Acorda Therapeutics, Inc. v. Alkermes plc

Background

Acorda petitioned under the Federal Arbitration Act and the Convention for the Recognition and Enforcement of Foreign Arbitral Awards to modify and confirm an arbitration award involving Alkermes. The dispute arose from a 2003 license agreement and supply agreement concerning Ampyra, a medication developed by Acorda, and U.S. Patent No. 5,540,938, which Alkermes owned and licensed to Acorda. The agreements required Acorda to pay an 18-percent royalty, divided between the two agreements.

The patent expired in July 2018. Acorda continued paying royalties until July 2020, when it formally objected to royalty charges under the license agreement based on Brulotte v. Thys Co., which held that using a royalty agreement extending beyond a patent’s expiration is unlawful. Acorda’s objection did not refer to the supply agreement.

The arbitration

Acorda asserted claims including declaratory relief, restitution and unjust enrichment, breach of contract, monopolization, attempted monopolization, and breach of the implied covenant of good faith and fair dealing. Alkermes asserted counterclaims concerning inventorship and assignment of unexpired patents.

The arbitration panel dismissed Acorda’s contract and implied-covenant claims, granted Alkermes summary judgment on Acorda’s monopolization and attempted-monopolization claims, and allowed Acorda’s unjust-enrichment and restitution claims to proceed. The panel limited potential recovery to royalty payments made after Acorda’s formal objection.

In its October 13, 2022 award, as later corrected for a clerical error, the panel ruled that post-expiration royalty charges violated Brulotte and that the agreements were unenforceable to that extent. It nevertheless limited Acorda’s restitution to payments made under protest. The panel awarded Acorda $16,554,267 in license-agreement royalty payments, $1,689,528.49 in prejudgment interest, and $13,219.67 in arbitration costs. It awarded no damages for payments under the supply agreement because Acorda had not formally protested those payments. The opinion states that Alkermes paid the awarded sums.

Acorda’s modification request

Acorda asked the district court to add $65,629,716 for royalties paid between July 2018 and July 2020 under the license agreement and for royalties paid under the supply agreement after the patent expired. Acorda argued that the panel had manifestly disregarded federal patent law. Manifest disregard is an exceptionally narrow ground for disturbing an arbitration award, requiring a showing that the arbitrators knew of a clear, governing legal rule and deliberately refused to apply it.

The court first held that manifest disregard is recognized in the Second Circuit as a basis for vacating an arbitration award, not modifying one. The court also held that, in any event, the panel had not manifestly disregarded the law. Brulotte established that post-expiration royalty provisions are unlawful and unenforceable, but the court found that Brulotte and later decisions did not clearly establish that royalties already paid under such an agreement must be refunded.

The court concluded that the panel had relied on the agreements’ no-refund provision and the New York Voluntary Pay Doctrine, a state-law rule concerning recovery of payments made voluntarily with knowledge of the relevant facts. Because the panel had a legally supportable basis for limiting restitution to protested payments, its decision did not amount to manifest disregard. The court also rejected Acorda’s argument that limiting restitution improperly enforced an illegal contract; the panel had found the post-expiration royalty provisions unenforceable, while separately deciding the remedy for payments already made.

Confirmation and disposition

Because Acorda presented no separate basis for opposing confirmation and no ground for modification or vacatur applied, the court confirmed the arbitration award in its entirety. Judge Naomi Reice Buchwald denied Acorda’s petition to modify the award in part, confirmed the award in its entirety, directed the Clerk of Court to enter judgment for Alkermes, and ordered the case closed.