Kaken Pharmaceutical Co. v. Eli Lilly and Co.

• Decision Date: 15 November 1989
• Docket Number: No. IP 86-1241-C.,IP 86-1241-C.
• Parties: KAKEN PHARMACEUTICAL COMPANY, LIMITED, Plaintiff, v. ELI LILLY AND COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Indiana

737 F. Supp. 510

KAKEN PHARMACEUTICAL COMPANY, LIMITED, Plaintiff, v. ELI LILLY AND COMPANY, Defendant.

No. IP 86-1241-C.

United States District Court, S.D. Indiana, Indianapolis Division.

September 28, 1989.

On Motion For Reconsideration November 15, 1989.

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Jack C. Berenzweig, Melvin F. Jager, Willian Brinks Olds Hofer Gilson & Lione, Ltd., Chicago, Ill., David H. Badger, Willian Brinks Olds Hofer Gilson & Lione, Indianapolis, Ind., for plaintiff.

Stephen W. Terry, Jr., George W. Pendygraft, George M. Plews, Baker & Daniels, Indianapolis, Ind., for defendant.

ORDER ON MOTION FOR JUDGMENT ON THE PLEADINGS OR FOR SUMMARY JUDGMENT

McKINNEY, District Judge.

This cause comes before the Court on defendant's motion for judgment on the pleadings or, in the alternative, for summary judgment. The issues raised herein have been fully briefed and are ready for resolution. For the reasons set forth below, the Court GRANTS the defendant's motion for summary judgment as to Counts I, II, IV, V, VI and VII and DENIES the defendant's motion for summary judgment as to Count III.

I. FACTUAL AND PROCEDURAL BACKGROUND

The plaintiff, Kaken Pharmaceutical Company, Limited ("Kaken") filed its suit October 20, 1986, against the defendant, Eli Lilly and Company ("Lilly").¹ This legal confrontation concerns a 10mg sample Salinomycin ("SAL"), a feed additive for ruminant animals, sent to Lilly by Kaken. Like the story of the princess and the pea, it is wonderous that so small a source could produce so great a rub.

In October of 1972, after reading a report about the substance in the Japan Medical Gazette, Lilly wrote to Kaken requesting a sample of SAL. Kaken responded by sending a 10mg sample, and requested samples of related substances from Lilly. Lilly complied with Kaken's request, and thus began a series of exchanges of substances between the parties lasting a number of years. Of particular importance in the instant case was a 100mg SAL sample sent by Kaken to Lilly pursuant to a February 15, 1973, request. For reasons not entirely clear, Kaken followed up that sample with a letter that stated Kaken hoped "emphatically" that the SAL sample would be used for identification purposes only. Lilly appeared to acquiesce to this concern in an April 30, 1973, letter giving assurances that the sample would be used only for identification purposes.

At the heart of this dispute is Kaken's allegation that Lilly used the samples to run a rumen screen test in violation of the alleged agreement between the parties to use the samples only for identification purposes. A rumen screen test uses a culture of microorganisms found in a cow's stomach, and measures changes in the organisms' metabolic products following the addition of an unknown compound to the culture. Kaken claims it was improper for Lilly to run such tests, and that only tests for identification purposes were to be conducted.

Kaken anticipated tests, such as a paper chromatographic test. A paper chromatographic test is a procedure whereby a compound being analyzed produces spots on absorbent paper. Scientists then attempt to determine the nature of the compound by the location of the spots showing antibiotic activity. Kaken anticipated that the testing would be for identification purposes only.

On June 10, 1974, Lilly filed a United States patent application claiming a method of using SAL to increase feed utilization efficiency in ruminant animals. A related application was filed on September 2, 1976, and on April 18, 1978, Lilly's patent was granted as U.S. Patent No. 4,084,224 ("224 patent"). Kaken claims this patent was made possible through the unlawful use of the SAL samples sent to Lilly by Kaken. Kaken charges that Lilly's patent prohibits Kaken from obtaining royalties from A.H. Robins ("Robins"), the exclusive Kaken licensee of SAL in the United States. Essentially, Kaken claims Lilly plans to use its patent to prohibit SAL from competing in the United States market with Monensin, a polyether antibiotic developed by Lilly. Lilly brought a successful patent infringement suit against Robins that resulted in an August 1985 judgment prohibiting Robins from selling SAL for cattle in the United States.

