## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N os. 08

- 1351 & 06

- 3901 W I S CONS I N A LUM NI R ES EA R CH F OU ND A T I ON, P la intif f-A pp ellee/ C ross -App el lant, v.

X EN ON P HARMACEUTICALS, I NC ., D ef endant-Appellant/ C ross-A pp ellee.

A pp ealsfr o m the United S t ates Di strictC our t fo r the Western Di stricto f Wisc onsin
. No . 05 C242

—Barb ara B. C rab b , Chief Judge.
A RGUED D ECE MBE R 8, 2008

— D ECI DE D J AN AU RY 5, 2010

Befo re E A S T E RB R OO K, Chie f Judg e, a nd B AU ER and S YKES, C ircu it Judges . S YKES, C ircu it Judg e . Thi s ca se ar i ses o ut o fa com ple x se t o f co n tr ac tu al re lat ion sh ip s b et w ee n t h e W isc on sin Alu m niRe se ar chF o unda ti o n, the pa te nt
- m an ag ement entit y forthe U ni ver si ty ofW i sco nsi n; cer tain re sea rch2 N os. 08

- 1351 & 06

- 3901

sc ien tis ts att h e U n ive rs ity ; a n d X en on P h ar m ac eu tic als , a Canad i an drug com pany. The Fo und ati on a nd Xenon j oi ntl y o w n the p at en t r i ghts to an enzy m e that c an l ower ch olesterol leve ls i n th e hu m an bod y. T he enzy m e’s cho l es te r o l

- r edu cingb en efi ts wer e di sc o ve r ed an d c o nfi rm ed by sci enti sts atthe U ni versi ty w hose r ese ar ch w as sponsor ed i n partbyXenon. In 2001, pursuant to an o pti o n a g r ee m en t be twe enthe F o unda ti o n a nd Xe no n, th e F o u n d a t i o n g a v e X e n o n a n e xc l u s i v e l i c e n s e t o c o mmer c i a l i z e thi s di s co v e r y a nd ma r k e ta nyr e s ul t i ngp r o ducts in exchange f ora shar e o fthe profi ts. The Fo und ati on bro u gh t thi s s uitag ainst Xenon al l eg i ngv i o l at i o ns o fi ts c o nt r ac t r i g ht s an d s ee k i ng d am ag es and decla ra tory r el i ef

. Fi rs t, the Foundati on al l ege d that Xeno n subl i censed i ts i nter esti n the patented enzym e t o a t h ird party b ut r efused to pay the F oundati on a per centag e o ft h e subl i cense fees as r equi re d und er the 2 001 l i cense agr eem en t. S eco nd , the Foundati on alle g ed that Xen on w rongly asserte d ow ne rship over a se t o f th er ap eu tic co m p ou n d s d ev elo p ed from th e join tly pat en te d enzym e; the Foundati on cl ai m ed that i t o w ned ri ghts to these co m pound s p u rsuant to i ts network of w ri tte n a g r e e men t s wi th Xe no n a nd the Uni v e r s i t y r ese ar ch erwho c o nfir m ed th e th er ape ut i c be ne fi ts o fthe com pound s. Xenon counte rcl ai m ed aga i nst the Fo und ati on, and o n cr oss - m oti ons f orsum m ar y j ud gm ent, th e di st r i ctc o ur t r ul ed i n the F o unda ti o n’ s f av o ro n the br ea ch

- o f

- co nt r ac t clai m a nd in Xe no n’ s f av o ro n the dispute ove r own er shi p ofthe com pound s. A j ury aw ar ded $ 1 mi l l i o n i n d a ma g e s f o rth e b r e a c h o fc o n t r a c t ; t he Fo u n d at ion ac c ep te d $ 3 00 ,00 0 a fte r X en on su c c es sfu lly mov e d fo rr e mi t t i t ur . Bo th pa r t i e s a pp e a l e d.N os. 08

- 1351 & 06

- 3901 3 W e affi r m i n pa r t an d r ev er se i n pa r t an d rem and f o re nt r y o fj udg m en t co ns i st en t wi ththi s o pi ni o n. The dist ri ct c ourtpro perl y g ra nted sum m ar y j ud gm ent for the F oundati on o n the bre ach- of

- contr act cla i m . Xenon bre ached it s l i cense agr eem ent with the Foundati on by gr an ting a s ubl i cense i n the j oi ntl y pate nted enzy m e t o a thi rd party without paying the Fo und ati on its shar e o f the s ubl i cense fees . A subsi diary is su e i s whether X en on ’s bre ac h tr igg er ed th e Fou n d at ion ’s righ t t o t er m ina te th e agreem en t. W e con clud e tha t the d istri ct cou rt shoul d not hav e v oid ed the Fo und ati on’ s a tte m pt to d o s o; th e F ou n d at ion w as en tit led to an d p ro p er ly te rm ina ted the agree m e n t
. W e also conclu d e the district cou rt er ro neousl y e nter ed j ud gm ent forXenon o n the i ssue of th e F o u n d a t i o n ’ s c l a i m t o a n o wn e r s h i p i n t e r e s t i n t he com pound s. U nd erthe w eb o fco ntrac ts ati ssue here , th e F ou nd ation w as en titl ed to a d eclaration of its ow ne rshi p i nter esti n the com pound s.

I . B a c kg r o und R e s e a r c h e r s a tth e U ni v e r s i t y o fWi s c o n s i n b e c a me i nter est ed i n an e nzym e c alled S tea ro ylCoA Desaturas e ( “SCD”) b e c a us e o fi t s p o t e nt i a lt o h e l p t r e a tdi ab e t e s, ob es ity , an d o t h er d ise as es by low er in g c h ole st er ol. In 1 9 9 9 the r e s e a r c he r s di s c o v e r e d tha t s up pr e s si ng S CD l eve l s in the hum an bo dy l owered chol est er oll eve l s. Pursuant to U ni ver si ty pol i cy, the re sea rche rs di sc los ed th eir res ea rc h res u lts to th e F ou n d a t i on an d in J an ua r y 2 00 0 si g ne d a Me mo r a n d um Agr ee m en t as signing al lthei r ri ghts i n the disc ove ryto the Founda-4 N os. 08

- 1351 & 06

- 3901

The joi nt r es earc h program ran in to prob le m s in No vem ber 1 20 02 whenXeno n a nd the Uni ver s i t y be c am e em bro i l ed i n a fund ing dis pu te. The U nivers ity cl aim ed that X en o n had f all en behind on p aym ents fo r the s pon sore d rese arch, and as a r es ul tthe Uni ver s i t y ha d t o tur n t o fede ra l fu nd s to f i l l the gap . X enon d enie d tha t it o w ed the Universi ty any add it ional m on ey . A y e a r later, X en on an d the U niv ersity settled this d ispu te an d sign ed a Settlem en t an d R elease A g reem en t. ti on. The next m onth, the Foundati on filed a pro vi si onal patent appli cati on forthe disc ove ry . M eanw hi l e, Xenon, a Canad i an pharm aceuti cal com pany thatwas col l abor ating with th e U ni ver si ty on researc h int o a sep arate enzym e, learned of t h e U n iversit y’s d isc ov er ies an d ex p re ss ed in te re stin j oin tly pu rs uingS CD r ese ar ch. The U ni ver si ty and Xenon enter ed i nto a s er i es ofr es ea rc h agr eem ents ( re fer re d to as Resear ch A gr ee m ents 1, 2, and 3) i n w hi ch Xenon agr eed to j oi ntl y s ponsorvar i ous S CD r ese ar ch proj ects w i th the U ni ver si ty. Each r ese ar ch ag re em ent i denti fi ed th e sc o pe o f th e r es ea r ch, th e pr i nc i pal r es ea r ch er, the expected c ost, and the peri od ofper f or m ance. These 1 ag re em ents al so re fer re d to a s epara te Sponso r Op ti on A gr eem ent b etween the Foundation and Xenon that g o ve r ne d o wn er sh i p o fa ny di sc o ve r i es a r i singfr o m the j o i ntr es ea r chpr o g r am. The S po ns o rOpt i o n Agr ee m en t cro ss- re fer enced the contr acts betw een the Fo und ati on an d the i ndi vi dualUni ve r si tyr es ea rch ers r equi r i ngthe re sea rche rs to as si gn to the Fo und ati on a ny pro perty r i g ht s i n the di sc o ve r i es e m an at i ngfr o m the r es ea r cha nd g av e Xe no n a n e xc l us i ve o pti o n t o l i cens e an y r es ul tingN os. 08

