1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-8-1995

Amer Cyanmid v Fermenta

Precedential or Non-Precedential:

Docket 94-5413

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Recommended Citation

"Amer Cyanmid v Fermenta" (1995). 1995 Decisions. Paper 124.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/124
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 

 N0. 94-5413 

 

 AMERICAN CYANAMID COMPANY, 

 Appellant 

v. 

 FERMENTA ANIMAL HEALTH COMPANY, 

 a Delaware corporation 

 

 On Appeal From the United States District Court 

 For the District of New Jersey 

 (D.C. Civil Action No. 93-cv-04936) 

 

 ARGUED OCTOBER 28, 1994 

 OPINION VACATED APRIL 26, 1995 

 SUBMITTED PURSUANT TO LAR 34.1(a) 

 ON PANEL REHEARING MARCH 28, 1995 

 BEFORE: STAPLETON, HUTCHINSON and ROSENN, Circuit Judges

 (Opinion Filed May 8, 1995) 

 

John Vanderstar (Argued) 

Christopher N. Sipes 

Covington & Burling 

1201 Pennsylvania Ave., N.W. 

P. O. Box 7566 

Washington, D.C. 20044 

 and 

Donald A. Robinson 

Robinson, St. John & Wayne 

Two Penn Plaza East 

Newark, N.J. 07105-2249 

Of Counsel: 

Ronald J. Cracas 

Jane Y.C. Mathews 

American Cyanamid Company 
One Cyanamid Plaza 

Wayne, N.J. 07470-8426 

 Attorneys for Appellant 
Clinton R. Batterton (Argued) 

Edward John Allera 

Naomi Joy Levan 

Akin, Gump, Strauss, Hauer & Feld 

1333 New Hampshire Ave., N.W. 

Suite 400 

Washington, D.C. 20036-1511 

Of Counsel: 

James B. Daniels 

Friedman Siegelbaum 

7 Becker Farm Road 

Roseland, N.J. 07068 

 and 

Lars H. Liebeler 

The Robinson Law Firm 

717 D Street, N.W., #400 

Washington, D.C. 20004 

 Attorneys for Appellee 

 

 OPINION OF THE COURT

 

STAPLETON, Circuit Judge: 

 The issue in this case is whether a 1980 contract 

between the parties and a 1983 amendment thereto conveyed to 

American Cyanamid Company ("Cyanamid") perpetual rights to use 

the federal regulatory authority of Fermenta Animal Health 

Company ("Fermenta") to market an animal feed supplement. 

Cyanamid marketed the drug under the trademark Aureozol. Before 

the district court, both sides maintained that these documents 

are unambiguous, although each side differed on what was 

unambiguously stated therein. The district court held that "the 
plain language of the 1980 agreement and the 1983 amendment," 

when read against the background of the parties' pre-contract 

negotiations and post-contract conduct, did not convey that 

right. We will affirm. 

 

I. 

 This dispute arises from a contract that was signed 

between Cyanamid, a chemical and pharmaceutical conglomerate, and 

Diamond Shamrock Corporation ("Diamond Shamrock") in 1980. 

Fermenta, the defendant in this case, became the successor in 

interest to Diamond Shamrock through an acquisition in 1985. The 

purpose of the contract was to enable Cyanamid to produce and 

sell an animal feed drug that Diamond Shamrock had developed and 

was marketing. The drug was an antibiotic animal feed supplement 

consisting of chlortetracycline, sulfathiazole and penicillin, 

known as CSP 250. As consideration, Diamond Shamrock would 

receive an advance royalty and future royalties from Cyanamid's 

sales. 

 In order for Cyanamid to manufacture and sell Diamond 

Shamrock's product, the contract granted it two distinct rights. 

First, Cyanamid was given access to Diamond Shamrock's 

proprietary information about its animal feed drug for the 

purpose of manufacturing and selling it. Equally important, the 

agreement obligated Diamond Shamrock to seek federal regulatory 

authority to enable Cyanamid to sell the drug by applying for a 

"supplemental NADA" designating Cyanamid as a distributor of the 

drug. 
 The FDA licenses the sale in interstate commerce of 

animal drugs by approving a manufacturer's New Animal Drug 

Application (NADA), which remains on file with the FDA. Through 

the NADA, the FDA approves both the properties of the drug and 

its place and method of manufacture. See 21 U.S.C. § 360b(a). 

