Case Title: Glaxo Group Limited, et al. v. DRIT LP

Citation: 

Docket Number: 25, 2020

State: delaware

Court: Delaware Supreme Court

Date: 2021-03-03T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
 
GLAXO GROUP LIMITED and  
§ 
HUMAN GENOME SCIENCES,  
§  
No. 25, 2020 
INC.,  
 
 
 
 
§ 
 
 
 
 
 
 
§ 
Court Below: Superior Court 
 
Defendants Below, 
 
 
§  
of the State of Delaware  
Appellants/Cross-Appellees, 
§ 
 
§ 
C.A. No. N16C-07-218 
v. 
 
 
 
 
§ 
 
 
 
 
 
 
 
§ 
 
DRIT LP, 
 
 
 
 
§ 
 
 
 
 
 
 
 
 
 
 
 
 
§ 
 
 
Plaintiff Below, 
 
 
§ 
 
 
Appellee/Cross-Appellant. 
§ 
 
 
  
 
 
 
Submitted:  December 16, 2020 
Decided:     March 3, 2021 
 
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and 
MONTGOMERY-REEVES, Justices, constituting the Court en Banc. 
 
Upon appeal from the Superior Court of the State of Delaware.  REVERSED.  
 
Philip A. Rovner, Esquire, and Jonathan A. Choa, Esquire, POTTER ANDERSON 
& CORROON LLP, Wilmington, Delaware; Lisa S. Blatt, Esquire (argued), Sarah 
M. Harris, Esquire, Sumeet P. Dang, Esquire, and Kimberly Broecker, Esquire, 
WILLIAMS & CONNOLLY LLP, Washington, D.C.; Attorneys for Defendants-
Appellants/Cross-Appellees Glaxo Group Limited and Human Genome Sciences, 
Inc.   
 
Gregory P. Williams, Esquire, Chad M. Shandler, Esquire, and Nicole Pedi, Esquire, 
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Keith R. 
Hummel, Esquire (argued), and Karin A. DeMasi, Esquire, CRAVATH, SWAINE 
& MOORE LLP, New York, New York; Attorneys for Plaintiff-Appellee/Cross-
Appellant DRIT LP. 
 