- 1351 & 06

- 3901 5

The Sp onsor Op ti on A greem ent w as exe cuted in Fe b ru ary 2 2000 but backd ated t o Septem ber 1999. te chno l o g y . Att ac he d to th e S po ns o rOpt i o n Agr ee m en t 2 w er e the i nd i vi du alco ntra cts between the Foundati on and the Un i ver si ty re sea rche rs . A t the sa m e t i m e that Xenon si gned its fi rs t r ese ar ch agr eem ent with the U ni ver si ty, Xenon al so enter ed into a s e r i e s o f s ho r t
- t e r m c o ns ul t i ng a g r e e men t s wi th i nd i v i dua lr e s e a r c he r s a tthe Uni v e r s i t y w ho wo r k e d o n S CD proj ects
. In exc h an ge f orco nsul ti ng fees , thes e s ci enti sts und er too k s peci fi c r ese ar ch proj ects f or Xenon and agr eed to a ss i g n a ny di sc o ve r i es a r i sing fr o m the se c o ns ul ting pr oj ec ts t o Xe no n. I n F e b r ua r y 2 0 0 1 X e no n a nd the F o undati onfi l e d a j oi ntp a t e nta pp l i c a t i o n de r i v i ngfr o m t he p r o v i s i o na l pat en t appl i ca ti o n the F o unda ti o n h ad fi l ed i n 2 00 0. The a p p l i c a t i o n c o v e r e d , a mo n go th e rth i n g s , th e S C D e n z y me i t s e l fa n d a me th o d ( c a l l e d a n a s s a y ) o fu s i n gth e e n z y me to i den ti fy c om p ou nd s th atl o werS CD l ev el s. A pat en t i s s u e d f o rth e a s s a y, b u tth e p a t e n ta p p l i c a t i o n c o v e r i ng th e r e m a i n i n g c laim s is st ill pe n d in g. A lso in F eb r ua r y 2 00 1, Xe no n e xe r cis ed i ts o pti o n un derthe Spons o rOp t i o n Ag r e e men tt o a n e xc l us i v e l i c e ns e f or a nydi s c o v e r i e s a r i s i ngfr o m t he X e no n- s po ns o r e d S CD r es ea r ch at th e Uni ve r si ty
. As a r es ul t Xe no n and the Foundati on e nter ed i nto an Exclus ive Lice nse Agree

m en t g i vingXe no n a n e xc l us i ve r i g ht to make , us e, a nd sel lp atented products und erthe j oi nt pate nt appli cati on w i thi n the fi el d ofhum an heal thcar e. In exchange f or6 N os. 08

- 1351 & 06

- 3901 these excl usi ve ri ghts, Xenon ag re ed to pay the F oundati on a per centag e o fany product sa l es, r oya l ti es, o r s ub l i c e ns e fe e s i tr e c e i v e d. A fte r re cei vi ng the excl usi ve l i cense, Xenon work ed wi th Di s c o v e r y Pa r tne r s , I nc . , to he l p i de nt i fy c o mpo un ds that i nhibi t the S CD enzy m e. U si ng the j oi ntl y pate nted a s s a y, D i s c o v e r y P a r tn e r s s c r e e n e d th o u s a n d s o fc o mpo unds a nd i den ti fi ed a se t o f 20 (re fer r ed to a s th e PPA com pound s) with the pote nti alto suppress S CD l eve l s. X en on sh ipp ed the P PA c om p ou nd s t o M ark G ray-K ell er, a Uni ve r si tyr es ea r ch erwi thwho m i t ha d a c o ns ul ting agr eem ent, f orco nfi rm ato rytest ing. Gray

- K el l ersucce ssfu l l y c o nfi r me d th e i n h ib i t o r y p o t e n t i a lo fth e P P A c o mp ou n d s a n d th er ea fte r as sig n ed an y in te re sth e h ad in th e co m p ou nd s to Xe no n. In 2 00 2 Xe no n fi l ed a pat en t appli cati on co ver i ng the PPA co m pound s. T he Foun d ation obj ecte d , c lai m ing th at it h ad an ow ne rsh i p i nt er es t i n the PP A co m p ou nd s unde rthe v ar i o us in te rloc kin g a gr ee m en ts am on g th e p ar tie s. M or e s p ec ifically , the Foundati on not ed that Gray- K el l erhad ass i gned al lhi s r i ghts i n SCD di sco ver i es and any i m prove m ents to the Foundati on in hi s 2 000 M em or andu m A gr eem ent. The Found ati on al so note d that the S ponsorOptio n A gr ee m en t b et w ee n it a n d X en on sp ec ifica lly ac kn ow led ge d th at G ra y-K elle r w as req u ire d to as sig n h is i nt er est in a ny i nv en ti o ns a r i singfr o m the j o i nt l y s po nso r ed r es ea r cht o the F o unda ti o n. Al te r na ti vel y, th e Foundati on cl ai m ed i t had ti tl e t o the c om po u n ds und er the Bayh- Dol e Act, 35 U
. S. C. §§ 200 et seq. , be c ause fe de r a lfun ds ha d b e e n us e d in the r e s e a r c h a nd de v e l o pm ent o fthe com pound s.N os. 08

- 1351 & 06

- 3901 7 Re l at ions be twe enXe no n a nd the F o unda ti o n c o nt i nu e d t o de t e r i or ate i n 2 0 0 4 wh e n Xe no n s i g ne d a li cen se agreem en t w ith N ovartis Ph arm a A G ( “N ovartis”), a S w iss cor pora ti on. Thi s a gr eem ent g ave N ova rt i s a l i ce ns e to the t ec hno l o g y c o ve r ed bythe j o i ntpa te nt appl i ca ti o n a nd pur po r te d t o t r an sfero wner sh i p o fthe PPA co m pound s. A fterl earni ng o fthi s a gr eem en t ( vi a a press re l eas e) , the Foundati on dem anded a per centag e o fth e subl i ce ns e fee s fr o m Xe no n un derthe t er m s o fthe E x c lu siv e L ice n se A gr ee m en t. X en on r e fu se d , claim in g it ha d the r i g htt o l i ce ns e i ts undi vi ded i nt er es t in t he j o i nt pat e nt a pp l i c a t i o n wi tho ut b e i ng s ubj e c t t o the t e r ms of i ts l i ce ns e ag r ee m en t wi ththe F o unda ti o n. The Fo und ati on the n b ro ught thi s s uitcl ai m i ng tha t Xenon vi ol ate d the t er m s o fthe Ex cl usi ve L i cense A gr eem en t an d o we d th e F o unda ti o n a pe r ce nt ag e o fthe subl i cense fees i t r ecei ved fro m N ova rt i s. T he Fo und ati on also clai m ed that i t, not Xen o n , ow ne d Gra y-K ell er’s i ntere sti n the PP A co m po unds

. The F o unda ti o n s o ught dam age s a nd decl ar ato ryj ud gm ent. Xenon r esponded w i th co unterc l ai m s a ga inst the F oundati on. The di str i ct c o ur t, o n c r o s s - mot i o ns f o r s ummar y j ud g men t, e nt e r e d a se r i es o fr ul i ng s o n a l li ss ue s ex ce pt damag es . The j ud ge hel d that Xeno n brea c hed the Excl usi ve Lice nse Agr ee m en t byg r an tinga s ubl i ce ns e to N ova r ti s wi th o ut noti fyi ng the Fo und ati on o r conf or m i ng the subl i cense to the t er m s s et out i n the l i cense agr eem ent. The j ud ge al so hel d that Xeno n owed r oya l ti es orsubl i cense fees to the Found ati on under the te rm s o fthe l i cense agr eem en t. The j udg e fur th erhe l d tha t i n l i g hto fXe no n’s br ea ch, the F o undation ha d a r i g htt o t er m i na te the l i cense agr eem ent.8 N os. 08