In 1971, Diamond Shamrock had obtained FDA approval of a NADA for 

its animal feed drug.1

 Obtaining a NADA can be an expensive and lengthy 

process because of the amount of resources that must be expended 

on researching and demonstrating the safety and efficacy of the 

proposed animal drug. However, a company may be able to avoid 

the costs associated with obtaining its own NADA if it wishes to 

market a drug identical to that already marketed by another 

company which has obtained federal regulatory approval for the 

sale of the drug. The company seeking to enter the market may 

request the current NADA holder to apply to the FDA for a 

"supplemental NADA" which designates the new market entrant as a 

distributor of the product. See 21 C.F.R. § 514.8(a)(4)(v).2

 

1. When Fermenta became the successor in interest to Diamond 

Shamrock's animal drug business, it acquired Diamond Shamrock's 

NADA authority, as noted in 21 C.F.R. § 558.15(g)(1). 

2. 21 C.F.R. § 514.8(a)(4)(v) provides in part: 

 A communication proposing a change in a new 

animal drug application should provide for 

any one of the following kinds of changes: 

 . . . . 

 (v) Provision for outside firm to 

participate in the preparation, distribution, 

or packaging of a new animal drug (new 
 Cyanamid entered into this contract with Diamond 

Shamrock because its own animal drug, which competed in the 

market with Diamond Shamrock's CSP 250, was under scrutiny by the 

FDA for the possible carcinogenic effects of one of its 

components, sulfamethazine. Cyanamid sought to "insure" itself 

in the event the FDA took adverse action against its existing 

animal product by expanding its own product line to include 

Diamond Shamrock's animal feed supplement. Thus, in 1979, it 

entered negotiations with Diamond Shamrock, hoping to obtain the 

right to develop and sell Diamond Shamrock's product. Since 

Cyanamid could not sell Diamond Shamrock's drug without federal 

regulatory authority, the agreement required Diamond Shamrock to 

prepare and file a supplemental NADA establishing Cyanamid's 

facility as an alternate manufacturing site and designating 

Cyanamid as a distributor of the drug. In addition to pursuing 

an agreement with Diamond Shamrock, Cyanamid was formulating 

plans to obtain its own NADA for an animal product consisting of 

aureomycin, sulfathiazole and penicillin, a combination similar 

to CSP 250. This was reflected in a letter sent from Cyanamid to 

Diamond Shamrock during the course of negotiations in December of 

1979. 

 Cyanamid and Diamond Shamrock executed their contract 

on July 23, 1980. Diamond Shamrock obtained the supplemental 

NADA in June of 1982 and the original five year contract period 

(..continued) 

distributor, packer, supplier, manufacturer, 

etc.). 
commenced on that date. Cyanamid thus enjoyed both commercial 

and regulatory rights to manufacture and sell the animal feed 

drug through June of 1987. 

 The contract also gave Cyanamid an option at the 

expiration of the agreement to purchase a perpetual license from 

Diamond Shamrock. Article 9.2 provides in part: 

 Upon expiration of the full term of this 

Agreement . . . CYANAMID shall have the right 

to obtain a perpetual, paid-up, non-exclusive 

license, without right to sublicense, under 

TECHNICAL INFORMATION as shall have been 

licensed hereunder to CYANAMID upon the 

payment of twenty-five thousand ($25,000) 

dollars to DIAMOND SHAMROCK for such 

perpetual rights. 

App. 158. 

 The option described in Article 9.2 was exercised 

prematurely by the parties in 1983 in the form of an amendment to 

the agreement. The amendment provides in part: 

 You will grant to us [Cyanamid] a 

perpetual paid-up nonexclusive license 

without right to sub-license under TECHNICAL 

INFORMATION as shall have been licensed under 

the Agreement upon our payment to you of 

$87,500 for such perpetual rights. . . . 

 All other terms and conditions of the 

Agreement will remain in effect. 

App. 165. 

 The dispute before the district court turned on whether 

this 1983 amendment, when read together with the original 

contract, gives Cyanamid a perpetual right to use the 

supplemental NADA to sell CSP 250. Cyanamid argued that the 1983 
amendment gave it such a right, but Fermenta insisted that such a 

right ceased in 1987 with the expiration of the original 

contract. 

 Fermenta acquired Diamond Shamrock's interest in the 

contract in October of 1985, and from then through 1993, Fermenta 

monitored Cyanamid's regulatory compliance with the NADA. Prior 

to 1993, Fermenta never informed Cyanamid that its right to 

reference its NADA had expired with the termination of the 

original contract in 1987. Fermenta claims not to have realized 

that the contract expired in June of 1987 until 1993, when 

Fermenta more closely examined the entire contract because of 

Cyanamid's alleged regulatory breaches associated with the 

supplemental NADA. Fermenta thereupon demanded that Cyanamid pay 

it $500,000, agree to pay a 10 percent royalty on all sales, and 

grant it a paid-up, royalty-free license under any patent or NADA 

which Cyanamid may have obtained on any related product. When 

Cyanamid refused to comply, Fermenta sent a letter to the FDA 

informing it that Cyanamid was no longer authorized to use the 

supplemental NADA that accessed Fermenta's NADA. 

