Citations
- 408 F. Supp. 2d 668
Full opinion text
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON COUNTERCLAIM FOR BREACH OF CONTRACT
HAMILTON, District Judge.
Beginning in February 1997, plaintiff Eli Lilly and Company and defendant Emisphere Technologies, Inc. agreed to collaborate in research on new chemical “carrier” compounds. The goal was to use these molecules to deliver therapeutic proteins to patients orally. Through mechanisms that are not well understood, the carriers may enable the therapeutic proteins to bypass the digestive processes. Those processes ordinarily break down proteins into their component amino acids, but with carriers, the proteins may stay intact and cross the intestinal membrane to enter the patient’s bloodstream. If successful, such research could make it much easier to treat patients with proteins such as insulin that have been administered in the past through injections or other methods that introduce the proteins directly into the blood. The research project was focused on finding a carrier to enable oral delivery of parathyroid hormone (PTH), which is used in treating osteoporosis and currently is administered by injections.
The research relationship required Lilly and Emisphere to share valuable information. The relationship has broken down in a dispute over whether Lilly breached the relevant contracts by pursuing its own secret research projects with Emisphere’s proprietary carriers. On September 4, 2003, an international patent application by Lilly was published for a carrier compound for the delivery of a particular glucagonlike peptide (GLP) known as “GLP-1.” GLP is a natural protein produced by the intestine. It is used to treat patients for diabetes and obesity. It is not currently available for oral delivery.
After reviewing the Lilly patent application, Emisphere notified Lilly on September 26, 2003 that it believed Lilly had breached contract provisions restricting Lilly’s use of Emisphere’s technology and giving Emisphere ownership of patent rights to Lilly inventions derived from Emisphere’s technology. Lilly responded by filing this action for declaratory judgment. After a period of negotiations proved unfruitful, Emisphere notified Lilly in August 2004 that it was terminating the relevant contracts. By agreement of the parties, Emisphere’s counterclaim for breach of contract was tried to the court in January and February 2005 to determine whether Emisphere is entitled to terminate the agreements and is free to pursue collaboration with another major pharmaceutical company.
As explained below, Emisphere has proved that Lilly breached the relevant contracts, and Emisphere is entitled to terminate the contracts effective the date of its termination letter, August 23, 2004. Pursuant to Rule 52 of the Federal Rules of Civil Procedure, the court now states its findings of fact and conclusions of law on the counterclaim. As the parties agreed in their contracts, the court applies New York law to the dispute. The court has blended the findings of fact and conclusions of law in one narrative. Where the court has cited specific exhibits and testimony in support of particular points, the court does not necessarily mean to imply that the cited evidence is the only supporting evidence.
I. The Parties and the Research Problem
Plaintiff Lilly is a major pharmaceutical company with annual revenues of more than ten billion dollars. Emisphere is a relatively new and much smaller company. Lilly is an Indiana citizen for purposes of federal diversity jurisdiction. Emisphere is a citizen of Delaware and New York. The matter in controversy has a value well in excess of the jurisdictional limit under 28 U.S.C. § 1332. The court has jurisdiction of the subject matter and jurisdiction over the parties.
Emisphere’s principal assets are technology and know-how involving a family of chemical compounds that Emisphere calls “carrier” compounds. The carriers may offer a solution to a basic biological barrier to some forms of drug treatments. Many human diseases can be treated by introducing proteins into the body, such as insulin to treat diabetes. The human digestive system is designed to break down proteins into their component amino acids. Tr. 456. If a doctor tries to treat a patient by administering a therapeutic protein orally, the patient’s digestive system will break it down so that it loses any therapeutic value.
Emisphere believes that its carrier compounds can be used with therapeutic proteins to protect the proteins from the digestive mechanisms, so that the therapeutic proteins may pass intact into the bloodstream to provide effective therapy to the patient. This prospect is, to put it mildly, very interesting for Lilly and other pharmaceutical companies. In general, it is easier, cheaper, and more effective to deliver medicine orally than through injections or other methods that bypass the digestive system. For example, this technology might allow a diabetes patient in the future to take an insulin pill instead of needing frequent hypodermic injections of insulin.
II. The Research Collaboration Begins
In 1996, Lilly and Emisphere began negotiating a possible research collaboration on carrier compounds that could be used for oral administration of parathyroid hormone (PTH) and human growth hormone (hGH). See Ex. 13. Almost all the evidence here deals with the work on PTH, which is produced by the parathyroid glands. Its principal role in the body is the regulation of bone metabolism. PTH can be used to treat osteoporosis, a disease that weakens bones, especially in older women. Lilly has introduced to the market an injectable PTH product called Forteo, but PTH is not currently available for oral delivery.
On February 26, 1997, Emisphere and Lilly signed their first Research Collaboration and Option Agreement, called RCOA I. Ex. 1. In RCOA I, Lilly and Emisphere agreed to collaborate on a research and development program (“the Program”) to research the use of “Emisphere Technology” for oral delivery of PTH and related compounds, as well as some non-oral methods of delivery. As part of RCOA I, the parties agreed that Emisphere would grant Lilly an option for an exclusive worldwide license to make and use the Emisphere carrier technology to develop oral PTH products. Lilly could exercise that option by giving notice to Emisphere and by paying Emisphere a substantial sum of money. RCOA I, § 2.1. In the negotiations on RCOA I, the parties also agreed on the terms of the separate license agreement that would take effect if and when Lilly exercised the option. That license agreement is known as the PTH License Agreement. See Ex. 2.
Both sides were represented by highly capable counsel in negotiating and drafting the agreements. The agreements are superb examples of sophisticated and complex draftsmanship, often with multiple layers of many careful definitions of key terms, as noted below.
III. The Key Contract Terms
RCOA I took effect in February 1997 and expired in February 1999. In Section 1.1, Emisphere agreed to “make available to Lilly access to all Emisphere Technology relevant for the Program,” i.e., for the PTH research. The parties defined “Emisphere Technology” broadly in the preamble to RCOA I as:
proprietary synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means (including all related patents, patent applications and Know-How presently owned by Emisphere and all patents, patent applications, and Know-How relating to inventions developed by Emisphere pursuant to the Program ... ).
Ex. 1. RCOA I included confidentiality provisions in Section 5. Those provisions did not restrict distribution within Lilly of information relating to the Program, nor did RCOA I restrict Lilly’s internal use of information obtained in the PTH Program. See Ex. 23.
