Novartis Pharma AG v. Incyte Corporation

Background

Novartis Pharma AG and Incyte Corporation entered a 2009 Collaboration and License Agreement concerning the research, development, and commercialization of pharmaceutical compounds, including ruxolitinib. Incyte held the right to market and sell products containing the compounds in the United States, while Novartis held those rights outside the United States. The agreement required each company to pay royalties to the other based on sales in its respective territory.

Section 8.3(c) described when royalty obligations would end or when royalty rates would be reduced to 50% of the otherwise applicable rate. The rate reduction could apply when the royalty period continued only because ten years had passed since the product’s first commercial sale, or when generic competition existed. The dispute focused on whether the first circumstance applied to Incyte’s U.S. sales of Jakafi, the U.S. trade name for ruxolitinib.

The U.S. regulatory exclusivity for Jakafi’s myelofibrosis indication expired in November 2018. Other regulatory exclusivities remained for other indications, and patents covering Jakafi were alleged to remain in effect. In 2019, Incyte reduced its royalty payment to Novartis by 50%, asserting that the agreement permitted that reduction. Novartis disagreed and alleged that Incyte breached the agreement by paying reduced royalties.

Motion and Legal Standard

Incyte moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a claim for relief. The court applied New York law because the agreement selected New York law. At this stage, the court generally accepted the complaint’s factual allegations as true and could consider the agreement because it was integral to the complaint.

Under the court’s description of New York law, a contract claim may be dismissed at the pleading stage only if the contract is unambiguous. If the contract reasonably supports more than one interpretation, the court cannot dismiss the claim based solely on the contract’s language.

Regulatory Exclusivity

The court held that the agreement’s reference to “Regulatory Exclusivity” was unambiguous. The agreement defined that term as the ability to exclude third parties from commercializing a licensed product in a country through regulatory protections other than patent rights. The court interpreted “any” in that definition to mean all relevant commercialization activities, not merely at least one activity or one use of the product.

Because Incyte could no longer prevent generic competition for the myelofibrosis indication through regulatory exclusivity, the court concluded that Incyte no longer had regulatory exclusivity for Jakafi as defined by the agreement. The continuing regulatory protections for other indications did not change that conclusion. The court also stated that patent protection did not affect whether regulatory exclusivity existed because the agreement’s definition excluded patent-based protection from that concept.

Licensed Patent Rights

The court found the agreement ambiguous regarding the “Licensed Patent Rights” relevant to Section 8.3(c). The definition referred both to Incyte patent rights licensed to Novartis and to Novartis patent rights licensed to Incyte. Incyte argued that the definition established separate situations and that, for its U.S. royalty payments, only Novartis patent rights licensed to Incyte were relevant. Novartis argued that the provision broadly included all relevant licensed patent rights, regardless of which party owned the underlying patent or received the license.

The court found both interpretations plausible. The agreement did not clearly state that only one category of patent rights could be considered or identify which category controlled in the circumstances presented. The court also concluded that the surrounding language in Section 8.3(c), including its reference to “any Valid Claim” covering the licensed product in the relevant country, did not unambiguously support Incyte’s narrower interpretation.

Disposition

Because the patent-rights provision could reasonably be read in more than one way, the court held that the contract claim could not be dismissed at the pleading stage. Judge Gregory H. Woods denied Incyte’s motion to dismiss and directed the Clerk of Court to terminate the pending motion at Docket No. 32. The opinion did not finally determine the amount of royalties owed or resolve the parties’ ultimate contractual rights.