 
2 
SEITZ, Chief Justice: 
Glaxo Group Limited and Human Genome Sciences, Inc. (collectively, 
“GSK”) owned patents covering Benlysta, a lupus treatment drug.  To expand its 
intellectual property rights, GSK filed a patent application with the United States 
Patent and Trademark Office (“PTO”) claiming a method for treating lupus.  Biogen 
Idec MA Inc. (“Biogen”) held an issued patent covering a similar method for treating 
lupus.  When parties dispute who was first to discover an invention, the PTO declares 
an interference.  Rather than suffer the delay and uncertainty of an interference 
proceeding, the parties agreed to settle their differences through a patent license and 
settlement agreement (“Agreement”).  GSK ended up with its issued patent.  The 
PTO cancelled Biogen’s patent, and Biogen received upfront and milestone 
payments and ongoing royalties for Benlysta sales. 
 The claims in a patent define its metes and bounds.  Under the Agreement 
GSK agreed to make royalty payments to Biogen until the expiration of the last 
“Valid Claim” of certain patents, including the lupus treatment patent.  The 
Agreement defines a Valid Claim as an unexpired patent claim that has not, among 
other things, been “disclaimed” by GSK.   
GSK paid Biogen royalties on Benlysta sales.  After Biogen assigned the 
Agreement to DRIT LP—an entity that purchases intellectual property royalty 
streams—GSK filed a statutory disclaimer that disclaimed the patent and all its 
3 
claims.  GSK notified DRIT that there were no longer any Valid Claims under the 
Agreement and stopped paying royalties on Benlysta sales.    
DRIT sued GSK in the Superior Court 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.  The jury found for DRIT, and the 
court awarded damages.   
On appeal, GSK argues that the Superior Court should have granted it 
judgment as a matter of law on the implied covenant claim.  On cross-appeal, DRIT 
asserts that, if the Court reverses the jury verdict on the implied covenant claim, it 
should reverse the Superior Court’s ruling dismissing the breach of contract claim.  
For the reasons explained in this opinion, we find that 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.  Thus, we reverse the court’s 
judgment.     
I. 
We recount from the record what are largely undisputed facts relevant to our 
ruling.  In 2007, GSK and Biogen each claimed patent rights to a method for treating 
lupus.  Biogen held an issued U.S. patent and GSK had a pending U.S. patent 
application covering substantially the same subject matter.  At the time of the 
dispute, U.S. patent law followed a “first to invent” regime where the PTO awarded 
4 
priority to the party who first came up with the invention.1  The PTO declared an 
“interference,” which is an administrative proceeding to decide who has priority over 
the intellectual property rights.  For GSK, winning the interference would cancel 
Biogen’s patent.  If Biogen prevailed, it could block GSK from commercializing 
Benlysta.  Given the uncertainty, GSK and Biogen agreed to settle their dispute. 
First, the parties executed a binding term sheet to navigate their way clear of 
the interference.  The parties appointed a neutral arbitrator to decide the priority 
between GSK’s patent application and Biogen’s issued patent.  The arbitrator 
decided that GSK was the first to invent the lupus treatment method.  Thus, its patent 
application had priority over Biogen’s issued patent.  The parties agreed that GSK 
would continue with its patent application.  Biogen agreed to cancel its patent.     
Next, in October 2008, GSK and Biogen entered into the Agreement.  GSK 
agreed to pay Biogen a $3.5 million up-front payment, two milestone payments of 
$1.5 million each, and royalties on Benlysta sales through the expiration of certain 
patent rights, including any patent rights from GSK’s pending patent application.  
Section 3.4 of the Agreement states that GSK must pay royalties until expiration of 
the last “Valid Claim” of any patent covering Benlysta.  Section 1.49 of the 
definitions section defines a “Valid Claim” as: 
 
1 Patent Act of 1952, Pub. L. No. 82-593, 66 Stat. 792 (later amended by the Leahy-Smith America 
Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011) (codified as amended in various sections of 
35 U.S.C.)). 
5 
[A] claim of an issued, unexpired patent within the Patent Rights that 
has not expired, lapsed, or been cancelled or abandoned, and that has 
not been dedicated to the public, disclaimed, or held unenforceable, 
invalid, or cancelled by a court or administrative agency of competent 
jurisdiction in an order or decision from which no appeal can be taken 
or was timely taken, including through opposition, re-examination, 
reissue or disclaimer.2 
On December 6, 2011, the PTO issued to GSK U.S. Patent No. 8,071,092 
(“‘092 Patent”).  GSK paid Biogen royalties for Benlysta sales as required by the 
Agreement.  In 2012, DRIT, a healthcare investment vehicle that purchases royalty 
streams on pharmaceutical products, purchased Biogen’s rights under the 
Agreement.  GSK paid royalties to DRIT on Benlysta sales for three years.   
What happened next involves patent disclaimers.  Some background is 
helpful.  A patent gives its owner the right to exclude others from making, using, 
offering for sale, or selling an invention.3  The scope of the monopoly is defined by 
the claims in the patent.  Provided that periodic maintenance fees are paid, a utility 
patent expires twenty years from the application filing date. 4  Once the patent 
 