Research collaboration began in 1997 after execution of RCOA I. On March 6th and 7th, scientists from both companies met in Indianapolis. Ex. 17. Emisphere scientists identified the best carrier candidates for use with PTH and provided specific test results on PTH experiments they had already conducted, including studies of primates. At the meeting, Emisphere agreed to provide carrier samples and some methods and protocols for producing the carriers. Ex. 17 at 523. By May 6, 1997, Lilly scientists had synthesized several Emisphere carriers for themselves, with critical help from Emisphere scientists. See Ex. 724.
The early work on carriers for PTH was sufficiently promising that Lilly paid Emisphere $4 million in April 1998 to exercise the PTH option. Section 2.1 of the PTH License Agreement provided that Emisphere granted Lilly during the term of the agreement:
an exclusive license to use (a) the Emisphere Patents, the Emisphere Program Patents and Emisphere’s share of the Joint Patents for the Field, and (b) the Emisphere Know-How, the Emisphere Program Know-How and Emisphere’s share of the Joint Know-How for the Field. All proprietary rights and rights of ownership with respect to the Emisphere Technology and Emisphere Program Technology shall at all times remain solely with Emisphere unless otherwise specified in this Agreement. Lilly shall not have any rights to use the Emisphere Technology or Emisphere Program Technology other than insofar as they relate directly to the Field and are expressly granted herein.
Ex. 2, § 2.1 (emphasis added). Emisphere contends that Lilly breached the final sentence in this provision beginning in 2001 by carrying out secret, independent research projects on using Emisphere’s carriers with proteins other than PTH, as described in detail below.
The PTH License Agreement also included detailed provisions for confidentiality, including limits on Lilly’s internal distribution and use of information relating to the PTH and carrier research:
11.1 The Parties acknowledge that it may be necessary, from time to time, to disclose to each other confidential and proprietary information, including without limitation, inventions, works of authorship, trade secrets, specifications, designs, data, know-how and other information, relating to the Field, the Compounds, the Carriers, the Products, processes, and services of the disclosing Party or regarding the Emisphere Technology or Emisphere Program Technology or the Lilly Technology or the Lilly Program Technology. The foregoing shall be referred to collectively as “Confidential Information”. Any Confidential Information revealed by a Party to another Party shall be used by the receiving Party exclusively for the purposes of fulfilling the receiving Party’s obligations under this Agreement.
11.2 Each Party agrees to disclose Confidential Information of another Party only to those employees, representatives and agents requiring knowledge thereof in connection with their duties directly related to the fulfilling of the Party’s obligations under this Agreement. * * *
Ex. 2. Emisphere contends that Lilly also violated Section 11.2 beginning in 2001 by having the employees who worked on the PTH program provide confidential Emisphere information to the Lilly team working on the secret projects researching Emisphere’s carriers with proteins other than PTH.
IV. The PTH Research Continues
Research on use of Emisphere’s carriers with PTH continued in 1998. The collaboration made Emisphere nervous about the confidentiality of its valuable information. Lilly’s Dr. Henry Havel — a key figure in this case, who worked with Emisphere from the beginning of the PTH project— had a telephone conversation with Emisphere’s John Smart on October 29, 1998. Smart expressed concern about whether Lilly was trying to get into Emisphere’s business. Lilly’s Havel reported: “I tried to reassure him that we have no interest in duplicating their technology, but we have a strong need to understand how the carriers work for future development.” Ex. 492.
Dr. Havel’s comment reflects one recurring theme of the research on Emisphere carriers. Nobody with Emisphere or Lilly really understood how the carriers work, their “mechanism of action.” Of course, it is possible for the carriers to work in practice even if the mechanism of action is not understood. Lilly had concerns, however, about its ability to secure regulatory approval for a product if it could not explain how the product worked. Tr. 473 (Lilly’s Khan); Tr. 851-52 (Lilly’s Havel). For example, perhaps the carriers might also expose the bloodstream to other proteins and large molecules in the digestive system.
In August 1998, Lilly and Emisphere chose a proprietary Emisphere carrier known as 4-MOAC (and also known as E691) as the carrier they would try to use for oral PTH. Tr. 832-33 (Lilly’s Havel). In January 1999, however, the PTH program ran into a problem. Oncology studies of rats suggested that the injectable form of PTH might cause tumors. Tr. 464-65. The parties decided to halt the oral PTH program, at least temporarily. See Ex. 612 at 0170. The halt lasted about 18 months, and the injectable form of PTH eventually reached the market under the trade name Forteo. During the halt, RCOA I expired by its own terms in February 1999, leaving the PTH License Agreement as the operative contract between the parties.
When the PTH research resumed in 2000, it produced promising results. On December 4, 2000, Emisphere and Lilly scientists jointly submitted for publication an article on “Oral Delivery of Biologically Active PTH.” Ex. 33. The article discussed positive results in bone formation in experiments with rats and monkeys. The research team had tested 100 Emisphere carriers with PTH and found that 4-MOAC was most effective. With cool understatement, the researchers concluded: “To our knowledge, this is the first demonstration of the reproducible oral delivery of a biologically active protein drug in a randomized, controlled experiment in an animal model of human disease.” Ex. 33 at 00025.
Effective June 8, 2000, the parties also agreed to RCOA II to govern continued research collaboration on oral delivery of PTH and hGH. RCOA II provided that, with certain exceptions, “Emisphere shall own all patents, patent applications and Know-How relating to the Emisphere Technology to the extent that Lilly and/or Emisphere invents and/or develops same during the course of and as part of the Programs, including, but not limited to, any Lilly Improvements.” Ex. 4, § 1.5(b). Section 1.5(b) is limited to inventions or developments in the course of “the Programs,” a defined term encompassing the joint research efforts.
RCOA II further provided: “Any new Carriers or inventions which are closely related to the Emisphere Technology (as it exists as of the Effective Date) that arise, in whole or in part, out of suggestions, recommendations or discussions held between Emisphere and Lilly scientists shall be Emisphere Technology.” Ex. 4, § 1.5(c). Section 1.5(c) is not limited by its terms to new carriers and inventions generated in “the Programs,” so this provision can apply more broadly to inventions generated in Lilly’s secret independent research projects. Emisphere contends that Lilly has violated this provision by refusing to assign to Emisphere the Lilly patent application for use of Emisphere carriers with GLP based on the secret Lilly research. Emisphere contends that Lilly’s research was based at least in part on the joint research on the carriers with PTH.