- 1351 & 06

- 3901 The cour t a l so rul ed i n Xenon’ s f avo r on s eve ra li ssues . Fir st, th e jud ge d ism iss ed a s m oo t t h e F ou n d at ion ’s c laim that Xenon brea c h ed i ts du ty ofgo od f ai th byf ai l i ng to ab i de bythe t er m s o fthe l i cens e ag r ee m en t. S ec o nd, the j ud ge hel d that the Foundati on had no t gi ven Xenon pr o perno ti ce or ano ppo r tu ni tyt o c ur e be f o r e i nv o k i ng i ts r i g htt o t er m i na te the licens e ag r ee m en t. Thi r d, the c ou rtd en i e d t h e F ou n d at ion ’s c laim s t o q u iettit le in th e P P A c o mp o u nd s , f o rc o n v e r s i o n o fth o s e s a me c o mpound s, and f ora de c lar ato ryj ud gm ent that Gra yK e l l e r ’ s p u r p o r t e d a s s i g n m e n to fh i s r i g h t s i n th e c o mpo unds t o Xe no n was void. The c o ur t he l d tha t th e F o undati on coul d no t cl ai m ti tl e to the com poun d s u nd er ei th erthe M emor an dum Agr ee m en t wi thGr ay - Kel l er, the Sp on so r O p tio n A gr ee m en t w ith X en on , or t h e B ay h -D ole Act. La te r, the c our t va ca te d i ts r ul i ngr eg ar di ngthe Foundati on’ s r i ght t o ter m i nate the l i cense agr eem ent; the j ud ge agr eed with Xeno n that the F oundati on had notpr o per l y de ve l o ped th i s ar g um en t i n i ts o pen i ng su m m ary-j ud gm en t brief

. The c ase pro ceeded to a j ury tr i alo n the questi on o f dam age s forXenon’ s f ai l ure to pay r oyaltie s o r subl i c e ns e fe e s . T he j ur y a wa r de d $ 1 mi l l i o n, b uto n Xe no n’ s m o ti o n fo rr emi tt i tu rthe c ou rtr edu ce d the awar d t o $ 30 0, 00 0, whi chthe F o unda ti o n a cce p ted. The par ti es c r o ss-appe al ed fr o m the j udg m en t, c ha l l en g i ng var i ous o fthe dist ri ct c ou rt ’ s r ulings o n sum m ar y j ud gm en t; Xe no n also ch al l en g es the s uffi ci en cyo fthe evi dence on dam age s.N os. 08

- 1351 & 06

- 3901 9 I I . Discussi on W e r evi ew the dist ri ct c ourt ’ s g ra nt o fsum m ar y j ud gm en t d e n ov o. C la ncy v . Geith ner, 55 9 F
. 3d 595, 59 9 ( 7th C ir. 2009). Sum m ary j ud gm en t is a p p rop riate w he n th ere i s no ge nuine i ssue ofm ate ri alf act and th e m ov ing par ty is e n tit led to j u d gm en t a s a m at te r of law

. See F ED . R. C IV . P. 56( c)
. On re vi ew o fcr oss - m oti ons f orsum m ary j ud gm ent, we vi ew al lf acts and i nfe re nces in the l i ght m ost fav or ab le t o th e n o n m o v in g p ar ty on ea c h m ot ion
. See Tatev. Lo ng Ter m D i s ab i l i ty Pl an f orSa l ar i ed E m pl oye e s of Cham pi on Int ’ l Corp. #5 06 , 5 4 5 F. 3d 555, 559 (7th Cir. 2 0 0 8 )
. F o ro r g a ni z a t i o n a nd e a s e o fdi s cus s i o n, we di v i de the i ssues o n appeal in to tw o gr oups: ( 1) tho se that re l ate to the r i ghts ofthe parti es und erth e E x cl usi ve Lice nse Agr ee m en t, a nd ( 2) tho se that relat e to the r i g ht s o fthe p ar tie s re ga rd in g th e P P A co m p ou n d s.
A. E x c l us i v e L i c e ns e Ag r e e me nt 1 . Xenon ’s Transfer of R ights to N ovarti s W e b eg inby ad d re ss in g X en on ’s c o n t en tio n th at it d id n ot v i ol ate the ter m s o fthe Ex cl usi ve Lice nse Agree

m en t when i t l i ce ns ed i ts i nt er es t i n the j o i ntpa te nt appli cati on t o N ova rt i s without paying the Fo un d at ion i ts shar e o fthe l i censi ng fee. A s a thr esho l d m att er, Xenon a r g u e s th a tth i s d i s p u t e i s r e s o l v e d b y fe d e r a lp a t e n tl a w, notb y c o nt r a c tl a w. T he di s t r i c tc o ur tdi d n o taddress th e qu estion w h e th er Xen on reta ined a fed eral statu tory r i g htt o fr ee l y l i ce ns e i ts intere stwi th o utr eg ar d t o the F o unda ti o n’ s co nt r ac t r i g ht s. The c o ur t r es o l ve d the10 N os. 08

- 1351 & 06

- 3901 p ar tie s’ d isp u te s b as ed s o lely on th e t er m s o f th eir var i ous c ontr acts , h ol ding that Xenon effecti vel y e xecuted a s ubl i cense w i th N ova rt is a nd thatthi s t ra nsacti on fel lwithi n the provi si on o fthe Exclusi ve Lice nse Agree

m ent g ove rni ng subl i censes . Xenon co ntends thatfed er al l aw

— speci fi cally, 35 U.S

. C. § 2 62

— gi ves i t the r i ght t o fr ee l y l i ce nse i ts undi vi ded o ne - ha l fi nt er es t i n the j o i nt pa t e nta pp l i c a t i o n wi tho uta c c o un t i ngt o the F o un da ti on und erthe ter m s o fthe Ex cl usi ve Licen se A gr eem ent. W e di sag re e. F ede r all aw pr o vi des tha t j o i ntpa te nto wner s, l ike the Fou nda ti o n a nd Xe no n, ha ve c o nt r o lo ve rthe e nt ire pr o per ty, a nd e ac h c o - o wnermay fr ee l y us e th e p a te n te d te c h n olo gy w ith ou t re ga rd to th e o th er . See 35 U
. S. C. § 2 62. W e hav e pr evi ousl y obser ved thatunder th i s pr i nc i pl e o fpa te ntl aw, “ ea chco - o wneri s ‘ atthe m er cy’ o fthe othe r i n th at the r i ght o fea ch to l i cense i nd ependentl y ‘ m ay, f oral lprac ti calpurposes , destr oy th e m o no po l y a nd so a m o untt o a n a ppr o pr i at i o n o fthe w hol e v al ue o fthe patent. ’ ” R a il-Tra i l er C o . v. AC F In du s., Inc. , 3 5 8 F
. 2 d 1 5 , 1 7( 7 th Ci r . 1 9 6 6 ) ( quoti ng Talb otv. Q uake r - St at eO i l Re

f
. Co. , 1 04 F
. 2d 96 7, 9 68 ( 3d Ci r . 1 939)). Thi s st atut o r y r ul e i s su bj ec t to ani m po r ta nte xc ept i o n, how eve r: J oi nt pate nt o w ners m ay var y thei r ri ghts by contr act. The st atute pro vi des that“ [ i ] n theab s e nc eof an y agre e m e ntt o thecon trary, each of th e j oint ow ne rs of a pat en t m aymake , us e, o ffert o s el l, o rs el lthe pat en te d i nv en ti o n . . . wi th o ut th e co ns en t o fa nd wi th o ut ac c ou n tin g t o th e o th er ow n er s.” 35 U .S.C . § 2 62 (em p h as is ad d ed ). Th e st at u to ry d efa u lt ru le th er efo re co n tr ols un less ther e i s a n agr eem ent t o the c ontr ar y.N os. 08

- 1351 & 06

- 3901 11

T he E xclu sive L icen se A g reem en t states: “T his A g reem en t is 3 not as si gnab le by eith er party ex cept with the prior w ri tt en conse nt ofthe otherparty, w hic h c o n sent s hall not be unreaso n a b ly o r a rb itr a ri ly w ith h el d .” H er e, the F o unda ti o n a nd Xeno n modi fi ed th e statutor y def aul t r ule byco ntra ct; the Ex cl usi ve Lice nse Agr ee m en t pl ainl y qua l i fi es a s “ ana g r ee m en t to the contr ar y” f orp urpose s of§ 262. That a gr eem ent pr ovi des: “[ The Fo u nd ati on] her eby gr ants to Xenon an e xcl usi ve lic en se , l im ite d to th e [fie ld of h u m an h ea lth c ar e,] . .
. un de rthe Li c e ns e d P a t e nt s t o ma k e , u s e a nd sel l P r o duct s. ” I n e xc ha ng e Xe no n a g r ee d t o pa y the F o unda ti on a perce ntage o fany paym ents, r oya l ti es, o r subl i cense fees i t r ecei ved by com m er ci al i zi ng the t echn ol ogyi tse l fo r subl i ce ns i ngthe t ec hno l o g y t o a thi r d pa r tyt o c o m m er ci al i ze. U nd er the ter m s of the agr eem en t, subl i censes ar e e xpressly per m i tte d

—pro vid edXenon pays the Foundati on the speci fi ed perce ntage o f any ro yal ti es orsubl i cense fees

