Upsher-Smith Laboratories v. Mylan Laboratories

• Decision Date: 09 July 1996
• Docket Number: Civil No. 3-94-1148.
• Citation: 944 F.Supp. 1411
• Parties: UPSHER-SMITH LABORATORIES, INC., Plaintiff, v. MYLAN LABORATORIES, INC., and its wholly owned subsidiary, Mylan Pharmaceuticals, Inc., Defendants.
• Court: U.S. District Court — District of Minnesota

944 F.Supp. 1411

UPSHER-SMITH LABORATORIES, INC., Plaintiff, v. MYLAN LABORATORIES, INC., and its wholly owned subsidiary, Mylan Pharmaceuticals, Inc., Defendants.

Civil No. 3-94-1148.

United States District Court, D. Minnesota, Third Division.

July 9, 1996.

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Edward F. Fox, St. Paul, MN, for plaintiff, Upsher-Smith Laboratories, Inc.

George G. Eck and William A. Dossett, Minneapolis, MN, for defendants, Mylan Laboratories, Inc., and Mylan Pharmaceuticals, Inc.

ORDER

DAVIS, District Judge.

This matter is before the Court upon plaintiff and defendants' objections to and appeal of United States Magistrate Judge Erickson's Order and Report and Recommendation dated February 28, 1996. Pursuant to statute, the Court has conducted a de novo review of the record. 28 U.S.C. § 636(b)(1); Local Rule 72.1(c). Based upon that review and all the arguments of the parties, the Court ADOPTS the Report and Recommendation in its entirety.

The Court must also modify or set aside any portion of the Magistrate Judge's Order found to be clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R.Civ.P. 72(a); Local Rule 72.1(b)(2). Based on a review of the record and the submissions of parties, the Court concludes that the Magistrate Judge's Order is neither clearly erroneous nor contrary to law. Therefore, it is HEREBY ORDERED that:

1. Plaintiff's Motion for Summary Judgment as to the Statute of Frauds defense is granted;

2. Plaintiff's Motion for Summary Judgment as to the commercial impracticability defense is granted;

3. Plaintiff's Motion for Summary Judgment as to defendants' affirmative termination of contract defense is denied;

4. Defendants' Motion for Summary Judgment as to plaintiff's intentional misrepresentation claim is granted;

5. Defendants' Motion for Summary Judgment as to plaintiff's negligent misrepresentation claim is granted;

6. Defendants' Motion for Summary Judgment as to plaintiff's claim of unjust enrichment is granted;

7. Defendants' Motion for Summary Judgment as to plaintiff's claim for equitable estoppel is granted;

8. That in all other respects, defendants' Motion for Summary Judgment is denied;

9. Plaintiff's Amended Motion in limine to exclude the testimony of Timothy Covington is denied;

10. Plaintiff's Amended Motion in limine to exclude the testimony of Kathy Hillman, John Romano and George Fields is granted;

11. Defendants' Motion for Leave to Amend their Answer is denied;

12. Defendants' Motion to Compel Discovery is denied, and

13. Defendants' experts Timothy Covington and Rholan Larson shall amend their expert reports as instructed in the text of this Order no later than Wednesday, July 10 at 9:00 am.

ORDER AND REPORT AND RECOMMENDATION

ERICKSON, United States Magistrate Judge.

At Duluth, in the District of Minnesota, this 28th day of February, 1996.

I. Introduction

This matter came before the undersigned United States Magistrate Judge pursuant to a general assignment, made in accordance with the provisions of Title 28 U.S.C. § 636(b)(1)(A) and (B), upon the following Motions:

1. The parties' cross-Motions for Partial Summary Judgment on the Defendants' Statute of Frauds defense.

2. The parties' cross-Motions for Partial Summary Judgment on the Defendants' termination of contract defense.

3. The Plaintiff's Motion for Partial Summary Judgment on the Defendants' commercial impracticability defense.

4. The Defendants' Motion for Partial Summary Judgment on the Plaintiff's breach of contract claim, that is premised upon the parties' asserted intention to only be bound by a written contract.

5. The Defendants' Motion for Partial Summary Judgment on the Plaintiff's breach of contract claim, on the ground that no agreement was reached on the alleged contract's exclusivity.

6. The Defendants' Motion for Partial Summary Judgment on the Plaintiff's breach of contract claim, on the ground that the alleged contract contained an open price term.

7. The Defendants' Motion for Partial Summary Judgment on the Plaintiff's damage claim for lost profits.

8. The Defendants' Motion for Partial Summary Judgment on the Plaintiff's implied contract claim.

9. The Defendants' Motion for Partial Summary Judgment on the Plaintiff's equitable estoppel claim.

10. The Defendants' Motion for Partial Summary Judgment which would limit the Plaintiff's entitlement to reliance damages to its promissory estoppel claim.

