GSK avoids $57m damages award over royalties
GlaxoSmithKline (GSK) has avoided paying $57 million in damages after a US court reversed a ruling that the pharmaceutical company should not have stopped issuing royalties on a lupus drug.
The ruling was handed down on Wednesday, March 3, at the Delaware Supreme Court.
In 2007, GSK filed a patent application with the United States Patent and Trademark Office (USPTO) claiming a method for treating lupus. It emerged that the company’s rival Biogen also held a patent covering a similar method for treating the same condition.
When parties disputed which company had first discovered an invention, they agreed to settle their differences through a patent licence and settlement agreement in 2008.
In 2011, the USPTO issued GSK with US patent number 8,071,092 covering the lupus treatment, Benlysta. The USPTO cancelled Biogen’s patent, and Biogen received upfront and milestone payments and ongoing royalties for Benlysta sales.
Royalty payments
Under the agreement, GSK agreed to make royalty payments to Biogen until the expiration of the last “valid claim” of the lupus treatment patent. The agreement defined a valid claim as an unexpired patent claim that has not been “disclaimed” by GSK.
In 2012, Biogen transferred the agreement to DRIT LP, an entity that buys pharmaceutical IP royalty streams. Three years later, GSK filed a statutory disclaimer invalidating the ‘092 patent.
It then notified DRIT that there were no longer any valid claims under the agreement and stopped paying royalties on Benlysta sales.
DRIT sued GSK in Delaware’s Superior Court in 2016 for breach of contract and breach of the implied covenant of good faith and fair dealing for failing to pay royalties under the agreement. The court dismissed DRIT’s breach of contract claim but allowed the implied covenant claim to go to a jury trial. In September 2018, the jury found for DRIT, and the court awarded damages.
“Stuck with agreement’
On appeal, GSK argued that the superior court should have granted it judgment as a matter of law on the implied covenant claim.
The Delaware Supreme Court found the superior court properly dismissed DRIT’s breach of contract claim but should have granted GSK judgment as a matter of law on the implied covenant claim.
In reversing the earlier ruling, the court concluded: “As assignee, DRIT is stuck with the agreement that Biogen negotiated. DRIT cannot use the implied covenant to vary the express terms of the agreement, which gave GSK an unqualified right to disclaim the ‘092 patent and end its royalty obligation.”
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