Bristol-Myers Squibb Co. v. United States

48 Fed. Cl. 350, 2000 U.S. Claims LEXIS 255, 2000 WL 1860718
CourtUnited States Court of Federal Claims
DecidedDecember 18, 2000
DocketNo. 99-923C
StatusPublished
Cited by16 cases

This text of 48 Fed. Cl. 350 (Bristol-Myers Squibb Co. v. United States) is published on Counsel Stack Legal Research, covering United States Court of Federal Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bristol-Myers Squibb Co. v. United States, 48 Fed. Cl. 350, 2000 U.S. Claims LEXIS 255, 2000 WL 1860718 (uscfc 2000).

Opinion

OPINION

MILLER, Judge.

This case is before the court after argument on cross-motions for summary judgment. Twelve years after a license for compounds used in anti-HIV drugs issued, the Government demanded royalty payments for the sales of products made in the United States during the period before a patent issued in the country of sale. The licensee challenges whether the terms of the licensing agreement mandate these payments. Although each party embraces the contract’s plain meaning as decisive, the court determines that the matter cannot be resolved based on the plain language of the agreement.1

[352]*352FACTS

This action is a royalty dispute centering around license number L-020-88/0 (the “Agreement”) between Bristol-Myers Squibb (“plaintiff’) and the National Technical Information Service (the “NTIS”), a part of the Department of Commerce. NTIS was responsible for licensing certain intellectual property owned by the National Institutes of Health (“NIH”) during the Agreement negotiations, until 1994, when the NIH began licensing and managing its intellectual property through the Office of Technology Transfer (“OTT”). Effective since February 1, 1988, the Agreement gave plaintiff an exclusive licence to “make, have made, use and sell” the compounds 2',3'-dideoxyadenosine (“dcLA”)/2' ,3' -dideoxyino-sine (“ddl”), becoming a nonexclusive license ten years from the date of the first commercial sale of the Licensed Product. The compounds showed promise for anti-HIV drugs and the Agreement required plaintiff to continue developing the compounds into medicine in the marketplace, including obtaining regulatory approval in the United States and abroad.

Both parties take the position that the contract language is clear, but with differing readings. Plaintiff contends that royalties are not owed on product sold until a patent has issued in the country of manufacture or sale, premising its argument on the language and structure of the royalty provision, section 4.4. Defendant, on the other hand, asserts that both patent applications and issued patents trigger royalties, based on terms defined within the contract. Section 4.4 of the Agreement sets forth the circumstances when a royalty payment is due:

In consideration of the rights and licenses granted by NTIS to LICENSEE and its AFFILIATES hereunder, LICENSEE shall pay or cause to be paid to NTIS a royalty of five percent (5%) during the exclusive period of this Agreement and three percent (3%) during the non-exclusive period of this Agreement, on the Net Sales of Licensed Product sold by LICENSEE and its included AFFILIATES and sublicensees provided, however, that the Licensed Product sold is covered by a valid claim of a Licensed Patent(s), or made or used by a process covered by a valid claim of Licensed Patent(s), or is sold under circumstances which, if unlicensed, would otherwise constitute infringement of a valid claim in a Licensed Patent(s). Only one royalty shall attach on Net Sales provided the Licensed Product is made or sold in the Licensed Territory. The obligation to pay royalties to NTIS under this Article IV is imposed only once with respect to the same unit of Licensed Product regardless of the number of valid claims of Licensed Patent(s) covering the same. In the event that such royalty rate shall cause LICENSEE or any AFFILIATE difficulty in making the Licensed Product available in any country, LICENSEE can give NTIS written notice of this fact and NTIS agrees to then enter into good faith negotiation of such rates.

