the
parties, entry of that Consent Judgment—without con-
sent—is improper. See, e.g., Keen v. Adler, 65 F. App’x.
408 (3d Cir. 2003) (“[W]ithout the consent of the parties to
the settlement, a court lacks the power to enter a judg-
ment purportedly based on consent.”) (citing Reynolds v.
Roberts, 251 F.3d 1350, 1357 (11th Cir. 2001)).
CONCLUSION
A court errs when it enters a contested consent judg-
ment despite repeated protests and disagreement over the
interpretation and effect of material terms defining the
obligations of a party. Material terms of a consent judg-
15 SANOFI-AVENTIS v. SANDOZ
ment that are objectively ambiguous and clearly contested
prior to entry of the consent judgment require a determi-
nation by the court as to the parties’ obligations under
those terms before entry of that revised consent judg-
ment. Because entry of the contested consent judgment
was improper, we vacate the Consent Judgment and
Order and resulting injunction. The district court is
instructed to provide the parties an opportunity to con-
duct discovery and present their evidence as to the proper
resolution of the ambiguous language in the license
agreement that is incorporated into the parties’ original
proposed Consent Judgment. We remand the case for
further proceedings consistent with this opinion.
VACATED AND REMANDED