2 App. to GSK Opening Br. at A083 (Settlement Agreement § 1.49).  The Agreement covers a 
number of patents.  For simplicity, we will refer only to the ‘092 Patent and Benlysta sales, 
recognizing that the Agreement is broader.     
3 35 U.S.C. § 154(a)(1) (“Every patent shall contain . . . a grant to the patentee . . . the right to 
exclude others from making, using, offering for sale, or selling the invention throughout the United 
States . . . .”).  A patent owner may assign or license his invention at any time during his ownership 
term.  See 35 U.S.C. § 261.  
4 35 U.S.C. § 154(a)(2).  In limited circumstances the PTO may extend the patent term to account 
for undue delays in the patent application examination process.  See 35 U.S.C. § 154(b). 
6 
expires, the patent holder can no longer assert its monopoly over the claimed 
invention, and typically the invention enters the public domain.5   
A disclaimer cuts short the patent term.  A disclaimer is the “renunciation of 
one’s own legal right or claim, such as a renunciation of a patent claim . . . .”6  
Section 253 of the Patent Act provides that a patentee may voluntarily “disclaim” all 
or part of his or her interest in a patent.7  The Patent Act contemplates two types of 
disclaimers: terminal and statutory disclaimers.  Here, GSK filed a statutory 
disclaimer, which generally is “a statement in which a patent owner relinquishes 
legal rights to one or more complete claims of a patent.”8  
In 2015, GSK filed a statutory disclaimer and disclaimed the entire term of 
the ‘092 Patent from December 6, 2011—the day the PTO granted the patent to 
 
5 See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 230 (1964) (“[W]hen the patent expires 
the monopoly created by it expires, too, and the right to make the [invention] . . . passes to the 
public.”); see also Robert A. Matthews, Jr., 1 Annotated Patent Digest § 1:6 (2020) (“When a 
patent expires, the patentee may no longer assert exclusionary rights . . . .”).   
6 DISCLAIMER, Black’s Law Dictionary (11th ed. 2019).   
7 35 U.S.C. § 253(a)-(b); see also 37 CFR § 1.321(a).  Section 253 provides in relevant part that: 
 
A patentee, whether of the whole or any sectional interest therein, may, on payment 
of the fee required by law, make disclaimer of any complete claim, stating therein 
the extent of his interest in such patent.  Such disclaimer shall be in writing, and 
recorded in the Patent and Trademark Office; and it shall thereafter be considered 
as part of the original patent to the extent of the interest possessed by the 
disclaimant and by those claiming under him.  
 
35 U.S.C. § 253(a).   
8 Manual of Patent Examining Procedure § 1490 (2020) (defining statutory disclaimer).  A terminal 
disclaimer “is a statement in which a patentee . . . disclaims or dedicates to the public the entire 
term or any terminal part of the term of a patent . . . .”  Id.  A terminal disclaimer “disclaims or 
dedicates to the public the entire term or any terminal part of the term of a patent or patent to be 
granted.”  35 U.S.C. § 253(b) and 37 CFR 1.321(a) and (b). 
7 
GSK.  GSK informed DRIT that the statutory disclaimer eliminated any “Valid 
Claim” for royalties under the Agreement.  In 2016, DRIT filed an action in the 
Superior Court and asserted claims for breach of contract and breach of the implied 
covenant of good faith and fair dealing for what it described as GSK’s bad faith 
disclaimer of the ‘092 Patent.   
GSK moved to dismiss the complaint.  For the breach of contract claim, GSK 
argued that the Agreement expressly authorized GSK to disclaim the patent.  For the 
implied covenant claim, GSK contended that the implied covenant cannot be used 
to imply terms—like a good faith requirement before disclaiming a patent—that are 
absent from the Agreement and that Biogen could have sought in negotiations.  And, 
according to GSK, the implied covenant cannot modify action expressly permitted 
by the Agreement.       
DRIT responded with an imaginative interpretation of Section 1.49.  As DRIT 
argued, the phrase “in an order or decision” modified more than its closest 
antecedent.9  In addition to modifying “held enforceable, invalid, or cancelled by a 
court or administrative agency,” DRIT claimed that it also modified a patent “that 
has not been dedicated to the public, disclaimed.”10  Thus, any disclaimer must result 
from “an order or decision” and cannot be disclaimed voluntarily, as was the case 
 
