Wisconsin Alumni Research v. Xenon Pharmaceuticals
| Decision Date | 05 January 2010 |
| Docket Number | No. 06-3901.,No. 08-1351.,08-1351.,06-3901. |
| Citation | 591 F.3d 876 |
| Parties | WISCONSIN ALUMNI RESEARCH FOUNDATION, Plaintiff-Appellee/Cross-Appellant, v. XENON PHARMACEUTICALS, INC., Defendant-Appellant/Cross-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Anthony A. Tomaselli, Kristin G. Noel (argued), Quarles & Brady, Madison, WI, for Plaintiff-Appellee/Cross-Appellant.
Russell L. Johnson (argued), Sidley Austin, San Francisco, CA, for Defendant-Appellant/Cross-Appellee.
Before EASTERBROOK, Chief Judge, and BAUER and SYKES, Circuit Judges.
This case arises out of a complex set of contractual relationships between the Wisconsin Alumni Research Foundation, the patent-management entity for the University of Wisconsin; certain research scientists at the University; and Xenon Pharmaceuticals, a Canadian drug company. The Foundation and Xenon jointly own the patent rights to an enzyme that can lower cholesterol levels in the human body. The enzyme's cholesterol-reducing benefits were discovered and confirmed by scientists at the University whose research was sponsored in part by Xenon. In 2001, pursuant to an option agreement between the Foundation and Xenon, the Foundation gave Xenon an exclusive license to commercialize this discovery and market any resulting products in exchange for a share of the profits.
The Foundation brought this suit against Xenon alleging violations of its contract rights and seeking damages and declaratory relief. First, the Foundation alleged that Xenon sublicensed its interest in the patented enzyme to a third party but refused to pay the Foundation a percentage of the sublicense fees as required under the 2001 license agreement. Second, the Foundation alleged that Xenon wrongly asserted ownership over a set of therapeutic compounds developed from the jointly patented enzyme; the Foundation claimed that it owned rights to these compounds pursuant to its network of written agreements with Xenon and the University researcher who confirmed the therapeutic benefits of the compounds. Xenon counterclaimed against the Foundation, and on cross-motions for summary judgment, the district court ruled in the Foundation's favor on the breach-of-contract claim and in Xenon's favor on the dispute over ownership of the compounds. A jury awarded $1 million in damages for the breach of contract; the Foundation accepted $300,000 after Xenon successfully moved for remittitur. Both parties appealed.
We affirm in part and reverse in part and remand for entry of judgment consistent with this opinion. The district court properly granted summary judgment for the Foundation on the breach-of-contract claim. Xenon breached its license agreement with the Foundation by granting a sublicense in the jointly patented enzyme to a third party without paying the Foundation its share of the sublicense fees. A subsidiary issue is whether Xenon's breach triggered the Foundation's right to terminate the agreement. We conclude that the district court should not have voided the Foundation's attempt to do so; the Foundation was entitled to and properly terminated the agreement. We also conclude the district court erroneously entered judgment for Xenon on the issue of the Foundation's claim to an ownership interest in the compounds. Under the web of contracts at issue here, the Foundation was entitled to a declaration of its ownership interest in the compounds.
Researchers at the University of Wisconsin became interested in an enzyme called Stearoyl CoA Desaturase ("SCD") because of its potential to help treat diabetes, obesity, and other diseases by lowering cholesterol. In 1999 the researchers discovered that suppressing SCD levels in the human body lowered cholesterol levels. Pursuant to University policy, the researchers disclosed their research results to the Foundation and in January 2000 signed a Memorandum Agreement assigning all their rights in the discovery to the Foundation. The next month, the Foundation filed a provisional patent application for the discovery.
Meanwhile, Xenon, a Canadian pharmaceutical company that was collaborating with the University on research into a separate enzyme, learned of the University's discoveries and expressed interest in jointly pursuing SCD research. The University and Xenon entered into a series of research agreements (referred to as Research Agreements 1, 2, and 3) in which Xenon agreed to jointly sponsor various SCD research projects with the University. Each research agreement identified the scope of the research, the principal researcher, the expected cost, and the period of performance.1 These agreements also referred to a separate Sponsor Option Agreement between the Foundation and Xenon that governed ownership of any discoveries arising from the joint research program. The Sponsor Option Agreement cross-referenced the contracts between the Foundation and the individual University researchers requiring the researchers to assign to the Foundation any property rights in the discoveries emanating from the research and gave Xenon an exclusive option to license any resulting technology.2 Attached to the Sponsor Option Agreement were the individual contracts between the Foundation and the University researchers.