—but a ssign m ents ar e pr o hibi te d wi th o utthe Foundati on’ s pri orwri tte n conse nt. 3 Xenon ar gues that nothi ng i n the Ex cl usi ve Licen se A gr eem ent ex pli ci tl y r evo kes i ts sta tutory r i ght t o l i cense i ts in ter estfre el y. True, but the a gr eem ent’ s pro vi si on r equi r i ngtha t Xe no n pa y the F o unda ti o n a s ha re of th e fees de riv ed fro m any subl i cense pla i nl y underm i nes Xenon’s cl ai m thati t r eta i ned an unfe tte re d ri ght under § 262 to tran sfer i ts intere s t i n the tec hn ology to third par ti es . S o do es the agreement ’ s pr o vi si o n pr o hibi ting as si g nm en t o fthe l i ce ns e wi th o utthe F o undat i o n’ s co n-12 N os. 08

- 1351 & 06

- 3901 sent. The bar gained-f or exchange betw een the par ti es provi ded thatthe Foundati on would f or ego i ts rig h t to separ ate l y l i cens e th e patent in exchange f orr ecei vi ng a shar e o fthe profi ts fro m Xenon’ s c om m erci al i zati on o f th e t echnol ogy

— e i the r di r e c t l y o r v i a a s ub l i c e ns e t o a thi rd party. Xenon r ece ive d a si gni fi cant b enefi t fro m th e ag r ee m en t

— th e ex cl us i ve r i g htt o e xpl o it th e te ch

no l o g y p r o t e c t e d b y the j o i ntp a t e nta pp l i c a t i o n. X enon ca nno t av o i d pa yingr o y al ti es o rs ubl i ce ns e fee s to the Foundati on s i m plybyl abel i ng the N ova rt i s t ra nsacti on a “ lice n se ” ra th er th an a “s u b lice n se .” Acco r di ng l y, the t er m s o fthe Exc lusiv e Li ce ns i ng A gr eem ent, not35 U
. S. C. § 2 62 , g ove rn the par ti es’ r i ghts an d res ponsibi l i ti es here

. U nd erthatag re em ent Xeno n he ld an ex clusive l icens e to d evelop th e SC D d is cove ry f orco m m er cial purposes and a co rr espondi ng o bl i gat i on to s ha r e pr o ce eds wi ththe F o unda ti o n. The a g r ee m en t giv es X e n o n th re e o p tio n s: (1) c om m er c ializ e t h e t ec h n olo g y di rectly a nd pa y r o y al ti es t o the F o unda ti o n; ( 2) subl i cense th e te c h n ol ogyto a thi rd party a nd pay a perce ntage o fthe su b license fees to the Foundati on; o r ( 3) as si gn i ts excl usi ve l i c en si ng r i ghts to a thi rd party wi ththe pr i o rc o ns en t o fthe F o unda ti o n. X en on su gg es ts in t h e a l t e rn at ive th at it n ev er ac tu ally g av e N o va r ti s a l i ce ns e to th e F o unda ti o n’ s i nt er es t i n the j oin tly p at en te d te c h n olo gy . Th e d ist ric t c ou rtp ro p er ly r ej ec te d thi s ar g um en t. The Xe no n- N o va r ti s ag r ee m en t provi des that Xenon gr ants to N ova rt i s a n excl usi ve l i cense to al lXenon t echn ol ogyi n the fi el d ofhum an and ani m alheal thcar e. Xenon t echnol ogyi ncl ud es “Xe-N os. 08

- 1351 & 06

- 3901 13

n on ’s in te re stin a ll Pa te n t R igh t s i n t h e F ield , as s p ec ific ally d es c rib ed in Sc h ed u le B ,” an d Sc h ed u le B p ro m inentl y l i sts t h e j oi nt pate nt appli cati on o w ned by Xenon and the F oundati on

— fi rs t o ut o ffourl i ste d patents. Xenon ar gues unp er suasi vel y that the phras e “ patent ri ghts” does not i ncl ud e r i ghts i t obtained thro ugh the E x c lu si ve Li ce ns e Agr ee m en t. In the war r an ty cl au se o fthe Xe no nN o va r ti s ag r ee m en t, Xe no n r epr es en ts tha t “iti s th e ow ne r o r licensee ofal lr i ghts, t itle and inter esti n and to the Xeno n PatentRi ghts. ” ( Em phasi s a dd ed. ) A cc or d in gly , Xe n on gra n t e d N ov ar tis an y in te re stit h eld i n th e join t p at en t a p p lica tio n by sp ec ifica lly in c lu d in g it inSc h ed u le B . Pu t an ot h er w ay , Xe n on effe c tiv ely su b l ice n se d its ex c lu siv e lic en se righ ts in t h e join tly pat e n t e d t e c h n o l o g y . T h e d i s t r i c tc o u r tc o r r e c t l y c o ncl ud ed that the Xen on - N ova rt i s a gr eem ent i s s ubj ect to th e te r m s o fthe Exc l us i ve Li ce ns e Agr eem en t g o ve r ni ng subl i censes .
2. Subl i cense Fe es A fterco ncl ud i ng tha t Xenon gr anted N ov arti s a subl i cense i n the j oi ntl y pate nted t ec h nol ogy, the dist ri ct cour t hel d t h at Xenon vi ol ate d the t er m s o fthe Ex cl usi ve Li ce ns e Agr ee m en t byf ail ing to pa y the F o unda ti o n a shar e o fthe subl i cense fees . Xenon ar gues th at it i s no t ob liga t e d t o m ak e p ay m en ts to th e F ou n d at ion u n til products a re actual l y b ro ught to m ar ketand so l d as a re sul t o fthe subl i cense. Because no pro du cts have yet been sol d , X en on cl ai m s i t doe s no t o w e the Fo und ati on anythi ng. A gain, w e disa gr ee. The Ex cl usi ve L icense14 N os. 08

- 1351 & 06

- 3901

Tec hni c al l y, the c ontra c ts t i pul at es thatXeno n m us tpay the 4 F ou nd atio n o n a qu arte rly b a si s, a s spec ifi ed in Sec tion 4(E )( i) of the E xclu sive L icen se A g reem en t. A gr eem ent r equi re s Xenon to pay the Fo und ati on l i cense fees , m i l est ones , and ro yal ty paym ents as soo n as they a r e r e c e i v e d. 4 Se cti on 4 of the Ex cl usi ve Lice nse A gr eem ent, tit l ed

“ Co ns i de r a t i o n, ” l a y s o utthe p a y men tde tai l s a nd s c he dul e . S u b s e c t i o n ( B ) ( i ) o fth a ts e c t i o n s t a t e s : “ F o ra l lP r o ducts s ol d d i re ct l y b y Xe non , Xenon shal lpay to [ the F oundati o n]
. . . a r o y al ty ca l cul at ed as a per ce nt ag e o f th e S el l i ng Pri ce o fPro du cts
. . . . ” ( Em phasis ad d ed .) I t g oes o n to spe ci fy tha t r o yalti es a r e ea r ne d o n e i th erthe da te the product i s a ctual l y s ol d, the date an invoi ce i s s ent, o r the da t e the pr o du c t i s t r a ns fe r r e d t o a thi r d pa rt y f or pr o m o ti o na lr ea so ns

— whi ch ev er co m es fi r st
. T he ne xt subsect i on

— the pr ovision m ostr el evantto thi s di spu te

— sta tes : Foral lPro du cts so ld byXenon s ubl i censee s, Xenon sh al lpa y t o [ th e F ounda ti o n] a pe r ce nt ag e o fa ny l i cense fees , m i l est ones , and ro yal ty paym ents re cei ved by Xenon a s consi derat i on forthe subl i cense g r an te d t o s uchs ubl i ce ns ee s unde rS ec ti o n 2 B. The per ce nt ag e shal lr emai n fi xe d a t a r at e o ft enpe r ce nt ( 10 % ) f o ry ea r s o ne ( 1) a nd t wo ( 2) ofthi s Agr ee m en t and seve n and one- hal fper cent (7
. 5% ) ther eafter un t i lthi s Ag r e e men ti s t e r mi na t e d. B ec au se bo th su b se c tio n s b eg inw ith th e p h r a s e “ [f]or all Pro du cts sold ” (e m p h as is a d d ed ), Xe n on arg u es th at itN os. 08