Y. Lilly’s Secret Research Projects on Emisphere Carriers
Dr. Amin Khan was the lead Lilly representative on the joint committee that supervised the Emisphere-Lilly research efforts on oral PTH, having taken on that role beginning in 1998. In January 2001, the parties began negotiating a much broader collaboration agreement, but the negotiations never came to fruition.
In January 2001, Dr. Khan also began recruiting talent inside Lilly to form a new and secret Oral Protein Delivery Team (the “OPD Team”). See Ex. 224. The OPD Team was set up to study the mechanism of action of the Emisphere carriers, but with protein molecules other than PTH, which was the subject of the license from Emisphere and the joint research. See Ex. 202. At all relevant times, Dr. Khan remained the lead Lilly representative overseeing the joint Lilly-Emisphere research on oral PTH. At all relevant times, Dr. Khan also supervised the secret Lilly OPD Team and its later evolution into what became the Oral GLP team whose research triggered this lawsuit.
Dr. Khan recruited Dr. Havel for the OPD Team in its earliest stages in January and February 2001. See Exs. 207, 225, 226. Dr. Havel had been working on the joint Emisphere-Lilly research from the beginning in 1997. Dr. Khan included Dr. Havel in the OPD Team because of his experience and knowledge gained through the work with Emisphere on PTH. Tr. 493. This point is not surprising, but it is important to note in light of Lilly’s argument that the OPD Team derived no useful benefits from the PTH research. The other members of the OPD Team had not been involved in the PTH research with Emisphere.
In the early stages of the OPD Team, in March and April 2001, Dr. Havel gave the team a detailed briefing on Emisphere’s carrier technology and the results of the PTH research. See Ex. 463 (slide presentation); Ex. 208 (April 20, 2001 minutes of OPD Team noting as “completed action item” adding the PTH presentation to team’s database). Some of this information was public, but clearly not all of it was. The briefing included detailed information about results of unpublished research, experience with methods for synthesizing the carrier molecules, and methods for testing the carriers. In fact, some of the slides Dr. Havel presented to the secret OPD Team even bore the legend: “Confidential — Property of Emisphere Technologies, Inc.” Ex. 463 at 212, 219.
Dr. Khan instructed other OPD Team members to scour available published materials (patents, research papers, etc.) for information about Emisphere carriers. Some of the materials addressed related technology developed by other companies, but the vast bulk dealt with Emisphere carriers.
While the OPD Team was proceeding, Dr. Khan and Dr. Havel also continued to work with Emisphere on the PTH project. Neither they nor other Lilly personnel informed Emisphere of the formation or work of the OPD Team. The most likely explanation is that (a) they had little confidence in Emisphere’s ability to contribute to further progress, and (b) they hoped that the negotiations for a broader collaboration with Emisphere would be successful, so that they could secure a license to take their work further. At the same time, they were keeping the work secret so they could keep open the option of simply going forward even without a license if they concluded Lilly had the legal right to do so. Beginning in March or April 2001, the OPD Team included Lilly patent attorney Mike Bates to provide advice on how to carry out the research without violating the Emisphere contracts. See Tr. 492 (Lilly’s Khan) and Ex. 509 (“We must work with Mike Bates to carefully plan and execute our strategy.”).
Over the summer of 2001, negotiations with Emisphere toward a broader collaboration stalled. Lilly focused more sharply on legal concerns about the OPD Team’s work. The team consulted with attorney Bates. Lilly has not waived the attorney-client privilege on this subject, but the evidence shows that in mid to late summer, several months after Bates joined the team, Lilly attempted to erect a so-called “firewall” between the PTH work with Emisphere and the OPD Team itself. Dr. Havel was removed from the OPD Team and was told not to discuss any research matters with members of the OPD Team. Dr. Khan, however, remained the team leader for both the PTH effort and the OPD Team. See Ex. 516 (July 23, 2001 email with attachment). Lilly contends this rather low firewall was created some time in June 2001. Documentation of the firewall is surprisingly sketchy. Based on the documents with lists of team members and recipients, the court finds the firewall most likely was established in late July 2001.
At or about the time the firewall was established, Lilly decided to have the OPD Team shift from broad research to a focus on one particular protein, GLP. See Ex. 516; Ex. 212. While Lilly makes much of the fact that Dr. Havel left the OPD Team before it actually began its research specifically on GLP, see Ex. 212 (August 2001), Dr. Khan remained the team leader.
There are three significant problems with the firewall. First, the firewall was not erected until several months after Dr. Havel had joined the team and had provided a detailed report on Emisphere carriers and the PTH work. As noted, that report included non-public information from the PTH project, and it even included information labeled as confidential Emisphere information. Second, the firewall might have excluded Dr. Havel from the team for a while, but Dr. Khan still had a hands-on leadership role in both efforts. Lilly has not offered any satisfactory reason why its contracts with Emisphere made it advisable to exclude Dr. Havel but to leave Dr. Khan in charge of both efforts. Third, the exclusion of Dr. Havel is flatly inconsistent with Dr. Khan’s and Dr. Havel’s attempt at trial to portray the OPD Team, for the first time, as merely an extension of the joint PTH research program with Emisphere, such that the OPD Team’s work would have been authorized by the PTH License Agreement. (The court finds the latter explanation incredible, as explained below, but the shifts and internal contradictions in Lilly’s positions weaken its case.)
The GLP research produced promising results very quickly, by late October 2001. The results were very positive for two carriers to deliver GLP, including the familiar Emisphere carrier 4-MOAC, which had been the focus of the PTH research. See Ex. 503 (Oct. 25, 2001 e-mail from Khan to members of what had become the Oral GLP team).
VI. Lilly’s GLP Patent Application and GLP License Negotiations
After receiving these promising results from its secret research on Emisphere carriers, Lilly began negotiating with Emisphere in January 2002 for a license to commercialize products containing Emisphere’s carriers and GLP. Ex. 436 (Jan. 31, 2002 e-mail from Emisphere’s Bender to Lilly’s Zakrzewski). Again, Lilly did not disclose to Emisphere its research efforts with GLP or the successful results.
