IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

PENTECH PHARMACEUTICALS, INC., )

an Illinois corporation, )

)

Plaintiff, )

)

v. ) No. 04 C 3149

)

PAR PHARMACEUTICAL, INC., a ) Magistrate Judge Morton Denlow

Delaware corporation, )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

This case involves a claim for breach of contract and declaratory judgment brought

by Plaintiff Pentech Pharmaceuticals, Inc. against Defendant Par Pharmaceutical, Inc., arising

out of a contract between them relating to a generic version of Paxil. The Court conducted

a bench trial on December 9-12 and 15-16, 2008 and heard closing arguments on December

22, 2008. The Court has considered the testimony of the witnesses who testified at the trial,

the deposition excerpts of the witnesses who were not available to testify in person, the

parties’ trial exhibits, the stipulations made by the parties, the proposed findings and

conclusions submitted by the parties, and the closing arguments of counsel. 

The following constitute the Court’s findings of fact and conclusions of law in

accordance with Rule 52(a) of the Federal Rules of Civil Procedure. To the extent certain

findings of fact may be deemed conclusions of law, they shall also be considered conclusions

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of law. Similarly, to the extent matters contained in the conclusions of law may be deemed

findings of fact, they shall also be considered findings of fact.

I. ISSUES PRESENTED

1. Whether Section 2.3 or Section 5.2 of the First Amendment to the Supply and

Marketing Agreement applies to the dispute.

ANSWER: Section 2.3.

2. Whether the License and Supply Agreement between Par and GlaxoSmithKline is part

of a settlement to which Pentech is a party.

ANSWER: Yes.

3. How much is owed to Pentech from Par arising out of the First Amendment to the

Supply and Marketing Agreement.

ANSWER: $49.5 million. 

4. How much prejudgment interest is owed to Pentech from Par.

ANSWER: $20,455,476.

II. FINDINGS OF FACT

A. The Parties

1. Pentech Pharmaceuticals, Inc. (“Pentech” or “Plaintiff”) is an Illinois

corporation with its principal place of business in Illinois. Pentech is in the business of

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A copy of the Undisputed Portions Of Plaintiff’s Proposed Findings of Fact and Conclusions

of Law (hereinafter, “Pl. Agreed Facts ¶__”) is Exhibit A to the Undisputed Portions of the Parties’

Proposed Findings of Fact and Conclusions of Law, filed in this matter on December 18, 2008. A

copy of the Undisputed Portions of Defendant’s Proposed Findings of Fact and Conclusions of Law

(hereinafter “Def. Agreed Facts ¶ ___”) is Exhibit B to the Undisputed Portions of the Parties’

Proposed Findings of Fact and Conclusions, filed in this matter on December 18, 2008. References

to “T.__” are references to the Transcript of Proceedings in this case. References to “___ Dep.” are

references to designations in deposition transcripts submitted to the Court. References to “PX__”

and “DX__” are references to Plaintiff’s and Defendant’s trial exhibits, respectively. References

to “ Dkt.__” are references to docket entries. The Court has provided selected citations to the factual

findings. These are intended to be representative citations and there may be other factual support

in the record that is not specifically cited.

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developing generic pharmaceutical drugs for approval by the United States Food and Drug

Administration (“FDA”). Pl. Agreed Facts ¶1, T. 106:22-107:1.1

2. Par Pharmaceutical, Inc. (“Par” or “Defendant”) is a Delaware corporation with

its principal place of business in New Jersey. Par has, at all relevant times, been engaged in

the business of manufacturing, distributing and selling pharmaceutical drugs. Id. ¶2.

3. Par is the operating subsidiary of Par Pharmaceutical Companies, Inc., a

publicly traded company listed on the New York Stock Exchange. Id. ¶3.

B. Paxil

4. In order to market a pharmaceutical drug in the United States, a company must

first obtain FDA approval. Id. ¶4.

5. FDA approval of pharmaceutical drugs is obtained pursuant to a New Drug

Application (“NDA”) or an Abbreviated New Drug Application (“ANDA”). The NDA

process applies to new or “brand” drugs. The ANDA process applies to drugs that are

therapeutically equivalent to existing “brand” drugs. Id. ¶5.

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In January 2000, SmithKline Beecham Corp. and Glaxo Wellcome combined to form

GlaxoSmithKline.

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6. Since 1993, SmithKline Beecham Corporation and affiliates (“GSK”)2 have

manufactured and sold paroxetine hydrochloride (“paroxetine”) under the trademark “Paxil”

for use in the treatment of depression, among other things. GSK owns patent rights

concerning Paxil. Paxil was approved by the FDA pursuant to an NDA, and is sold only in

tablet form. Id. ¶6.

7. Paxil was enormously successful for GSK, generating billions of dollars of

sales in the United States. In 2000, 2001 and 2002, sales of Paxil in the United States by

GSK and affiliates were approximately $1.8 billion, $2.2 billion and $2.2 billion,

respectively. Id. ¶7 and Def. Agreed Facts ¶4.

C. Efforts to Develop a Generic Version of Paxil

8. After GSK launched Paxil, several generic drug companies launched efforts

to develop a generic paroxetine competitor to Paxil that would not infringe GSK’s patents

on Paxil. Pentech was one such company. During the 1990s, Pentech worked to develop a

formulation of paroxetine that would be therapeutically equivalent to Paxil, but would not

violate the Paxil patents. Pentech worked to develop a formulation of paroxetine that would

be different from Paxil in several significant respects. First, although Paxil was a hard tablet,

Pentech sought to develop its paroxetine product as a soft capsule. Second, the active

ingredient contained in Paxil is a hemihydrate (or “crystalline”) form of paroxetine. Pentech

sought to develop an “amorphous” (i.e., non-crystalline) form of paroxetine, which Pentech

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believed would not infringe GSK’s paroxetine patents. In 1997, Pentech was awarded a

patent for a paroxetine composition that differed from GSK’s. In 1997, Pentech also

submitted applications for two additional patents on paroxetine, and patents on these

applications were ultimately awarded in 2003. Pl. Agreed Facts ¶8 and Def. Agreed Facts

¶¶4-5.

9. In March of 2000, Pentech filed an ANDA with the FDA, seeking FDA

approval to manufacture and distribute Pentech’s form of paroxetine as a generic competitor

to Paxil for the treatment of depression. Specifically, Pentech sought FDA permission to

manufacture and distribute paroxetine capsules in doses of 10 mg and 20 mg, whereas, Paxil

was available in 10 mg, 20 mg, 30 mg and 40 mg dosages. Pl. Agreed Facts ¶9 and Def.

Agreed Facts ¶¶6-7.

10. Another company, Apotex, had previously filed an ANDA for a generic tablet

version of paroxetine. Under 21 U.S.C. § 355(j)(5)(B)(iv) (“Hatch-Waxman Act”),

Pentech’s ANDA had “first-to-file” status with respect to a capsule form of generic

paroxetine. Pl. Agreed Facts ¶10 and Def. Agreed Facts ¶8. As a consequence of its

first-to-file status, Pentech had a potential opportunity to be the sole generic alternative to

Paxil on the market for at least 180 days after the FDA approved its ANDA. The filing of

this “first filed” ANDA meant, under the rules of the Hatch-Waxman Act, that if Pentech

could actually succeed in (i) manufacturing the amorphous capsule product specified in its

ANDA, (ii) defeating any patent-infringement challenges from GSK, and (iii) gaining FDA

approval, Pentech could be entitled to a 180-day “exclusivity period” after the launch of its

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product during which no other company would be permitted to bring a similar paroxetine

capsule product to market as a generic competitor, although this would not prevent a generic

tablet paroxetine competitor from entering before or during this 180-day period. T. 107:17-

108:5; 124:10-125:6. See, e.g., Mylan Pharm., Inc. v. U.S. Food and Drug Admin., 454 F.3d

270, 273 (4th Cir. 2006) (describing significance of first-to-file status).

11. Because it had not received an “AB rating” from the FDA, without which it

could not be automatically substituted by pharmacists for a Paxil prescription, the success

of the Pentech capsule product would be largely dependent on Pentech being first to enter

the market against GSK’s branded Paxil. DX 81 at 3; DX 72 at W462; T. 307:14-21, 308:9-

14.

D. The GSK Litigation Against Pentech

12. On May 11, 2000, shortly after Pentech filed its paroxetine ANDA, GSK

commenced suit against Pentech in the United States District Court for the Northern District

of Illinois, Case No. 00 C 2855. On September 22, 2000, GSK commenced a second suit

against Pentech in the same court (Case No. 00 C 5831), and the cases were consolidated.

The two cases (collectively, the “GSK Litigation” or “Paragraph IV Litigation”) asserted

patent infringement claims relating to Pentech’s ANDA for paroxetine. In each of the cases,

GSK alleged that it was the owner of a patent (Patent Nos. 4,721,723 and 6,080,759), and,

in each case, GSK sought orders prohibiting any approval by the FDA of Pentech’s

paroxetine hydrochloride drug product, and enjoining Pentech from the commercial

manufacture, use or sale of its paroxetine hydrochloride drug product. Pl. Agreed Facts ¶11,

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Def. Agreed Facts ¶9. This was Pentech’s first involvement in Paragraph IV litigation. T.

344:20-24.

E. Negotiations Leading up to the 2001 Supply and Marketing Agreement

13. Par is a major generic drug company that has marketed a number of highly

successful generic drugs. T. 721:15-722:13. As an important part of its business plan, Par

frequently entered into agreements with third parties with respect to the development of new

products and technologies. Def. Agreed Facts ¶10. In particular, Par was interested in

acquiring the opportunity to market a version of paroxetine hydrochloride that would not

infringe GSK’s patents and which would enable it to enter the generic Paxil market before

other generic makers came to market. Pl. Agreed Facts ¶12. In 1998, Par had entered into

a contract with Genpharm that gave Par the exclusive right to market a paroxetine tablet that

Genpharm was working to develop, should Genpharm ever succeed in developing and

obtaining FDA approval for that product. DX 59; T. 648:16-649:13. As explained by Par

Chief Executive Officer Scott Tarriff (“Tarriff”), Par had significant experience in partnering

with ANDA filers and conducting the related patent litigation, which was an important part

of Par’s “business plan.” PX 43, p. PH 41781; T. 509:25-512:5. Tarriff made it a point to

keep himself informed and personally involved in Par’s litigation matters. T. 512:6-20.

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14. By late summer 2001, Pentech was in need of additional cash to fund its

substantial ongoing litigation and development expenses. T. 282:9-285:22; DX 62. Pentech

sought a partner who could provide financial support for its ANDA. DX 72; T. 128:4-

129:19; 287:8-12; 298:16-21; 304:15-306:5. In addition, as a product development company,

Pentech did not have any marketing or sales capability and had never manufactured a

commercial product or marketed a pharmaceutical product. T. 180:20-181:5; 306:6-12.

Pentech did not have a commercially reliable manufacturing source. T. 298:1-21. There

were three primary stages to the manufacturing process: 1) receipt of the active

pharmaceutical ingredient (“API”); 2) encapsulation of the API; and 3) filling the capsule.

T. 176:21-177:21.

15. Given Pentech’s financial situation and its lack of marketing capability,

Pentech began looking for a top-tier generic company that could provide financial support

and the ability to successfully market and sell generic products. DX 72; DX 81; T. 285:18-

286:23; 309:2-310-11. The speed at which Pentech could bring its products to market was

very important to its financial success. T. 308:5-309:12; DX 81.