9 App. to GSK Opening Br. at A145 (Memorandum Opinion on Defendants’ Motion to Dismiss, 
DRIT LP v. Glaxo Group Ltd. and Human Genome Sciences, Inc., C.A. No. N16-07-218 WCC 
NCC, at 13 (Del. Super. Ct. Apr. 6, 2017) [hereinafter Motion to Dismiss Opinion]).  
10 Id.  
8 
here.  DRIT also argued that, for the implied covenant claim, the parties did not 
anticipate that GSK could use a statutory disclaimer to undermine the economic 
basis for the Agreement.  Thus, according to DRIT, the implied covenant required 
GSK to exercise its right to disclaim in good faith instead of acting in its economic 
self-interest.   
The Superior Court found DRIT’s interpretation of Section 1.49 “both legally 
and grammatically flawed.” 11   The court reasoned that GSK had the express 
contractual right to disclaim the patent, and DRIT’s request for the court to “interpret 
the Agreement as requiring that a Court/agency order or decision precede any 
disclaimer” violated the closest antecedent rule and was “untenable.”12  The court 
dismissed the breach of contract claim and held there was “no express contractual 
restriction” in the Agreement that limited GSK’s ability to disclaim its rights to the 
patent.13   
But the court allowed DRIT’s implied covenant claim to proceed.  As the court 
held, “[w]hen material aspects of an agreement are left to one party’s discretion, the 
implied covenant demands that party exercise its discretion reasonably and in good 
 
11 Id. at A146 (Motion to Dismiss Opinion, at 14).  The Superior Court observed that, “the plain 
and customary meaning of the term ‘disclaim’ in the context of patent rights refers to a patentee’s 
renunciation of legal rights to claims of a patent, which is achieved by the patentee’s filing of a 
disclaimer with the [PTO].”  Id. at A147 (Motion to Dismiss Opinion, at 15).   
12 Id. at A148 (Motion to Dismiss Opinion, at 16).   
13 Id. at A149-50 (Motion to Dismiss Opinion, at 17-18).  
9 
faith.”14  The court also noted that “the royalty payments were a ‘critical component 
of the consideration Biogen accepted in exchange for giving up its claim to 
ownership of the inventions at issue’” and “it is ‘virtually unknown for the owner of 
a patent voluntarily to disclaim a patent.’”15  Thus, according to the court, whether 
GSK acted in bad faith when it disclaimed the ‘092 Patent was a factual issue to be 
determined by the jury. 
Following discovery, GSK moved for summary judgment on DRIT’s implied 
covenant claim.  The Superior Court denied the motion and found that, despite 
GSK’s express contractual right to disclaim the ‘092 Patent, GSK still had an 
“overarching obligation to comply with the implied covenant and [to] use good faith 
when exercising [its] right to disclaim as it impacts [DRIT]’s royalty payments 
defined in the Agreement.”16  The court concluded that genuine issues of material 
fact remained “whether [GSK] disclaimed the ‘092 Patent for the sole reason of 
eliminating royalty payments and therefore acted in bad faith[,]” or if GSK did so 
 