While those negotiations were going on, Lilly filed a patent application with the World Intellectual Property Organization for combinations of GLP with 56 different delivery agents, including Emisphere’s proprietary carriers that had been used in the collaborative research on PTH. Lilly filed the application on February 20, 2002. Ex. 39. This was the application that was eventually published in September 2003, prompting Emisphere to charge breach, which led to this lawsuit. The application listed one inventor: Dr. Amin Khan.
Lilly always recognized that it would need a license from Emisphere to develop the GLP research results into a commercial product using an Emisphere carrier. Ex. 495 at 00256 (Khan e-mail of Feb. 22, 2002: “if we find a carrier that works it will be from the library of carriers we have generated from Emisphere publications and patents. This will mean that in order to pursue oral FSH we will have to seek a license from Emisphere.”). As noted, the Lilly Oral GLP team was working with 4-MOAC as the carrier. In fact, the Lilly Oral GLP team had even worked with a supply of 4-MOAC that Emisphere itself had provided to Lilly in the course of the collaborative research on PTH. See Ex. 472; Tr. 588. The Oral GLP team received approval from senior management to seek a license from Emisphere under an agreement that would have Lilly perform product development work using a carrier supplied by Emisphere. Ex. 474. Lilly has also claimed, however, that it did not need a license from Emisphere to continue its research on oral delivery of GLP using Emisphere carriers. Ex. 482.
During the negotiations, Lilly removed the firewall and allowed Dr. Havel to provide additional information to the GLP team. See, e.g., Ex. 474 (March 27, 2002 e-mail to “GLP-1 Oral Team” including both Dr. Havel and attorney Bates with update on approval for research to develop a product using 4-MOAC). As another example, Exhibit 477 is a series of e-mails between Dr. Havel and Jill Olinger, a team leader on the Oral GLP project, on July 30 and 31, 2002. Olinger was asking Dr. Havel and others for information on the reasons for the Oral GLP team’s choice of a particular Emisphere carrier. Her questions show that she had access to data from the PTH project, and Dr. Havel provided answers that obviously drew on his vast experience with that project.
The negotiations over a license for GLP eventually broke down in the late summer or fall of 2002 over intellectual property issues. After Emisphere had worked with its lawyers to address Lilly’s stated concerns about those issues, Lilly rejected the revised proposals. Emisphere’s lawyers presciently wondered just what Lilly had been up to for the last couple of years if it was not willing to agree to the revised terms. See Ex. 494 (Emisphere’s CEO Goldberg to Lilly’s DiMarchi reporting that Emisphere lawyers had said “It really makes me wonder what they’ve done in the past year or two, and what they’ve actually been using your technology for. This approach presents a challenge to your ability to protect your core technology.”). Lilly apparently then cancelled its GLP project in November 2002 because it could not commercialize the product without a license from Emisphere. See Ex. 501. Lilly continued to work with Emisphere on a PTH product.
After the Lilly patent application for GLP was published on September 4, 2003, Emisphere executives were surprised, to put it mildly, to learn that Lilly had been working independently with Emisphere’s carriers and GLP. The parties have agreed that at least eight of the carriers in the Lilly patent application were claimed previously by Emisphere patents. Tr. 238. Two carriers in the Lilly patent application were carriers in Emisphere’s unpublished database of carriers. Tr. 321-22.
After quick analysis of the patent application, Emisphere sent a letter on September 26, 2003 asserting that Lilly had violated the agreements. Ex. 40. First, the Emisphere letter asserted that Lilly had violated RCOA II Section 1.5 by failing to assign the patent application to Emisphere. Section 1.5(b) provided that “Emisphere shall own all patents, patent applications and Know-How relating to the Emisphere Technology to the extent that Lilly and/or Emisphere invents and/or develops ... any Lilly Improvements.” A Lilly Improvement is defined as “an improvement to Emisphere’s then-existing Emisphere Technology made by a Lilly employee as part of the Program.” Ex. 4, § 1.5(d).
The Emisphere letter also asserted that Lilly had violated Section 2.1 of the PTH License Agreement: “Lilly shall not have any rights to use the Emisphere Technology or Emisphere Program Technology other than insofar as they relate directly to the Field and are expressly granted herein.” Emisphere asserted that Lilly violated this term by synthesizing and testing carriers disclosed and claimed in Emisphere patents and patent applications and PCT applications. Ex. 40. Emisphere asserted that the breaches were incurable, but as a basis for resolving the dispute, Emisphere demanded that Lilly assign the GLP patent application to it and disclose all patent applications relating to Emisphere technology that Lilly had filed or planned to file.
There is no evidence that Lilly communicated to Emisphere at any time before publication of the GLP patent application Lilly’s belief that the PTH License Agreement allowed it to use Emisphere’s carrier technology in fields outside of the PTH project. See Tr. 217, 224-26 (Emisphere’s Bender). During the negotiations over a potential GLP license, Lewis Bender from Emisphere asked Dr. Khan about Lilly’s plans for the technology once they agreed to a license. Dr. Khan got angry and had no answer. Tr. 224-25. Probably in the same meeting, Bender asked Dr. Khan whether he had worked with GLP, and Dr. Khan did not answer the question. Tr. 227. Dr. Khan testified that he considered the GLP work a Lilly trade secret that he was not free to disclose to Emisphere. Tr. 546-47.
Instead, while Lilly was carrying out its secret research project, Lilly’s Dr. Khan was complaining to Emisphere CEO Dr. Michael Goldberg that Emisphere’s lawyers apparently did not trust Lilly with confidential research results on formulations and primate studies. Dr. Khan wrote: “Michael, I am left with the impression that your staff expect us to continue working blind, and I question their commitment to this program (of course, if I allow my imagination to run wild I can speculate as to the reason why).” Ex. 38 (e-mail dated September 18, 2002). Dr. Khan believed that Emisphere was interested in working with Novartis on the PTH project. Tr. 550-51. Novartis had been working with Emisphere carriers on other proteins. During the course of the research, Lilly, Novartis, and Emisphere had explored the possibility of a three-way collaboration on the carriers. See Ex. 555 at 246.
VII. The Lawsuit and Later Events
Emisphere’s letter of September 26, 2003 was consistent with the parties’ contractual provisions for dispute resolution, which called for notice, negotiations between senior management, and if litigation became necessary, for litigation in New York. See PTH License Agreement § 17.1. Lilly responded to the demand for negotiations by filing in this court a complaint for declaratory judgment on October 14, 2003. Lilly delayed serving Emisphere, however, until December 2, 2003. Emisphere agreed to Lilly’s request for additional time to respond to the letter. The parties began negotiating in December 2003.