16. In September 2001, Tarriff and Pentech’s President Albert Hummel

(“Hummel”) began negotiating the business terms of a potential agreement under which Par

would make an investment in Pentech’s ANDA. Pl. Agreed Facts ¶13. Because airline

travel was difficult in the wake of September 11, 2001, initial negotiations were by

telephone. T. 129:13-19; 159:21-23. Pentech provided Par with a confidential memo

outlining its business and litigation strategy regarding Pentech’s ANDA. DX 73; T. 130:7-

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135:11; 324:8-326:19. Because Pentech’s ANDA covered only capsules, the initial scope

of the proposed relationship was limited to capsules. The primary goal of that relationship

was to bring Pentech’s product to market either through a victory or favorable settlement in

the ongoing Paragraph IV Litigation with GSK. DX 1 at 1 (recitals); T. 348:17-349:7;

380:2-14; 758:13-20.

17. On September 24, 2001, Tarriff sent a letter to Hummel proposing the

following:

Par provides $200,000 at contract signing, $200,000 at final

FDA approval, and $200,000 at a successful lower court

(District Court) decision for a total of $600,000 in payments.

Par will be responsible for all legal costs up to the first

$2,000,000 associated with supporting the paragraph IV

litigation. In the event legal costs exceed $2,000,000 the

expenses will be shared 70% by Par and 30% by Pentech. The

case will be transferred to Frommer, Lawrence and Haug. Par

will not reimburse Pentech for previous litigation costs.

Par will be responsible for all sales, marketing, shipping,

distribution, billing and pricing of the product.

Par will receive 70% of gross profit generated by the sale of the

product. In the event Par/Pentech is marketing the only generic

version of paroxetine the profits will be split equally.

PX 20; T. 145:4-147:7; 152:6-152:17. Tarriff viewed Paxil as a big business opportunity

worth potentially $100 million to which Par would provide several million dollars and

excellent sales and marketing capability. T. 720:14-722:2.

18. While these negotiations were in progress, Tarriff disclosed to Hummel that

Par was under a contractual obligation with another company to sell a generic paroxetine

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tablet that was the subject of an ANDA, should that tablet ever be approved by the FDA. T.

162:24-164:10; 310:12-311:3; 723:3-7. At some point much later, in or around 2003,

Pentech learned the name of the company was Genpharm. T. 164:11-21.

19. During these negotiations, the parties exchanged drafts of a Supply and

Marketing Agreement for review and comment by the parties and their respective outside

counsel. T. 158:21-159:6; 397:12-17; DX 33 at 14 (interrog. 2); DX 77; DX 80.

20. Both parties and their counsel are sophisticated and experienced with contracts.

Par has entered into many licensing agreements with companies other than Pentech.

Pentech’s CEO Hummel, and its Chairman, James D. Lumsden (“Lumsden”), are

experienced in contracting, pharmaceutical investment, and corporate relationships. T.

104:10-24; 110:22-111:11; 794:1-8; 810:8-15.

21. According to Hummel, Tarriff assured him that Genpharm’s paroxetine tablet

was stuck in litigation, was behind a “first to file” ANDA filed by Apotex, and that Pentech’s

capsule product would get to market earlier. T. 164:22-165:6; 170:4-171:24. When

Hummel learned of Par’s tablet agreement, he asked Tarriff to add a provision to the

prospective contract between Pentech and Par that would entitle Pentech to a share of any

sales of Genpharm’s tablet in the event the Pentech capsule was on the market and Par

thereafter started to market the tablet. T. 162:24-165:20.

F. The 2001 Supply and Marketing Agreement

22. On or about November 19, 2001, Pentech and Par entered into an agreement

titled Supply and Marketing Agreement Between Pentech Pharmaceuticals, Inc. and Par

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Pharmaceutical, Inc. (“the 2001 Agreement”). Pl. Agreed Facts ¶14; PX 29; DX 1. By this

time, Pentech had invested approximately $7 million in the paroxetine capsule project. T.

144:12-15.

23. Under the 2001 Agreement, Par received the exclusive right to distribute

Pentech’s paroxetine capsule, should Pentech ever obtain FDA approval for the product, and

agreed to purchase all of its requirements for paroxetine capsules from Pentech, to the extent

Pentech was able to meet its supply needs. DX 1 § 3.1.

24. Pentech maintained the responsibility under the agreement for completing the

development and regulatory approval process and for ensuring the manufacture and supply

of paroxetine capsules to Par. DX 1 § 3.1; T. 315:20-316:19.

25. The 2001 Agreement incorporated each of the terms outlined in Tarriff’s

September 24 letter. It provided, among other things, for Par to pay up to $600,000 in three

incremental “milestone” payments to Pentech upon Pentech achieving certain benchmarks.

DX 1, § 2.1. In addition, Par agreed to finance part of the cost of Pentech’s paroxetine

project and the defense of the GSK Litigation. Id. § 2.2. In exchange, Par received the

exclusive right to sell, market and distribute Pentech’s capsule, and the right to control the

defense of the GSK Litigation. Id. §§ 2.1 and 2.2. Pentech’s principal obligation under the

2001 Agreement was to manufacture paroxetine capsules and sell them to Par. Id.

26. The parties understood that Par’s primary contribution to the project would be

Par’s marketing and distribution efforts. Under the 2001 Agreement, Pentech would develop

and supply the product, and Par would market it. T. 321:14-322:8; 721:15-722:2.

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27. The 2001 Agreement included the following provisions, among others:

(a) The “Product” was defined by reference to Exhibit A to the agreement,

which included four references to a “capsule” product and none to a “tablet” product. PX

29, Article 1 & Ex. A.

(b) Section 2.2 provided that Pentech’s defense in the GSK Litigation

would be conducted under the guidance of new counsel designated by Par: Frommer,

Lawrence & Haug, LLP (“FLH”). Pl. Agreed Facts ¶15. Section 2.2 further provided that

Par would have ultimate decision-making authority with respect to the GSK Litigation.

PX 29, § 2.2.

(c) The 2001 Agreement made no provision for the consequence of a

settlement of the GSK Litigation. Section 2.3 provided, however, that Pentech and Par

would both need to agree to any such settlement. Specifically, Section 2.3 provided:

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Any Paragraph IV Litigation or any other litigation regarding

the ability of Par to market the Product brought by a third-party

against Par or Pentech shall only be settled upon the mutual

satisfactory approval of Par and Pentech. Each of Par and

Pentech hereby agree that it will not unreasonably withhold such

approval if such approval is requested by the other party.

PX 29, § 2.3.

(d) Section 3.1 set forth terms governing the manufacture and supply of the

Product “[u]pon final FDA regulatory approval granting Pentech the right to manufacture,

sell and distribute the Product.” Pentech agreed to supply Par’s reasonable requirements for

the Product. Pl. Agreed Facts ¶15(c).

(e) Section 3.5, titled “Sales and Marketing,” provided that, “[s]ubject to

Section 3.1, Par shall be the exclusive seller of the Product to third-parties in the Territory.”

PX 29, § 3.5.

(f) Article 5 was entitled “PAYMENT FOR THE PRODUCT.” That

Article began with Section 5.1, which provided: “Payment for the Product shall be made by

Par, on the terms and conditions set forth herein, and shall consist of (i) the Transfer/Contract

Price for the quantity of Product delivered by Pentech to Par pursuant to a Firm Order (the

“Transfer/Contract Price Payment”) and (ii) as more fully described in Section 5.2 hereof,

a percentage of the Gross Profit generated from the sale by Par of any Product (the “Profit

Payment”). Section 5.1 defined the “Transfer Contract Price” as “Pentech’s actual cost of

manufacture plus Pentech’s internal burden rate.” PX 29, § 5.1.

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(g) Section 5.2 provided that “[i]n addition to the Transfer/Contract Price

Payment and subject to Section 3.1,” Par would pay Pentech “Profit Payments” on sales of

the “Product” at varying percentages of “Gross Profits,” depending on whether there was

generic paroxetine competition on the market. PX 29, § 5.2(A), (B).

(h) Subsection 5.2(C) addressed Hummel’s concerns expressed to Tarriff

about the possibility that Par would sell both the Pentech capsule and a competing generic

tablet form of paroxetine, stating:

To the extent that Par is marketing both a capsule and tablet

generic version of the Product, the Profit Payment on the

capsule version of the Product shall be as set forth in Subsection

5.2(B) above. In addition, a Profit Payment on the tablet version

of the Product shall be paid by Par to Pentech in an amount

equal to 15% of Par’s gross profit generated by the sales of the

tablet version of the Product.

PX 29, § 5.2(C) (emphasis added). Pentech sought to protect itself against the possibility that

Par would shelve Pentech’s capsule product and come to market with the tablet product also

under development. T. 162:24-165:20; 1080:4-1085:8.

(i) Section 5.3 provided that the initial Profit Payment would be paid within

75 days “after the launch of the Product by Par,” and that “[t]hereafter, payment of the

Profit Payment for the Product and the tablet version of the Product, if applicable, shall be

made within ten (10) days of the end of each calendar month.” PX 29, § 5.3(B) (emphasis

added).

28. There is some dispute as to whether the defined term “Product” refers

specifically to Pentech’s capsule version of paroxetine. The parties agree that the capsule

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form of paroxetine was the only form covered by Pentech’s ANDA. T. 168:2-15; 541:16-18.

 Numerous provisions throughout the 2001 Agreement make sense only if the “Product” is

understood to refer to the Pentech capsule. (E.g., PX 29 (third, fourth and fifth “whereas”

clauses), § 4.1.) In several places, the agreement refers to the tablet “form,” or tablet

“version” of the “Product.” The Court finds, based on the text of the agreement and the

circumstances surrounding its execution, that the defined term “Product” referred to

Pentech’s capsule except in those instances in which the Agreement expressly provides

otherwise through use of the phrase “the tablet version [or “form”] of the Product.” 

G. Circumstances Leading to the 2002 Amendment

29. The parties entered into discussions starting in the summer of 2002 to amend

the 2001 Agreement. As with the 2001 Agreement, the essential business terms of the

amendment were negotiated by Tarriff and Hummel. At some point, Par’s Vice President

Paul Campanelli (“Campanelli”) became involved in the efforts to draft an agreement

consistent with those negotiated terms. T. 210:18-211:7; 887:20-22.

30. By April 2002, Pentech had made requests to Par to increase its financial

commitment to the project. In particular, Hummel asked Tarriff to provide an additional $5

million of funding from Par to Pentech. DX 177 at FS38; T. 455:15-456:6; 825:2-7. Those

efforts by Hummel were unsuccessful. Par did not commit to invest any additional money

in the project in April, May, or June of 2002. T. 824:7-826:4.

31. Meanwhile, in May 2002, Pentech began discussions with GSK to settle the

Paragraph IV Litigation. DX 158 at P86432; DX 33 at 5 (interrog. 1).

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32. One factor that precipitated the amendment was that the parties became aware

that the costs of the GSK Litigation would exceed Par’s funding commitment under the 2001

Agreement, and Pentech also needed assistance to develop its capacity to manufacture its

paroxetine product. Pl. Agreed Facts ¶18; PX 182; DX 99. In particular, the parties

determined that Par would assume from Pentech responsibility for developing and

manufacturing the capsule, and obtaining FDA approval of the ANDA. As a result, the

parties anticipated that Par would invest approximately $9 million more than previously

expected, including, among other things, roughly $4 million in raw material costs, $2.5

million to prepare Pentech’s Chicago facility for manufacturing of solid dispersion and

$500,000 to expand Par’s own manufacturing facilities. PX 43; T. 180:3-181:23. In

addition, Par determined there were significant problems with all three components of the

manufacturing process, including the relationship with the manufacturer of Pentech’s ASI,

Pentech’s production capacity and the manufacturer for the encapsulation stage. T. 733:3-

737:16.

33. At the same time, the parties perceived that the financial risk and the possible

return on the project had increased. T. 586:20 - 587:2. As Tarriff explained to Par’s board

of directors, “the financial value of the opportunity is greater than first assumed.” PX 43.