 In response to Fermenta's action, Cyanamid filed a 

complaint in the U.S. District Court for the District of New 

Jersey seeking a preliminary injunction and a declaration that it 

held a perpetual, royalty-free license to use the supplemental 

NADA so that it could continue to sell the product. Fermenta 

counterclaimed, seeking a declaration that Cyanamid's right to 

use the supplemental NADA had expired in 1987. The jurisdiction 

of the district court was based on diversity, 28 U.S.C. § 1332. 
 After a one day evidentiary hearing at which it 

listened to extrinsic evidence of intent tendered by each side, 

the district court entered a declaratory judgment that Cyanamid 

"did not purchase a perpetual right to use the NADA or 

supplemental NADA." Dist. Ct. Order, No. 93-4936 (D. N.J., 

entered June 22, 1994). In its opinion, the district court 

analyzed the structure and text of the original agreement and the 

amendment and concluded that they could not reasonably be read to 

convey to Cyanamid a perpetual right to utilize Diamond 

Shamrock's regulatory authority. The court also concluded that 

the extrinsic evidence provided no basis for interpreting the 

scope of the rights conveyed by the agreements more broadly than 

the parameters of those rights as defined by its analysis of the 

structure and text. 

 We have conducted a plenary review of the district 

court's conclusions. Kroblin Refrigerated Xpress, Inc. v. 

Pitterich, 805 F.2d 96, 101 (3d Cir. 1986) (plenary review 

conducted of district court's conclusion that term of contract 

read against the background of the relevant extrinsic evidence 

was unambiguous). While our analysis of the structure and text 

of the agreement differs in one respect from that of the district 

court, that difference is not material for present purposes and 

our conclusions are the same as those reached by the district 

court. 

II. 
 The district court exercised its diversity 

jurisdiction. This means that the law to be applied is that of 

the forum state -- New Jersey. While the state law to which we 

look includes New Jersey's choice of law rules, Klaxon Co. v. 

Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941), neither party 

suggests any reason why a New Jersey court would apply other than 

its own law to this dispute and both, by the case law cited in 

their briefs, implicitly recognize New Jersey as providing the 

controlling law of contracts. The parties do not contend, 

moreover, that New Jersey's contract law differs in any material 

way from the generally accepted principles of contract law 

reflected in the Restatement (Second) of Contracts or from the 

"traditional rules of contract interpretation" that we described 

in Teamsters Indus. Emp. Welfare Fund v. Rolls-Royce Motor Cars, 

Inc., 989 F.2d 132, 135 (3d Cir. 1993). Cyanamid successfully 

urged the district court to follow the principles which we 

articulated in Rolls-Royce and Fermenta relies heavily on those 

principles before us. We there observed in the context of a 

collective bargaining agreement alleged to be ambiguous: 

 Although federal law governs the 

construction of collective bargaining 

agreements, traditional rules of contract 

interpretation apply when not inconsistent 

with federal law. To decide whether a 

contract is ambiguous, we do not simply 

determine whether, from our point of view, 

the language is clear. Rather, we "hear the 

proffer of the parties and determine if there 

[are] objective indicia that, from the 

linguistic reference point of the parties, 

the terms of the contract are susceptible of 

different meanings." Sheet Metal Workers, 

949 F.2d at 1284 (brackets in original) 
(quoting Mellon Bank, N.A. v. Aetna Business 

Credit, Inc., 619 F.2d 1001, 1011 (3d Cir. 

1980)). Before making a finding concerning 

the existence or absence of ambiguity, we 

consider the contract language, the meanings 

suggested by counsel, and the extrinsic 

evidence offered in support of each 

interpretation. Id.; Mack Trucks, 917 F.2d 

at 111; see also Restatement (Second) of 

Contracts § 223 cmt. b (1981) ("There is no 

requirement that an agreement be ambiguous 

before evidence of a course of dealing can be 

shown. . . ."). Extrinsic evidence may 

include the structure of the contract, the 

bargaining history, and the conduct of the 

parties that reflects their understanding of 

the contract's meaning. 

Id. at 135 (citations omitted). 

 These teachings appear to us to be consistent with 

those of New Jersey law. In Atlantic Northern Airlines, Inc. v. 

