Opinion ID: 1463107
Heading Depth: 3
Heading Rank: 4

Heading: The Foundation's Right to Terminate the Exclusive License Agreement

Text: In addition to damages, the Foundation also asked for a declaration that it had a right to terminate the Exclusive License Agreement based on Xenon's breach. The district court granted summary judgment for the Foundation on this claim, and on May 17, 2006, the Foundation sent Xenon a letter terminating the Exclusive License Agreement. Xenon responded with two motions, one for reconsideration of the district court's decision and the other for a stay of execution of the judgment pending disposition of Xenon's motion for reconsideration. The district court granted Xenon's motion to stay enforcement of the judgment, holding that the Foundation's purported termination of the Exclusive License Agreement was void because the Foundation had not given Xenon notice and 90 days to cure its breach, as the agreement required. The court further held that once the Foundation filed this lawsuit, its right to terminate the license agreement depended on a finding of breach by the court. The judge concluded as follows: [A]ny attempted termination of the agreement that has already occurred is suspended until the court has ruled on the post-trial motions and plaintiff may not take renewed action to terminate the agreement until that time. A month later, the district court granted Xenon's motion for reconsideration, agreeing that the Foundation had not properly moved for summary judgment on this claim. However, the judge also said that if the Foundation wanted to terminate the Exclusive License Agreement, it could now do so  because Xenon had been found in breach  but that the Foundation was first required under the terms of the agreement to give Xenon notice and 90 days to cure. On appeal the Foundation challenges the district court's conclusion that its right to terminate the agreement did not arise until the court found Xenon in breach of the agreement. The Foundation maintains that its right to terminate was triggered by Xenon's breach and was not contingent upon the court's finding of breach. The Foundation also argues that it properly terminated the agreement. We agree on both counts. Section 7 of the Exclusive License Agreement governs the Foundation's right to terminate: If Xenon at any time defaults in the timely payment of any monies due ... or commits any breach of any other covenant herein contained, and Xenon fails to remedy any such breach or default within ninety (90) days after written notice thereof by [the Foundation,]... [the Foundation] may, at its option, terminate this Agreement by giving notice of termination to Xenon. In March 2005 the Foundation sent Xenon written notice that it considered the Xenon-Novartis transaction to be a sublicense of the joint patent application and that Xenon owed the Foundation sublicense fees. The relevant portion of the letter states: Our analysis has led us to conclude that the Novartis agreement is, in fact, a sublicense of rights granted by [the Foundation] to Xenon and we also require that Xenon remit ... payment of any amounts owed to [the Foundation] under the Agreement. In the event that Xenon contends that no amounts are owed to [the Foundation] or that the Novartis agreement is not a sublicense as contemplated by the Agreement, Xenon must immediately provide ... a detailed written explanation as to why such amounts are not owed or why the Novartis agreement is not a sublicense.... This letter plainly gave Xenon notice that the Foundation considered it to be in breach of its payment obligations under the Exclusive License Agreement. Notably, Xenon does not disagree. Instead, Xenon argues that the Foundation did not provide 90 days to cure the breach because the Foundation filed suit a month after sending Xenon this letter. The March 2005 notice, Xenon says, was therefore ineffective under the termination provision of the Exclusive License Agreement. We disagree. A contractual obligation to provide notice and an opportunity to cure a default prior to terminating a contract does not necessarily affect the aggrieved party's right to sue for breach. See Ameritech Info. Sys., Inc. v. Bar Code Res., Inc., 331 F.3d 571, 573-74 (7th Cir.2003). Here, nothing in the Exclusive License Agreement prevented the Foundation from suing for breach within the 90-day cure period, id. at 574, nor was the Foundation's right to terminate somehow suspended by the filing of this lawsuit. Having filed the suit, the Foundation's right to terminate did not become contingent upon the court finding Xenon in breach. A contracting party's right to terminate arises under the terms of the contract and need not await a formal declaration of the contracting parties' rights. Here, the district court issued a stay of the execution of its summary-judgment ruling pending disposition of Xenon's posttrial motions. A stay, unlike an injunction, operates only on the judicial proceeding itself and does not otherwise prohibit the parties from acting. See Nken v. Holder, ___ U.S. ___, ___, 129 S.Ct. 1749, 1757-58, 173 L.Ed.2d 550 (2009) (An injunction and a stay have typically been understood to serve different purposes. The former is a means by which a court tells someone what to do or what not to do.... By contrast, instead of directing the conduct of a particular actor, a stay operates upon the judicial proceeding itself.). Some of the court's language in the stay order is suggestive of an injunction: [A]ny attempted termination of the agreement that has already occurred is suspended until the court has ruled on the post-trial motions and plaintiff may not take renewed action to terminate the agreement until that time. But if this was meant to be an injunction, it was an improper one. As a procedural matter, injunctions must comply with the requirements of Rule 65(d) of the Federal Rules of Civil Procedure; a court issuing an injunction must, among other things, give advance notice to the adverse party, hold a hearing on the matter, explain why the injury that would occur without the injunction is irreparable, and specify the scope of the injunction in reasonable detail. The district court's stay order did not comply with these requirements. Accordingly, the district court erroneously concluded that the Foundation's right to terminate the agreement was contingent upon the court's finding that Xenon had breached the Exclusive License Agreement. The Foundation was entitled to terminate the agreement based on Xenon's breach, and it properly did so under the agreement's termination provision. The Foundation's March 2005 letter was sufficient to give notice to Xenon that the Foundation considered it in breach. More than 90 days elapsed between the time of this notice and the Foundation's letter  on May 17, 2006  terminating the license agreement. Nothing more was required.