H. Settlement Offers From GSK

34. Among the additional events that precipitated the amendment to the 2001

Agreement were two settlement offers from GSK. Following a meeting between

representatives of Pentech and GSK in June, 2002, GSK made the first offer in July 2002 at

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an informal meeting in Newark, New Jersey, between GSK’s counsel and Pentech’s counsel

James Rubin (“Rubin”). T. 183:7-191:12; Rubin Dep. 68:25-71:14. Rubin related GSK’s

offer to Hummel, who determined that the value of the product offered by GSK was so

insignificant that he instructed Rubin to reject the offer immediately. T. 187:20-190:15.

Soon thereafter, Hummel informed Tarriff for the first time that Pentech was having

settlement discussions with GSK. T. 560:21-562:13. There is conflicting testimony as to the

substance of these various communications regarding the GSK settlement offer. According

to Hummel, he told Tarriff that GSK had offered to settle by supplying Pentech with a small

quantity of paroxetine product that could be marketed as a treatment for depression, as well

as the use of paroxetine active pharmaceutical ingredient (“API”) for treatment for premature

ejaculation (“PE”). T. 186:13-20; 190:16-191:2. Tarriff claims, however, that he recalls

Hummel describing the GSK offer as a $5 million payment to acquire Pentech’s patents for

paroxetine as a treatment for PE. T. 560:21-561:5; 739:13-741:4. Rubin recalls, consistent

with Hummel’s testimony, that GSK offered to provide a supply of paroxetine that could be

marketed for depression. Rubin Dep. 68:25-71:14; PX 46; T. 1024:13-1026:25.

35. Hummel was disappointed by what he perceived to be a very meager settlement

offer from GSK; however, Tarriff reacted positively upon being told of the GSK offer. T.

192:13-193:2. Hummel recalls that Tarriff was encouraged by GSK’s proactive conduct and

interest in settling, and was optimistic that Par and Pentech would be able to settle with GSK

if Par and Pentech could expand production capacity for the Pentech capsule. T. 194:12-

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196:13; 407:9-408:2. Tarriff did have a concern that Pentech could negotiate a lucrative

settlement for itself, while leaving Par “holding the bag.” T. 583:7-584:6; 740:23-741:4.

36. Hummel and Tarriff negotiated two major issues: 1) an increased investment

by Par in the effort to manufacture a paroxetine capsule, and 2) an agreement regarding the

division of profits arising out of a possible settlement with GSK. Regarding the first point,

Par agreed to invest additional sums and take on additional responsibility in exchange for a

greater share of the profits. With respect to the second issue, the parties agreed that in the

event of a settlement, Par would recover its direct costs and split profits 60% to Par and 40%

to Pentech. T. 198:9-201:8; 421:5-423:10. The Court finds that there was never any

discussion in the negotiations limiting amended Section 2.3 to a cash settlement payment

from GSK. T. 236:4-237:5. The amendment to the 2001 Agreement was the first time the

parties made any agreement as to a particular percentage split of settlement proceeds. T.

411:15-20.

37. Campanelli recalled Hummel informing Par in the late summer or early fall of

2002 that GSK made an offer to Pentech or Pentech’s attorney in which GSK offered 100

kilograms of paroxetine tablets, which had a sale value of approximately $5 million. T.

884:2-887:13. He also recalled the quantity of the tablet offer was based on GSK’s

assessment of Pentech’s manufacturing capacity. Id. 

38. On August 2, 2002, just days after his conversation with Hummel, Tarriff sent

a letter to Hummel proposing a revision to the 2001 Agreement. DX 99. In the letter, Tarriff

noted that “the amount of work and expense” necessary to get Pentech’s paroxetine capsule

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to market was “far greater than originally forecasted.” Tarriff stated that Par was prepared

to take on the additional responsibility and expense necessary to “fund the project to the level

necessary to commercialize the project,” but that Par would require two modifications to the

existing 2001 Agreement. First, Tarriff stated that Par’s share of the profits resulting from

marketing Pentech’s capsule “be increased from 70% to 75% and include time in which Par

is the sole marketer of paroxetine, other than GSK.” The second modification that Tarriff

sought was an agreement that, in the event of a settlement affecting the ANDA, “Par would

be reimbursed for all of its expenses,” after which the remaining “settlement funds would be

split 60% to Par.” DX 99; T. 575:23-578:16. The first of these modifications was reflected

in the changes that were ultimately made to the parties’ capsule sales profit splits under

Section 5.2. The second modification outlined in Tarriff’s letter was reflected in the parties’

addition of a second paragraph to Section 2.3. PX 66. The 2002 Amendment addressed the

possible GSK settlement and the significant additional investment and responsibility being

assumed by Par. T. 198:9-2001:8; 380: 9-19; 576:6-577:17. Par believed it needed to take

more control if the project was going to be successful. T. 566:1-567:11.

39. On August 7, 2002, Tarriff wrote an internal memorandum to Par’s board of

directors describing the situation with Pentech and seeking the board’s approval for an

additional investment in the Pentech paroxetine project. PX 43. Tarriff described the

Pentech paroxetine opportunity as “far greater than first assumed,” but cautioned that the

project would “require a far greater investment than originally projected.” Tarriff also stated:

“From a litigation standpoint, paroxetine provides a better likelihood of success than Par’s

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other first to file opportunities, with the exception of megestrol.” Tarriff told Par’s board that

“[t]hese opportunities are far and few between,” and that pursuit of the opportunity

represented “a prudent risk with the right risk/reward profile.” Tarriff recommended that Par

“continue to aggressively pursue this undertaking.” Id.; T. 586:1-589:21.

40. On August 7, 2002, Tarriff received a memo from Par’s Vice President of

Engineering and Manufacturing Operations, Bill Bundenthal, and Executive Vice President

of Scientific and Regulatory, Robert Fernia, concluding that the capsules can be “safely and

efficiently manufactured” at Pentech’s facility and that they were “confident that the process

of facility renovation process improvement and procurement of all necessary permitting can

be accomplished by June of 2003 in time for launch.” PX 44. Par was ready to proceed on

two possible tracks: a settlement track and a litigation/manufacturing track.

41. On September 4, 2002, GSK’s counsel, Ken Frankel, made a second settlement

offer, this time to FLH attorney Robert E. Colletti. GSK proposed to settle the litigation by

Pentech conceding infringement in exchange for GSK supplying Pentech with a limited

quantity of GSK’s paroxetine tablets (100 kilograms per year) and a license authorizing

Pentech to sell those tablets for the treatment of depression. This settlement offer was

described in a memorandum written that day by Colletti. PX 46. There is no reference to

a possible cash offer from GSK. Pentech’s former attorney, Rubin, testified that this offer

was the same as the offer that he recalled GSK had made in Newark earlier in July. Rubin

Dep. 70:12-71:14.

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42. That same day, Tarriff sent FLH attorney Ed Haug an e-mail in which he:

(a) calculated the value of GSK’s offer to be approximately $4 million; (b) confirmed that

he had directed Hummel to “have all settlement conversations flow through FLH”; and

(c) directed FLH to prepare a “revised contract” between Pentech and Par. PX 47. Tarriff

explained that the $4 million referenced in his e-mail was believed to be the value of the 100

kilograms of paroxetine contained in Colletti’s September 4 memorandum. PX 46; T. 594:6-

9. There was no reference to a cash offer in the memorandum. PX 46; T. 594:10-17. The

product quantity term of GSK’s offer was based on GSK’s understanding of Pentech’s then

current capsule manufacturing capacity. Tarriff sought an amendment to the 2001

Agreement in order to control the settlement with GSK and to make sure Pentech could not

sell out Par. T. 595:9-13. 

43. Both parties knew at least two months before executing the amendment to the

2001 Agreement that GSK had proposed to settle the litigation by, among other things,

providing a license and supply of paroxetine tablets for treatment of depression. See, e.g.,

PX 46 and 47. The parties adopted the broad language in Section 2.3 because they did not

know what the precise terms of a settlement might be with GSK and a settlement with GSK

would be favorable to both Par and Pentech. T. 218:12-220:17; 433:11-436:19.

44. In sum, at the time of the execution of the 2002 Amendment, two events were

underway—efforts to prepare for the prospective settlement with GSK on the one hand, and

efforts to increase capsule production capacity on the other hand.

I. The 2002 Amendment

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45. Par’s counsel prepared drafts of the 2002 Amendment for review by Par. PX

49-51. In none of those drafts or in the communications between Par and its counsel, is there

any indication that amended section 2.3 was to apply only to a cash settlement. Campanelli

sent the proposed 2002 Amendment to Hummel on September 20, 2002. PX 54. A further

revision was sent to Hummel by Campanelli’s assistant on October 22, 2002. PX 57. Once

again, nothing in either transmittal indicates any intention to limit the broad language

contained in amended section 2.3 to a cash settlement with GSK.

46. On or about November 12, 2002, Hummel and Tarriff executed the 2002

Amendment. Pl. Agreed Facts ¶20. (Hereinafter, the 2001 Agreement, as amended by the

2002 Amendment, is referred to as the “Contract.”) The Court finds Hummel’s explanation

of the purpose of amended Section 2.3 to be credible and rejects as not credible the

explanations provided by Tarriff and Campanelli. The explanation provided by Hummel is

consistent with the language of amended Section 2.3. 

47. The 2002 Amendment (DX 2) included the following provisions:

(a) Amended Section 2.2 gave Par “sole and exclusive control” of the GSK

Litigation, and “full responsibility” for all regulatory activities for the paroxetine capsule

product, and assigned Par project management responsibility for the project. DX 2 §§ II. A,

C. This represented a substantial increase in Par’s responsibilities. T. 606:13-607:12.

(b) The 2002 Amendment significantly increased Par’s financial investment

in the project in the range of $10 million to $14 million. DX 2 §§ II. A, C; T. 577: 10-17;

DX 99; PX 43 at PH 41779.

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(c) A second paragraph was added to Section 2.3 of the 2001 Agreement

concerning the division of proceeds from a settlement. As amended, Section 2.3 provided,

in its entirety as follows (text added by the 2002 Amendment in italics):

2.3 Settlement. Any Paragraph IV Litigation or any other

litigation regarding the ability of Par to market the Product

brought by a third party against Par or Pentech shall only be

settled upon the mutual satisfactory approval of Par and

Pentech. Each of Par and Pentech hereby agree that it will not

unreasonably withhold such approval if such approval is

requested by the other party.

Par and Pentech further agree that in the event of any settlement

to which Pentech and a third party are parties, which relates to

paroxetine, Par will first be reimbursed for all of its direct costs

relating to the development and marketing of paroxetine,

including but not limited to manufacturing related costs (e.g.

spray drying equipment, facility modifications and API start-up

costs) and legal expenses, out of any amounts received in the

settlement by Par and Pentech, any remaining amounts that are

received by Par and Pentech out of such a settlement will be

divided 60% to Par and 40% to Pentech.

(d) The parties added Section 2.4, which provided, among other things, for

Par to “have sole decision-making control over the project” and for Par to reimburse Pentech

for up to $1.3 million in “corporate costs” incurred in 2003. DX 2, § II. C. T. 607:13-608:9.

(e) A new Section 5.2 was substituted for existing Section 5.2, providing

an increased share of profits to Par, and provided in its entirety as follows:

5.2 Profit Payment. In addition to the Transfer/Contract Price

Payment and subject to Section 3.1 hereof, Par shall pay Pentech

the following Profit Payments:

(A) Subject to Section 3.1, during the Term and any

Renewal Term, the Profit Payment to be paid by Par to

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Pentech shall equal 25% of the Gross Profit generated by

Par from sales of capsule paroxetine product.