Negotiations continued through the spring of 2004. While they proceeded, Lilly continued to work on the PTH project, including a new clinical study in April 2004 with Emisphere carrier 4-MOAC. Ex. 800. During the settlement negotiations, Emisphere proposed terms at various times that would not have involved termination of the agreements with Lilly. The parties never reached an agreement. Over the summer of 2004, Emisphere negotiated with Novartis to provide an exclusive license to Emisphere’s carriers for use with PTH. The deal was contingent on Emisphere’s ability to terminate the PTH License Agreement with Lilly. Ex. 326. On August 23, 2004, two days before a scheduled settlement conference with the court, Novartis told Emisphere it was willing to go forward if Emisphere terminated the Lilly contracts. That same day, Emisphere sent a letter to Lilly terminating RCOA II and the PTH License Agreement. Ex. 44.
VIII. Breaches of the Contracts
The parties’ contracts provide that they are governed by New York law. A party claiming breach of contract must show (1) formation of a contract; (2) performance by the party claiming breach; (3) the other party’s failure to perform; and (4) resulting damage. Terwilliger v. Terwilliger, 206 F.3d 240, 245-6 (2d Cir.2000). The parties agree that the contracts were formed. Lilly did not contend at trial that Emisphere had failed to perform as required. The issues are whether Lilly breached the contracts and, if so, whether the breaches were so damaging as to allow Emisphere to terminate the contracts. Both questions require interpretation of the contracts.
In Cruden v. Bank of New York, 957 F.2d 961, 976 (2d Cir.1992), the Second Circuit summarized the basic principles of contract interpretation under New York law:
Under New York law, a written contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language they have employed. See Breed v. Insurance Co. of North America, 46 N.Y.2d 351, 355, 413 N.Y.S.2d 352, 385 N.E.2d 1280 (1978). Construing an unambiguous contract provision is a function of the court, rather than a jury, and matters extrinsic to the agreement may not be considered when the intent of the parties can fairly be gleaned from the face of the instrument. See Teitelbaum Holdings, Ltd. v. Gold, 48 N.Y.2d 51, 56, 421 N.Y.S.2d 556, 396 N.E.2d 1029 (1979). A court may neither rewrite, under the guise of interpretation, a term of the contract when the term is clear and unambiguous, Fiore v. Fiore, 46 N.Y.2d 971, 973, 415 N.Y.S.2d 826, 389 N.E.2d 138 (1979), nor redraft a contract to accord with its instinct for the dispensation of equity upon the facts of a given case. See DeVanzo v. Newark Ins. Co., 44 A.D.2d 39, 43, 353 N.Y.S.2d 29 (2d Dep’t 1974), aff'd, 37 N.Y.2d 733, 374 N.Y.S.2d 619, 337 N.E.2d 131 (1975). Further, the entire contract must be considered, and all parts of it reconciled, if possible, in order to avoid an inconsistency. See Laba v. Carey, 29 N.Y.2d 302, 308, 327 N.Y.S.2d 613, 277 N.E.2d 641 (1971); National Conversion Corp. v. Cedar Bldg. Corp., 23 N.Y.2d 621, 625, 298 N.Y.S.2d 499, 246 N.E.2d 351 (1969).
“A familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.” W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440, 566 N.E.2d 639, 642 (1990). In construing contractual language, “a court should accord that language its plain meaning giving due consideration to ‘the surrounding circumstances [and] apparent purpose which the parties sought to accomplish.’ ” Cable Science Corp. v. Rochdale Village, Inc., 920 F.2d 147, 151 (2d Cir.1990), quoting William C. Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524, 159 N.E. 418, 419 (1927). In addition, “[e]ffect and meaning must be given to every term of the contract, and reasonable effort must be made to harmonize all of its terms.... [T]he contract must be interpreted so as to give effect to, not nullify, its general or primary purpose.” Reda v. Eastman Kodak Co., 233 A.D.2d 914, 649 N.Y.S.2d 555, 557 (N.Y.App.Div.1996) (internal citations omitted).
A. RCOA II Section 1.5
Lilly’s continuing refusal to assign the GLP patent application to Emisphere violates Section 1.5(c) of the RCOA II agreement:
It will not be Lilly’s responsibility or intent to develop new synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means (the “Carriers”) as part of the Programs. Any new Carriers or inventions which are closely related to the Emisphere Technology (as it exists as of the Effective Date) that arise, in whole or in part, out of suggestions, recommendations or discussions held between Emisphere and Lilly scientists shall be Emisphere Technology.
Ex. 4, § 1.5(c). The first sentence is a statement of intention by Lilly that is not legally binding. The second sentence, however, is binding, and Lilly has breached it.
Parsing the elements of the second sentence, the GLP patent application for use of Emisphere’s proprietary carrier with GLP claims new inventions that are closely related to Emisphere Technology as it existed on the effective date. In the preamble, RCOA II defines “Emisphere Technology” broadly as:
proprietary synthetic ■ chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means (including all related patents, patent applications and Know-How presently owned by Emisphere and all patents, patent applications, and Know-How relating to inventions developed by Emisphere pursuant to the Program ... ).
The effective date of RCOA II was June 8, 2000.
Emisphere has also shown that the Lilly patent application on use of GLP with Emisphere’s proprietary carriers arose “in whole or in part, out of suggestions, recommendations or discussions held between Emisphere and Lilly scientists.” Section 1.5(c) does not require Emisphere to show that the GLP patent application stemmed from “Confidential Information.” Section 1.5(c) also does not require Emisphere to prove that its scientists suggested, recommended, or discussed with Lilly scientists the use of GLP in particular. Cf. Lilly Trial Br. at 16. Even so, both parties were always aware of the potential application of Emisphere’s carrier technology to GLP, as shown by the fact that RCOA I gave Lilly a right of first refusal, for a license to use Emisphere’s carriers with GLP. See Ex. 1, § 3.1. Under Section 1.5(c) of RCOA II, Emisphere is required to show only that the invention arose in part out of suggestions, recommendations or discussions between Emisphere and Lilly scientists. Notwithstanding Lilly’s denials and its efforts to insulate the GLP project from the preceding four years of work with Emisphere on carriers in general and 4-MOAC in particular, the following circumstances prove that Lilly breached Section 1.5(c) of RCOAII.