Schwimmer, 96 A.2d 652 (N.J. 1953), the Supreme Court of New 

Jersey summarized this area of the law in the following terms: 

 Evidence of the circumstances is always 

admissible in aid of the interpretation of an 

integrated agreement. This is so even when 

the contract on its face is free from 

ambiguity. The polestar of construction is 

the intention of the parties to the contract 

as revealed by the language used, taken as an 

entirety; and, in the quest for the 

intention, the situation of the parties, the 

attendant circumstances, and the objects they 

were thereby striving to attain are 

necessarily to be regarded. The admission of 

evidence of extrinsic facts is not for the 

purpose of changing the writing, but to 

secure light by which to measure its actual 

significance. Such evidence is adducible 

only for the purpose of interpreting the 

writing--not for the purpose of modifying or 

enlarging or curtailing its terms, but to aid 

in determining the meaning of what has been 

said. So far as the evidence tends to show, 

not the meaning of the writing, but an 

intention wholly unexpressed in the writing, 
it is irrelevant. The judicial interpretive 

function is to consider what was written in 

the context of the circumstances under which 

it was written, and accord to the language a 

rational meaning in keeping with the 

expressed general purpose. Casriel v. King, 

2 N.J. 45, 65 A.2d 514 (1949). 

Id. at 656. 

 It is important for present purposes to note that 

extrinsic evidence of the negotiations, conduct and other 

circumstances of the parties is important to a court's analysis 

of whether an agreement is ambiguous only to the extent, if any, 

that such evidence provides "objective indicia that, from the 

linguistic reference point of the parties, the terms of the 

contract are susceptible of different meanings." Mellon Bank, 

N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 (3d Cir. 

1980). That is, extrinsic evidence is permitted because the law 

recognizes that the meaning of words can depend on context, and 

what may seem unambiguous without context (or in the context that 

the judge may hypothesize, based on his or her own experience) 

may be ambiguous when understood from "the linguistic reference 

point of the parties." Id. See 3 Arthur L. Corbin, Corbin on 

Contracts § 542 (1960). Cf. 4 Samuel Williston & Walter H. E. 

Jaeger, A Treatise on the Laws of Contracts § 601, at 310-11 (3d 

ed. 1961). But the focus must remain on the language chosen by 

the parties, and a text unambiguous when accorded the commonly 

understood meaning of its words cannot be disregarded unless the 

extrinsic evidence is such as might cause a reasonable fact 
finder to understand the text differently. See Mellon Bank, 619 

F.2d at 1011 & 1012 n.13. 

 The point is well illustrated by Mellon Bank, N.A. v. 

Aetna Business Credit, Inc., a case to which we looked in RollsRoyce for the "traditional rules of contract interpretation." 

Rolls-Royce, 989 F.2d at 135. There, Mellon Bank and Aetna 

Business Credit were commercial lending institutions. In the 

transaction giving rise to the dispute, Mellon was the 

construction lender and Aetna was the permanent lender. Mellon 

alleged that Aetna breached their contract by refusing to 

purchase the construction loan held by Mellon. Under the 

agreement, Aetna had "no obligation to acquire the construction 

loan from the construction lender in the event of . . . 

insolvency of the Borrower." Mellon Bank, 619 F.2d at 1006. 

 Mellon contended that the parties intended "insolvency" 

to mean that the borrower's liabilities exceeded its assets 

without reference to the liabilities or assets of the borrower 

that accrued from the particular project being financed. The 

district court heard extrinsic evidence and held, based on the 

conduct of the parties during their negotiations, that Mellon's 

reading was "required by the clear allocation of lending risks 

between" the contracting parties. Id. at 1008. We described the 

district court's reasoning and the issue before us in the 

following terms: 

 The district court found that Aetna in 

analyzing the security for its permanent loan 

did not consider the borrowers' cash flow, 

did not condition its obligation upon any 

occupancy level, and therefore concluded 
"Aetna recognized that the financial 

transaction in question was not a basis for 

finding insolvency." The district court 

cited no basis in the contract document or 

wording of the insolvency clause for its 

conclusion. Our task is to decide if the 

district court permissibly used extrinsic 

evidence to interpret the contract and, if 

so, whether it drew the proper legal 

conclusions therefrom. 

Id. at 1009. 

 We reversed, holding as follows: 

 Although extrinsic evidence may be considered 

under proper circumstances, the parties 

remain bound by the appropriate objective 

definition of the words they use to express 

their intent. . . . 

 We have concluded that the district 

court here exceeded the permissible boundary 

of interpretation. . . . When the district 

judge received Mellon's evidence it should 

have rejected it as insufficient to vary the 

meaning of a commercial term as well 

established as "insolvent." In this case the 

district court added a term which made the 

condition a nullity. It ruled that, although 

the solvency of the borrowers was a condition 

in the written contract, the fact that the 

borrowers' solvency was not significantly 

considered by Aetna in evaluating the takeout loan minimized or nullified this clause 

of the contract. 

