Thursday, December 23, 2010

Objectively ambiguous license agreement

In the Sanofi-Aventis case over generic oxaliplatin , the CAFC wrote:

We find that Section 3.5 of the license agreement is objectively ambiguous. See New Jersey, 194 F.3d at 430 (“[A] provision in a decree is ambiguous only when, from an objective standpoint, it is reasonably susceptible to at least two different interpretations.”). The language “decision(s) enjoining” in Section 3.5 is ambiguous as to whether a “decision” includes a consent judgment and injunction resulting from a settlement between parties or whether it requires an injunction issued by a court follow-ing a decision on the merits. The settlement agreement is not drafted to prevent sales by Sun whenever the defen-dants were barred from selling; Sanofi agrees, for exam-ple, that Sun could continue to sell if the defendants had agreed to cease sales without a court order. Thus, the disputed language is reasonably susceptible to two differ-ent interpretations.

The negotiation history further supports the objective ambiguity of the disputed language in the agreement. After negotiating the material terms of the license agree-ment, the parties drafted a term sheet memorializing the initial agreed-upon terms. The term sheet noted that Sun agreed to cease sales of generic oxaliplatin following a “final court decision” enjoining at-risk sales by the other defendants. Thereafter, the parties continued to negoti-ate the finer points of the final agreement. During negotiation of the final terms, however, the language changed
to require a “decision(s) enjoining” the other defendants before Sun was required to cease manufacture and sale of generic oxaliplatin. Compare J.A. 209 with J.A. 227–28. Sanofi’s arguments notwithstanding, the parties directly dispute the meaning and effect of the “decision(s) enjoin-ing” language in Section 3.5 of the license agreement. Sanofi argues that the language clearly includes consent judgments, while Sun argues that a consent judgment is not the result of judicial decision. One need not look beyond the parties’ diametrically opposite arguments to determine that the term “decision(s) enjoining” is ambiguous.

The conclusion:

A court errs when it enters a contested consent judgment despite repeated protests and disagreement over the interpretation and effect of material terms defining the obligations of a party. Material terms of a consent judgment that are objectively ambiguous and clearly contested prior to entry of the consent judgment require a determi-nation by the court as to the parties’ obligations under those terms before entry of that revised consent judg-ment. Because entry of the contested consent judgment was improper, we vacate the Consent Judgment and Order and resulting injunction. The district court is instructed to provide the parties an opportunity to conduct discovery and present their evidence as to the proper resolution of the ambiguous language in the license agreement that is incorporated into the parties’ original proposed Consent Judgment. We remand the case for further proceedings consistent with this opinion.


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