The first circumstance is Dr. Khan’s dual role. Dr. Khan is listed as the sole inventor of the GLP invention. He participated in selecting the carriers that would be tested with GLP. Tr. 622. When Dr. Khan participated in those selections, he was drawing on all knowledge available to him. That knowledge included what he had learned in three years of supervising the Emisphere — Lilly PTH research, as well as in overseeing the work of the OPD Team, which was launched with a thorough briefing on Emisphere carriers by Dr. Havel, drawing on his own years of work on PTH with Emisphere scientists.
Dr. Khan testified that he and the OPD/ GLP team relied only on published data and that none of the information from the Emisphere collaboration was useful in selecting carriers for GLP. Tr. 623. Dr. Khan may honestly believe that conclusion at this time, but it simply is not credible. Dr. Khan acknowledged that the information he had gleaned from years of supervising the PTH research led him to have expectations about which carriers were likely to be most promising with GLP. See, e.g., Tr. 600-01. Scores of exhibits show that he received a great deal of such information. Some of his expectations turned out to be right and some wrong, but the background was obviously helpful. For example, much of the GLP work had focused on 4-MOAC, the same carrier being used in the PTH work. As Lilly was preparing to move forward to commercialize a GLP product, it chose to focus on 4-MOAC. Dr. Havel testified that part of the reason was “that we had a fair amount of information on that particular molecule since we had been using it for PTH.” Tr. 857. Dr. Havel explained in a later presentation, after the GLP patent application was filed, that the use of 4-MOAC offered advantages with GLP because of all the toxicology and human studies already conducted with 4-MOAC in the PTH research program. Ex. 482 at 543 (Oct.2002). In addition, two of the carriers in the Lilly GLP patent application were carriers in Emisphere’s database of unpublished carriers. Dr. Khan also recalled that Emisphere CEO Dr. Goldberg had told him that Emisphere had conducted studies of carriers with GLP, though Dr. Khan did not recall specifics at trial. Tr. 604. Any work he did on carriers must have arisen at least in part from discussions, recommendations, and suggestions between Lilly and Emisphere scientists in the PTH project. And his work led him to the inventions claimed in the GLP patent.
Dr. Havel’s role is another important circumstance linking the Lilly GLP patent application to the PTH project, showing that the claimed inventions arose in whole or in part “out of suggestions, recommendations or discussions held between Emisphere and Lilly scientists.” In the first several months of the OPD Team’s work, Dr. Havel’s role was to educate the other members about Emisphere carriers in general and 4-MOAC in particular. Dr. Havel had this educational role precisely so he could share the knowledge gained while working with Emisphere for nearly four years on the PTH project with others who had not been part of that project. The OPD Team then evolved into the Oral GLP team later in 2001.
Dr. Havel had been involved in the PTH efforts from their earliest stages. See, e.g., Ex. 91 at 144 (minutes of Nov. 30, 1998 meeting between Lilly and Emisphere discussing 4-MOAC work and noting Havel’s role as “the communication link for general carrier technology”). As the OPD Team was being formed, months before the low firewall was erected in July 2001, he had disclosed data from the PTH project to the new secret OPD Team. He did so in order to ensure that they would have a better understanding of the mechanism of action of 4-MOAC. Tr. 886. Especially since no one clearly understood the mechanism of action, the better known a particular molecule was, the more of a head start the research team had. Documents from the earliest stages of the OPD Team show that the team was drawing on what Lilly had learned from the collaboration with Emisphere on PTH. See Exs. 225 & 226 at 002 (Feb. 26, 2001 e-mail citing “Emisphere, unpublished data” on hGH); Ex. 230 (Mar. 21, 2001 e-mail with OPD Team members discussing carrier structures and data from Dr. Havel and from Emisphere’s Dr. Leone-Bay); Ex. 202 (Khan e-mail to McGill with structure of free acid form of 4-MOAC on March 9, 2001, noting “This is the carrier being used for the oral PTH program.”).
On March 8, 2001, Dr. Havel attended a meeting with Emisphere scientists noting that a list of useful excipients (the nonactive ingredients in a drug formulation that can be critical to its safety and effectiveness) would be prepared, and that the list would be “based on Emisphere’s experience with other carriers and molecules.” Ex. 462.
Approximately a week later, Dr. Havel made a detailed presentation to Lilly management about oral protein delivery in general, drawing on extensive materials from the collaboration with Emisphere, including research data from other projects looking at other proteins. Some of the information Dr. Havel presented was actually still labeled “Confidential — Property of Emisphere Technologies, Inc.” See Ex. 463, including pages 0212, 0219 et seq. Dr. Havel’s report included results on Emisphere carriers with other proteins, not limited to PTH. See also Ex. 203 (Havel email on March 20, 2001 with attachments on PTH results for presentation to OPD team, including list of which carriers worked best with PTH and hGH). Dr. Havel’s information became part of the database the OPD Team used for its research. Ex. 208; Tr. 738-40.
All of this sharing of information from the PTH collaboration, including confidential Emisphere information, occurred several months before the low firewall was established to exclude Dr. Havel (but not Dr. Khan) from further involvement in OPD and/or GLP research. The court has already noted the problems with the firewall effort. Before the firewall was established, with all its shortcomings, Lilly had hoped to negotiate a deal with Emisphere that would license all of these potential uses. But Lilly was developing a fall-back plan in case negotiations were unsuccessful, as they turned out to be. The meeting summary for March 20, 2001 states: “In the event these negotiations fail, we are prepared to develop our own expertise within Lilly. [Emisphere’s intellectual property] position is being evaluated and a strategy will be developed.... ” Actions items included an attempt to identify as much public information on Emisphere’s carriers as possible. Dr. Havel was still designated to act as the link to the GLP team. Ex. 229.