- 1351 & 06

- 3901 15 do es no t o we the F o unda ti o n a ny pa y m en ts f o rthe N o va r ti s su bl i ce ns e unt i l pr o duct s ar e ac tu al l y brought t o ma r k e ta nd s o l d. W e a gr ee w i th the dist ri ct c ourtthatS ecti on 4, r ead as a w hol e, r equi re s p aym ent o fthe Foundati on’ s s hare o f the s ubl i cense fee i nd ependen t o fany actualsa l es of products. The appare nt poi nt of the pr ef ato ryphrase “[ f ] or al lPr o duct s so l d” i n e ac h o fthe t wo s ubs ec ti o ns gov er ni ng paym en t i s t o dist i ngui sh be tw een pay m ents re quir ed w hen Xenon com m er ci al i zed the technol ogy i t s e l fa nd p a y men t s r e qu i r e d wh e n Xe no n i ss ue d a s ub l i c e n s e t o a th i r d p a r t y t o d o s o . In th e f o r me rc i r c u msta nce, the paym ent du e the Foundati on i s a roy alty b a s e d o n p r o d u c t s s o l d ; i n th e l a t t e r c i r c u ms t a n c e , t he paym ent d ue the Foundati on i s a speci fi ed perce ntage o fthe s ubl i ce ns e fee Xe no n r ec ei ve s, pl us “mi l es to ne s” a nd ro yal ti es. Because the Novar ti s t ra nsacti on f al l s und er th e secon d sub sect ion, p aym en t is d ue on receipt of a subl i cense fee, noto n the occur re nce o fpro du ct s al es. This re adingo fthe paym ent pr ovi si on is the m ost pl au sibl e f o rs ev er alr ea sons. Al th o ugh b o ths ubs ec ti o ns use the sa m e intro du cto ryphrase , the fi rs t s ubsect i on als o sa ys th at p ay m en t is d u e up on ac tu al pr od u c t sa le w h ile th e s ec ond subsecti on

— gov erning subl i censes

— do es not i ncl ud e s i m i l arl anguage . Instea d , t he se cond subse ct i o n s ta te s th atXe no n o wes the F o unda ti o n a p er c en ta ge of an y li c e n s e fe es an d “m iles to n es ,” inad d iti on t o ro yal ty paym ents, s te m m i ng fro m any subl i ce ns e. As the di st r i ctc o ur t no te d, s ubl i ce ns e fees a nd m i l est one paym ents ar e not contingent up on a sa l e; they16 N os. 08

- 1351 & 06

- 3901

A fter con clu d ing tha t X en on b rea ch ed the E xclu si v e L icen se 5 A g r e e m e n t, th e d i st r i c tc o u r td i sm i ss e d th e F o u n d a t i o n ’s c l ai m f or br ea c h o fthe i m pl i ed duty ofgoo d f ai th a s m oot
. The F ou nd atio n claim s this w as erro r. It w as no t. U nd e r W iscon sin la w a d u ty o f g o o d fai th is im p lie d in ev er y co n tr a ct
. S ee M arketStree t A ssocs. Ltd
. P ’ship v. Frey, 94 1 F .2d 588 , 59 2 (7th C ir. 19 91 ) (ap p lyin g W iscon sin law ). B u t be cau se X en on is liab le for b rea ch of the licen se ag reem en t ’s e x p r ess term s, ther e is no reaso n to resor t to

— or s epar a te f actual basi s to s up port

— a c l ai m f or br ea c h o fthe i m pl i ed duty ofgoo d f ai th. ar e pai d i m m edi ate l y o r on a n ongo i ng ba si s by a lice n se e o r subl i censee i n exchange f orthe ri ght t o m ake sa l es o fpr od uc ts dev el o ped i n the futur e. F i na l l y, the parti es agr ee that i t g ener al l y takes about 15 yea rs to bring a drug p ro du ct t o m ar ket

. Yet the Excl usi ve Li ce ns e A greements pec i fi es tha t Xe no n mustpa y the F o unda ti o n 1 0% o fa ny l i ce ns e fee s, mil es to ne s, a nd ro yal t y pa y men t s r e c e i v e d du r i ng the fi r s t t wo y e a r s o f th e a gr ee m en t a n d 7 .5 % th er ea fte r. T h is p ro vis ion w ou ld m ake l i ttl e s ense i fno paym ent was r eq u ire d on a subl i cense unti l a product w as bro ught to m ar ket

. A ccor dingl y, the d istr i ct c ourtpro perl y c oncl ud ed that Xenon br eached the Exclusi ve Lice nsi ng Agree m ent b y failin g to pay the Fo und ati on i ts shar e o fthe fee fro m th e N o va r ti s tr an sa ct i o n. 5

3. D am ages T h e d ist ric t cou rt en te re d su m m ar y j u d gm en t on lia b ili ty ; d a ma g e s we r e t r i e d t o a j u r y . X e n o n ’ s a g r e e me ntN os. 08

- 1351 & 06

- 3901 17

W hi l e the d i s t ri c tc our tc onc l uded thatXeno n o wned the 6 P P A com p ou nd s, it a l so h eld tha t the P P A com p ou nd s fell und er the t er m s ofthe Exclus ive Lice nse A greem ent and that X enon ow ed the Found ati on f ees f or these com pou nd s as w ell. W e n e e d no t ad d ress the a p p are nt in con g ru ity in these c onc l us i ons ; the j ur y m ade no awar d f or the por t i on ofthe subli cens e fee that i ncluded the PPA com pou nd s. M oreover, as w e e xp la in , i nf

ra p p . 2 4 -2 8 , w e a r e r e v e r si n g th e d i st r i c tc o u r t ’s d eterm ina tio n tha t the F ou nd atio n h ad no ow ne rship intere st in th e c o m p o u n d s. wi thNov ar ti s pur po r te d t o g r an t a l i ce ns e to : ( 1) the j o i nt pat e nta g r e e men t ; ( 2 ) the P PA c o mpo un ds ; ( 3 ) s e ver al ot h er p at en t a p p lica tio n s; an d (4) X en on ’s “ kn ow -h ow .” N ova rt i s pai d Xe n on $ 4 m i l l i on in cash and another $11 m i l l i on in sto ck as part ofa separ ate S toc k Purchase Agr ee m en t s i g ne d the s ame da y . The que sti o n fo rthe j ury w as how m uch ofthi s fee was paym ent forthe j oi ntpa t e nt
- a g r e e men ts ub l i c e ns e a nd the P PA c o mpo un ds a s o p p o s e d t o th e o th e rp i e c e s o fth e p a c k a g e . A s we 6 hav e n o t e d, the Ex c l us i v e Li c e ns e Ag r e e men ts t i pu l a ted that the F oundati on s houl d rec ei ve 7. 5% o f“a ny l i cense fees , m i l est ones , and ro yal ty paym ents re cei ved by Xe no n a s co ns i der at i o n fo r the sublic ense .” (E m p h as is adde d. ) In a s pec i alv er di ct, th e j ur y a war ded no th i ng f o rthe s al e o fthe PP A co m po unds a nd $ 1 m i l l i o n for the su b li cense

—j us tu nd e r7
. 5 % o fthe $ 1 5 mi l l i o n i n c a sh and equity Xenon re cei ved fro m N ova rt i s. Xe no n m o ve d po st tr i al f o r r emi tt i tu r, whi ch the dist ri ct c ourtgr anted. T h e j u dge hel d that “ the j ury had su f f icie n t e vid en c e t o a w ar d p lain tiff 7 .5% of th e fu ll18 N os. 08

- 1351 & 06

- 3901 $4,000,000 tha t N ovarti s p aid in cas h for defen d an t’s intellectua l p rop erty.” B ut th e j ud ge con clud e d th ere w as insu ffici en t evide nc e to sup p ort i nc lusion of a percentag e o fthe $11 m i l l i on in st oc k, wh i ch the evi dence sugge ste d w as part ofa separ ate l y neg oti ate d a greem ent. The di st r i ctc o ur t o ffer ed th e F o unda ti o n a r emi tt i tu r of $30 0,0 00

— 7. 5% o fthe $4 m i l l i on ca sh fee

— whi chthe F o un da t i o n a c c e pt e d. On app ealX enon a rgues that the Fo und ati on di d not pr o vi de su ffi ciente vi den ce o fda m ag es t o j us ti fy e ve n a $300 , 000 dam age s a w ar d. W e r evi ew sufficiency

