51 F.3d 848 (9th Cir. 1995), 93-15667, Sicor Ltd. v. Cetus Corp.

Docket Nº:93-15667.
Citation:51 F.3d 848
Party Name:SICOR LIMITED; Alco Chemicals, Ltd., Plaintiffs-Counter-Defendants-Appellants, and Sicor S.p.A., Counter-Defendant, v. CETUS CORPORATION; Cetus Generic Corporation; Ben Venue Laboratories, Inc.; Ben Venue Generic Corporation; and Erbamont N.V., Defendants-Appellees, and Cetus-Ben Venue Therapeutics; Erbamont, Inc.; and Farmitalia Carlo Erba, S.r.l.
Case Date:April 03, 1995
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 848

51 F.3d 848 (9th Cir. 1995)

SICOR LIMITED; Alco Chemicals, Ltd.,

Plaintiffs-Counter-Defendants-Appellants,

and

Sicor S.p.A., Counter-Defendant,

v.

CETUS CORPORATION; Cetus Generic Corporation; Ben Venue

Laboratories, Inc.; Ben Venue Generic

Corporation; and Erbamont N.V.,

Defendants-Appellees,

and

Cetus-Ben Venue Therapeutics; Erbamont, Inc.; and

Farmitalia Carlo Erba, S.r.l.,

Defendants-Counter-Claimants-Appellees.

No. 93-15667.

United States Court of Appeals, Ninth Circuit

April 3, 1995

Argued and Submitted July 12, 1994.

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[Copyrighted Material Omitted]

Page 850

Douglas V. Rigler, Whitman & Ransom, Washington, DC, and Josef D. Cooper, Cooper & Kirkham, San Francisco, CA, for plaintiffs-counter-defendants-appellants.

Charles B. Cohler, Lasky, Haas, Cohler & Munter, San Francisco, CA, for defendants-counter-claimants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before: CHOY, LEAVY, and KLEINFELD, Circuit Judges.

LEAVY, Circuit Judge:

Two foreign corporations filed the instant action in federal district court against several foreign and domestic companies, asserting federal antitrust claims and state law causes of action for breach of contract, interference with contractual relations, and indebitatus assumpsit. The district court entered summary judgment in favor of the defendants on all claims, and the plaintiffs have appealed. We affirm in part, reverse in part, and remand.

FACTS AND PRIOR PROCEEDINGS

Doxorubicin hydrochloride ("doxorubicin") is a chemical used in the treatment of some fourteen different types of cancer. Although it is one of the most effective and widely sold anti-cancer drugs available in the United States, it is also highly toxic in bulk form and must be specially prepared and packaged, or "finished," before it can be marketed in dosage form. Consequently, a distributor of

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bulk doxorubicin must obtain approval from the Food and Drug Administration ("FDA") of the distributor's source (i.e., the manufacturer of the bulk doxorubicin) before turning it over to a finisher.

Erbamont N.V., a Netherlands Antilles company, once enjoyed a virtual monopoly on the sale of doxorubicin in the United States through its Italian subsidiary, Farmitalia Carlo Erba, S.r.l. ("Farmitalia"). Farmitalia, which had developed the techniques necessary to produce doxorubicin in commercial quantities, held an American patent on the drug's production until June 1988, as well as related patents on certain other production techniques until April 1991. Farmitalia marketed doxorubicin in the United States under the label Adriamycin exclusively through Erbamont N.V.'s wholly owned American subsidiary, Erbamont, Inc., and its Adria division (collectively, "Erbamont").

Shortly before the expiration of Farmitalia's product patent, another Italian firm, Sicor S.p.A., decided to enter the American market by manufacturing generic doxorubicin under an arrangement with its wholly owned United Kingdom subsidiary, Sicor Limited, which owned the microorganism from which doxorubicin is produced. As neither Sicor S.p.A. nor Sicor Limited (jointly, "Sicor") had an American presence or sales network, Sicor entered into a distribution agreement with Alco Chemicals, Ltd. ("Alco"), a U.K. corporation, and a finishing agreement with Cetus-Ben Venue Therapeutics ("CBVT"), 1 a California partnership, in late 1987.

On February 1, 1988, Alco and CBVT executed a distribution agreement, dated as of November 5, 1987 ("Distribution Agreement"), in which Alco appointed CBVT to act as its exclusive American distributor of Sicor-manufactured doxorubicin to be finished by CBVT under the provisions of Sicor's contract with CBVT ("Supply Agreement"). In exchange for this exclusive arrangement, CBVT was to pay Alco $1,000,000 and distribution fees equal to 50% of CBVT's revenues from the sale of finished doxorubicin, net of CBVT's expenses in buying bulk doxorubicin under the Supply Agreement and various taxes, rebates, and other charges.

Farmitalia and Erbamont ("Farmitalia Group") responded immediately to this challenge to their dominant position in the United States market. In 1988, Erbamont unsuccessfully sought an injunction from the United States International Trade Commission ("ITC") against CBVT's importation of SICOR-manufactured doxorubicin on the ground of patent infringement. Shortly thereafter, CBVT filed an antitrust and unfair competition action against the Farmitalia Group in federal district court.