(B) To the extent Par markets a generic tablet version of

paroxetine, during the Term of this Agreement and any

Renewal Term, Par shall pay to Pentech a Profit Payment

in the amount of 15% of Par’s gross profit generated by

sales of the tablet version of paroxetine. Par’s gross

profit generated by the sales of the tablet version shall be

calculated using the same methodology as set forth

herein for calculating the Gross Profit for sales of the

capsule and shall include as a “Cost of Goods” any

license, royalty, profit or similar payment required to be

made by Par to a third party in connection with Par’s sale

of the tablet version of the paroxetine as well as any

payments similar to the Transfer/Contract Price Payment,

which are made to a third Party in connection with the

tablets.

(f) Section 5.3 of the Supply and Marketing Agreement was not changed

by the 2002 Amendment. Pl. Agreed Facts ¶21.

J. Settlement Of The GSK Litigation

48. Subsequent to the execution of the 2002 Amendment, Par and its counsel, FLH,

on Pentech’s behalf, entered into settlement negotiations with GSK concerning the resolution

of the GSK Litigation. Par made a presentation to GSK in December 2002 in an effort to

convince GSK to settle the GSK Litigation and to allow Pentech and Par to become GSK’s

generic partner for Paxil. DX 47; T. 220:20-228:15.

49. At a meeting in January 2003, GSK, Par and Pentech reached an agreement in

principle on the basic terms of a settlement of the GSK Litigation. T. 239:9-243:14. The

substance of the agreement was that GSK would provide a supply of unbranded Paxil tablets

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and a license to sell the tablets, and GSK would receive a portion of the tablet sales revenues.

Id. GSK consistently refused to include a cash component in the settlement. T. 766:13-16;

482:2-24.

50. That agreement in principle was thereafter modified at GSK’s behest. T.

245:11-246:3. Hummel recalls that Tarriff called him on or about February 7, 2003, to

inform him of the modifications to the deal. Id. According to Hummel, he and Tarriff

discussed the financial impact that the modification would have on Pentech and, in particular,

how the diminished short term value of the settlement would affect Pentech based on the

Par/Pentech 60/40 settlement split. T. 248:5-23.

51. On February 8, 2003, Par’s board of directors met telephonically and approved

the proposed settlement. Pl. Agreed Facts ¶22.

52. On February 8, 2003, Pentech’s board of directors also met telephonically to

approve the proposed settlement. DX 130. No one from Par attended this meeting.

Pentech’s board authorized Hummel to proceed with the settlement. Pl. Agreed Facts. ¶23.

FLH attorney Ed Haug attended a portion of this meeting, during which Par’s 60/40 split

with Pentech was discussed. T. 250:12-251:1; 875:9-876:3.

53. On February 24, 2003, two days before signing the GSK Litigation settlement,

Tarriff wrote a letter to Asahi Glass Company—which had been Pentech’s supplier of

paroxetine API under the ANDA—in which he made the following settlement offer to Asahi:

“Par will pay AGC 2% of the proceeds it receives under a settlement with GSK, after Par

first recovers its costs for this litigation . . . .” PX 100. See also PX 104 and 115. The

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language in Tarriff’s offer to Asahi is similar to the language used in the amendment to

Section 2.3 of the 2002 Amendment.

54. Par, Pentech and GSK entered into a Settlement Agreement on February 26,

2003. Contemporaneously with the execution of the Settlement Agreement and in

consideration thereof, Par and certain GSK affiliates entered into a License and Supply

Agreement. Pl. Agreed Facts ¶24; PX 102, 103. Pursuant to the Settlement Agreement, Par

could market Paxil in packaging that did not use the Paxil name. PX 179, ¶29.

55. These documents were later revised. On April 16, 2003, Pentech, GSK and Par

signed an Amended and Restated Settlement Agreement (hereinafter, the “Settlement

Agreement”); and GSK and Par signed an Amended and Restated License and Supply

Agreement (hereinafter, the “License and Supply Agreement”). Pl. Agreed Facts ¶25; PX

116, 117.

56. Par summarized the GSK settlement in a press release issued April 18, 2003,

as follows: “The settlement will allow Par to distribute in Puerto Rico substitutable generic

paroxetine hydrochloride immediate release tablets supplied and licensed from GSK for a

royalty paid to GSK. Par will be entitled to distribute the same product in the U.S. market

once another generic version fully substitutable for Paxil becomes available there.” PX 120.

Par began selling tablets in Puerto Rico in April or May, 2003. T. 484:5-10. Pentech never

received any profit payments or accounting from these sales pursuant to Sections 5.2 and

5.3(B) of the 2002 Amendment. T. 485:4-486:5. This fact supports the conclusion that Par

understood that Section 2.3, and not Section 5.3(C), applied.

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57. Pursuant to an order of the District Court in the GSK Litigation, both the

Settlement Agreement and the License and Supply Agreement were submitted for Court

approval on April 23, 2003. After a hearing, the Court approved the settlement on May 2,

2003. SmithKline Beecham Corp. v. Pentech Pharmaceuticals, Inc., 261 F. Supp. 2d 1002

(N.D. Ill. 2003) (Posner, J.). Pl. Agreed Facts ¶26.

58. The Settlement Agreement provided:

This Settlement Agreement, the License and Supply Agreement,

and the Stipulations in the proposed Stipulated Order are the

only consideration exchanged by on or on behalf of Plaintiffs or

GSK, on the one side, and Pentech or Par, on the other side, in

reaching the agreement to settle the Litigation.

Id. ¶27.

59. In the Settlement Agreement, Pentech and Par admitted that the commercial

manufacture of Pentech’s paroxetine product would infringe one of GSK’s patents that was

due to expire in 2006, and further admitted that the patents were valid and enforceable. PX

179, ¶¶ 3 and 31. In return, GSK agreed to dismiss its lawsuits against Pentech and not to

assert three other GSK paroxetine patents against the Pentech capsule. DX 3, ¶¶7, 9.

60. The License and Supply Agreement provided for Par to receive its entire

requirement of unbranded paroxetine tablets from GSK, and gave Par permission to market

those tablets in Puerto Rico starting immediately. PX 117, §§ 4.1, 4.3(a); PX 120. It further

provided that, upon entry of a generic Paxil competitor into the United States, Par could

immediately market the unbranded Paxil tablet throughout the United States. PX 117, § 4.2;

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PX 120. The License and Supply Agreement also required Par to make a “royalty payment”

to GSK of 60 percent of its Net Sales of the tablet. PX 117, § 3.1.

61. The unbranded tablets provided to Par by GSK are identical in chemical

composition to Paxil. PX 179, ¶34. Likewise, they are manufactured by the same

manufacturer as Paxil, in the same doses and dosage forms, but without brand identification,

and are marketed pursuant to the FDA’s approval of GSK’s NDA for Paxil. PX 129, pp. 17-

18. The unbranded tablets, in contrast to the possible Pentech capsule, were subject to

automatic substitution by pharmacists and available in all four strengths of the branded Paxil

product. PX 129, § 4.1.

62. Although Par assumed control and responsibility over development of the

Pentech capsule no later than the date of the 2002 Amendment, Pentech’s ANDA has never

been approved by the FDA. PX 179, ¶54.

K. Benefits of the GSK Settlement

63. Par and Pentech received substantial benefits from the GSK settlement. T.

669:3-675:6. A generic drug with an “AB” rating from the FDA is automatically

substitutable by a pharmacist for the brand drug. A non-AB rated generic drug is not

automatically substitutable. As a result, an AB rating for a generic drug is preferred from a

marketing perspective. T. 140:19-141:9; 305:9-21; Tarriff Dep. 57:4-58:15. The parties

expected that Pentech’s capsule would not receive an “AB” rating. T. 672:7-9; Tarriff Dep.

57:4-18. In contrast, the paroxetine tablet that GSK supplied Par under the GSK Litigation

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settlement was “AB” rated and fully substitutable for Paxil. T. 672:16-18; PX 129, pp. 17-18.

64. Pentech’s capsule was to be available for sale in only two dosages, 10 and

20 milligrams. In contrast, the GSK unbranded tablet licensed to Par is available in the same

four dosages as Paxil. T. 153:22-154:3; 671:22-672:18.

65. The timing of market entry is crucial to the commercial success of a generic

drug. T. 736:6-8. At all relevant times, the timing of the market entry for the Pentech

capsule was uncertain, because of the GSK Litigation and the fact that the FDA had not yet

approved Pentech’s ANDA. In contrast, under the Settlement Agreement, the GSK generic

tablet—which also was manufactured by GSK, and was identical to Paxil except in name—

would be immediately available for sale in unlimited volumes. T. 672:19-22.

66. By reason of the foregoing, both Tarriff and Hummel understood that the

potential market for the GSK tablet to be supplied by GSK under the settlement would be

greater than the market for the Pentech capsule. T. 422:19-423:10; 671:22-673:16.

67. On April 19, 2003, in an e-mail to Par’s board of directors regarding the GSK

settlement, Tarriff explained the various ways in which the settlement would reduce Par’s

risk, while increasing profitability. PX 122.

68. It is clear that Par used Pentech’s ANDA to negotiate a settlement that reduced

the parties’ risks (which, at that time, had largely been assumed by Par) while, at the same

time, it increased the amount of the parties’ potential reward and Par received significant

benefits. T. 669:10-673:25.

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L. “Interrelatedness” of The Settlement Agreement and the

License And Supply Agreement

69. The License and Supply Agreement between Par and GSK is part of a

“settlement” to which Pentech is a party. T. 710:5-8; 775:11-18. The evidence is clear that

all parties to the settlement consistently treated the Settlement Agreement and License and

Supply Agreement as one unitary “settlement” of the GSK Litigation among Pentech, Par

and GSK:

(a) Both in their original form and as amended, the Settlement Agreement

and the License and Supply Agreement were negotiated and executed at the same time by the

same parties. T. 665:14-24; PX 102, 103, 116, 117. The settlement allows Par to distribute

product. T. 677:10-12.

(b) The language of the contracts plainly describes the relationship between

them. For example, the Settlement Agreement expressly provides that the License and

Supply Agreement is the consideration exchanged to settle the GSK Litigation. Pl. Agreed

Facts ¶27. Moreover, the License and Supply Agreement states in its first recital:

“WHEREAS, the Parties wish to amicably settle patent litigation currently ongoing between

them.” PX 117, p.1.

(c) In a May 1, 2003 filing submitted to Judge Posner presiding over the

GSK Litigation, GSK referred to the License and Supply Agreement as “the core of its

settlement with defendant Pentech Pharmaceuticals, Inc. (‘Pentech’) and non-party Par

Pharmaceutical, Inc. (‘Par’) . . . .” PX 132 at 1; (emphasis added).

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(d) All parties consistently referred to the Settlement Agreement and the

License and Supply Agreement collectively as the “settlement agreements” in the papers they

filed in the GSK Litigation and in their oral representations to the District Court. E.g., PX

127, p. 1; PX 128, p. 1; PX 129, p. 10; PX 130, p. 1; PX 131, pp. 1, 5; PX 171, p. 1.

(e) Various court orders from the GSK Litigation refer to the Settlement

Agreement and License and Supply Agreement, interchangeably, as the “settlement.” PX

125; PX 140.

(f) On April 18, 2003, Par issued a press release announcing that “[t]he

settlement will allow Par to distribute . . . generic paroxetine hydrochloride immediate release

tablets supplied and licensed from GSK for a royalty paid to GSK.” PX 120 (emphasis

added).

(g) On April 21, 2003, Tarriff conducted a conference call with investors

and pharmaceutical industry analysts to announce the settlement of the GSK Litigation. On

that call, Tarriff described Par’s exchange of the rights to Pentech’s paroxetine capsule for

the right to sell unbranded tablets under the License and Supply Agreement, as “trad[ing] up

on draft day.” PX 123; PX 124; T. 674:18-675:16.