11. The Defendants' Motion for Partial Summary Judgment on the Plaintiff's claim of intentional misrepresentation.

12. The Defendants' Motion for Partial Summary Judgment on the Plaintiffs damage to business reputation claim.

13. The Plaintiff's Amended Motion in limine to limit or exclude the Defendants' expert testimony.

14. The Defendants' Motion for Leave to Amend their Answer.

15. The Defendants' Motion to Compel Discovery.

A Hearing on these Motions was conducted on November 21, 1995, at which time the Plaintiff appeared by Edward F. Fox and Jonathan C. Miesen, Esqs., and the Defendants appeared by George G. Eck, Esq.

For reasons which follow, the Defendants' Motions to Amend their Answer, and to Compel Discovery, are denied. We recommend that the Plaintiff's Amended Motion in limine be granted in part, and denied in part; that the Plaintiff's Motion for Summary Judgment on the Statute of Frauds and the commercial impracticability defenses be granted; that the Defendants' Motion for Summary Judgment on the intentional misrepresentation and equitable estoppel claims be granted; and that the remaining Motions for Summary Judgment be denied.¹

II. Factual and Procedural History

The Plaintiff, Upsher-Smith Laboratories, Inc. ("USL"), is a distributor of generic pharmaceutical products, while the Defendants Mylan Laboratories, Inc., and Mylan Pharmaceuticals, Inc. ("Mylan"), manufacture generic pharmaceuticals. In this action, USL alleges that Mylan contractually agreed to supply USL with all of its requirements for a drug known as Cimetidine. USL also contends that Mylan wrongfully breached their contract by refusing to supply Cimetidine to USL.

Cimetidine is part of a family of drugs known as "H₂-receptor antagonists." These drugs reduce stomach acid and, as a consequence, they are widely used in the treatment of ulcers and other gastrointestinal disorders. The parties agree that the domestic market for H₂-receptor antagonists is extremely large, with annual sales in the billions of dollars. Cimetidine was first manufactured and marketed by SmithKline Beacham ("SKB"), which merchandises Cimetidine under the brand name Tagamet®. Other H₂-receptor antagonists include Zantac®, Pepcid® and Axid®. As the innovator of Cimetidine, SKB held an exclusive patent on the drug, which enabled SKB to charge an inflated price for Tagamet.

SKB's Cimetidine patent expired on May 17, 1994, and, with that expiration, the generic pharmaceutical companies had an opportunity to enter the Cimetidine market with their own generic labels. The parties agree that, when generic drug companies enter a market that has recently been opened by a patent's expiration, the initial price, of their generically competing product, is quoted at a certain percentage below the price of the formerly patented brand. Thereafter, as the competition between the generic companies escalates, the generic price will "erode" to a level that is determined by the competitive market forces. The erosion in prices can occur rapidly, depending upon the number of generic companies that have entered that market upon the expiration of the pertinent patent. Therefore, based upon the dynamics of the market, in order to ensure the maximum potential for profit from the sale of a new generic drug, the new product must enter the market at, or shortly after, the date of patent expiration.

Complicating the process is the fact that a manufacturer of generic pharmaceuticals must receive approval, from the Food and Drug Administration ("FDA"), before it may produce a new generic drug. The approval is provided by the FDA's award of an Abbreviated New Drug Approval ("ANDA"). To obtain an ANDA, the FDA must first approve the generic manufacturer's raw material supplier. As a consequence, once an ANDA is approved, the generic manufacturer becomes dependent upon its approved raw material supplier, unless the manufacturer has gained approval for a second supplier — a process which can consume up to two years in time.

In October of 1993, Mylan became the first generic manufacturer to receive an ANDA for Cimetidine. Mylan intended to market its generic Cimetidine to its customer base of warehousing chains, wholesalers and distributors, beginning on May 18, 1994 — the date on which SKB's patent would expire. Mylan selected Lek d.d. Ljubljana ("Lek"), a Slovenian materialsman, as the supplier of the active ingredient in Cimetidine, and Lek received the FDA's approval. Mylan had selected and received FDA approval for Lek d.d. Ljubljana ("Lek"), a manufacturer headquartered in Slovenia.

It was Mylan's expectation that the generic Cimetidine market would flourish and, accordingly, in November of 1993, Mylan submitted a large initial purchase order with Lek, for Cimetidine active ingredient. As a result of restrictions, that were imposed by the Federal Patent Regulations, Mylan was unable to stockpile either the raw materials, or finished Cimetidine product, prior to the expiration of SKB's patent. However, prior to the expiration of the SKB patent, the Regulations allowed Mylan to manufacture three lots of each dosage strength of Cimetidine, for FDA validation purposes. On May 18, 1994, these "validation lots" would be available for commercial sale. In the Winter of 1994, Lek shipped the raw materials that were required for the validation lots.

In November of 1993, while placing its initial raw materials purchase order,...