14 Id. at A150 (Motion to Dismiss Opinion, at 18 (citing Airborne Health, Inc. v. Squid Soap, LP, 
984 A.2d 126, 146-47 (Del. Ch. 2009); Black Horse Capital, LP v. Xstelos Hldgs., Inc., 2014 WL 
5025926, at *30 (Del. Ch. Sept. 30, 2014))).  
15 Id. at A152 (Motion to Dismiss Opinion, at 20 (quoting Pl.’s Answ. Br. in Opp’n to Defs.’ Mot. 
to Dismiss at 14-15; Compl. at ¶ 50)). 
16 Ex. A to GSK Opening Br. at 19 (Memorandum Opinion on Defendants’ Motion for Summary 
Judgment; Defendants’ Motion to Dismiss; and Plaintiffs’ Motion for Partial Summary Judgment, 
DRIT LP v. Glaxo Grp. Ltd. & Human Genome Sciences, Inc., C.A. No. N16-07-218 WCC NCC, 
at 19 (Del. Super. Ct. Aug. 17, 2018)).   
10 
for strategic business reasons because the patent was likely invalid and no longer 
commercially viable.17 
After trial, the jury returned a verdict that GSK breached the implied covenant 
by statutorily disclaiming the ‘092 Patent.  GSK renewed its motion for judgment as 
a matter of law.  The Superior Court denied the motion, holding that GSK’s 
disclaimer “was such an unusual event” that “it would not have been reasonably 
anticipated by the parties.”18  And, even if it had been anticipated, “it certainly would 
have been addressed in the contract as it went to the “fundamental underpinning of 
the Agreement, the continued payment of royalties for which Biogen bargained.”19  
After rejecting GSK’s argument that misleading and prejudicial testimony by 
DRIT’s expert witness warranted a new trial, the court awarded damages to DRIT 
for lost royalties.  
II. 
GSK argues on appeal that the Superior Court erred by allowing DRIT to rely 
on the implied covenant of good faith and fair dealing to displace express contract 
terms.  GSK contends that the Agreement permitted disclaimer of the ‘092 Patent.  
Thus, the Agreement leaves no gap, and the implied covenant cannot be used to alter 
the Agreement’s express terms.  GSK further asserts that because neither party 
 
17 Id. at 20.  
18 DRIT LP v. Glaxo Grp. Ltd., C.A. No. N16C-07-2018 WCC CCLD, 2019 WL 5420095, at *3 
(Del. Super. Ct. Oct. 17, 2019). 
19 Id. 
11 
disputes that the Patent Act gives GSK the right to disclaim its patent, the parties 
could have reasonably foreseen the possibility of a disclaimer, given the express use 
of the term in the Valid Claim definition.  GSK also argues that DRIT failed to prove 
that GSK would have agreed to limit its right to disclaim the ‘092 Patent while the 
parties were negotiating the Agreement.  Finally, GSK contends that the Superior 
Court erroneously implied a limitation on GSK’s right to disclaim because the 
Agreement did not require GSK to exercise any discretion before disclaiming the 
‘092 Patent.20 
In response, DRIT asserts that the Agreement does not expressly authorize 
GSK to disclaim the ‘092 Patent.  Rather, the term “disclaimer” only appears in the 
definition of a Valid Claim, and according to DRIT, definitions do not confer any 
affirmative rights.  DRIT further contends that the parties failed to foresee GSK’s 
use of a disclaimer as it did here.  Thus, the Superior Court correctly held that the 
implied covenant required GSK to exercise its discretion to disclaim reasonably and 
in good faith.  According to DRIT, the evidence presented at trial was sufficient to 
support the jury’s verdict that GSK acted in bad faith and breached the implied 
covenant.  On cross-appeal, DRIT argues that if the Court finds that the implied 
 
20 GSK makes two additional arguments on appeal: (1) that GSK is entitled to a new trial because 
the Superior Court admitted misleading and irrelevant testimony from DRIT’s expert witness, and 
(2) that court erred in basing its damages calculation on the date that the patent was issued.  
Because we find that the Superior Court erred in applying the implied covenant, we need not reach 
GSK’s second and third arguments on appeal.   
12 
covenant does not apply, we should uphold the Superior Court’s judgment on the 
alternative ground rejected by the Superior Court—that GSK breached the 
Agreement by failing to pay royalties even after GSK disclaimed the ‘092 Patent. 
We review questions of contract law and contract interpretation de novo.21  
Likewise, we review de novo the denial of a motion for judgment as a matter of 
law.22  
A.  
We address first whether the Superior Court erred when it dismissed DRIT’s 
breach of contract claim.  Section 3.4 of the Agreement states that GSK must pay 
royalties until expiration of the last “Valid Claim” of any patent within the scope of 
the Agreement.  Under Section 1.49, a “Valid Claim” of a patent is one “that has not 
expired, lapsed, or been cancelled or abandoned, and that has not been dedicated to 
the public, disclaimed . . . .”23  GSK disclaimed the ‘092 Patent and its claims.  After 
disclaimer, GSK no longer had a “Valid Claim.”  Thus, its royalty obligation ceased 
under the Agreement.   
DRIT argues that “the Agreement unambiguously provides that GSK must 
continue to make royalty payments if it voluntarily disclaims the royalty-bearing 
patent.”24  As DRIT argues, a voluntary disclaimer “is not an event which would 
 