Kaken's lawsuit is comprised of seven counts. The allegations include breach of express trust, constructive trust, breach of express contract, fraud, constructive fraud, interference with contract, and interference with prospective business relationships. Kaken asks for both legal and equitable relief, including an order that Lilly assign the 224 patent to Kaken, or in the alternative, prevent Lilly from enforcing the patent against Kaken. Aside from denying many of the material allegations in Kaken's complaint, Lilly asserts the defense of statute of limitations, laches, failure to state a claim, waiver and estoppel, res judicata and collateral estoppel, and the statute of frauds.²

II. APPLICABLE STANDARDS OF REVIEW

The defendant in this case has filed a motion for judgment on the pleadings, or in the alternative, for summary judgment. A motion for judgment on the pleadings is governed by Rule 12(c) of the Federal Rules of Civil Procedure. Rule 12(c) provides in pertinent part:

After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56 ...

Numerous affidavits have been filed in this cause by both sides. Ample opportunity to respond to those affidavits has passed. Accordingly, the Court rules the defendant's motion will be treated as a motion for summary judgment.³

Rule 56(c) provides in pertinent part:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

It can no longer be disputed that when the standard embraced in Rule 56(c) is met summary judgment is mandatory. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). As stated in Celotex, summary judgment is not a disfavored procedural shortcut, but rather is an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy and inexpensive determination of every action. Id. at 477 U.S. at 327, 106 S.Ct. at 2555. Decisions of the Seventh Circuit are in conformity with this view. See Spellman v. Commissioner, 845 F.2d 148 (7th Cir.1988).

Moreover, the mere existence of a factual dispute is not by itself sufficient to bar summary judgment. A factual dispute does not preclude summary judgment unless the disputed fact is outcome determinative. Hossman v. Spradlin, 812 F.2d 1019 (7th Cir.1987); Howland v. Kilquist, 833 F.2d 639 (7th Cir.1987). Irrelevant or unnecessary facts do not preclude summary judgment even when they are in dispute. Clampitt v. City of Ft. Wayne, 682 F.Supp. 401 (N.D.Ind.1988), aff'd, 864 F.2d 486 (7th Cir.1988). Guided by these standards, the Court now considers the defendant's motion for summary judgment.

III. DISCUSSION

The Court notes at the outset of this discussion that statutes of limitation play a paramount role in ruling on Lilly's motion for summary judgment. In this regard, Kaken's allegation of fraudulent concealment could affect all the limitation periods discussed herein. Accordingly, the Court initially will discuss whether the fraudulent concealment alleged by Kaken tolls the statutes of limitations. The Court then will discuss each allegation contained in Kaken's complaint, the applicable statutes of limitation and how these limitation periods impact Kaken's claims.

A. Fraudulent Concealment

The plaintiff claims the applicable statutes of limitation are tolled because of Lilly's alleged fraudulent concealment, pursuant to I.C. 34-1-2-9. This statute provides:

If any person liable to an action shall conceal the fact from the knowledge of the person entitled thereto, the action may be commenced at any time within the limitation after the discovery of the cause of action.

Thus, if Lilly did engage in fraudulent concealment as contemplated by this statute, the limitation periods were tolled until Kaken's discovery of facts from which it could reasonably determine a cause of action against Lilly existed.

The burden of proof of avoiding a limitation bar is on the plaintiff, who must show reasonable care and diligence to detect the alleged fraud. Lambert v. Stark, 484 N.E.2d 630 (Ind.App.1985). Thus, the burden here is on Kaken to show that the limitation period should be tolled.

Under most circumstances, I.C. 34-1-2-9 will extend a party's time to file suit only when the opposing party actively and intentionally conceals a cause of action. However, where the defrauder has a duty to disclose material information to individuals with whom he has a fiduciary or confidential relationship, the requirements of active and intentional conduct do not apply. Dotlich v. Dotlich, 475 N.E.2d 331 (Ind. App.1985). Regardless of any concealment, however, the statute of limitations begins to run when a plaintiff acquires information from which a reasonable man with diligence would discover a cause of action. Miller v. A.H. Robins Co., 766 F.2d 1102, 1106-1107 (7th Cir.1985) (applying Indiana law); Adams v. Luros, 406 N.E.2d 1199, 1203 (Ind.App.1980); Toth v. Lenk, 164 Ind.App. 618, 330 N.E.2d 336, 340-41 (1975). These guidelines point to a dispositive question. Namely, despite the alleged concealment by Lilly, could a cause of action have been discovered by Kaken under...