Meanwhile, Alco and CBVT amended the Distribution Agreement on April 10, 1989 ("First Amendment"). Among other things, the First Amendment modified the terms governing CBVT's payment of distribution fees to Alco and established a reimbursement account to fund CBVT's pursuit of antitrust claims against the Farmitalia Group. That same day, Sicor and CBVT entered into a superseding agreement, retroactively dated November 5, 1987 ("Second Supply Agreement"), separating Sicor's supply obligations from Alco's distribution commitments under the Distribution Agreement. 2 By letter agreement dated October 8, 1990 ("Second Amendment"), Alco and CBVT further amended the Distribution Agreement to permit CBVT to deduct from distribution fees owed to Alco 50% of CBVT's costs in pursuing

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its legal claims against the Farmitalia Group.

On May 25, 1989, CBVT made its first American sale pursuant to the Second Supply Agreement, thereby starting the running of the contract's three-year term. Between June 1989 and September 1990, CBVT made substantial inroads into Erbamont's dominant position in the American doxorubicin market. By underpricing its main competitor on sales of doxorubicin in both powder and solution form, CBVT increased its market share from 0% to 30%. During this same time period, two smaller competitors held a combined market share of approximately 9%. Erbamont's market share declined correspondingly.

The Farmitalia Group did not ignore this competition. In addition to the failed ITC claim, Farmitalia initiated legal proceedings in Italy against Sicor, alleging theft of a proprietary microorganism essential to the production of doxorubicin. Although the action was eventually dismissed, Farmitalia obtained a temporary injunction against Sicor S.p.A.'s doxorubicin production facility in Milan on July 21, 1989. The plant remained closed until March 1990, when it reopened temporarily. On September 21, 1990, the plant was again shut down pursuant to an Italian court's sequestration decree. The plant has remained closed since then.

In response to the production halt at its plant in Italy, Sicor notified CBVT and sought to obtain supplies of bulk doxorubicin from other firms to meet its interim needs. On October 9, 1990, CBVT and Sicor met with Pharmachemie, B.V., a European distributor of Sicor-manufactured doxorubicin. Pharmachemie offered CBVT 2.4 kilograms of FDA-approved, Sicor-produced bulk doxorubicin. CBVT declined the offer, explaining that its inventory of Sicor-produced bulk doxorubicin would last until the following summer.

Meanwhile, Sicor and CBVT modified their supply arrangement by agreement dated October 8, 1990 ("Letter Agreement"). 3 The Letter Agreement revised the pricing formula for CBVT's purchases of doxorubicin and extended from 60 to 180 days the payment period for Sicor's invoices to CBVT. In addition, the Letter Agreement required CBVT to remit to Sicor 50% of its proceeds, net of various discounts and rebates, from sales of doxorubicin in the United States. Also pursuant to the Letter Agreement, the parties confirmed and ratified the remainder of the Second Supply Agreement.

In the meantime, Sicor sought an alternate producer to perform its contractual supply obligations. This search led to Mercian Corporation ("Mercian"), a Japanese company with prior FDA approval as a producer of bulk doxorubicin and an ongoing relationship with Sicor. Before Mercian could fill CBVT's orders from Sicor, however, CBVT would be required to obtain FDA approval as a finisher of Mercian-manufactured bulk doxorubicin, an administrative process with an expected time length the parties dispute: CBVT contended that FDA approval would take up to eighteen months, while Sicor estimated no more than five months. Accordingly, in late 1990, Sicor and Mercian began negotiating an agreement allowing Mercian to supply bulk doxorubicin in Sicor's stead under the terms of the Second Supply Agreement. 4

On January 25, 1991, Sicor shipped a 220-gram sample of Mercian-produced doxorubicin to CBVT to facilitate the latter's batch testing and preparation of an FDA application. Sicor expected CBVT to complete and file this application shortly after April 10, 1991, the expiration date of an adverse Farmitalia process patent. On February 22, 1991, CBVT outlined for Sicor various scenarios for launching sales of finished, Mercian-produced doxorubicin in the United States by as early as September 1991.

Meanwhile, CBVT was negotiating with the Farmitalia Group to settle its antitrust and patent suit against them and to secure an alternate source of bulk doxorubicin. CBVT disclosed these negotiations in a meeting with Sicor in March 1991. By letter received April 10, 1991, CBVT formally notified

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Sicor and Alco that CBVT and Erbamont had agreed to enter into an exclusive supply and distribution arrangement for Farmitalia-produced bulk doxorubicin, that CBVT had settled its litigation against the Farmitalia Group, and that CBVT would not be free to begin the bulk supply relationship contemplated by the parties.

On April 25, 1991, Sicor and Alco filed the instant action in federal district court against CBVT 5 and the Farmitalia Group, alleging breach of contract, tortious interference with contract, and unjust enrichment, as well as anticompetitive...

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