 . . . The fact that the insolvency of the 

borrowers was not significantly considered by 

Aetna in evaluating the take-out loan is 

immaterial given the expression of that 

concern in the written words of the contract. 

Id. at 1013-14. 

 Our approach in Mellon Bank is consistent with the law 

of New Jersey. Although the New Jersey Supreme Court in Atlantic 

Northern Airlines extolled the use of extrinsic evidence to aid 
in ascertaining the intent of the parties, even when the terms of 

the instrument are otherwise unambiguous, it cautioned that such 

evidence may not be used "for the purpose of modifying or 

enlarging or curtailing" the terms of the contract. With this 

understanding of the controlling law, we turn to examine the 

structure and text of the agreements and then to consider the 

extrinsic evidence offered by the parties. 

III. 

 The preamble of the 1980 agreement clearly and tersely 

states Cyanamid's two objectives in entering the agreement -- 

access to Diamond Shamrock's proprietary information and the 

right to sell the drug under a supplemental NADA: 

 DIAMOND SHAMROCK has developed or otherwise 

acquired certain proprietary information 

relating to the manufacture of an animal feed 

supplement and is the owner of an approved 

New Animal Drug Application (NADA) which 

permits the sale of such animal feed 

supplement; and 

 . . . CYANAMID desires to manufacture and 

sell such animal feed supplement and would 

like to obtain the right to utilize DIAMOND 

SHAMROCK's proprietary information and have 

DIAMOND SHAMROCK file supplemental NADA's to 

establish CYANAMID as an alternate 

manufacturing site and to designate CYANAMID 

as a distributor pursuant to 21 CFR 514.8. 

App. 151. 

 Two separate sections of the contract implement the 

transfer to Cyanamid of the commercial and regulatory rights it 
sought. The first is Article 2.1, which is the focal point of 

this controversy. 

 Article 2.1 provides: 

 DIAMOND SHAMROCK grants to CYANAMID a 

non-exclusive license to use TECHNICAL 

INFORMATION to practice the LICENSED PROCESS 

and to make, use and sell PRODUCT under its 

own name and trademarks. 

App. 153-54. The terms used in Article 2.1 are defined in 

Article 1. "TECHNICAL INFORMATION" is defined as meaning "all 

information licensable by DIAMOND SHAMROCK as of the effective 

date of this Agreement and which relates to the practice of the 

LICENSED PROCESS or to the production and use of PRODUCT." 

"Licensed process" is defined as "DIAMOND SHAMROCK's process for 

the manufacture of an animal feed supplement presently sold under 

the trademark CSP 250 and comprising chlortetracycline, 

sulfathiazole and penicillin." The term "product" refers to CSP 

250. App. 152. Thus, Article 2.1 grants commercial authority to 

Cyanamid to use Diamond Shamrock's proprietary information to 

manufacture, distribute and sell CSP 250. 

 Article 11.1, on the other hand, commits Diamond 

Shamrock to seek regulatory authority for Cyanamid to market CSP 

250. That clause provides in part: 

 Promptly upon execution of this 

Agreement, DIAMOND SHAMROCK shall prepare and 

submit to the FDA supplemental new animal 

drug applications to establish CYANAMID's 

facility as an alternate manufacturing site 

and to designate CYANAMID as a distributor of 

PRODUCT under 21 CFR 514.8. 
App. 160. This provision was, of course, a critical term of the 

agreement. If Diamond Shamrock failed to obtain a supplemental 

NADA by December 31, 1982, Article 11.2 entitled Cyanamid to 

terminate the agreement. 

 The dichotomy between commercial and regulatory rights 

reflected in the preamble and in Articles 2.1 and 11.1 is 

important for present purposes because the scope of the perpetual 

license Cyanamid claims to have received by virtue of the 1983 

amendment is defined in that amendment and Article 9.2 of the 

original agreement solely by reference to the rights conferred by 

Article 2. As we have noted, Article 9.2 grants Cyanamid an 

option to obtain upon the termination of the agreement a 

perpetual "license . . . under TECHNICAL INFORMATION as shall 

have been licensed hereunder to CYANAMID." It was this perpetual 

license that Cyanamid acquired in 1983 when it was granted a 

perpetual "license . . . under TECHNICAL INFORMATION as shall 

have been licensed under the Agreement," i.e., a perpetual 

license to use "all information licensable by Diamond Shamrock as 

of [July 23, 1980] which relates to the practice of [its 

manufacturing process for CSP 250] or to the production and use 

of [CSP 250]." 