- of

- theev id en c e c h alle n ge s d e n ov o, vie w in g th e e vid en c e in th e l i g ht mos t f av o r ab l e to the pr ev ai l i ngpa r tya nd d ra w in g a ll infe re n c es in it s fa vo r. Lopez v. Ci ty of Chi cago , 4 6 4 F
. 3 d 7 1 1 , 7 1 8 ( 7 th C i r . 2 0 0 6 )
. Un d e rWi s co ns i n l a w a pla i nti ffm ust pre sent en ou gh ev i dence to pro vi de a re aso nabl e ba si s forcal cul ating da m age s; the evi dence w ill be s u fficie n t if it en ab les th e jur y t o m ak e a fair an d rea so n ab le a p p ro x im at ion of d am ag es . SeeO lym pia Hote l s C o rp . v . Jo h n s o n Wax De v . C orp. , 9 08 F. 2d 1363 , 13 72 (7th C ir. 1990); Br ogan v. Indu s . Cas
. Ins . Co. , 392 N
. W
. 2d 439, 444 (W is. Ct
. A p p . 1986). U n d er th is le n ien t s ta n d ar d , th e e vid en c e is ea sily suffi ci ent t o susta i n the dam age s a w ar d. The Fo und ati on ar gued to the j ury that the j oi nt pate nt appli c at ion was th e o nl y i te m i n the Xe no n- N ovar ti s pac k ag e wi tha ny re alvalue, and thus the pri ce Novar tis p ai d refl ecte d i ts f ai r m ar ketvalue. The Fo u n d at ion r el i ed on a sa l espi tch l et te rXe no n s en t to Nov ar ti s o ffer i ngt o s el lthe te chno l o g y c o ve r ed bythe j oint p at en t appl i ca ti o n; theN os. 08

- 1351 & 06

- 3901 19 l et te rmade no ment i o n o fthe P PA co m po unds o ra ny othe r patented t echnol ogy. The Fo und ati on a l so n ot ed th atthe j o i nt pa te nta ppl i ca ti o n i s l i st ed fi r sti n the N ovarti s a gr eem ent, ar guabl y dem onst ra ti ng pri or i ty o ve rthe o th erl i st ed pat en t appl i ca ti o ns . M o r eov er, the F o unda ti o n n o te d tha t Xen on tr an sfer r ed o nl y abo ut 10 0 gra m s o f th e P P A co m p ou n d s t o N ov ar tis

— “left over” m ate ri althatwas so i nsign i fi cant that Xenon did not pri ce i t o r i nvoi ce i t. Final l y, the Foundati on su gg es ted th atXe no n’ s “kno w-how ” was v alue l es s be ca us e th e ph r a s e wa s de fi ne d in s uc h a wa y a s t o i nc l ud e nothi ng be yond wh at w as al re ady co ver ed under “Xeno n Pa te n t R i g h t s . ” V i e we d i n th e l i g h t mo s t f a v o r ab l e to t he F o unda ti o n, thi s ev i den ce was s uffi ci en t to s us ta i n the da mag e s a wa r d. Xenon com plain s th at the F oundati on di d not a dequatel y e stabl i sh the pre ci se m arket value o fthe subl i ce ns e f o rthe j o i ntpa te nta ppl i ca ti o n a s co m par ed to the othe r parts o fthe packag e. But W i sco nsi n l aw pro vi des that a co ntra cti ng par ty that causes an uncer tainty o fpro of c an n otd em an d a m or e p re c ise m ea su re of d am ag es . See N o vo In du s. C o rp. v. N issen , 140 N
. W
. 2d 280, 285 (W is. 1966). X enon had a du ty und erthe Ex cl usi ve Lice nsi ng Agree

m en t to make a n a ccounti ngt o the F o unda ti o n o n a qua r te r l y b as i s, t o di sc l o se a ny pa y m en ts r ec ei ve d, a nd to expla i n how any am ounts owed t o th e F oundati on ha d been calculated

. I t d id n o t d o so. U nd er thes e circum sta nces the F oundati on w as not re quir ed to es tabl i sh a m or e s peci fi c m eas ure ofdam age s. Xenon al so ar gues that proving dam age s in thi s ca se re quir ed the use o fexper t t est i m on y, ci ti ng a num bero f20 N os. 08

- 1351 & 06

- 3901 W isc on sin ca se s h old in g th at ex p er t t es tim o n y is r e qu ire d in c om p lex or te c h n ica l ca se s w h er e t h e is su e is ou ts id e t h e c om m on kn ow led ge of a jur y. Se e, e . g. , Weiss v. U ni t e d F i re& Cas
. Co. , 54 1 N
. W
. 2d 753, 75 7 ( W i s. 19 95) ( “The co urt h as lo ng r eco gni zed thatcer tain ki nd s o f ev i den ce are di ffi cul t f o rj ur o r s to e va l ua te wi th o utthe ben efi t of ex p ert testi m o n y.”)
. H ere, althou gh the interlockin gc o nt r ac ts wer e o bv i o us l y t ec hni ca la nd c o m pl ex , th e issu e o f d am ages w as no t beyon d a l ay j uror’s un d erst an di ng . The F o unda ti o n was en ti tl ed to pr ove the val ue o fthe subl i cense ess enti al l y b y a pro cess o fel i m i nat i on

— bys ho wi ngtha t th e o th eri te m s i n the Xe no nN ova rt i s t ra nsacti on had l i ttl e o r no va l ue. Thi s m etho d of provin g d a m ages d ispen sed w ith an y nee d f or exp ert te st i m o ny r eg ar di ngthe mar k etv alue o fthe j o i nt pat en t appl i ca ti o n.

4. The Fo und ati on’s Ri ght to Term inate the Exclu si ve Licen se Agreem ent I n additi on t o dam age s, the Fou n d at ion a l so ask ed f or a dec l ar at i on th at i t ha d a r i g htt o t er m i na te the Exclus i ve Li ce ns e Agr ee m en t ba se d o n Xe no n’ s br ea ch

. The di stri ctc o ur t g r an te d s um m ary j udg m en t f o rthe F o u n d a t i o n o n th i s c l a i m, a n d o n Ma y 1 7, 2 0 0 6 , the Foundati on s ent Xeno n a l ett erte rm in ating the Exclusi ve L i c e n s e A g r ee m en t. Xeno n re spo nde d wi t h t wo m otions, one fo r r e con side ration of the d istri ct cou rt’s deci si on a nd the othe r f ora sta y o fexec ut ion o f the j ud gm en t pen di ngdi spo si ti o n o fXe no n’ s m o ti o n fo rr ec o nsi derat i on. The di str i ct c ourtgr anted Xenon’ s m ot i onN os. 08

- 1351 & 06

- 3901 21 to s ta y e nf o r ce m en t o fth e judg m en t, ho l di ngtha t th e Fo u nd ati on’ s purpor ted te rm i nati on o fthe Ex cl usi ve Lice nse A gr eem ent w as voi d because the Fo und ati on had not gi ven Xenon noti ce a nd 90 d ay s to cure i ts bre ach, as the a gr eem ent r equi re d. The cour t furtherhel d th at once the F ou n d atio n fi l ed thi s l aw sui t, i ts ri ght t o ter m i nate th e li cense agr eem ent depended on a fi nd i ng o fbr each bythe c o ur t. The j udg e co nc l ude d a s f o l l o ws: “ [ A]n y a t t e mpt e d t e r mi nati ono fthe a g r e e men ttha th a s a l r e a dy o cc ur r e d i s s u s p e n d e d u n t i lth e c o u r th a s r u l e d o n t he post- tr i alm oti ons and plainti ffm ay not ta ke r enewed acti on t o te rm inate the a gr eem ent unti lthatti m e. ” A m onth l ate r, the dist ri ct c ourtgr anted Xenon’ s m oti on f orr eco nsi derat i on, ag re ei ng tha t the Found ati on had not p r o p e r l y mo v e d f o rs u mma r y j u d g me n t o n th i s c l a i m. H owever, the j ud ge al so s ai d that i fthe Foundati on w an te d to te rm in at e t h e E x c lu siv e L ice n se A gr ee m en t, it coul d now do s o

—b ec au se X en on h ad be e n f o u n d in bre ach

—but that the Found ati on w as fi rs t r equi re d und er th e te r m s o fthe a g r ee m en t to g i ve Xe no n n o ti ce a nd 90 days t o cure. On app ealthe Found ati on chal l enges the dist ri ct cour t’ s co ncl usi on that it s r i ght t o ter m i nate the a gr eem ent di d not a ri se unti lthe c ou rt f ound Xenon i n br each ofthe agree m ent. The Fo und ati on m ai ntai ns thati ts r i g htto t er m i na te was t r i g g er ed byXe no n’ s br ea cha nd w as not contingent up on the co urt’ s f i ndi ngo fb r ea ch