21 Salamone v. Gorman, 106 A.3d 354, 367 (Del. 2014).  
22 Trievel v. Sabo, 714 A.2d 742, 744 (Del. 1998).  
23 App. to GSK Opening Br. at A083 (Settlement Agreement § 1.49). 
24 DRIT Answering Br. on Appeal and Opening Br. on Cross-Appeal at 53 (emphasis added). 
13 
take a royalty-bearing patent out of the corpus of valid claims.”25  But DRIT resorts 
to the same tortured reading of Section 1.49 that was rejected by the Superior 
Court—that the phrase “ordered by a court or administrative agency” modifies 
disclaimers and other voluntary acts such that only disclaimers ordered by a court or 
administrative agency terminate the royalty payment obligation.   
We agree with the Superior Court that DRIT’s interpretation of Section 1.49 
is “both legally and grammatically flawed.” 26  Under the Agreement, a “Valid 
Claim” is one “that has not been . . . disclaimed . . . or held unenforceable, invalid, 
or cancelled by a court or administrative agency.”27  DRIT reads the word “or” out 
of the agreement. 28   It also ignores the fact that declaring patent claims 
“unenforceable, invalid, or cancelled” are actions taken by courts and administrative 
agencies, while a disclaimer is an action taken by the patent holder.  And DRIT 
disregards the last antecedent rule, where “by a court or administrative agency” 
logically refers to its closest antecedent—“held unenforceable, invalid, or 
cancelled.”29  The Superior Court correctly held that, under the express terms of the 
 
25 Id. at 54. 
26 App. to GSK Opening Br. at A146 (Motion to Dismiss Opinion, at 14). 
27 Id. at A083 (Settlement Agreement § 1.49). 
28 See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting Kuhn Constr., 
Inc. v. Diamond State Port Corp., 990 A.2d 393, 396-97 (Del. 2010)) (Delaware courts “read a 
contract as a whole and . . . give each provision and term effect, so as not to render any part of the 
contract mere surplusage”).  
29 Rubick v. Sec. Instrument Corp., 766 A.2d 15, 18 (Del. 2000) (“The [last antecedent] rule . . . is 
that ‘[r]eferential and qualifying words and phrases, where no contrary intention appears, refer 
solely to the last antecedent.’”) (alteration in original) (citation omitted).  
14 
Agreement, “once Defendants disclaimed the patent rights covering Benlysta, they 
were no longer required under the Settlement Agreement to pay royalties with 
respect to U.S. sales of the product.”30 
B. 
Next, we turn to DRIT’s implied covenant claim.  Under Delaware law, 
sophisticated parties are bound by the terms of their agreement.  Even if the bargain 
they strike ends up a bad deal for one or both parties, the court’s role is to enforce 
the agreement as written.31  As we have explained, “[p]arties have a right to enter 
into good and bad contracts, the law enforces both.” 32  Holding sophisticated 
contracting parties to their agreement promotes certainty and predictability in 
commercial transactions.33 
There are, however, instances when parties fail to foresee events not covered 
by their agreement or defer decisions to later.  “No contract, regardless of how tightly 
or precisely drafted it may be, can wholly account for every possible contingency.”34  
 
