Opinion ID: 2156174
Heading Depth: 1
Heading Rank: 5

Heading: The Court of Chancery Properly Denied the 2.2(a) Estoppel

Text: The issue in this case, therefore, is whether the Court of Chancery correctly denied the estoppel remedy in favor of the 2.2(a) product. Review of the Court of Chancery's formulation and application of legal principles is plenary and requires no deference. [12] Questions of contract interpretation are subject to de novo review. [13] We hold that the Court of Chancery analyzed this case under correct legal principles and granted the remedy consistent with the parties' intent. Regardless of precisely how the remedy is categorized, it should not be granted unless it protects legitimate interests. In this case, Genencor seeks to protect its expectation interest, arguing that granting the estoppel would simply enforce the limitations on Genencor's exposure for which the parties bargained. [14] The Court of Chancery held that because under paragraph 2.2(a) Genencor never had any rights to unpublished patents, the fairest way to reflect the bargain that the parties struck is to impose an estoppel that would affect the (b) pick only. The parties join issue on the fairness of this conclusion in light of the contract. The parties offer two different views of the purpose of the representation and warranty. According to Novo Nordisk, the only purpose of listing the five patents was to describe the scope of Genencor's affirmative rights under the 2.2(b) product. Genencor argues, however, that it looked to the representation not only for what it could do in developing the 2.2(b) product, but for what it could not do in developing the 2.2(a) product. In essence, Genencor argues that paragraph 1.02 limited the exposure of the 2.2(a) product to patent infringement suits based on unpublished patents. The sixth unpublished patent adds to the litigation risk. Therefore, argues Genencor, the omitted patent should be treated as though it did not exist. For the reasons explained below, we are not persuaded by Genencor's analysis. We think that Novo Nordisk is correct that the parties intended the representation and warranty to define the scope of Genencor's affirmative rights under paragraph 2.2(b). Therefore, we find that Genencor's proposed remedy is out of proportion to any diminution of its contract rights caused by the omission of the sixth unpublished patent. The Agreement grants limited affirmative rights. It carefully delineates the rights that Genencor has under the published and unpublished patent families, and a critical aspect of the agreement is that paragraph 2.2(a), unlike paragraph 2.2(b), does not give rights to the unpublished patents. Since paragraph 2.2(a) gives no affirmative rights in unpublished patents  indeed, does not even mention them  it would be unreasonable to grant an affirmative right to the omitted patent under paragraph 2.2(a) as a matter of fulfilling the parties' expectations. Genencor's claim that the representation in paragraph 1.02 defined its litigation risk is refuted by Genencor's ignorance of the contents of the unpublished patents at the time of contracting. [15] The parties agree that the technology claimed by Novo Nordisk in its unpublished patent applications was known only to Novo Nordisk at the time the Agreement was entered into. In light of this fact, the limited exposure to litigation Genencor allegedly bargained for seems more notional than real. We find that the essence of 2.2(a) lies in what Genencor could do ( i.e., its known rights) rather than it what it could not do. Contrary to Genencor's arguments, there has been no reduction in its freedom to operate under 2.2(a); now, as before, it can develop the 2.2(a) product under the five published patents designated by the Agreement. Furthermore, it is undisputed that Genencor knew when it entered into the Agreement that all of the unpublished patents listed in the representation and warranty would publish within eighteen months of the effective date of the Agreement. This too undermines Genencor's argument that the list of five unpublished patents defined the scope of its litigation risk. Publication completely eliminates any risk of litigation. It appears to us, therefore, that there was no litigation risk at the time the Agreement was executed because Genencor knew that within a specified time it would become aware of the contents of the unpublished patent applications. Once these patent applications were published, Genencor could avoid litigation by developing a noninfringing 2.2(a) product. The risk of litigation occurs only when Genencor intentionally infringes. Therefore, the addition of the sixth unpublished patent does not add any risks to the 2.2(a) product. In this connection, we note that the omitted patent application was published on May 14, 1998, earlier than the five patents that were included in paragraph 1.02 of the Agreement. Therefore, as to that patent as well, there is no litigation risk. Genencor argues that not granting the broader estoppel makes the representation and warranty in paragraph 1.02 meaningless. This ignores the fact that paragraph 1.02 is the basis for the estoppel that the Court of Chancery granted. If Novo Nordisk had not warranted that the five patents were the only unpublished ones, then the existence of the sixth patent would not constitute a breach, and Genencor would not have any rights beyond the five patents listed. As Genencor notes in its brief, the estoppel granted in favor of the 2.2(b) product is the equivalent of a license, allowing Genencor to develop that product free of any infringement risk. In effect, therefore, the undisclosed patent has been added to the list. This is possible only because the representation and warranty implies that Genencor has access to the entire universe of unpublished protease patents. Therefore the 1.02 representation and warranty is given meaning. Granting the estoppel would make other provisions of the contract meaningless by adding an affirmative right to paragraph 2.2(a). Finally, we believe it is telling that Genencor did not establish a record that it might have struck a different bargain had the sixth patent been disclosed. [16] In the cases cited by Genencor in which relief was granted it is clear that the remedy was fair and consistent with contractual intent. [17] The issue is not whether Genencor can show detrimental reliance, but whether the remedy it seeks is designed to restore contract rights actually bargained for. In this case, the breach of the representation that there were only five unpublished patents entitles Genencor to be able to develop the 2.2(b) product without any risk of infringement from the omitted unpublished patent. It does not entitle Genencor to any relief with respect to the 2.2(a) product.