 The 1983 amendment provides that, save for the grant of 

this perpetual license of Diamond Shamrock's proprietary 

information, all other terms and conditions of the original 

agreement were to remain unchanged. Since one such term and 

condition was the five year limit on the rights originally 

conveyed, this meant that only the perpetual license of 
proprietary information was to survive beyond June of 1987. It 

necessarily follows that any right Cyanamid had under the 1983 

amendment after 1987 had to be a right conferred by Article 2.1. 

 Before the district court, Cyanamid insisted that, when 

Diamond Shamrock conveyed in Article 2.1 a "license to use 

TECHNICAL INFORMATION to practice the LICENSED PROCESS and to 

make, use and sell PRODUCT under its own name and trademarks," 

Diamond Shamrock conveyed a right to use the supplemental NADA.3 

We agree with the district court, however. If the quoted words 

and those of the remainder of the agreement are given their 

commonly understood meaning, Article 2.1 simply does not make 

such a grant. 

 When the definitions of the defined terms are inserted 

in the grant evidenced by Article 2.1, one has a straightforward 

conveyance of a license to use Diamond Shamrock's proprietary 

information to practice its process and make, use and sell its 

product -- such proprietary information consisting of "all 

information licensable by Diamond Shamrock as of [July 23, 1980] 

which relates to the practice of [its manufacturing process for 

CSP 250] or to the production and use of [CSP 250]." This 

conveyance is consistent with the dichotomy we have previously 

 

3. As we discuss in part V, infra, Cyanamid now argues that 

Article 2.1 conveys the commercial license to sell the product, 

and that once this right was perpetually conveyed through the 

1983 amendment, Cyanamid enjoyed clear commercial and regulatory 

authority to sell the product, since only the FDA could terminate 

its right to use the supplemental NADA. However, Cyanamid did 

not argue before the district court that Fermenta could not 

terminate its right to use the supplemental NADA. Indeed, it 

proceeded on the contrary assumption. 
identified in the preamble and between the grants made in 

Articles 2.1 and 11.1. As the district court stressed, if 

Article 2.1 gave Cyanamid not only a commercial license to make, 

use and sell CSP 250 using Diamond Shamrock's proprietary 

information, but also a right to use the supplemental NADA that 

Diamond Shamrock hoped to obtain for Cyanamid, Article 11 would 

serve no purpose. It is a well settled principle, however, that 

a court should read a contract so as to give all its terms their 

intended effect. J. L. Davis & Associates v. Heidler, 622 A.2d 

923, 927 (N.J. Super. Ct. App. Div. 1993) (disapproving of a 

"reading of [a] contract [which] would nullify its very terms and 

render [a] provision useless"); Goldberg v. Commercial Union Ins. 

Co. of New York, 188 A.2d 188, 191 (N.J. Super. Ct. App. Div. 

1963) ("Effect, if possible, will be given to all parts of the 

instrument . . . .); 3 Corbin, supra, § 549, at 183 (stating that 

the "legal effects" of the terms of a contract are to be 

"determined as a whole"). 

 Moreover, as the district court also noted, an 

understanding of Article 2.1 that includes a conveyance of 

regulatory rights as well as a commercial license to use 

proprietary information is inconsistent with its time focus. 

Article 2.1 effects a conveyance of rights Diamond Shamrock 

possessed as of July 23, 1980. As is recognized in Article 11, 

Diamond Shamrock had no authority on that date to give Cyanamid 

the right to legally sell CSP 250 in the United States. This 

could be accomplished only by Diamond Shamrock's taking the steps 

necessary to secure authority for Cyanamid from the FDA, 
authority which, as the escape clause demonstrates, the parties 

knew might be obtained, if at all, only after the passage of a 

substantial period of time. 

 Cyanamid correctly points out that the reading of 

Article 2.1 which Fermenta champions and we adopt is not entirely 

consistent with the district court's reading of that provision. 