30 App. to GSK Opening Br. at A150 (Motion to Dismiss Opinion, at 18). 
31 11 Williston on Contracts § 31.5 (4th ed. 2020) (“Unless the contract is voidable due to mistake, 
fraud, unconscionability, or another invalidating cause, or invalid in whole or in part due to 
illegality or another violation of public policy, the court must enforce it as drafted by the parties, 
according to the terms employed, and may not make a new contract for the parties or rewrite their 
contract while purporting to interpret or construe it.”).  
32 Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010). 
33 Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006) (courts 
should not use the implied covenant to grant substantive rights a party did not extract during 
negotiation because “[b]y such judicial action, the reliability of written contracts is undermined, 
thus diminishing the wealth-creating potential of voluntary agreements”). 
34 Amirsaleh v. Board of Trade of City of New York, Inc., 2008 WL 4182998, at *1 (Del. Ch. Sept. 
11, 2008). 
15 
Subject to the express terms of the agreement, when gaps in an agreement lead to 
controversy, the court has in its toolbox the implied covenant of good faith and fair 
dealing to fill in the spaces between the written words.  The implied covenant, 
inherent in all agreements, ensures that the parties deal honestly and fairly with each 
other when addressing gaps in their agreement.35  The court’s goal is to preserve the 
economic expectations of the parties.36   
The implied covenant, however, is a “cautious enterprise.”37  As we have 
reinforced on many occasions, it is “a limited and extraordinary legal remedy”38 and 
“not an equitable remedy for rebalancing economic interests that could have been 
anticipated.”39  It cannot be invoked “when the contract addresses the conduct at 
issue.”40        
The implied covenant should not have been deployed in this case.  There was 
no gap to fill in the Agreement.  As the Superior Court found, and we affirm on 
 
35 Dieckman v. Regency GP LP, 155 A.3d 358, 361, 367 (Del. 2017) (explaining that “[t]he implied 
covenant is inherent in all contracts[,]” and that the covenant is well-suited to imply obvious 
contractual terms–“like the requirement that [a party] not engage in misleading or deceptive 
conduct to obtain [certain] approvals”).   
36 Nemec, 991 A.2d at 1126 (the implied covenant is invoked to “imply contract terms when the 
party asserting the implied covenant proves that the other party has acted arbitrarily or 
unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably 
expected”). 
37 Cincinnati SMSA LP v. Cincinnati Bell Cellular Sys. Co., 708 A.2d 989, 992 (Del. 1998). 
38 Nemec, 991 A.2d at 1128.  
39 Id; see also Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 445 (Del. 2005) (“[A]bsent 
grounds for reformation, courts should not rewrite contracts.”). 
40 Oxbow Carbon & Materials Hldgs., Inc. v. Crestview-Oxbow Acquisition LLC, 202 A.3d 482, 
507 (Del. 2019) (citing Nationwide Emerging Managers, LLC v. Northpointe Hldgs., LLC, 112 
A.3d 878, 896-97 (Del. 2015)). 
16 
appeal, the parties agreed that GSK could voluntarily disclaim patents.  GSK filed a 
statutory disclaimer of the ‘092 Patent.  The parties excluded “disclaimed” patents 
from royalty payments.  “[O]ne generally cannot base a claim for breach of the 
implied covenant on conduct authorized by the terms of the agreement.”41  
Further, that GSK might act voluntarily to end its patent rights was not an 
event outside the contemplation of the parties.  Disclaimer was just one of several 
ways for GSK to voluntarily end its patent rights.  GSK could let the patent “lapse” 
for failing to pay periodic maintenance fees.42  GSK could also “abandon” the patent 
by “permitting the invention to be subject to open competition.”43  And, as happened 
here, GSK disclaimed the ‘092 Patent.  Biogen knew that court rulings or 
administrative proceedings were not the only way GSK’s patent rights could be 
terminated. The time to demand restrictions on an express contractual right was 
during negotiations—not years later through the implied covenant.44      
Finally, we disagree with the Superior Court’s characterization of GSK’s right 
to disclaim patents as a discretionary act that GSK had to exercise in good faith.  It 
is one thing to imply a good faith obligation when the parties have expressly agreed 
 
