Court Opinion

ID: 4664694
Source: CourtListenerOpinion
Date Created: 2021-03-03 22:02:55.733122+00
Date Added: 2024-06-11T08:02:37.681276
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

GLAXO GROUP LIMITED and              §
HUMAN GENOME SCIENCES,               §      No. 25, 2020
INC.,                                §
                                     §      Court Below: Superior Court
      Defendants Below,              §      of the State of Delaware
      Appellants/Cross-Appellees,    §
                                     §      C.A. No. N16C-07-218
      v.                             §
                                     §
DRIT LP,                             §
                                     §
      Plaintiff Below,               §
      Appellee/Cross-Appellant.      §

                         Submitted: December 16, 2020
                         Decided:   March 3, 2021

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and
MONTGOMERY-REEVES, Justices, constituting the Court en Banc.

Upon appeal from the Superior Court of the State of Delaware. REVERSED.

Philip A. Rovner, Esquire, and Jonathan A. Choa, Esquire, POTTER ANDERSON
& CORROON LLP, Wilmington, Delaware; Lisa S. Blatt, Esquire (argued), Sarah
M. Harris, Esquire, Sumeet P. Dang, Esquire, and Kimberly Broecker, Esquire,
WILLIAMS & CONNOLLY LLP, Washington, D.C.; Attorneys for Defendants-
Appellants/Cross-Appellees Glaxo Group Limited and Human Genome Sciences,
Inc.

Gregory P. Williams, Esquire, Chad M. Shandler, Esquire, and Nicole Pedi, Esquire,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Keith R.
Hummel, Esquire (argued), and Karin A. DeMasi, Esquire, CRAVATH, SWAINE
& MOORE LLP, New York, New York; Attorneys for Plaintiff-Appellee/Cross-
Appellant DRIT LP.
SEITZ, Chief Justice:

      Glaxo Group Limited and Human Genome Sciences, Inc. (collectively,

“GSK”) owned patents covering Benlysta, a lupus treatment drug. To expand its

intellectual property rights, GSK filed a patent application with the United States

Patent and Trademark Office (“PTO”) claiming a method for treating lupus. Biogen

Idec MA Inc. (“Biogen”) held an issued patent covering a similar method for treating

lupus. When parties dispute who was first to discover an invention, the PTO declares

an interference. Rather than suffer the delay and uncertainty of an interference

proceeding, the parties agreed to settle their differences through a patent license and

settlement agreement (“Agreement”). GSK ended up with its issued patent. The

PTO cancelled Biogen’s patent, and Biogen received upfront and milestone

payments and ongoing royalties for Benlysta sales.

       The claims in a patent define its metes and bounds. Under the Agreement

GSK agreed to make royalty payments to Biogen until the expiration of the last

“Valid Claim” of certain patents, including the lupus treatment patent.           The

Agreement defines a Valid Claim as an unexpired patent claim that has not, among

other things, been “disclaimed” by GSK.

      GSK paid Biogen royalties on Benlysta sales. After Biogen assigned the

Agreement to DRIT LP—an entity that purchases intellectual property royalty

streams—GSK filed a statutory disclaimer that disclaimed the patent and all its

                                          2
claims. GSK notified DRIT that there were no longer any Valid Claims under the

Agreement and stopped paying royalties on Benlysta sales.

      DRIT sued GSK in the Superior Court for breach of contract and breach of

the implied covenant of good faith and fair dealing for failing to pay royalties under

the Agreement. The court dismissed DRIT’s breach of contract claim but allowed

the implied covenant claim to go to a jury trial. The jury found for DRIT, and the

court awarded damages.

      On appeal, GSK argues that the Superior Court should have granted it

judgment as a matter of law on the implied covenant claim. On cross-appeal, DRIT

asserts that, if the Court reverses the jury verdict on the implied covenant claim, it

should reverse the Superior Court’s ruling dismissing the breach of contract claim.

For the reasons explained in this opinion, we find that the Superior Court properly

dismissed DRIT’s breach of contract claim but should have granted GSK judgment

as a matter of law on the implied covenant claim. Thus, we reverse the court’s

judgment.

                                          I.

      We recount from the record what are largely undisputed facts relevant to our

ruling. In 2007, GSK and Biogen each claimed patent rights to a method for treating

lupus. Biogen held an issued U.S. patent and GSK had a pending U.S. patent

application covering substantially the same subject matter. At the time of the

dispute, U.S. patent law followed a “first to invent” regime where the PTO awarded

                                          3
priority to the party who first came up with the invention.1 The PTO declared an

“interference,” which is an administrative proceeding to decide who has priority over

the intellectual property rights. For GSK, winning the interference would cancel

Biogen’s patent. If Biogen prevailed, it could block GSK from commercializing

Benlysta. Given the uncertainty, GSK and Biogen agreed to settle their dispute.

