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. Incyte was responsible for sales in the United States, while Novartis held rights outside the United States. Each company owed the other royalties based on sales in its territory.

Section 8.3(c) of the agreement described when royalty obligations would end and when royalty rates would be reduced by 50 percent. The reduction could apply when the royalty period continued solely because ten years had not passed since the product’s first commercial sale, or when generic competition existed. The parties’ dispute centered on whether the agreement’s other conditions—patent rights and regulatory exclusivity—continued to require full royalties.

The Dispute

Incyte had paid royalties on U.S. sales of Jakafi beginning in 2014. Regulatory exclusivity for Jakafi’s myelofibrosis indication expired in November 2018. In 2019, Incyte revised its royalty report and paid Novartis only half of the amount it had initially reported. Novartis alleged that Incyte improperly invoked the agreement’s 50-percent reduction provision and sought repayment of the withheld royalties, with interest, as well as a declaration concerning the parties’ rights.

Incyte moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that the agreement unambiguously permitted the reduced payments. Novartis argued that the agreement was ambiguous because both parties had plausible readings of its provisions.

Court’s Analysis

Judge Gregory H. Woods first held that Incyte’s regulatory exclusivity had expired under the agreement. The agreement defined regulatory exclusivity as the ability to exclude third parties from commercializing a licensed product in a country through means other than patent rights. Because Incyte could no longer prevent generic competition for the myelofibrosis indication through non-patent regulatory protection, the court concluded that Incyte no longer had regulatory exclusivity for Jakafi as defined by the agreement. The fact that Incyte retained regulatory exclusivity for two other approved indications did not change that conclusion.

The court then examined the phrase “Licensed Patent Rights” in Section 8.3(c). Incyte argued that, for its U.S. royalty obligations, only patent rights licensed to Incyte by Novartis should count. Novartis argued that the provision could require consideration of all qualifying patent rights covering the product, regardless of which party owned the underlying patent or granted the license.

The court found both interpretations plausible. The agreement’s definition of “Licensed Patent Rights” referred separately to patent rights licensed to Novartis and patent rights licensed to Incyte, but it did not clearly state which category applied in a particular situation or establish that only one category could be considered. Because the contract did not unambiguously require Incyte’s interpretation, the patent-rights provision was ambiguous.

Result

Under the Rule 12(b)(6) standard, a court may dismiss a breach-of-contract claim at the pleading stage only when the contract is unambiguous. Ambiguities are resolved in favor of the plaintiff at that stage. Because the patent-rights language in Section 8.3(c) was ambiguous, Judge Woods denied Incyte’s motion to dismiss. The opinion did not finally determine the amount of royalties owed or otherwise resolve Novartis’s contract claim on the merits.