. The F o u n d a t i o n a l s o a r g u e s th a t i t p r o p e r l y t e r mi n a t e d t he agr eem ent. W e a gr ee on bo th co unts. S ec ti o n 7o fthe Ex clusi ve Li ce ns e Agr ee m en t g o ve r ns th e F ou n d at ion ’s rig h t t o t er m in at e:22 N os. 08

- 1351 & 06

- 3901 I fXenon atany ti m e def aul ts i n the ti m el y pay m ent o f an y moni es due

. . . o rc o m m i ts a ny b re ac h o fa ny othe r cove nant her ei n conta i ned, and Xenon fail s t o re m edy a n y such br each ordef aul t withi n ni nety ( 90) days a fterwri tte n noti ce there of b y [ the F oundati on, ]
. . . [ the F oundati on] m ay, ati ts opti on, te rm i nate thi s Ag r e e men t b y g i v i ng no t i c e o f t e r mi na t i o n to X en on . I n M ar ch 200 5 the Fo und ati on s ent Xeno n w ri tte n noti ce that i t co nsi dered the Xenon- N ova rt i s t ra nsacti on t o be a subl i cense ofthe j oi nt pate nt appli cation and that Xe no n o wed the Foun d at i o n s ubl i ce ns e fee s. The re l evantpor ti on o fthe l ett erst ate s: O u r anal ysi s has l ed us to co ncl ud e that the N ova rtis agr eem ent i s, i n f act, a sub- l i cense of ri ghts gr an ted by [the Foun d ation] to X en on and w e als o re qu ire that Xenon r em i t .
. . paym ent o fany am ounts owed to [ th e F o unda ti o n] unde rthe Agr ee m en t. In the e ve nt th atXe no n c o nt en ds tha t no a m o unt s ar e o wed t o [ th e Foundati on] o r that the Novar ti s a gr eem en t is n ot a subl i cense as conte m pla ted b y th e Agree m ent, Xenon m ust i m m edi ate l y pr ovi d e . . . a detai l ed w ri tte n expla nati on a s t o w hy such a m ounts a re noto w ed or w h y th e N ov ar tis ag re em en t is n ota su b lice n se . . . . This l ett er pla i nl y gave Xenon noti ce that the F oundati on co ns i der ed i t to b e i n b r ea cho fi ts pa y m en t o bl i gati o ns und erthe Ex cl usi ve Lice nse A gr eem ent. N otabl y, Xenon does not disa gr ee. Inst ead, Xenon ar gues that the F oundati on di d not pro vi de 90 days t o cure the b re ach be c au se the Foundati on fi l ed sui t a m onth after sendin g X enonN os. 08

- 1351 & 06

- 3901 23 thi s l ett er . The M ar ch 200 5 no ti ce, Xenon s ays , was ther ef o r e i ne ffec ti ve unde r th e te r m i na ti o n pr o vi si o n of the Ex cl usi ve Lice nse Agree m ent. W e di sag re e. A co ntra ctual ob li gat i on t o provi de noti ce an d a n o ppo r tu ni tyt o c ur e a def au l t pri o rt o t er m i na ting a con tract does not ne cess aril y affect th e aggrieved pa rty’s rig h t t o s u e f o r br ea c h

. Se eAm e r i t e ch Inf o. Sy s . , Inc . v. Bar C ode Res. , Inc. , 33 1 F
. 3d 571, 57 3- 74 ( 7th Ci r. 20 03)
. H er e, nothi ng i n the Ex c lusi ve Lice nse Agree m ent pr eve nted the Fo un da t i o n fr o m s uingf o rb r e a c h wi thin the 9 0

- day c u r e p e riod , id. at5 74, no rwas the F o unda ti o n’ s r i g ht to te rm in at e som eh ow su sp en d ed b y th e fil i n g o fth is l aw sui t. H avi ng fi l ed the sui t, the Foundati on’ s r igh t to term inate d id n ot becom e con tingen t up on th e cou rt fi nd i ng Xenon in br eac h . A contra cti ng par ty’ s r i ght t o te r m i na te a r i se s unde rthe t er m s o fthe c o nt r ac t an d ne ed no t awai t a f o r m al dec l ar at i o n o fthe contr ac ting parti es’ r i ghts. H er e, the dist ri ct c ourti ssued a sta y o fthe ex ecuti on o f i ts sum m ar y-j ud gm ent ruling pending d isposi ti on o f Xe no n’ s po st tr i almot i o ns . A st ay, u nl i k e ani nj unc ti o n, op e r a t e s o nly o n the j ud i c i a l pr o c e e di ng i t s e l f a nd does n ototh er w ise p r o h ibitth e p ar tie s fro m ac tin g. See Nk en v. Ho lder, 1 2 9 S
. Ct
. 1 74 9 , 1 7 5 7

- 5 8 ( 2 0 0 9 ) ( “ An inj un c t i on an d a stay ha ve typ icall y been un d erstood to s e rve d if

ferent p urp oses. Th e form er i s a m ean s by w hich a court tel l s s om eone wh at to do orwh at not to do.

. . . By contr ast, in st ea d of d ire c tin g th e c on d u c t o f a p ar tic u l a r a c to r, a s t a y o p e r a t e s u p o n th e j u d i c i a lp r o c e e d i n gi t s e l f

. ” )
. S o me ofthe cour t’ s l an gu ag e in the sta y o rderi s s ugges ti ve of24 N os. 08

- 1351 & 06

- 3901 an i nj uncti on: “[ A ] ny att em pted ter m i nati on of the a gr eem en t th atha s al r ea dy o cc ur r ed i s su spe nde d unti lthe cou rt has ru led on th e po st-trialm otions an d plaintiff m ayno t ta k e r en ewe d a ct i o n t o t er m inat e th e ag r ee m en t unt i l th at ti m e. ” But i f th i s was mean t to b e ani nj unc ti o n, i t was an i m pr op er o ne. A s a pro ceduralm att er, i nj uncti ons m ust co m plywith the r equi re m ents ofRule 65 ( d) o f th e F ede r alRul es o fCi vi l Pr o ce dur e; a c o ur t i ss ui ng an i nj uncti on m u st , am ong othe r thi ngs, gi ve advance not ice to the ad verse p arty, hold a hearing on the m at t e r, ex pl ain why the i nj ur y tha t woul d o cc urw i th o utthe i nj unc ti o n i s i r r epa r ab l e, a nd s pec i fy the s co pe o fthe inj u n c tio n in re as on ab le d et ail. The d i str i ct c ourt ’ s s tay or der di d not co m plywith these re quir em ents. A ccor dingl y, the dist ri ct c ourter ro neousl y c oncl ud ed th atthe F o unda tion’ s r i g htt o t er m i na te the a g r ee m en t w as contingent up on the co urt’ s fi n d in g that Xeno n had bre ached the Ex cl usi ve Lice nse Agree m ent. The Fo und ati on was enti tl ed to te rm i nate the a gr eem ent b ase d on Xe n on ’s bre ach, and i t pr oper l y di d so und erthe agr eem en t’s term ination p ro vi si o n. Th e Foun d ation’s M ar ch2 0 0 5 l e t t e rwa s s uffi c i e ntt o g i v e n o t i c e t o Xenon tha tthe F o un da t i o n c o ns i de r e d i ti n b r e a c h. Mo r e tha n 90 da y s el aps ed be twe en th e t im e o fthi s no ti ce a nd the Foundati on’s l ett er

— on M ay 17, 20 06

— te r m i na tingthe l i c e ns e a g r e e men t
. No thingmo r e wa s r e qu i r e d.