(h) Par’s quarterly and annual reports filed with the Securities and

Exchange Commission (“SEC”) state that: “[a]s a result of the settlement, [Par] will be

permitted to distribute . . . substitutable generic paroxetine hydrochloride immediate release

tablets supplied and licensed from GSK . . .” PX 126, p. 2; “[t]he settlement allows Par to

distribute . . . substitutable generic paroxetine . . . tablets supplied and licensed from GSK”

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PX 142 , p. 19; PX 157, p. 34; (emphasis added) and that “Par has been granted the right

under the settlement to distribute [GSK-supplied paroxetine tablets] in the United States . .

. .” PX 168, p. 40 (emphasis added); T. 685:7-688:1.

(i) GSK’s 2004 Annual Report referred to GSK’s “settlement with Pentech

and Par Pharmaceuticals to which Pentech had granted rights under Pentech’s ANDA for

paroxetine hydrochloride capsules,” and stated “[t]he settlement allowed Par to distribute .

. . paroxetine hydrochloride tablets supplied and licensed from [GSK] . . . .” PX 173, p. 117

(emphasis added).

(j) On October 24, 2003, Tarriff appeared on a CNBC television program

and referred to Par’s sales of the unbranded Paxil tablets as “a settlement from litigation.”

T. 681:12-682:18; PX 165 (19:45-24:34).

(k) On February 26, 2004, on a public earnings conference call, Tarriff

stated: “Paxil was a settlement with GSK . . . we had first to file status in that, and that’s how

we settled that.” PX 175 at P100695. Par settled the patent litigation with GSK “by

becoming the authorized generic.” T. 709:14.

(l) One of the benefits Par received out of the GSK settlement was the License and

Supply Agreement with GSK. T. 661:25-662:11.

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M. Par’s Internal Communications Support this Court’s Finding that Section 2.3

Governs

 70. On March 12, 2003, Par’s Vice President Paul Campanelli sent the following

e-mail to Dennis O’Connor, Par’s Chief Financial Officer, and Joe Schott, Par’s Senior

Director of Finance, with a copy to Tarriff:

Two separate business terms were addressed in the Pentech

amendment 1) legal expenses and 2) what happens in the event

of a settlement.

It is clearer if you read the contract and amendment together. It

is understood by Pentech, that #2 is in effect, we are in a

Settlement.

1. Legal Expenses: Par is responsible for legal fees and

expenses for P-IV litigation after November 2002. Legal

expenses in excess of $2 million is credited against profit.

2. Settlement: In the event of a settlement, Par is first

reimbursed it [sic] direct costs related to marketing,

manufacturing, facility modification, API and legal expenses out

of amounts received in a settlement. Remaining amounts

received are split 60/40, Par taking the lion’s share.

T. 923:14-926:1; PX 109. Par’s executives sent several responses to Campanelli’s March

12 e-mail, none of which disagreed with the stated understanding that Pentech was to receive

a 40 percent share. PX 106, 107,108, 110A, 110B, 111.

71. Campanelli and Tarriff testified that these e-mail exchanges were meant to

relate only Pentech’s understanding of the deal, an understanding with which they disagreed

at that time. T. 924:2-16; 925:19-926:1; Tarriff Dep. 208:18-24. This testimony is at odds,

however, with the text of the e-mails, which contain no expression or suggestion of

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disagreement. The e-mail response from Tarriff (PX 107), to the contrary, suggested

concurrence: “Paul, Joe, Also we get up to 3% of SALES for SG&A . . .” (Emphasis

added.) Further, the circumstances and broader context suggest that Campanelli’s March 12

e-mail was intended to provide information for Par’s 2002 SEC Form 10-K, which was then

being prepared. The e-mail is addressed to Par’s Director of Finance Joe Schott (“Schott”),

and Chief Financial Officer Dennis O’Connor (“O’Connor”), who were responsible for

preparing the Form 10-K. See T. 926:21-927:11; PX 108; see also PX 58, 61, 63-65, 67-69,

73 (10-Qs demonstrating O’Connor and Schott’s roles in preparing SEC filings). Par filed

its 10-K on March 28, 2003, only two weeks after Campanelli’s e-mail. PX 114. E-mail

responses from Schott and O’Connor indicate that they understood the March 12 e-mail

concerned the soon-to-be-filed 10-K report. PX 111 (“I think the current disclosure in the

10-K is correct because the settlement is not final”); PX 106 (“Shouldn’t November 2002 be

2001, the signing date of the agreement?”). Campanelli acknowledged that, “from time to

time, just in the ordinary course,” he is asked to provide information that is needed for use

in Form 10-K annual reports. T. 916:8-15. Consistent therewith is Campanelli’s testimony

that his March 12 e-mail merely identified and described two terms that had been changed

by the 2002 Amendment. T. 925:14-926:1.

72. Before either Pentech or Par approved the settlement with GSK, Hummel

advised Campanelli that Pentech understood it was to be paid a 40 percent share of the

amounts Par derived from its sales of the unbranded paroxetine tablets from GSK. T. 917:5-

919:11; 922:5-922:11; 990:7-991:8. Nevertheless, at no time before at least December 2003

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did Par ever state to Pentech, either in writing or orally, that Pentech was entitled only to a

15 percent share. T. 280:3-12.

73. On May 5, 2003, Tarriff sent an e-mail to two Par employees asking them to

prepare a complete list of all expenses related to Paxil to be sent to Hummel because “[w]e

get our expense back.” PX 134. This request is consistent with Section 2.3.

74. On May 23, 2003, a Par employee, Michael McHugh, sent Par CEO Scott

Tarriff an e-mail transmitting “files containing the 2003 & 2004 forecasts that include the

changes we went over on Wednesday.” The attached spreadsheet shows that Par’s “Gross

margin %” in connection with the sale of paroxetine TABS was 24%. T. 692:6-695:10;

PX 149, pp. PB 7103, PB 7107. This 24% figure is the percentage that would be derived

from paying GSK 60% of net sales, and paying Pentech 40% of the remaining 40%, thereby

leaving Par with 60% of 40%, or 24%. T. 694:11-695:10.

75. The purpose of Section 2.3, according to Tarriff’s testimony, was to address

a settlement proposal advanced by GSK in 2002. T. 562:15-563:10. Yet, the only settlement

proposals advanced by GSK during 2002 were proposals for GSK to provide a supply of

paroxetine for re-sale, precisely the settlement arrangement that GSK, Pentech and Par

ultimately reached. T. 710:9-18; PX 46; PX 47. At trial, Tarriff testified that he understood

those settlement offers to be “cash” offers (T. 594:10-24), but that testimony is inconsistent

with his previous deposition testimony (Tarriff Dep. 141:4-18), which describes GSK’s offer

as having $5 million of “value”, and also with the evidence showing that GSK offered a

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tablet supply again in September 2002, and that Tarriff was immediately made aware of that

offer. See PX 46, 47 (with references to “100 kg” of product).

76. Tarriff testified that the parties anticipated they would probably have an

opportunity to market paroxetine tablets from GSK. T. 532:25-533:18. Among other things,

Tarriff testified “[i]t’s pretty common that in all of your Paragraph IV litigation that

ultimately you try to settle your cases.” T. 533:2-4. When asked whether he told Mr.

Hummel before the parties signed the Supply and Marketing Agreement that Par

contemplated marketing a GSK tablet, Tarriff testified: “[n]o, but I think it was pretty

common at that point that that’s a frequent occurrence, and Mr. Hummel was and I think he

still is, a board member of a large generic company in the U.S., and I think this is just

something that’s standard that happens pretty frequently.” T. 533:14-18.

N. Amounts Par Obtained From Its Sales of Paroxetine Supplied by GSK

Are “Amounts Out of Settlement” Under Section 2.3

77. On September 8, 2003, third party Apotex Inc. entered the United States

market as a generic competitor to Paxil. As provided for in the License and Supply

Agreement with GSK, Par immediately began selling generic paroxetine tablets

manufactured by GSK, in competition with the Apotex product. Def. Agreed Facts. ¶19; PX

158; T. 697:14-698:11.

78. The paroxetine tablet supplied by GSK under the settlement became Par’s

largest selling drug ever, as well as its second most profitable drug ever. Tarriff Dep. 238:5-

21. As of September 30, 2007, Par’s gross sales of paroxetine tablets exceeded $400 million.

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T. 714:10-25. Pentech had no responsibility—financial or otherwise—relating to the

marketing and sales of the GSK-supplied tablet. T. 417:5-8.

79. The language of the 2002 Amendment and extrinsic evidence demonstrate that

the parties intended and understood that Pentech would receive a 40 percent share of Par’s

proceeds from its sales of unbranded paroxetine pursuant to Section 2.3. At the time the

2002 Amendment was executed, the parties were aware that the settlement with GSK might

include the supply of tablets because GSK had rejected requests for cash payments. In light

of this, the decision by the parties to select broad and all-inclusive language in the 2002

Amendment to Section 2.3 with the terms “any settlement,” “any amount received in

settlement,” and “any remaining amounts that are received by Par and Pentech,” the Court

finds that the parties intended to treat the GSK settlement under Section 2.3, not Section 5.2.

O. The Litigation 

80. Beginning in or around September 2003, the dispute arose regarding whether

Pentech was entitled to a 40 percent share of the amounts out of the GSK settlement. T.

267:8-276:3. At no time before at least December 2003 did Par ever state to Pentech, either

in writing or orally, that Pentech was entitled only to a 15 percent share. T. 280:3-12.

Pentech filed this lawsuit against Par on May 3, 2004. Dkt. 1. On March 28, 2006, Judge

Filip denied the parties’ cross-motions for summary judgment. Dkt. 202. On October 25,

2007, Judge Filip granted Par’s motion for summary judgment on Pentech’s breach of

fiduciary duty and equitable accounting claims. Dkt. 231. Subsequently, this Court

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conducted a bench trial on December 9-12 and 15-16, 2008 and heard closing arguments on

December 22, 2008.

III. CONCLUSIONS OF LAW

A. Jurisdiction and Choice of Law 

81. This action includes two counts: Count I for breach of contract; and Count II

for declaratory judgment. The Court has diversity jurisdiction over both counts. 28 U.S.C.

§ 1332(a)(1). Section 1332(a)(1) provides federal courts with jurisdiction over all civil cases

where the matter in controversy is in excess of $75,000 exclusive of interest and costs and

is between citizens of different states. In this case, both requirements are satisfied. The

parties have consented to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c)(1).

82. Venue is proper in this district under 28 U.S.C. § 1391(b) because this is a civil

action founded only on diversity jurisdiction. Plaintiff resides in this district and a

substantial part of the alleged events or omissions giving rise to Plaintiff’s claims occurred

in this district.

83. Pursuant to the parties’ agreement, New York law applies in this case. The

Contract provides that it “shall be deemed to have been entered into and shall be governed

by and construed under the internal laws of the State of New York.” DX 1 § 13.3; DX 2.

The Court finds this is an enforceable choice of law provision. See Fix v. Quantum Indus.

Partners, LDC, 374 F.3d 549, 552 (7th Cir. 2004). Accordingly, the Court will apply New

York law with respect to all issues relating to the Contract.

B. Breach Of Contract Claim

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84. Count I of the Complaint alleges breach of contract. Under New York law, a

breach of contract claim has four elements: (1) formation of a contract between plaintiff and

defendant; (2) performance by plaintiff; (3) defendant’s failure to perform; and (4) resulting

damage. Labajo v. Best Buy Stores, L.P., 478 F. Supp. 2d 523, 529 (S.D.N.Y. 2007)

(applying New York law). Pentech must prove each element by a preponderance of the

evidence. Pl. Agreed Facts ¶34. 