41 Dunlap, 878 A.2d at 441. 
42 See 35 U.S.C. § 41(b)(1).  
43 2 Moy’s Walker on Patents § 8:266 (4th ed.) (citing 35 U.S.C. §102(c) (pre-America Invents 
Act)).  
44 Nemec, 911 A.2d at 1126 (“The implied covenant only applies to developments that could not 
be anticipated, not developments that the parties simply failed to consider . . . .”). 
17 
that a certain act is within a party’s discretion.45  It is another matter to imply 
discretion to restrict actions expressly permitted by the parties’ agreement.  The 
implied covenant imposes a good faith and fair dealing obligation when a contract 
confers discretion on a party.46  It should not be used to imply terms that modify or 
negate an unrestricted contractual right authorized by an agreement.      
GSK and Biogen agreed that GSK’s royalty obligations would end if GSK 
disclaimed the ‘092 Patent.  Biogen no doubt assumed that GSK had strong 
economic incentives to maintain its patent rights.  After all, a patent confers 
monopoly power on the patent holder to eliminate competition and maximize profits.  
Unfortunately for DRIT, the economic incentives shifted under the Agreement.  It 
 
45 See Oxbow, 202 A.3d at 503-04 (observing that a shareholder agreement conferring discretion 
to the board was a contractual choice that does not relieve the board of its obligation to exercise 
that discretion in good faith) (emphasis added); Airborne, 984 A.2d at 146-47 & n.1 (“When a 
contract confers discretion on one party, the implied covenant requires that the discretion be used 
reasonably and in good faith.”); see also Gilbert v. El Paso Co., 420 A.2d 1050, 1055 (Del. Ch. 
1984) (“[I]f one party is given discretion in determining whether the condition in fact has occurred 
that party must use good faith in making that determination.”), aff’d, 575 A.2d 1131 (Del. 1990). 
46 See Miller v. HCP Trumpet Inv., LLC, 194 A.3d 908, 2018 WL 4600818, at *1 (Del. Sept. 20, 
2018) (TABLE) (observing that “the mere vesting of ‘sole discretion’” to the board as an express 
contractual term “[does] not relieve the Board of its obligation to use that discretion consistently 
with the implied covenant . . .”); Charlotte Broad., LLC v. Davis Broad. of Atlanta, L.L.C., 2015 
WL 3863245, at *7 (Del. Super. Ct. June 10, 2015) (concluding that where a contract permitted 
either party “in its sole discretion” to terminate the agreement, the implied covenant required 
plaintiffs to exercise that discretion in good faith); Amirsaleh, 2008 WL 4182998, at *8 (holding 
that a party to a merger agreement was required to exercise its discretion in good faith where the 
agreement mandated that election forms be submitted at a time and on a date that the contracting 
parties “mutually agree”); see also Chamison v. HealthTrust, Inc., 735 A.2d 912, 922 (Del. Ch. 
1999) (finding that the defendant-indemnitor breached the implied covenant by exercising its 
“broad discretion” in an attempt to force the plaintiff-indemnitee to accept a defense that was 
inferior to a known alternative), aff’d 748 A.2d 407 (Del. 2000); Bay Ctr. Apartments Owner, LLC 
v. Emery Bay PKI, LLC, 2009 WL 1124451, at *7 (Del. Ch. Apr. 20, 2009) (applying the implied 
covenant where an operating agreement gave the defendant “broad authority” to manage and 
operate an LLC, but the defendant did so in bad faith).    
18 
appears that GSK no longer needed the patent to protect Benlysta from competition.  
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.   
III. 
The Superior Court’s judgment is reversed.