The district court interpreted Article 2.1 to convey two rights, 

a "license to use TECHNICAL INFORMATION to practice the LICENSED 

PROCESS" and a license "to make, use and sell PRODUCT under its 

own name and trademarks." As previously indicated, we, on the 

other hand, read both the "to practice" clause and the "to make, 

use and sell" clause as modifying "license to use TECHNICAL 

INFORMATION." The latter reading seems to us the more natural 

one since Cyanamid was going to use its own name and trademarks, 

Diamond Shamrock had no patent on CSP 250, and the only nonregulatory basis for excluding Cyanamid from competing in the CSP 

250 market was the rights Diamond Shamrock possessed in its 

proprietary information. We do not, however, regard our 

difference with the district court as material in the present 

context. Even if there be an ambiguity as to what the "make, use 

and sell" clause modifies, that ambiguity does not render the 

text of the agreement and the 1983 amendment ambiguous as to 

whether Cyanamid possesses a perpetual right to use the 

supplemental NADA. As the district court's opinion demonstrates, 

this is so because the scope of the only perpetual license 

acquired by Cyanamid is defined solely by reference to the 

"TECHNICAL INFORMATION . . . licensed under the Agreement." 
Thus, even if, like the district court, one breaks Article 2.1's 

conveyance up into two segments, it is only the first, TECHNICAL 

INFORMATION segment that is the subject of the perpetual license. 

TECHNICAL INFORMATION is a defined term and, as we have 

demonstrated, its meaning cannot be stretched to include a 

commitment on Diamond Shamrock's part to seek FDA authority for 

Cyanamid in the future. 

IV. 

 The extrinsic evidence of intent heard by the district 

court does not transform Article 2.1's straightforward grant of a 

license to make, use and sell CSP 250 utilizing proprietary 

information into something else. Indeed, that evidence tends to 

support the reading of the agreements that accords the words 

their ordinarily accepted meaning. 

 When one who is unfamiliar with the background reads 

the agreement and the 1983 amendment, an important question 

arises: Why would Cyanamid want to pay for a perpetual license to 

use Diamond Shamrock's proprietary information concerning CSP 250 

if it anticipated that its right to market CSP 250 under the 

supplemental NADA would expire in mid-1987? The extrinsic 

evidence supplies the answer. Cyanamid could apply for its own 

NADA and sell a product that was similar to CSP 250, and it 

intended to do so. Both the correspondence between the parties 

during the negotiation of the agreement and the testimony of 

Cyanamid's employees indicate that during the relevant period it 

was pursuing its own plan to secure independent marketing 
authority from the FDA for a product consisting of aureomycin, 

sulfathiazole and penicillin. Thus, Cyanamid did not contemplate 

having to use the supplemental NADA indefinitely. It was buying 

time through these agreements insofar as regulatory authority was 

concerned, but it wanted continuing commercial authority to use 

the proprietary information regarding CSP 250 (which contained 

sulfathiazole, a component of the drug that Cyanamid was 

developing).4

 The record also establishes that prosecution of an 

application for a NADA is time consuming and costs well in excess 

of $1,000,000. Against this background, the structure of the 

consideration to be paid by Cyanamid provides further evidence 

that the agreement was deliberately drafted to treat the 

supplemental NADA as a right separate and apart from the 

TECHNICAL INFORMATION. The single most important part of the 

agreement was the commitment to seek regulatory authority, 

without which Cyanamid could terminate the agreement. Under 

Article 3 of the agreement, in addition to the $150,000 advance 

royalty (which was creditable against 50 percent of earned 

royalties), Cyanamid was committed to pay earned royalties out of 

 

4. Cyanamid's former manager of animal regulatory affairs 

testified that prior to 1980, Cyanamid had been selling a product 

containing chlortetracycline, penicillin and sulfamethazine, and 

that Cyanamid had become interested in Diamond Shamrock's 

product, which contained sulfathiazole instead of sulfamethazine, 

because "[s]ulfamethazine was coming under a great deal of 

scrutiny by FDA" and "sulfamethazine was retained in the tissues 

longer than sulfathiazole." App. 16-17. Thus, even if Cyanamid 

did not intend to market CSP 250 in the future, the information 

about sulfathiazole could be relevant with respect to future 

product development. 
the proceeds of its sales. Diamond Shamrock was entitled to a 

minimum earned royalty of $62,500, in addition to the full 

advance royalty (for a total of a minimum of $212,500), within 

three years of the approval of the supplemental NADA; if it did 

not receive this sum, it could terminate the agreement under 

Article 8. Of course, given the potential volume of Cyanamid's 

sales, Diamond Shamrock could earn a much larger sum in 

royalties. Under Article 9.2, however, the costs to Cyanamid for 

a permanent license to use the TECHNICAL INFORMATION was only 

$25,000.5 Based both on the parties' understanding of the time 

and expense of prosecuting a NADA application and on the amount 

of the royalties specified in the agreement for the rights 

Cyanamid was to possess over the limited period of the agreement, 

it seems highly unlikely that Diamond Shamrock would have been 

willing to convey for $25,000 a perpetual license that would 

include both the right to use its proprietary information and the 

right to use the supplemental NADA. Stated conversely, the 

 