The terms “Net Sales,” “Licensed Patent(s),” and “Licensed Product,” are key terms of the royalty provision which the contract defines. Section 1.4 of the Agreement defines “Net Sales” as sales only to “independent third parties” and adjusts to account for standard commercial expenses.2 The Agreement defines both “Licensed Patent(s)” and “Licensed Product” as including pending patent [353]*353applications and issued patents pertaining to the antiviral compounds.3

In 1989 the United States obtained a method of use patent for ddl in the United States and certain foreign countries, which covers ddl as an antiviral agent effective against HIV.4 A patent application covering the compositions of ddA/ddl was pending at the time the Agreement was executed.5 On October 9, 1991, plaintiff received approval from the Food and Drug Administration (the “FDA”) for ddl, which it then began manufacturing and selling as Videx(R) both in the United States and in other markets. The composition patent was still pending in the United States at that time and is a key factor in this dispute as it covers the manufacturing of ddl. Section 8.5 of the Agreement required plaintiff to manufacture ddl substantially in the United States or its territories and possessions, including Puerto Rico. Thus, if defendant’s interpretation of the royalties clause is correct, then royalties would be due from the date of the first sale of Videx(R) anywhere, as long as plaintiff produced Videx(R) in the United States (a Licensed Territory with a pending process patent). However, if plaintiffs reading of the royalties clause is correct, royalties would only be due for the sale of ddl in a country with an issued use patent and not for sales in a non-use patent country, even if the ddl were manufactured or sold where a patent was still pending.

Plaintiff was required to submit royalty statements to NTIS, and later to OTT, as well as make royalty payments on a semiannual basis. Each royalty statement categorized sales by the country subject to the royalty and calculated the royalty due for each.6 In plaintiffs statement for the first half of 1992, which was sent by a letter dated August 31, 1992, plaintiff took a credit for what it considered a previous overpayment of royalties. In explanation of the credit, the letter noted that “[t]he negative sales and royalty amounts above reflect credit to [plaintiff] for 2nd Half 1991 sales and payments for non-patent countries.” According to plaintiff, the note was an express statement of plaintiffs belief that royalties were due only for countries where there was an applicable issued patent.7

Thereafter, plaintiff contends it continued to pay royalties based on its view that royalties were not due in non-patent countries. However, according to defendant, plaintiff sporadically paid royalties on sales in countries where patents were still pending at the time of the payments.8 OTT did not object to plaintiffs royalty payments until 1999 when an outside audit triggered its current position. Defendant rejoins that from 1992 [354]*354through 1999, plaintiff did not report fully the worldwide Net Sales of all Licensed Product produced in the United States, which is a Licensed Territory.

A February 11, 1997 letter signed by George H. Keller, Ph.D., OTT’s Technology Licensing and Monitoring Specialist, requested that all licensees conduct an independent audit if they had licensed properties that had been in commercial production for at least one year and had annual sales of $2 million or more. The licensees could deduct the audit costs from future royalty payments, unless it was determined that the licensee had been under reporting. This 1997 letter was the first audit request made of plaintiff.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Jason Terrell v. Kiromic Biopharma, Inc
Court of Chancery of Delaware, 2024
Fletcher v. United States
Federal Claims, 2020
BPLW Architects & Engineers, Inc. v. United States
106 Fed. Cl. 521 (Federal Claims, 2012)
Keeter Trading Co. v. United States
79 Fed. Cl. 243 (Federal Claims, 2007)
Craig-Buff Ltd. Partnership v. United States
69 Fed. Cl. 382 (Federal Claims, 2006)
SMI Realty Management Corp. v. Underwriters at Lloyd's, London
179 S.W.3d 619 (Court of Appeals of Texas, 2005)
Information Systems & Networks Corp. v. United States
68 Fed. Cl. 336 (Federal Claims, 2005)
Conner Brothers Construction Co. v. United States
65 Fed. Cl. 657 (Federal Claims, 2005)
FabArc Steel Supply, Inc. v. COMPOSITE CONSTR. SYSTEMS, INC.
914 So. 2d 344 (Supreme Court of Alabama, 2005)
Silicon Image, Inc. v. Genesis Microchip, Inc.
271 F. Supp. 2d 840 (E.D. Virginia, 2003)
Capital Properties, Inc. v. United States
56 Fed. Cl. 427 (Federal Claims, 2003)
Bighorn Lumber Co. v. United States
49 Fed. Cl. 768 (Federal Claims, 2001)
Hunt Construction Group, Inc. v. United States
48 Fed. Cl. 456 (Federal Claims, 2001)
Unisys Corp. v. United States
48 Fed. Cl. 451 (Federal Claims, 2001)

Cite This Page — Counsel Stack

Bluebook (online)
48 Fed. Cl. 350, 2000 U.S. Claims LEXIS 255, 2000 WL 1860718, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bristol-myers-squibb-co-v-united-states-uscfc-2000.