At the same time that Xenon signed its first research agreement with the University, Xenon also entered into a series of short-term consulting agreements with individual researchers at the University who worked on SCD projects. In exchange for consulting fees, these scientists undertook specific research projects for Xenon and agreed to assign any discoveries arising from these consulting projects to Xenon.
In February 2001 Xenon and the Foundation filed a joint patent application deriving from the provisional patent application the Foundation had filed in 2000. The application covered, among other things, the SCD enzyme itself and a method (called an assay) of using the enzyme to identify compounds that lower SCD levels. A patent issued for the assay, but the patent application covering the remaining claims is still pending. Also in February 2001, Xenon exercised its option under the Sponsor Option Agreement to an exclusive license for any discoveries arising from the Xenon-sponsored SCD research at the University. As a result Xenon and the Foundation entered into an Exclusive License Agreement giving Xenon an exclusive right to make, use, and sell patented products under the joint patent application within the field of human healthcare. In exchange for these exclusive rights, Xenon agreed to pay the Foundation a percentage of any product sales, royalties, or sublicense fees it received.
After receiving the exclusive license, Xenon worked with Discovery Partners, Inc., to help identify compounds that inhibit the SCD enzyme. Using the jointly patented assay, Discovery Partners screened thousands of compounds and identified a set of 20 (referred to as the PPA compounds) with the potential to suppress SCD levels. Xenon shipped the PPA compounds to Mark Gray-Keller, a University researcher with whom it had a consulting agreement, for confirmatory testing. Gray-Keller successfully confirmed the inhibitory potential of the PPA compounds and thereafter assigned any interest he had in the compounds to Xenon. In 2002 Xenon filed a patent application covering the PPA compounds.
The Foundation objected, claiming that it had an ownership interest in the PPA compounds under the various interlocking agreements among the parties. More specifically, the Foundation noted that Gray-Keller had assigned all his rights in SCD discoveries and any improvements to the Foundation in his 2000 Memorandum Agreement. The Foundation also noted that the Sponsor Option Agreement between it and Xenon specifically acknowledged that Gray-Keller was required to assign his interest in any inventions arising from the jointly sponsored research to the Foundation. Alternatively, the Foundation claimed it had title to the compounds under the Bayh-Dole Act, 35 U.S.C. §§ 200 et seq., because federal funds had been used in the research and development of the compounds.
Relations between Xenon and the Foundation continued to deteriorate in 2004 when Xenon signed a license agreement with Novartis Pharma AG ("Novartis"), a Swiss corporation. This agreement gave Novartis a license to the technology covered by the joint patent application and purported to transfer ownership of the PPA compounds. After learning of this agreement (via a press release), the Foundation demanded a percentage of the sublicense fees from Xenon under the terms of the Exclusive License Agreement. Xenon refused, claiming it had the right to license its undivided interest in the joint patent application without being subject to the terms of its license agreement with the Foundation.
The Foundation then brought this suit claiming that Xenon violated the terms of the Exclusive License Agreement and owed the Foundation a percentage of the sublicense fees it received from Novartis. The Foundation also claimed that it, not Xenon, owned Gray-Keller's interest in the PPA compounds. The Foundation sought damages and declaratory judgment. Xenon responded with counterclaims against the Foundation. The district court, on cross-motions for summary judgment, entered a series of rulings on all issues except damages. The judge held that Xenon breached the Exclusive License Agreement by granting a sublicense to Novartis without notifying the Foundation or conforming the sublicense to the terms set out in the license agreement. The judge also held that Xenon owed royalties or sublicense fees to the Foundation under the terms of the license agreement. The judge further held that in light of Xenon's breach, the Foundation had a right to terminate the license agreement.
The court also ruled in Xenon's favor on several issues. First, the judge dismissed as moot the Foundation's claim...
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