1. First and Second Elements 

85. The first and second elements, the existence of a contract and performance by

plaintiff, are undisputed. Id. at ¶¶33-35; Def. Agreed Facts ¶¶3, 13, 15. The Court

concludes that the Contract is a valid, enforceable contract between Pentech and Par. The

Contract is a written agreement signed by the presidents of both companies and includes

warranties by both parties of their respective signatories’ authority to enter into a binding

contract. Both Pentech and Par provided adequate consideration and treated the Contract as

in effect. The Court also concludes that Pentech performed all conditions precedent under

the Contract.

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2. Third Element

86. Regarding the third element, breach, the Court finds that Par breached the

parties’ agreement when it failed to pay Pentech 40 percent of amounts Par has received from

sales of the paroxetine tablets, net of certain direct costs, and that Pentech is entitled to such

payment under Section 2.3 of the Contract. While Pentech argues it is entitled to payment

under Section 2.3, Par disputes this. Par contends Section 5.2 governs Pentech’s share of the

paroxetine tablet sales revenues, entitling Pentech to only a 15 percent share thereunder, net

of certain expenses. Pl. Agreed Facts ¶37. 

87. Precedent instructs the Court to construe the Pentech-Par Contract to effectuate

the intention of the parties as they expressed it in the contractual language, assuming such

language does not fairly allow for more than one conclusion. W.W.W. Assocs. v.

Giancontieri, 77 N.Y.2d 157, 162 (N.Y. 1990). Only when the terms of a contract are

ambiguous may a court turn to evidence outside the agreement’s four corners to ascertain the

parties’ intent. In re Delmar Pediatrics Asthma & Allergy Care, P.C., 828 N.Y.S. 2d 589,

590 (N.Y. App. Div. 2006). Under New York law, “if [a] contract is ambiguous and relevant

extrinsic evidence asto its meaning is available, itsinterpretation is a question of fact for the

factfinder.” New Windsor Volunteer Ambulance Corps, Inc. v. Meyers, 442 F.3d 101, 111

(2d Cir. 2006). A contract is ambiguous if its terms are “reasonably susceptible to more than

one interpretation.” Chimart Assocs. v. Paul, 66 N.Y.2d 570, 573 (N.Y. 1986). In other

words, the central inquiry is whether the terms “could suggest ‘more than one meaning when

viewed objectively by a reasonably intelligent person who has examined the context of the

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entire integrated agreement and who is cognizant of the customs, practices, usages and

terminology as generally understood in the particular trade or business.’” DaPuzzo v.

Globalvest Mgmt. Co., 263 F. Supp. 2d 714, 729 (S.D.N.Y. 2003) (quoting Morgan Stanley

Group Inc. v. New Eng. Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000)). As the trier of fact,

a court may consider extrinsic evidence “that clarifiesthe ambiguity,so long asthe evidence

is not inconsistent with the express terms of the contract.” Golden Pacific Bancorp v.

F.D.I.C., 273 F.3d 509, 517 (2d Cir. 2001). 

88. A court interpreting an ambiguous contract under New York law must select

an interpretation that the language of the contract and the relevant extrinsic evidence

reasonably permit. See Chock Full O’Nuts Corp. v. Tetley, Inc., 152 F.3d 202, 205 (2d Cir.

1998); Compagnie Financiere de CIC et de L’Union Europeenne v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 232 F.3d 153, 161 (2d Cir. 2000). 

89. An omission in a contract, such as a failure to include a specific contingency,

does not permit the court to imply a term or interpret the contract in a way that is inconsistent

with the language of the contract. A failure to include in a contract a contingency that arises

does not necessarily create an ambiguity that requires interpretation. Reiss v. Fin.

Performance Corp., 764 N.E.2d 958, 961 (N.Y. 2001). Even if a contingency is omitted,

courts applying New York law will not necessarily imply a term since “courts may not by

construction add or excise terms, nor distort the meaning of those used and thereby ‘make

a new contract for the parties under the guise of interpreting the writing.’” Id. (quoting

Schmidt v. Magnetic Head Corp., 468 N.Y.S.2d 649, 654 (App. Div. 1983)). Nor may the

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court “imply a term where the circumstances surrounding the formation of the contract

indicate that the parties, when the contract was made, must have foreseen the contingency

at issue and the agreement can be enforced according to its terms.” Id. Where terms of a

contract are clear, the fact that events unfold differently than the parties had anticipated or

intended does not excuse compliance with the terms. “Provision for the possibility that

events may turn out differently than the parties anticipate is a common feature of commercial

contracts.” Burke v. Steinmann, No. 03 Civ. 1390, 2004 WL 1117891, at *5 (S.D.N.Y.

May 18, 2004).

90. New York law instructs that courts “should adopt the construction of the

contract that reasonably harmonizes [its] provisions and avoids [an] inconsistency.” James

v. Jamie Towers Housing Co., Inc., 743 N.Y.S.2d 85, 87 (App. Div. 2002). 

91. A court should construe a contract to further the parties’ economic purposes

in entering into the transaction. See IBM Credit Fin. Corp. v. Mazda Motor Mfg. (USA)

Corp., 665 N.Y.S.2d 645, 645 (N.Y. App. Div. 1997)(rejecting contract interpretation where

“Plaintiff’s proffered view of the transaction would have made no economic sense for

defendant and would have frustrated defendant’s explicit central purpose in entering into the

transaction”). 

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a. Section 2.3 Governs the Settlement. 

92. District Judge Mark Filip entered an order denying summary judgment in

which he concluded as a matter of law that the Contract is ambiguous concerning how the

parties intended to divide amounts received from sales of the paroxetine tablets provided by

GSK. Dkt. 202 at 19-23. Based on the applicable legal principles as well as the evidence

heard and introduced at trial, the Court concludes the parties intended to divide such amounts

Par 60%/Pentech 40% as provided in Section 2.3.

93. The original text of Section 2.3 provided that the GSK Litigation could only

be settled upon the mutual satisfactory approval of Par and Pentech. PX 29, § 2.3.

Consistent therewith, Tarriff testified that, because of Section 2.3, any settlement impacting

Par’s ability to market the product would have required Par and Pentech to sit down and

work out an agreement before they could go to market. T. 750:12-17; 753:4-8. Thus, Par

could not get to market by settling with GSK without Pentech’s agreement regarding how

to divide the proceeds thereof. 

94. Thereafter, in the 2002 Amendment, the parties added the second paragraph

to Section 2.3 of the 2001 Agreement concerning the division of amounts received “out of”

settlement. DX 2. A primary goal of the 2002 Amendment was to deal with the potential

GSK settlement. T. 380: 9-19. Notably, as discussed below, the second paragraph employs

broad language with respect to settlement. 

95. Although there is some dispute as to what was discussed among Hummel,

Tarriff and Campanelli concerning the settlement offer GSK made to Pentech in July 2002,

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the undisputed evidence shows Hummel, Tarriff and Campanelli knew in advance of the

execution of the 2002 Amendment that there was a prospect of settlement with GSK under

which GSK would provide a supply of paroxetine product that could be marketed for

treatment of depression. See, e.g., PX 46 and 47; T. 200:4-12; 754:3-12; 884:2-887:13.

Indeed, GSK consistently rejected the inclusion of a cash element in the settlement. T.

200:4-201:16; 482:2-24; 766:13-16. 

96. With the knowledge that there was a prospect of settlement with GSK under

which GSK would not provide cash but instead would provide a supply of paroxetine product

that could be marketed for treatment of depression, the parties added a second paragraph to

Section 2.3. Significantly, the parties used broad language to describe the parties’ respective

shares of “amounts received” “out of” any settlement. The operative language in Section 2.3

allocates 40 percent to Pentech and 60 percent to Par of amounts received out of “any

settlement to which Pentech and a third party are parties, which relates to paroxetine . . . .”

The parties chose the word “any,” which has a well-known, all-encompassing meaning. The

principal definition of “any” is “one or some of a thing or number of things.” CONCISE

OXFORD ENGLISH DICTIONARY p. 59 (2007); see Fama v. Metro. Prop. & Cas. Ins. Co., 646

N.Y.S.2d 930, 934 (Sup. Ct. 1996) (regarding dictionary definitions as “useful guideposts”

to courts in interpreting contracts). Thus, provided that a settlement was encompassed within

the coverage of the second and third clauses of Section 2.3 (i.e., “to which Pentech and a

third party are parties” and “which relates to paroxetine”), then “any” such settlement,

regardless of its particulars, is subject to Section 2.3’s sharing provisions.

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97. The second clause of Section 2.3—“to which Pentech and a third party are

parties”— encompasses the Settlement Agreement to which Pentech and GSK (a “third

party” in accordance with the terms of the Contract) are parties.

98. Likewise, there is no dispute that the Settlement Agreement “relates to

paroxetine” and thus, comports with the third clause of Section 2.3.

99. Par offers several reasons why Section 2.3 should not govern the parties’

division of sales revenues, but the Court does not find them persuasive. First, Par argues

Section 2.3 was intended to apply only to “cash” or “direct payments” received in settlement.

Significantly, however, the text of Section 2.3 does not explicitly address “cash” or “direct

payments.” Rather, it more broadly addresses “amounts” “out of” settlement. The word

“amounts” denotes quantity generally; not just cash. See, e.g., CONCISE OXFORD ENGLISH

DICTIONARY, p. 43 (2004). Section 2.3 does not refer to “cash,” “payments” or amounts

“paid” in settlement, although the words “cash,” “paid” and “pay” are used in other

provisions of the Contract. See, e.g., DX1 Art. 1, Definition of “Net Sales” (cash); § 2.1

(pay, cash); § 2.2 (pay, paid); § 5.2 (pay). Moreover, even if the Court were able to treat

“amounts” as a synonym for “cash,” the phrase “out of such a settlement” denotes a causal

relationship that would encompass proceeds of Par’s sales of GSK manufactured paroxetine

tablets. See, e.g., Levitt v. Peluso, 638 N.Y.S.2d 878, 880 (Sup. Ct. 1995) (“the phrase

‘arising out of’ must be interpreted in a broad and comprehensive sense to mean ‘originating

from’ or ‘growing out of’”); Landpen Co. v. Maryland Cas. Co., No. 03-C-3624, 2005 WL

356809, at *6 (S.D.N.Y. Feb. 15, 2005) (construing phrase “arising out of” to have a “broad,

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general, comprehensive” meaning, “ordinarily understood to mean originating from, incident

to, or having connection with”). 

100. Moreover, to interpret Section 2.3 in the manner urged by Par would require

the Court to limit the scope of Section 2.3 in ways the parties did not explicitly provide. New

York law precludes the Court from introducing new, unexpressed limitations into the

Contract in this manner. If the individuals who negotiated the 2002 Amendment had

intended to limit the reach of Section 2.3 to “direct payments,” “reverse payments” or “cash

payments” received in settlement, they were all familiar with these phrases, and they could

easily have used them in Section 2.3 to modify, or in place of, the obviously broader term,

“amounts.” Given the conspicuous absence of any such limiting language, the Court will not

read an implied limitation into Section 2.3. E.g., Goldstein v. Accuscan, Inc., 2 N.Y.3d 811,

812 (N.Y. 2004); Signature Realty v. Tallman, 2 N.Y.3d 810, 811 (N.Y. 2004); Vermont

Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475-76 (N.Y. 2004); Worcester

Creameries, Corp. v. City of New York, 861 N.Y.S. 2d 198, 201-03 (N.Y. App. Div. 2008).

If Par wanted limiting language in the Contract, it should have included it:

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[T]he party seeking exception or deviation from the meaning

reasonably conveyed by the words of the contract should bear

the burden of negotiating for language that would express the

limitation or deviation.

Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 571 (N.Y. 2002)

101. Par also argues, with reference to extrinsic evidence, that the License and

Supply Agreement was intended to be independent from the Settlement Agreement, and

“stand on its own.” See., e.g., T. 667:24-669:12. Par contends that, because the License and

Supply Agreement was a “stand alone” agreement to which Pentech is not a party, the Court

should conclude the revenues from Par’s sales of the paroxetine tablets are not amounts

“received by Par and Pentech out of” the settlement with GSK, as contemplated by Section

2.3 of the Contract. For the reasons set forth in Paragraph 69, supra, the Court is not

persuaded by this argument. That is, the evidence is clear that all parties to the settlement

consistently treated the Settlement Agreement and License and Supply Agreement as a single

unitary “settlement” of the GSK Litigation among Pentech, Par and GSK. Therefore, the

only prudent reading of Section 2.3 is that it encompasses all value received in consideration

of the settlement, of which the paroxetine tablet revenues were a principal component.

102. Finally, Par argues it would have been commercially unreasonable, or absurd,

for Pentech and Par to agree to divide prospective product sales 60/40 at a time when both

parties agreed Par was going to assume a greater share of the expense and risk of the project

and, in exchange, was going to receive a greater share of the profit splits under Section 5.2.

This argument, too, is unpersuasive. To be sure, there is no dispute that the 2002

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Amendment provided Par with a greater share of prospective capsule sales under Section 5.2

in recognition of the significant new risk and expense Par would incur in order to get

Pentech’s capsule manufactured and on the market. DX 2 § 5.2. Significantly, however,

the parties could reasonably have anticipated that in the event of a settlement with GSK,

Par’s risks tied to capsule manufacturing and Paragraph IV Litigation defense would be

diminished, and the potential overall reward would be increased. See, e.g., PX 43; PX 122;

T. 422:19-423:10; 586:20-587:2; 671:22-673:16. At the time the Contract was amended,

Par and Pentech both knew GSK had offered to provide a supply of paroxetine product to

settle the case, and both parties believed a settlement with GSK was a reasonably likely

outcome. See., e.g., PX 46 and 47; T. 200:4-12; 754:3-12; 884:2-887:13. In sum, in light

of the language of the Contract and the extrinsic evidence, the Court concludes that Section

2.3 governs the GSK settlement.

b. Section 5.2 of the Contract is Inapplicable to the Settlement.

103. Par contends Section 5.2(B) of the Contract governs the parties respective

shares of the revenues from Par’s sales of GSK’s unbranded tablets despite Section 2.3.

However, provisions of Section 5.2 and Article 5 (in which Section 5.2 is contained), when

read in context with other Contract language, make plain that the parties intended for Section

5.2 to apply only in a situation where Par was on the market with Pentech’s paroxetine

capsules.

104. In essence, Par argues Section 5.2 must apply to any situation in which Par is

marketing generic paroxetine, even if the opportunity to market only arose out of a settlement

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of the GSK Litigation. The Court disagrees. Par’s reading of Section 5.2 is at odds with the

text of the original paragraph of Section 2.3, which provided that, in the event of any

prospective settlement “regarding the ability of Par to market the Product,” Pentech and Par

were required to sit down and work out a deal. As Par admitted in its Answer to Pentech’s

Complaint, “[t]he Supply and Marketing Agreement made no provision for the consequence

of a settlement of the Paragraph IV Litigation under which Pentech’s form of paroxetine

would not be manufactured and marketed.” PX 179, ¶20. Given that the parties had not

intended for such a settlement to be governed by Section 5.2 of the Supply and Marketing

Agreement, Par has failed to explain why the Court should attach a different meaning to

Section 5.2 as it is set out in the 2002 Amendment. The extrinsic evidence of the parties’

negotiations shows no such intent to alter the intended scope of Section 5.2. The evidence

establishes Section 5.2 set forth the financial terms that would apply in the event that the

parties prevailed in the GSK Litigation and succeeded in marketing the Pentech capsule. The

only tablet sales ever discussed in the context of Section 5.2 were Par’s prospective sales of

a Genpharm tablet. The evidence also shows that, at Hummel’s request, Par agreed to give

Pentech a 15 percent payment of profits from any such sales as a protective measure in the

event the Genpharm tablet sales “cannibalized” sales of Pentech’s capsule. That 15 percent

share was unchanged by the 2002 Amendment.

105. The parties raise a number of additional interesting issues, but they are not

relevant to this Court’s decision. Those issues include the interpretation of the phrase

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“subject to Section 3.1” contained in Section 5.2 and the events surrounding efforts to settle

this dispute prior to litigation.

106. The title of Article 5—“Payment For The Product”— is significant. PX 29.

“Captions are relevant to contract interpretation.” Int’l Multifoods Corp. v. Commercial

Union Ins. Co., 309 F.3d 76, 85 (2d Cir. 2002). “Product” is a term defined in Article 1 and

Exhibit A, and solely refersto Pentech’s capsule formof paroxetine except in those instances

in which the Agreement expressly states otherwise. The Court finds, based on the text of the

agreement and the circumstances surrounding its execution, that the defined term “Product”

referred to Pentech’s capsule except in those instances in which the Agreement expressly

provides otherwise through the use of the phrase “the tablet version [or “form”] of the

Product.” PX 29. Under the GSK Settlement, “the Product” became irrelevant and, thus,

there was no “Payment For The Product.”

107. In addition, Section 5.2 is titled “Profit Payments.” Subsections 5.2(A) and

5.2(B) each provide for Pentech to receive a “Profit Payment” under certain circumstances.

“Profit Payment” is a term defined in Article 1 and Section 5.1 of the Contract, and is

determined by sales of any “Product.” PX 29. Under the License and Supply Agreement,

there are no “Profit Payments” to be paid to Par. Moreover, the initial sentence of Section

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Some contracts contain a clause negating the interpretationalsignificance of headings. See, e.g., PX

117, § 9.10. Neither the Supply and Marketing Agreement nor the 2002 Amendment contains any such

clause.

51

5.2 provides for Par to receive Profit Payments “[i]n addition to the Transfer/Contract Price

Payment.” (Emphasis added.) Section 5.1, in turn, defines the Transfer/Contract/Price

Payment as a function of “the Product delivered by Pentech to Par pursuant to a Firm Order.”

Pentech never delivered “the Product” to Par, so there never was a Transfer Contract/Price

Payment to Par. In the absence thereof, Par would not be entitled to any Profit Payment

under the express language of Section 5.2. That section could not, therefore, apply to

revenues from Par’s sales of GSK manufactured paroxetine.

108. The clear intended coverage of Article 5 and Section 5.2 was for circumstances

in which the paroxetine capsule “Product” was approved by the FDA and “on the market.”

A reasonable person reading an index to the entire Contract would not logically refer to

Article 5 or Section 5.2 to learn how to deal with the gains from the GSK settlement.

Instead, a reader would look at Article 2 (which includes “Settlement” in its title) and Section

2.3 (titled “Settlement”).3

109. Moreover, Section 5.3(B) of the Supply and Marketing Agreement, which was

not changed by the 2002 Amendment, calls for Profit Payments with respect to Par sales of

paroxetine in tablet form to be made only after the launch date of Pentech’s capsule

“Product.” Specifically, Section 5.3(B) provides:

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Profit Payment. The initial Profit Payment for the Product shall

be made within seventy-five (75) days after the launch of the

Product by Par. Thereafter, payment of the Profit Payment for

the Product and the tablet version of the Product, if applicable,

shall be made within ten (10) days of the end of each calendar

month. Within fifteen (15) days of the end of each calendar

quarter, Par shall deliver to Pentech a report showing in

reasonable detail the calculation of net Sales, Cost of Goods,

and Gross Profit for the Product, and if applicable the tablet

version of the Product, for such previous quarter.

PX 29 at § 5.3(B) (emphasis added). Because Section 5.3(B) provides that Profit Payments

with respect to “the tablet version of the Product, if applicable” will be made “thereafter,”

and because “thereafter” refers to the time after “the launch of the Product by Par,” this

section indicates that before Par becomes obligated to make such Profit Payments there must

first be the “launch” of Pentech’s capsule. 

110. There is no dispute that Par began marketing the GSK-supplied paroxetine

tablets in Puerto Rico in May 2003. PX 142 at p. 20. See also PX 120; T. 484:5-16; 685:7-

686:19. Hummel’s testimony that Par did not provide reports as required by Section 5.3(B)

for the Puerto Rico sales (T. 485:21-486:5) was uncontradicted (cf. T. 713:16-20), and

indicates Par did not regard the sales of the GSK-supplied tablets as subject to Section 5.2

of the Contract.

111. Moreover, Hummel informed Campanelli of Pentech’s understanding that it

was to receive 40 percent of the amounts Par received from its sales of GSK’s tablets before

either Par or Pentech approved the settlement with GSK. See, e.g., T. 917:5-919:11; 922:5-

922:11; 990:7-991:8. However, Par failed to inform Pentech prior to December 2003 that

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Pentech was to receive only a 15 percent share. T. 280:3-12. Hummel also testified that at

no time during the period from July 2002 until April 2003, the date on which the Amended

and Restated License and Supply Agreement between GSK and Par was executed, did any

Par representative indicate Pentech’s share would be only 15 percent. T. 267:8-16. To the

contrary, even though Par’s representatives were aware of Hummel’s view that Pentech was

entitled to a 40 percent share, no one from Par disputed his view. T. 267:17-268:18.

Significantly, Tarriff admitted there was no contemporaneous document showing Par

communicated to Pentech that Pentech’s share was only 15 percent. T. 709:20-710:4. 

112. This Court has considered this evidence to the extent that it provides reliable

insight into the parties’ intentions or helps the Court weigh the witnesses’ credibility. See

CBS Corp. v. Northrop Grumman Corp., 53 F. Supp. 2d 629, 630-31, n.1 (S.D.N.Y. 1999)

(statements of party are admissions which are admissible evidence of intent).

113. In sum, having considered all relevant evidence, the Court concludes Section

2.3, and not Section 5.2, governs Pentech’s share of the revenues from the paroxetine tablet

sales. The Court also concludes Par has breached the Contract because it has failed to pay

Pentech the full amount due under Section 2.3. 

3. Fourth Element

114. Regarding the fourth element, damages, it is clear Pentech suffered damages

by fulfilling the terms of the Contract without the agreed-upon compensation. Pursuant to

paragraph 1 of the Stipulation and Order entered on December 15, 2008 (the “December 15,

2008 Stipulation” (Dkt. 269)), the Court finds the payment due Pentech for paroxetine sales

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as of September 30, 2007, is $49.5 million, excluding prejudgment interest. Accordingly,

the Court holds that Par owes Pentech the sum of $49.5 million (the “Base Judgment

Amount”), in addition to the amount for interest set forth below. See infra, III.D. 

C. Declaratory Judgment

115. As a result of the Stipulation the parties submitted on December 18, 2008 (the

“December 18 Stipulation”), declaratory judgment regarding the parties’ ongoing rights and

obligations under the Contract is no longer appropriate in this case. Pursuant to paragraphs

1 and 2 of the December 18 Stipulation, Par’s liability to Pentech for paroxetine sales after

September 30, 2007 is not an issue in this litigation. Consistent with the December 18

Stipulation, the Court finds that both Par and Pentech reserve all legal rights with respect to

paroxetine-related revenues and liabilities subsequent to September 30, 2007. 

D. Interest

116. Pursuant to paragraph 1 of the December 15, 2008 Stipulation, the Court finds

the amount due Pentech for paroxetine sales as of September 30, 2007 is $49.5 million,

which represents the Base Judgment Amount, excluding prejudgment interest. See Dkt. 269.

117. In addition to its share of the revenues from the paroxetine tablet sales, Plaintiff

is entitled to prejudgment interest on the Base Judgment Amount of $49.5 million under

breach of contract as provided by the applicable New York statute, N.Y. C.P.L.R. §§ 5001,

5004 (2007). See Fulcrum Fin. Advisors, Ltd. v. BCI Aircraft Leasing, Inc., 354 F. Supp.

