Elorac, Inc. v. Sanofi-Aventis Can., Inc.

• Decision Date: 24 September 2018
• Docket Number: Case No. 14 C 1859
• Citation: 343 F.Supp.3d 789
• Parties: ELORAC, INC., Plaintiff, v. SANOFI-AVENTIS CANADA, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

343 F.Supp.3d 789

ELORAC, INC., Plaintiff,

v.SANOFI-AVENTIS CANADA, INC., Defendant.

Case No. 14 C 1859

United States District Court, N.D. Illinois, Eastern Division.

Signed September 24, 2018

Lindsey D.G. Dates, William M. McErlean, Jeffrey Warren Sanford, Robert Joseph Kave, Barnes & Thornburg LLP, Chicago, IL, Carrie Marie Raver, Barnes & Thornburg, Fort Wayne, IN, for Plaintiff.

Raj Niranjan Shah, Eric Michael Roberts, DLA Piper LLP (US), Chicago, IL, Christopher Matthew Strongosky, DLA Piper LLP (US), New York, NY, Leeanne Mancari, DLA Piper LLP (US), Los Angeles, CA, for Defendant.

MEMORANDUM OPINION AND ORDER

HON. JORGE ALONSO, United States District Judge

Plaintiff Elorac, Inc. ("Elorac") brings this bad-faith breach of contract action against defendant Sanofi-Aventis Canada, Inc. ("Sanofi"), alleging that Sanofi willfully breached a license agreement requiring it to make reasonable efforts to commercialize Elorac's Civamide cream pharmaceutical product, known as Zuacta, and pay Elorac royalties based on its sales. The case is before the Court on cross-motions for summary judgment and on Sanofi's motion to strike certain material in Elorac's response to its statement of facts under Local Rule 56.1. For the following reasons, the motions for summary judgment are granted in part and denied in part, and Sanofi's motion to strike is denied.

I. LOCAL RULE 56.1

Local Rule 56.1 requires a party opposing summary judgment to file "a concise response to the movant's statement [of material undisputed facts] that shall contain ... a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon," LR 56.1(b)(3)(B), and "a statement ... of any additional facts that require the denial of summary judgment." Sanofi moves to strike Elorac's Local Rule 56.1 response, arguing that it does not comply with the rule because it is not concise, it is argumentative, and it smuggles in non-responsive facts, rather than include them in a separate statement of additional material facts.

Sanofi is correct in all three respects. The Court is entitled to require strict compliance with Local Rule 56.1, Flint v. City of Belvidere , 791 F.3d 764, 767 (7th Cir. 2015), and Elorac's response is anything but "concise"; to the contrary, it is verbose, repetitive, and argumentative, and the Court was forced to disregard portions that were improper, extraneous, or misplaced. However, as Sanofi itself recognizes, this sort of motion to strike is disfavored because it "wastes time by requiring judges to engage in busywork and judicial editing without addressing the merits of a party's claim." Paldo Sign & Display Co. v. Unified Mktg., LLC , No. 13 C 1896, 2017 WL 951313, at *4 (N.D. Ill. Mar. 10, 2017) (internal quotation marks and alterations omitted). The Court bears in mind that the purpose of Local Rule 56.1 is "to isolate legitimately disputed facts and assist the court in its summary judgment determination." Brown v. GES Exposition Servs., Inc. , No. 03 C 3921, 2006 WL 861174, at *1 (N.D. Ill. Mar. 31, 2006). Despite its shortcomings, Elorac's response achieved this purpose. It assisted the Court in its summary judgment determination by making clear citations to specific documents to identify evidence that reveals whether there is a genuine factual dispute between the parties. Although Sanofi argues that Elorac's including non-responsive facts was unfair because Sanofi had no mechanism to reply, Sanofi did not identify, either in its motion to strike or its reply brief, any specific substantive prejudice it suffered, nor does the Court see any; the smuggled facts were often immaterial, and the Court simply ignored them. Sanofi's motion to strike is denied.

II. BACKGROUND

Elorac is a pharmaceutical company that develops pharmaceutical products for the treatment of skin diseases and conditions. Winston Laboratories, Inc. ("Winston"), is a related company that develops pharmaceutical products for the relief and management of pain, including pain due to osteoarthritis

. Winston developed a proprietary compound known as Civamide, which it incorporated into a topical analgesic cream that it sought to market to patients suffering from osteoarthritis. Elorac is successor-in-interest to Winston's rights and interests in the Civamide cream product by virtue of an October 2012 transfer and assignment from Winston to Elorac.¹ (Def.'s Resp. to Pl.'s LR 56.1 Stmt. ¶ 8, ECF No. 410 (Sealed), ECF No. 417 (Redacted).)

