Novartis Pharma AG v. Incyte Corporation

Background

Novartis Pharma AG and Incyte Corporation entered into a 2009 Collaboration and License Agreement concerning the research, development, and commercialization of pharmaceutical compounds, including ruxolitinib. The parties established separate sales territories and agreed to pay each other royalties based on sales of licensed products. Incyte sells ruxolitinib in the United States as Jakafi, while Novartis sells it outside the United States as Jakavi.

Section 8.3(c) provides that royalties end when the latest of several listed events occurs, including the expiration of the last valid claim of licensed patent rights covering the product, ten years after the first commercial sale, or the expiration of regulatory exclusivity. The parties disagree about whether the patent-related period for Incyte’s royalty payments to Novartis ended earlier or continues until 2028. Incyte reduced its royalty payments by 50% in 2019 and stopped paying them in 2021. Novartis contends that those actions breached the Agreement.

The court had previously ruled that both parties’ interpretations of Section 8.3(c) were reasonable, making the provision ambiguous. The court had denied Incyte’s motion to dismiss and later denied both parties’ motions for summary judgment. A jury trial was scheduled to determine which interpretation the parties intended.

Incyte’s Motion

Incyte moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). It argued that Novartis’s interpretation could not be accepted because it allegedly violated the rule from Brulotte v. Thys Co. Under that rule, a licensor may not use the leverage of a patent to obtain royalty payments extending beyond the patent’s expiration. Incyte argued that its interpretation therefore had to prevail because it was the only enforceable interpretation.

The court explained that Brulotte does not apply to royalty arrangements that were not negotiated using the leverage of a patent or an anticipated patent. The pleadings showed that Novartis never obtained or applied for a patent covering Jakafi. The Agreement’s general possibility that Novartis might obtain a patent in the future did not show that a patent application was pending or expressly anticipated when the parties negotiated the royalty provision. The court also noted that the alleged royalties compensated Novartis for financial, technical, and commercialization contributions, rather than for patent rights.

Tabrecta Argument

Incyte separately argued that Novartis’s interpretation would make royalties for another product, Tabrecta, unenforceable under Brulotte. The court did not consider that argument on the Rule 12(c) motion because Tabrecta was not mentioned in the complaint, the Agreement, or its amendments. The court also ruled that even if royalties related to Tabrecta violated Brulotte, that violation would affect only the royalty payments tied to the relevant patent and would not invalidate the provision as applied to Jakafi. The court expressly took no position on whether any Tabrecta royalties were enforceable.

Ruling

The court held that Brulotte did not bar Novartis’s interpretation of Section 8.3(c)(i) as applied to Jakafi. Because both Novartis’s and Incyte’s interpretations remained reasonable, the provision remained ambiguous and the jury would decide which interpretation governed. The court denied Incyte’s motion for judgment on the pleadings and directed the clerk to terminate the motion at Docket No. 480. Judge Gregory H. Woods did not decide the ultimate contract dispute in this order.