2d 817, 828-29 (N.D. Ill. 2005) (finding New York statute entitled plaintiff to recover

interest with respect to its successful claim for breach of contract). 

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118. Under New York law, “[i]nterest shall be recovered upon a sum awarded

because of a breach of performance of a contract . . . .” N.Y. C.P.L.R. § 5001(a). “[T]he

purpose of awarding interest is to make an aggrieved party whole.” Spodek v. Park Prop.

Dev. Assoc., 96 N.Y.2d 577, 581 (2001). The rationale for this approach was explained by

Chief Justice Cardozo in Prager v. N.J. Fid. & Plate Glass Ins. Co., 245 N.Y. 1, 5-6 (N.Y.

1927), and is equally relevant today: 

While the dispute as to value was going on, the defendant had

the benefit of the money, and the plaintiff was without it.

Interest must be added if we are to make the plaintiff whole . .

. . If [defendant] chose to keep the money, it should pay for what

it kept. There would be obvious injustice if interest would be

lost as the result of a slight discrepancy between the claim and

the award.

Id. In this case, Par had the benefit of the money while the dispute occurred, and it would be

an injustice to withhold interest on the money to which Pentech is entitled.

119. “Under New York law, ‘prejudgment interest is normally recoverable as a

matter of right in an action at law for breach of contract.’” Donovan v. Dairy Farmers of

Am., 53 F.Supp.2d 194, 197 (N.D.N.Y. 1999) (quoting Adams v. Lindblad Travel, Inc., 730

F.2d 89, 93 (2d Cir. 1984) (interpreting New York law)). Interest is calculated “at the rate

of nine per centum per annum, except where otherwise provided by statute.” N.Y. C.P.L.R.

§ 5004. In a contract matter, the plaintiff bears the burden of proof with respect to damages.

Peak v. Northway Travel Trailers, Inc., 811 N.Y.S.2d 798, 799 (App. Div. 2006). 

120. New York courts have held that “[w]here a contract does not specify a date or

time for performance, New York law implies a reasonable time period.” Guilbert v.

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Gardner, 480 F.3d 140, 149-50 (2d Cir. 2007)); see also Smith Barney, Harris Upham &

Co. Inc. v. Liechtensteinische Landesbank, 866 F. Supp. 114, 117-18 (S.D.N.Y. 1994)

(listing factors courts consider “[i]n determining what constitutes a reasonable time for

performance”); First Sec. Mortgage Co. v. Goldmark Plastics Compounds, Inc., 862 F.

Supp. 918, 938 (E.D.N.Y. 1994) (where contract failed to specify time for payment, court

enforced implied obligation to pay within ninety days); Savasta v. Newport Assocs., 82

N.Y.2d 763, 765 (N.Y. 1993) (where contract was silent as to time period within which

certain written notice was required, court enforced an implied reasonable time period). 

121. “Interest shall be computed from the earliest ascertainable date the cause of

action existed. . . .” N.Y. C.P.L.R. § 5001(b). The Court has broad discretion in determining

a reasonable date from which to award interest. See PozamentCorp. v. AES Westover, LLC,

857 N.Y.S.2d 766, 767 (App. Div. 2008) (observing that the New York prejudgment

interest statute “vests the court with broad discretion in determining a reasonable date from

which to award interest”). The date chosen should be a “reasonable date” and should

“make[] logical sense under the facts of [the] case.” Id. 

122. Pentech’s expert, Kathleen Kedrowski (“Kedrowski”), calculated interest under

Section 2.3 based upon payments to Pentech that became due on a quarterly basis after sales

of generic paroxetine tablets supplied by GSK commenced and continued through September

30, 2007. PX 196; T. 1158:23-1159:5. Specifically, Kedrowski employed a quarterly

payment schedule, with payments due from sixty days after the end of each calendar quarter

on amounts due Pentech for sales by Par of paroxetine tablets during the preceding calendar

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quarter. T. 1158:23-1159:5. Kedrowski referenced the frequency of royalty payments made

by Par to GSK under the terms of Section 3.3 of the Amended GSK License and Supply

Agreement. T. 1158:23-1159:15; 1159:9-1159:20; DX 6. The Court finds referencing the

frequency of royalty payments in that agreement is reasonable in light of the facts of this

case. Moreover, the Court notes Par’s expert, Steven Young (“Young”), did not base certain

of his interest calculations upon contractual provisions. See, e.g., T. 1188:5-7; 1185:19-

1186:6; 1193:19-1194:7. In sum, using a quarterly payment schedule, Kedrowski calculated

interest under Section 2.3 in the amount of $14,377,386 through September 30, 2007, with

$12,205 per diem interest due thereafter through December 9, 2008, for total interest due

through that date of $19,698,766. See PX 196 at Tabs 4 and 5, as revised by the December

15, 2008 Stipulation (Dkt. 269). 

123. This Court finds Kedrowski’s approach to be reasonable in light of the

particular facts of this case. A quarterly payment schedule is in line with the schedule by

which royalty payments are made by Par to GSK and Genpharm. T. 1101:15-1102:8;

1103:12-21; PX 117. Not only is such a payment schedule in line with Par’s business

practices and accounting practices, it is also reasonable to infer thatsuch a paymentschedule

works well from a business standpoint and allows for accurate payments. See, e.g., T.

1105:5-7. Thus, a quarterly payment schedule is logical given the facts of the case. It is not

burdensome to Par, as Par employs quarterly payment structures with other companies,

including GSK and Genpharm. 

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Kedrowski accounted for this payment by deducting an interest credit from the amount of

interest due Pentech based upon the stipulated damages amount. See PX 196 at Tab 4, as revised

by the December 15, 2008 Stipulation (Dkt. 269). 

58

124. Commencing a quarterly payment schedule, with payments due from sixty days

after the end of each calendar quarter on amounts due Pentech for sales by Par of paroxetine

tablets during the preceding calendar quarter, as of the start of GSK tablet sales on September

8, 2003, constitutes a reasonable time period for performance under Section 2.3. See Def.

Agreed Facts ¶19. Par began selling generic paroxetine tablets supplied by GSK pursuant

to the settlement on September 8, 2003. PX 158. As part of an attempt to resolve the parties’

ongoing dispute, Par paid Pentech $16,176,762 in December 2003.4

 DX 208 ¶26. Pentech

initiated this lawsuit on May 3, 2004. Dkt. 1. Thereafter, Par continued to market

paroxetine supplied by GSK. In light of these facts and the principles discussed above, the

Court concludes a quarterly payment schedule commenced based upon third quarter 2003

sales as set forth by Kedrowski. Specifically, Par began selling generic paroxetine tablets

supplied by GSK in the third quarter of 2003. Thus, a reasonable time for payment of

amounts due Pentech for sales by Par of paroxetine tablets during third quarter 2003 was

within sixty days after the end of third quarter 2003. 

125. Pursuant to its broad discretion in determining a date from which to award

interest, the Court also concludes interest should be computed from the earliest ascertainable

date the cause of action existed, which was when Par began to realize revenues from the

paroxetine sales but did not make its first payment to Pentech pursuant to the aforementioned

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quarterly payment schedule. Thus, as set forth in Kedrowski’s interest calculations, interest

is to be computed from third quarter 2003. PX 196. 

126. Par argues that if Section 2.3 were applied to divide market revenues, Par’s

obligation to make a payment to Pentech on revenues earned under the GSK license

agreement would most reasonably be held to have accrued when Par completed its sales of

paroxetine tablets under that agreement. In that scenario, Par argues, the total amount due

Pentech under Section 2.3 would become known and fixed and could thus be divided

between the parties after applying the permitted up-front deductions. Dkt. 282, at ¶2; Par’s

Proposed Findings of Fact and Conclusions of Law ¶181; T. 1368-69. This Court disagrees.

As discussed above, this Court believesit would be unreasonable to await the completion of

Par’s sales of paroxetine tablets before triggering Par’s obligation to make a payment to

Pentech pursuant to Section 2.3. Instead, as the terms of Section 3.3 of the Amended GSK

License and Supply Agreement demonstrate, it is far more commercially reasonable to

conduct sales reporting and payment within sixty days after the end of each calendar quarter

for the preceding calendar quarter. PX 117. In light of the December 15, 2008 Stipulation,

any issues regarding the amount of damages are taken out of the case. That is, the amount

of interest due Pentech is based upon the stipulated payment numbers. See Dkt. 269 ¶¶1 and

3. Thus, the stipulated payment numbers and Kedrowski’s interest calculations account for

Par’s December 2003 payment to Pentech as well as for reimbursement to Par of all of its

direct costs pursuant to Section 2.3.

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127. Par challenges the reliability of Kedrowski’s interest calculation, arguing it

fails to take into account the effects of Par’s restatement of its paroxetine sales. As explained

by Par’s expert, Young, Par in 2006 restated downward its paroxetine revenue for previous

years. T. 1193: 1-18. However, Young acknowledged Kedrowski addressed this

restatement in her interest calculation with a large credit in 2006. T. 1193: 16-18. 

 128. This Court finds Kedrowski’s approach with respect to the credit to be

reasonable. Moreover, the Court reaches this conclusion in light of its broad discretion in

determining interest and its finding that Kedrowski’s testimony is credible.

129. Accordingly, in this case, damages are $49.5 million, which constitutes the

Base Judgment Amount. Par shall pay Pentech prejudgment interest on the Base Judgment

Amount at the rate of 9 percent per annum simple interest as provided by the applicable New

York statute, N.Y. C.P.L.R. §§ 5001, 5004 (2007). Interest has been calculated at 9 percent

simple interest, with interest running from sixty (60) days after the end of each calendar

quarter on amounts due Pentech for sales by Par of paroxetine tablets during the preceding

calendar quarter. This is a reasonable due date and corresponds to the provisions of Section

3.3 of the License and Supply Agreement under which Par pays its royalty to GSK. PX 117,

§ 3.3. The Court notes this is somewhat more favorable to Par than the provisions of the

Genpharm Agreement between Genpharm and Par’s parent company, under which payments

are due within thirty days following the end of each calendar quarter. PX 10, § 6.4. 

130. As of December 9, 2008, the date on which the bench trial commenced, the

total interest accrued on the Base Judgment Amount was $19,698,766. Interest accrues after

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December 9, 2008 at the rate of $12,205.00 per day. PX 196 at Tab 5, as revised by the

December 15, 2008 Stipulation (Dkt. 269). Thus, the total amount of interest due Pentech

for the period from December 10, 2008, through February 9, 2009, the date of judgment, is

calculated at the rate of $12,205.00 per day and totals $756, 710. In sum, damages are $49.5

million. Interest totals $20,455,476. Therefore, the total amount due to Pentech from Par

is $69,955,476. 

IV. CONCLUSION

For the foregoing reasons, Plaintiff Pentech Pharmaceuticals, Inc., is entitled to

damages from Defendant Par Pharmaceutical, Inc. for breach of contract in the amount of

$49.5 million, plus interest in the amount of $20,455,476. Although this Memorandum

Opinion and Order spans many pages, this is a relatively simple case. Both the broad

language used in Section 2.3 and the extrinsic evidence support the conclusion that the

parties intended Section 2.3 to encompass the GSK settlement. 

Judgment is hereby entered in favor of Plaintiff Pentech Pharmaceuticals, Inc.,

and against Defendant Par Pharmaceutical, Inc., in the total amount of $69,955,476.

Plaintiff, as the prevailing party, is also entitled to recover its court costs against

Defendant.

SO ORDERED THIS 9th DAY OF FEBRUARY, 2009

 _____________________________________

MORTON DENLOW

UNITED STATES MAGISTRATE JUDGE

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