5. The $87,500 price paid by Cyanamid as consideration for the 

Amendment consisted of two components: (1) the $25,000 provided 

for by Article 9.2 of the Agreement in exchange for a perpetual 

license to the TECHNICAL INFORMATION, and (2) $62,500 for the 

royalties which Cyanamid would have owed under Article 8 of the 

Agreement on its minimum sales obligation of $5 million. The 

$62,500 was calculated as follows: Article 3 of the Agreement 

provided that earned royalties were to be calculated at the rate 

of 2.5 percent on the first $10,000,000 of net sales, and at the 

rate of one percent thereafter. Therefore, on $5,000,000, the 

royalty would be $125,000 ($5,000,000 x 2.5%). However, Article 

3 also provided for an advance royalty of $150,000 creditable 

against 50 percent of earned royalties. Accounting for that 

credit, the royalty remaining to be paid on $5,000,000 minimum 

sales would be $62,500. 
economics of the matter at least suggest that the option to buy a 

perpetual license to use TECHNICAL INFORMATION for $25,000 did 

not include the use of the supplemental NADA in perpetuity. 

 In these respects, the extrinsic evidence confirms that 

according the terms of the agreements their plain meaning makes 

commercial sense. 

 The extrinsic evidence stressed most heavily by 

Cyanamid as throwing light on the intention of the parties is the 

conduct of Fermenta's employees in the period following July of 

1987. Shortly after the execution of the 1983 amendment, SDS 

Biotech acquired Diamond Shamrock's animal health business. SDS 

Biotech, in turn, was acquired by Fermenta in October of 1985, 

after the perpetual, paid-up license had been purchased with a 

lump sum payment, but still during the five year term of the 

original agreement. Thus, after Fermenta succeeded to Diamond 

Shamrock's rights, it was never entitled to receive royalties 

under the agreement and it received none. When June of 1987 came 

and the original five year term of the agreement expired, 

Cyanamid continued to sell CSP 250 under its own name and 

trademark. Over the six years from June of 1987 to October of 

1993, Fermenta did not protest Cyanamid's continuing sales. The 

explanation for this failure to protest, which was uncontradicted 

in the record and accepted by the district court, was given by 

Fermenta's general counsel. He testified that over the years, he 

and others were aware of the existence of the contract and of 

Cyanamid's use of the supplemental NADA because of inquiries from 

the FDA about that use. However, no one at Fermenta read the 
contract and focused on its terms until a more serious regulatory 

problem arose in the Fall of 1993, at which point Fermenta's 

general counsel reviewed the contract in its entirety. 

 The significance of Fermenta's failure to protest is 

diminished by the fact that Diamond Shamrock, rather than 

Fermenta, negotiated the original agreement and the 1983 

amendment and oversaw its execution during the period when 

Cyanamid was paying royalties. Nevertheless, we acknowledge that 

the evidence does not rule out the possibility that the failure 

to protest may have been attributable in part to someone at 

Fermenta having read the agreements at some point after June of 

1987 and having concluded that they conveyed to Cyanamid the 

right to continue to use the supplemental NADA. Even if this 

occurred, however, we would not regard it as a justification for 

us to read the agreements of the parties in a different way. 

Like the parties in Mellon Bank, the parties here used words 

quite common in agreements of this kind with generally accepted 

meanings. Like Aetna's pre-contract conduct in Mellon Bank, 

Fermenta's post-contract conduct does not suggest that the 

parties had an unusual "linguistic reference." As a result, we 

agree with the district court that a reasonable person reading 

the agreements against the background of the extrinsic evidence 

could not find them susceptible of a reading that would bestow 

upon Cyanamid a perpetual right to use the supplemental NADA. 

V. 
 On appeal, Cyanamid advances an additional argument 

that it insists provides an "independent reason" for us to 

reverse the declaratory judgment of the district court. 

According to Cyanamid, although the holder of a NADA has the sole 

right to apply for authority to permit others to manufacture its 

product at "alternate manufacturing sites," the issuance of the 

supplemental NADA, by operation of law, permanently deprives the 

holder of control over the continued manufacture of its product 

at those facilities. It is apparent from an examination of the 

transcript of the proceedings before the district court and the 

brief Cyanamid submitted to it that Cyanamid did not advance this 

legal argument before the district court. "It is well 

established that failure to raise an issue in the district court 

constitutes a waiver of the argument." Brenner v. Local 514, 

United Brotherhood of Carpenters and Joiners of America, 927 F.2d 

1283, 1298 (3d Cir. 1991). We will not depart from this well 

established principle of appellate review to consider the merits 

of Cyanamid's regulatory argument, and we accordingly express no 

view with respect to it. 

VI. 

 For these reasons, the judgment of the district court 

will be affirmed.