476 F.3d 421 (7th Cir. 2007), 06-1835, Abbott Laboratories v. Takeda Pharmaceutical Co. Ltd.

Docket Nº:06-1835.
Citation:476 F.3d 421
Party Name:ABBOTT LABORATORIES, Plaintiff-Appellant, v. TAKEDA PHARMACEUTICAL COMPANY LIMITED, et al., Defendants-Appellees.
Case Date:February 02, 2007
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 421

476 F.3d 421 (7th Cir. 2007)

ABBOTT LABORATORIES, Plaintiff-Appellant,



No. 06-1835.

United States Court of Appeals, Seventh Circuit.

February 2, 2007

Argued October 16, 2006.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 05 C 3758—Ronald A. Guzmán, Judge.

Page 422

Christopher Landau (argued), Kirkland & Ellis, Washington, DC, for Plaintiff-Appellant.

Thomas P. Sullivan, Terri L. Mascherin (argued), Jenner & Block, Chicago, IL, for Defendants-Appellees.

Before Posner, Ripple, and Wood, Circuit Judges.

Posner, Circuit Judge.

In 1977, Abbott Laboratories and the Japanese pharmaceuticals manufacturer Takeda formed a 50-50 joint venture, Takeda-Abbott Products, to engage in pharmaceutical research and development. In 1985 the parties converted it into a Delaware corporation, TAP Pharmaceuticals, which they continued to own equally; each of the joint venturers was therefore entitled to choose half the members of TAP's board of directors. The 1985 agreement also expanded the scope of the joint venture to include the distribution of pharmaceuticals. In that regard the agreement provided that both Abbott and Takeda could contract with TAP to furnish it with bulk product for it to distribute. TAP was to select bulk suppliers "on the basis of the economic advantage to TAP," but was to give the original supplier of the bulk product "the first opportunity to quote on" resupplying it. The parties further agreed "to utilize their voting power in [TAP] in such a manner as to effectuate the intent of" both the 1977 and 1985 agreements.

In 1995 Takeda made a contract to supply TAP for ten years with bulk lansoprazole, a drug for treating symptoms of heartburn and acid reflux, which TAP marketed under the name Prevacid. In 2004, shortly before the contract expired, TAP's board of directors voted to renew it. Six months later Abbott filed this suit against Takeda. The complaint charges that the defendant, in breach of a fiduciary duty to Abbott imposed by Delaware law (remember that TAP is a Delaware corporation), had coerced Abbott to instruct its directors on TAP's board to vote to renew the contract, even though the contract price was excessive. Takeda had been able to coerce Abbott, the complaint explains, by threatening to stop supplying lansoprazole to TAP. How such a threat could be credible is unclear; and one might also wonder how Takeda could benefit from forcing TAP, of which it was half owner, to pay an exorbitant price for a critical input. Wouldn't that be cutting off one's nose to spite one's face? Abbott's answer is that by forcing renewal at an exorbitant price and thus increasing Takeda's profits but TAP's costs (and so reducing TAP's profits), Takeda would come out ahead because half of TAP's profits go to Abbott but all of Takeda's profits go to Takeda.

Abbott filed its suit in the federal district court in Chicago, basing federal jurisdiction on diversity of citizenship. The choice of forum was a surprise. The 1985 agreement between Abbott and Takeda that created TAP states that "in the event of a dispute between [Abbott and Takeda] arising from, concerning or in any way related to this Agreement," suit shall be brought in Japan if Abbott is the plaintiff and in Illinois if Takeda is the plaintiff. The purpose of specifying two forums in this way is to discourage either side from instituting litigation, because whoever sues must litigate on the other party's turf. Compare Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991).

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The downside is that if a dispute arises, each party may try to maneuver the other into suing first, and such maneuvers could make litigation more likely. But the parties, being commercially sophisticated entities, must have thought this effect of such a forum selection clause less likely than its effect in discouraging litigation. The district court held the clause valid and applicable, and so dismissed the suit, precipitating this appeal.

The 1985 agreement states that it "shall be governed by the laws of the State of Illinois." But there is a question whether this provision bound the district court, and binds us, with respect to forum selection. We left open the question whether federal or state law governs the validity and interpretation of such clauses in diversity suits in IFC Credit...

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