On April 19, 2001, Dr. Khan reported to the OPD Team that negotiations with Emisphere for a broad agreement were not going well, so that the OPD Team would need to work with Lilly attorney Mike Bates “to carefully plan and execute our strategy.” Ex. 509. The strategy for dealing with Emisphere’s intellectual property rights would eventually include the firewall between the PTH team and the other research effort. See, e.g., Ex. 212 (August 2, 2001 meeting minutes for OPD Team that no longer included PTH team members other than Dr. Khan, who remained involved in both). But even by April 2001, of course, Dr. Havel and Dr. Khan, who had worked closely with Emisphere on the PTH project, had already conveyed a great deal of information to the others working on the OPD Team. Dr. Havel continued to attend OPD Team meetings as late as June 21, 2001. See Ex. 236. Even into the latter half of July 2001, Dr. Havel and Dr. Kuchibhotla from the PTH effort were listed as members of the OPD Team, and Dr. Khan was sharing PTH information with the OPD team. See Ex. 516, including pages 447, 449, 455.
Lilly witnesses and documents show that Lilly was concerned about a future charge that it had used Emisphere’s confidential information in the OPD and later GLP projects. Accordingly, with an initial boost from the PTH team that had worked with Emisphere, the OPD Team scoured the public record for patents and publications about Emisphere’s carriers that it could use as its foundation for research. See, e.g., Ex. 229.
This firewall effort and the search of public records pose several additional problems for Lilly in this lawsuit. First, they emphasize that Lilly managers were very much aware of potential problems with Emisphere resulting from this secret and supposedly independent research project. Second, Section 1.5(c) of RCOA II is not limited to confidential information. The broad provision recognizes the practical reality that the scientists from the two companies would share a great deal of information that might or might not qualify as strictly confidential, but that would be practical and useful in inventing new carriers and other related improvements.
Third, Emisphere has shown that the Oral GLP team did not rely solely on published information, but had already received a running start on carrier research because of the help they received from Dr. Khan and Dr. Havel, who got their start with the Emisphere-Lilly collaboration on PTH. In other words, Lilly’s Oral GLP team already knew a lot about what had worked with the PTH research. The effort to develop a sanitized paper trail relying on only published information did not accurately reflect the reality of what had occurred, yet it reflects an awareness of the benefits of making the project appear to be based on only public information.
Fourth, Lilly argued at trial that the OPD Team was part of the collaborative PTH Program being carried out with Emisphere, so that the transfer of information from Dr. Havel and Dr. Khan was not a breach of the contracts and did not help with the GLP effort. The theory seems to be that Lilly would be responsible for obtaining FDA approval for any successful oral PTH product, and that the FDA might be troubled if Lilly were not in a position to provide an accurate description of the carrier’s mechanism of action. This explanation for the OPD Team has some superficial plausibility, and no doubt Lilly had such concerns. The explanation for the OPD Team’s work does not stand up to scrutiny, however.
This explanation was first offered at trial, and it is not supported by contemporaneous documents or other evidence. In fact, the explanation has weakened Lilly’s credibility in this case overall. If the new explanation had been the real motive for the OPD Team work, there would have been no reason not to tell Emisphere, no reason not to seek help from Emisphere, and no reason not to ask Emisphere about its own prior dealings with the FDA concerning its carriers. See Tr. 577 (Khan testimony that work of OPD Team was “not a part of the program between Lilly and Emisphere,” so there was no reason to include Emisphere). If the new explanation had been the real motive for the OPD Team work, there also would have been no reason to bring in a separate group of scientists and to have them attempt to develop a paper trail that suggested reliance on only published information. And if the new explanation had been the real motive for the OPD Team work, there also would have been no reason for the team not to share its results with the Lilly scientists working with Emisphere on PTH. See Tr. 732-33 (Dr. McGill of OPD Team did not know of such distribution). Dr. Havel said that he also had not heard of any such disclosures.
For all of these reasons, the court finds by a preponderance of the evidence that Lilly’s claimed GLP inventions arose at least in part from suggestions, recommendations, and discussions with Emisphere scientists. Lilly’s refusal to assign to Emisphere the oral GLP patent application (Exhibit 39) was and continues to be a breach of Section 1.5(c) of the RCOA II agreement.
B. PTH License Agreement Section 2.1
Lilly’s entire OPD Team and the Oral GLP project also violated Section 2.1 of the PTH License Agreement, which was in full force at the relevant times. In Section 2.1 of the PTH License Agreement, Emisphere granted Lilly an exclusive license to use Emisphere information for the “Field,” which was defined as oral delivery of PTH. Ex. 2. Section 2.1 concludes: “Lilly shall not have any rights to use the Emisphere Technology or Emisphere Program Technology other than insofar as they relate directly to the Field and are expressly granted herein.” By its plain terms, this provision bars Lilly from using Emisphere Technology and Emisphere Program Technology outside the agreed field of PTH research. Nothing in the language limits its effect to information deemed “confidential” under the agreement.
From Emisphere’s perspective, this restriction on use of its technology in other fields was critical. Emisphere’s business is its carrier technology. It needs to collaborate with larger pharmaceutical companies like Lilly to develop the carrier technology for therapeutic use on a commercial scale. Rather than staking its entire business on one partnership with one large company, Emisphere chose a strategy of working with different partners with exclusive but limited license arrangements to develop carriers suitable for particular therapeutic proteins.
The research efforts for any one therapy could easily require Emisphere to disclose to its research partner a vast amount of valuable information about the Emisphere carriers, as in the PTH project with Lilly. Much of that information was not public, such as the best procedures for synthesizing and manufacturing particular carriers, how to deal with impurities in the carriers, which excipients were likely to work well or not so well with carriers, toxicology data, dose response data from animal experiments, and whether solid or liquid doses produced better absorption, among many others. If a partner with vast scientific, intellectual, and commercial resources like Lilly could take the information gleaned in one project and use it in an independent project with other therapeutic proteins, Emisphere would have effectively sold its entire business for the relatively cheap price of a license for only one application of its technology. In addition, Emisphere’s existing licenses to its other research partners working on other proteins would weaken and lose value, and Emisphere’s ability to enter into new exclusive licensing agreements would also be diminished.
Lilly’s theory is that the key sentence— “Lilly shall not have any rights to use the Emisphere Technology or Emisphere Program Technology other than insofar as they relate directly to the Field and are expressly granted herein” — merely precludes any implied license rights beyond those expressly stated. Under this theory, the PTH License Agreement left Lilly free to use Emisphere’s technology in any way not expressly prohibited by the agreements, including research use on Emisphere’s carriers for delivering other proteins. Under this theory, if Emisphere is unhappy about Lilly’s secret research projects on Emisphere carriers, its legal remedies are limited to claims for patent infringement.