B . P PA C o mpo und s W e m ove now to the s eco nd se t of issues o n appeal concerni ng the o w ners hi p ri ghts to the PPA co m pound s.N os. 08

- 1351 & 06

- 3901 25

Xeno n arg ues thatthe Foun dat i on i s bar re d f ro m br i ngi ng a 7 cl aim f or ow n er sh ip ofthe PPA com pou nd s by the Set tl em ent and Releas e A greem ent si gned by X enon and the Un iver- (co n tin u ed ...) The Fo und ati on br ought seve ral c l ai m s per taini ng to i ts in t erests in th e PP A com p ou nd s: I t sue d f or a dec laratory j u d gm en t t h at G r ay -K elle r’s as sig n m en t t o X en on of h is i nter esti n the com pound s was vo i d ; i t s ought to quie t ti tl e in the PPA co m pound s; and i t s ued fo r conve rs i on of its pro pertyr i ghts. The part i es fi l ed cr oss - m oti ons f or su m m ary j udg m en t o n e ac h of the se c l ai m s, a nd the dist ri ct cou rt entere d j ud gm ent forXenon o n al lthr ee cl ai m s. On app eal th e F oundati on r eas ser ts i ts enti tl em ent t o an o w ners hi p i nter esti n the PPA co m pound s. A br i efr ecap o fthe re l evant f acts i s i n or der: Xenon, with the he l p ofDis cove ryPar tner s, u sed the j oi ntl y pate nted as s a y t o s c re en th ou sa n d s o f co m p ou n d s fo r th er ap eu tic potenti al

. Xenon and Dis coveryPar tner s i denti fi ed a s et o f2 0 “ PP A c o mpo un ds ” wi th the po t e nt i a lt o l o we rS CD l e v e l s i n th e h u ma n b o dy , an d X e n o n s e n tth e s e c o mpounds t o Gr a y - Ke l l e rf o rc o nfi r mat o r y s c r e e ning . Gr ayK el l erco nfi rm ed the chol est er ol

- i nhibi ti ng pote nti alo f the PPA co m pound s a nd i n J uly 20 03 purport ed to a s s i gn h is rig h ts to X en on p u rs u an t t o th e t er m s o f h is consul ti ng ag re em ent. T he Foun d ation con ten d s t ha t the i nt erlocking net w ork ofco ntra cts am ong the parti es gi ves i t o w ners hi p ofGray

K ell er’s int eres t i n th e PP A com p ou nd s, an d therefore Gr ay - Kel l er ’ s as si g nm en t i s vo i d. W e ag r ee . Underthe 726 N os. 08

- 1351 & 06

- 3901

(
. . . c on t i nu e d) 7 sity in 2 0 0 3
. W e n e ed no t spe nd m u ch tim e on this arg u m en t. A s w e h a v e e xp la in ed , sup ra n. 1, the 2003 se tt le m ent p ert ai ne d t o a fundi ng di s put e betweenthe Uni ver s i t y a nd Xeno n; it had no thin g to d o w i t h w h o o w ns th e intellectu al-pr op erty ri ghts to the dis coverie s res ulti ng f rom the j o int ly s pon sore d re s ea rc h. Sp ons or Op tion A greem en t, a llU niversity researc he rs w or king on the Xenon- fund ed re sea rch prog ra m ag re ed to a ss i g n t o the F o und ati o n the i rr i g ht s to a ny i nv en ti o ns th at they “co ncei ved of or re du ced to pract i ce . . . w hetherso l el y o r j oi ntl y with others

. ” Each Un i versi ty re sea rche r, i n cl ud i ng Gray

- K el l er, si gned an ind i vi du al M em oran d um A greem e n t to that effect, and cop ies w ere att ached to a n d i ncor pora ted as parto fthe Sponso r Op ti on A gr eem ent. The sco pe of the j oint r ese ar ch prog ra m was define d by thr ee separ ate r ese ar ch ag re em ents

— Resear ch A gr eem ents 1, 2, and 3. The Fo und ati on m ai ntai ns thatGray

- K el l er ’ s worko n the PPA com pound s fel l w i thi n the sco pe of Res ear ch A gr eem ent 2 , and ther ef or e Gra y- K el l erwas re quir ed to as si g n h i s i nt er es t i n the c o m po unds t o the F o unda ti o n. Resear ch A gr ee m ent 2 ge nera l l y c ove rs r ese ar ch to i den ti fy c o m po unds tha t wi l li nfl ue nc e S CD l ev el s i n the hum an bo dy f orther apeuti c effect on cho l est er oll eve l s. W hi l e th e sc i en ti fi c l an g ua g e an d a cr o ny m s k ee p the contr act fro m bein g rea dil y unders tandabl e t o a l ayp er so n , the sco pe ofthe re sea rch prog ra m i s cl ear enough. Fi rs t, Exhibi t A to R ese ar ch A gr eem ent 2 i s t i tl ed “St ear oyl C oA Desaturas e ( SCD) as a Targ et f orN os. 08

- 1351 & 06

- 3901 27 Ele vati on o fH DL
. ” I t s tat es that its o ve ra l lgo ali s t o
“ e v a l ua t e S CD a s a t a r g e t f o r the de v e l o pme nto fdrugs th atwoul d i nc r ea se the l ev els o fHDL i n pl as m a an d d ec re as e t rig lyc er id es (w h ich s h o u l d h av e a th er ap eu tic i m pac t o n ca r di o va sc ul ar di se as e)
. ” I t th en l i st s a ha ndful ofm or e speci fi c goal s, such a s t o “[ s] cre en and r ank o rder s ub s t r a t e s / i nh ib i t o r s o fS CD1 a c t i v i t y f o ri mpa c to n S CD1 tr anscr i pti on in vi tr o” and to “[ e] val uate lea d substr ate s/i nhibi tor s fro m i n vi tr o scr een forthei r effect on S CD1 t r a ns c r i pt i o n, S CD1 e nz y me a c t i v i t y a nd HDL m et ab olis m in v ivo .” Gr ay - Kel l er ’ s wor ki den ti fy i nga nd c o nfi r m i ngthe ther apeuti c pote nti alo fthe PPA co m pound s der i ved fro m the S CD enzy m e was e xpressly c onte m pla ted by Resear c h A gr eem ent 2 , wh i ch br oadl y c ove re d res ear ch

“ t o v a l i d a t e S C D a s a t a r g e t f o r s c r e e n i n g n o v e l c o mpound s that m ay el evat e H DL l eve l s in vi vo. ” Gray

- K el l er perf or m ed hi s r ese ar ch on thi s proj ect at the U ni ver si ty u sin g U n iv e r s i t y re so u rc es an d w as req u ire d u n d er h is M emor an dum Agr ee m en t to a ss i g n h i s i nt er es t i n a ny disc ove ri es to the F oundati on. The f act that hi s wo rkwas conducted partly under Xen on’ s s ponsor shi p and at i ts behest is notdi sposi ti ve. U nd erthe Sponso r Op ti on A gr eem ent a nd ea c h of the ind i vi du alag re em ents at ta c h ed to it, th e Fou n d at ion w as en tit led t o o w n er sh ip ofany dis cove ri es “co ncei ved ofo r re du ced to prac ti ce” b y th e r e s e a r c h e r s u n d e rth e j o i n tr e s e a r c h p r o g r a m; X e n o n w a s e nt i t l e d t o a n e x c l u s i v e l i c e n s e t o c o mm erciali ze t h e discov eries. A ccord ingly, the d istri ct cou rt er r ed i n g r an tings um m ary j udg m en t to Xe no n o n the cl ai m s per taini ng to the Fo und ati on’ s o w ners hi p i nter est28 N os. 08

- 1351 & 06

- 3901

O ur holdin g in this regard m akes itunneces sar y to c onsi der 8 the Fo u nd atio n’s alterna tiv e arg u m en t that it ha d a rig ht to ano wn e r s h i p i n t e r e s ti n th e P P A c o mpo u n ds u n de r th e B a y hD ole A ct.

1- 5- 10 i n the PPA co m pound s. U nd erthe Sponso r Op ti on Agree

m ent, the M em or andu m A gr eem ent, and Resea rch A gr eem ent 2 , the Fo u n d at i on was enti tl ed to a decl ar ati on o f i ts own er shi p i nter esti n the PPA co m pound s. 8

I I I . Concl usio n Forthe f or ego i ng r eas ons, we A FFIRM the j ud gm en t for th e F o un d at i o n o n i ts c l ai m tha t Xe no n b r ea ch ed th e E xc lusive L icens e A greem en t, as w ell as th e d istri ct cou rt’s o r dere nt er i ngj udg m ento n the r emi tt i tu ri n the a m o unt of$3 00, 000. W e R EV ERSE the di st r i ctc o ur t’ s r ec o nsi derat i on o rderr ega rdi ng the Fou n d ati on’ s r i ght t o te r m inate the Exc l us i ve Li ce ns e Agr ee m en t; unde rthe te r m s o fthe a g reem ent ’ s te r m i na ti o n pr o vi si o n, the F o unda ti o n was e nt i tl ed to a nd pr o per ly termi na te d the agr eem ent. Final l y, we R EV ER SE t h e j ud gm ent in f avo r o fXe no n o n the F o unda ti on’s cla i m s to qui ett i tl e an d f ordecl ar ato ryj ud gm ent that Gra y- K el l er ’ s purpor ted as signm ent o fhi s inter esti n the PPA co m pound s t o Xenon i s v oi d. On these cl ai m s, w e R EMA ND with instr ucti o ns t o e nt erj udg m en t i n f av o ro fthe F o unda ti o n.