On October 30, 2008, Winston and Sanofi entered into a license agreement ("the License Agreement"), in which Winston granted Sanofi an exclusive license to "make, have made, use and commercialize" its Civamide cream product ("the Product") in Canada. (Pl.'s Resp. to Def.'s LR 56.1 Stmt. ¶ 7, ECF No. 394 (Sealed), ECF No. 405 (Redacted); Oct. 30, 2008 License Agreement, § 2.1, Sealed App. Ex. 3, ECF No. 379 at 81, Redacted App. Ex. 3, ECF No. 387 at 81.) Sanofi agreed to "use Commercially Reasonable Efforts to Commercialize" the Product and to "sell and/or promote the Product in a manner consistent with sanofi-aventis' past marketing and sales practices or the customary practices within the industry." (License Agreement, §§ 6.1, 6.2.) The License Agreement defined the term "commercialize" to mean "to sell, offer for sale, import, export, transport, register, distribute, promote and market, together with other activities typically associated with maximizing the market penetration, profit margins and commercialization of a pharmaceutical product." (License Agreement § 1.8.) The License Agreement defined "Commercially Reasonable Efforts" to mean

efforts consistent with those generally utilized by companies of a similar size for their own internally developed pharmaceutical products of similar market potential, at a similar stage of their product life taking into account the existence of other competitive products in the marketplace or under development, the proprietary position of the product, the regulatory structure involved, the anticipated profitability of the product and other relevant factors. It is understood that such product potential may change from time to time based upon changing scientific, business and marketing and return on investment considerations.

(Id. § 1.9.) Under the License Agreement, Sanofi was required to pay Winston royalties of 12% of all "Net Sales of Product," as well as lump-sum milestone payments upon regulatory approval and upon reaching certain sales targets. (Id. §§ 7.2, 7.3, 7.6, 7.7.) The term, "Net Sales," refers to "the gross selling price of the Product in the Territory invoiced by sanofi-aventis, its Affiliates and its sublicensees to Third Parties," less certain deductions and offsets. (Id. § 1.36.) "Third Parties" are entities other than "(i) Licensor or any of its Affiliates and (ii) sanofi-aventis or any of its Affiliates." (Id. § 1.53.) "Affiliates" are entities that are, at some level, under common control. (Id. § 1.2.)

After entering into the License Agreement, the parties proceeded with efforts to secure regulatory approval to market the Product in Canada. Canada's health care regulatory agency, Health Canada, initially rejected Winston's application, advising in its October 15, 2009 Notice of Non-Compliance that the "pivotal trial was not designed to assess the efficacy and safety" of the Product for the proposed "indication" (i.e. , recognized use as a treatment for a particular disease or medical condition). (Pl.'s Resp. to Def.'s LR 56.1 Stmt. ¶¶ 23-24.) Winston resubmitted its application, and on July 15, 2010, Health Canada approved the Product for sale, but with a narrower indication than originally sought. (Id. ¶¶ 23, 26-27.) The Product could be used not broadly for the relief of symptoms of osteoarthritis of the knee

in adults, but only "in conjunction with oral COX-2 inhibitors or NSAIDs for the relief of severe pain in adult patients with osteoarthritis of the knee, not controlled with oral COX-2 inhibitors or NSAIDs alone, for a duration of no more than three months." (Id. ¶¶ 23, 27.)

In May 2010, as the process of obtaining regulatory approval was drawing to a close, Sanofi began to approach other pharmaceutical companies to determine whether they might be interested in taking over Sanofi's obligations under the License Agreement to distribute, market, promote, and sell the Product. (Id. ¶ 41.) On July 18, 2011, Sanofi signed what was captioned a "Distribution and Supply Agreement" (hereafter, the "Valeant Agreement") with Valeant International ("Valeant"), in which Valeant agreed to distribute, market, promote, and sell the Product in Canada. (Id. ¶ 45.) Valeant launched the Product in August 2011. (Id. ¶ 48.) Sanofi sold Valeant 35,695 units of the Product in 2011 (id. ¶ 52), 68,422 units in 2012 (id. ¶ 53), and 42,769 units in 2013 (id. ¶ 54). By mid-2013, demand for the Product was dropping so dramatically that Sanofi ceased submitting quarterly, rolling twelve-month forecasts to Elorac, as it was required to do under section 4.9 of the License Agreement, because it was no longer expecting to place any additional orders in the foreseeable future. (Def.'s Resp. to Pl.'s LR 56.1 Stmt. ¶¶ 29-30.) Plaintiff had contracted with DPT Laboratories, Ltd. ("DPT"), a drug manufacturer in Texas, to manufacture the Product, but in June 2013, with no further orders coming in, DPT provided Elorac with notice of cancellation of its manufacturing agreement. (Id. ¶¶ 13, 31.) According to Elorac's chief executive officer, Dr. Joel Bernstein, a DPT executive advised him in a telephone call that, with the collapse in sales volume, their manufacturing arrangement had become uneconomical, and DPT would only be willing to manufacture the Product at such a low volume under a new contract, with higher prices and possibly a minimum annual purchase requirement.² (Id. ¶¶...