Lilly compares the sentence to the provision in Section 11.1 of the same PTH License Agreement, where the parties agreed: “Any Confidential Information revealed by a Party to another Party shall be used by the receiving Party exclusively for the purposes of fulfilling the receiving Party’s obligations under this Agreement.” Ex. 2, § 11.1. Lilly contends this provision imposes affirmative restrictions on its use of confidential information, while the sentence in Section 2.1 is more limited in effect. Lilly also suggests that Emisphere’s interpretation of Section 2.1 makes the non-use promise in Section 11.1 redundant, which is a reading to be avoided. See Ronnen v. Ajax Electric Motor Corp., 88 N.Y.2d 582, 648 N.Y.S.2d 422, 671 N.E.2d 534, 536 (1996); Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 150 N.Y.S.2d 171, 133 N.E.2d 688, 690 (1956).
Lilly points out that the sentence appears in the grant of the license and does not use the verb “covenant” to provide an explicit covenant not to make competing uses of Emisphere’s technology. Nevertheless, the plain language of the sentence easily supports Emisphere’s reading. It does not use the verb “covenant,” but its prohibition is not limited to rights that might arise under the contract. It does not say, in effect, “Lilly shall not have any rights under this agreement to use the Emisphere Technology or Emisphere Program Technology other than insofar as they relate directly to the Field and are expressly granted herein.” It says more simply that “Lilly shall not have any rights lie., from any source] to use the Emisphere Technology or Emisphere Program Technology....” . That understanding fits with the business realities and the entire context of the agreement. Without that understanding, Emisphere was taking the chance that Lilly could. acquire the entire value of the company’s technology for the price of a license limited to just one possible application of it.
Lilly’s arguments against this reading are not persuasive. First, Emisphere’s interpretation does not render Section 2.1 and Section 11.1 redundant. Section 11.1 applies to the “Confidential Information” of both parties. It requires that a receiving party use the other party’s confidential information “exclusively for the purposes of fulfilling the receiving Party’s obligations under this Agreement.” Section 2.1 applies more broadly to “Emisphere Technology” and “Emisphere Program Technology,” and provides that Lilly shall not have any rights to use them “other than insofar as they relate directly to the Field [oral delivery of PTH] and are expressly granted herein.” There may well be considerable overlap under Emisphere’s interpretation, but there are differences in scope. Also, it is not unusual to protect the same interests in two different ways in a contract, such as one focusing on confidential information and the other more broadly on all the information being provided.
Lilly also relies on an event in the failed 2002 negotiations over a license to use Emisphere carriers to deliver GLP orally. In May 2002, Emisphere proposed, and Lilly rejected, even more explicit language in which Lilly would “covenant” not to use the Emisphere technology except as part of the broader “Field.” Ex. 68 at 002064. Emisphere was working with a new law firm in those 2002 negotiations. Emisphere and its new lawyers proposed an explicit covenant not to use unlicensed technology and a provision that Lilly would work exclusively with Emisphere on oral delivery of proteins. Ex. 68.
Lilly’s reliance on the language proposed by Emisphere in 2002 is not persuasive. Those negotiations occurred more than five years after the parties negotiated and agreed upon the language of Section 2.1 in the PTH License Agreement. The language proposed in the 2002 negotiations also came from new lawyers who had not been involved in any of the prior drafting or negotiations between the parties. The language proposed in 2002 therefore sheds no useful light on the parties’ intentions in 1997. While the proposed language used the more explicit verb “covenant,” that is not the only plain or sufficient way to express the idea that, if Emisphere opened its laboratories, files, and brains to enable PTH research, Lilly would have to agree not to do competing research with Emisphere’s own carriers and technology in other fields.
Third, Lilly also tries to support its argument with a citation to a treatise on patent licensing transactions, Einhorn, Patent Licensing Transactions § 1.03[1], at 1-36, n. 19 (2004). The author notes in his principal text that a license for a compound containing a chemical made by the licensor’s patented process, but which can be obtained elsewhere, might be interpreted as containing an implied license to make the chemical, so that the drafters of the license should rebut such an implication. The note cited by Lilly states: “A suitable provision to rebut the implication of a license is: The license herein granted to manufacture, use, and sell the licensed composition does not include the right to manufacture, use, or sell any compound separately covered by Licensor’s patents.”
The point does not support Lilly. The author’s suggested language ties the limitations directly to the license: “The license herein granted ... does not include.... ” Section 2.1 of the PTH License Agreement, by contrast, does not contain any such limits. It says more broadly: “Lilly shall not have any rights to use” Emisphere’s technology “other than insofar as they relate directly to the Field and are expressly granted herein.” It does not say “Lilly shall not have any rights under this agreement to use” Emisphere’s technology, but that Lilly shall not have any rights — period—to use Emisphere’s technology.
In fact, the Einhorn treatise actually lends strong support for Emisphere’s position here. A few pages later in Section 1.03[4] on “Implied Negative Covenant,” the author writes:
Some licenses are drafted so that the granting clause is not coextensive with the full scope of the patent (e.g., quantity, field of use, or territorial limitations). Should the activities of the licensee exceed the ambit of the limited grant, the question arises as to whether the licensee had breached an implied covenant not to invade the ungranted part of the patent.
Some courts have held that there is such an implied negative covenant in these circumstances and have found a breach of contract. The appropriate remedy would then be for damages or specific performance, although one judge has ordered a forfeiture of the license. (This is contrary to the general rule that forfeitures are not favored.)
Other courts, however, have refused to find an implied covenant, and have in effect limited the licensor’s remedy to a suit for infringement. In a related Supreme Court case, it has been held that a licensee who sells outside of the licensed field of use is an infringer. Furthermore, the purchaser who took the goods with notice of the restriction, and used them outside of the licensed field was also an infringer.
While each case must be analyzed in terms of its own specific facts and circumstances, it would appear that the second group sounds the better rule. This follows from the fact that a straight patent license is essentially a promise by the licensor to forbear from bringing suit so long as the licensee operates within the terms of the grant. Should the licensee transcend the terms of the grant, the licensor has an adequate remedy in a suit for infringement.
Einhorn, Patent Licensing Transactions § 1.03[4] (footnotes omitted). So far, so good for Lilly. The quoted discussion reflects support for its claim that a remedy should be limited to patent infri