       First, the parties executed a binding term sheet to navigate their way clear of

the interference. The parties appointed a neutral arbitrator to decide the priority

between GSK’s patent application and Biogen’s issued patent. The arbitrator

decided that GSK was the first to invent the lupus treatment method. Thus, its patent

application had priority over Biogen’s issued patent. The parties agreed that GSK

would continue with its patent application. Biogen agreed to cancel its patent.

       Next, in October 2008, GSK and Biogen entered into the Agreement. GSK

agreed to pay Biogen a $3.5 million up-front payment, two milestone payments of

$1.5 million each, and royalties on Benlysta sales through the expiration of certain

patent rights, including any patent rights from GSK’s pending patent application.

Section 3.4 of the Agreement states that GSK must pay royalties until expiration of

the last “Valid Claim” of any patent covering Benlysta. Section 1.49 of the

definitions section defines a “Valid Claim” as:

1
  Patent Act of 1952, Pub. L. No. 82-593, 66 Stat. 792 (later amended by the Leahy-Smith America
Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011) (codified as amended in various sections of
35 U.S.C.)).

                                               4
       [A] claim of an issued, unexpired patent within the Patent Rights that
       has not expired, lapsed, or been cancelled or abandoned, and that has
       not been dedicated to the public, disclaimed, or held unenforceable,
       invalid, or cancelled by a court or administrative agency of competent
       jurisdiction in an order or decision from which no appeal can be taken
       or was timely taken, including through opposition, re-examination,
       reissue or disclaimer.2

       On December 6, 2011, the PTO issued to GSK U.S. Patent No. 8,071,092

(“‘092 Patent”). GSK paid Biogen royalties for Benlysta sales as required by the

Agreement. In 2012, DRIT, a healthcare investment vehicle that purchases royalty

streams on pharmaceutical products, purchased Biogen’s rights under the

Agreement. GSK paid royalties to DRIT on Benlysta sales for three years.

       What happened next involves patent disclaimers.                    Some background is

helpful. A patent gives its owner the right to exclude others from making, using,

offering for sale, or selling an invention.3 The scope of the monopoly is defined by

the claims in the patent. Provided that periodic maintenance fees are paid, a utility

patent expires twenty years from the application filing date. 4 Once the patent

2
  App. to GSK Opening Br. at A083 (Settlement Agreement § 1.49). The Agreement covers a
number of patents. For simplicity, we will refer only to the ‘092 Patent and Benlysta sales,
recognizing that the Agreement is broader.
3
  35 U.S.C. § 154(a)(1) (“Every patent shall contain . . . a grant to the patentee . . . the right to
exclude others from making, using, offering for sale, or selling the invention throughout the United
States . . . .”). A patent owner may assign or license his invention at any time during his ownership
term. See 35 U.S.C. § 261.
4
  35 U.S.C. § 154(a)(2). In limited circumstances the PTO may extend the patent term to account
for undue delays in the patent application examination process. See 35 U.S.C. § 154(b).

                                                 5
expires, the patent holder can no longer assert its monopoly over the claimed

invention, and typically the invention enters the public domain.5

       A disclaimer cuts short the patent term. A disclaimer is the “renunciation of

one’s own legal right or claim, such as a renunciation of a patent claim . . . .” 6

Section 253 of the Patent Act provides that a patentee may voluntarily “disclaim” all

or part of his or her interest in a patent.7 The Patent Act contemplates two types of

disclaimers: terminal and statutory disclaimers.               Here, GSK filed a statutory

disclaimer, which generally is “a statement in which a patent owner relinquishes

legal rights to one or more complete claims of a patent.”8

       In 2015, GSK filed a statutory disclaimer and disclaimed the entire term of

the ‘092 Patent from December 6, 2011—the day the PTO granted the patent to

5
  See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 230 (1964) (“[W]hen the patent expires
the monopoly created by it expires, too, and the right to make the [invention] . . . passes to the
public.”); see also Robert A. Matthews, Jr., 1 Annotated Patent Digest § 1:6 (2020) (“When a
patent expires, the patentee may no longer assert exclusionary rights . . . .”).
6
  DISCLAIMER, Black’s Law Dictionary (11th ed. 2019).
7
  35 U.S.C. § 253(a)-(b); see also 37 CFR § 1.321(a). Section 253 provides in relevant part that:

       A patentee, whether of the whole or any sectional interest therein, may, on payment
       of the fee required by law, make disclaimer of any complete claim, stating therein
       the extent of his interest in such patent. Such disclaimer shall be in writing, and
       recorded in the Patent and Trademark Office; and it shall thereafter be considered
       as part of the original patent to the extent of the interest possessed by the
       disclaimant and by those claiming under him.

35 U.S.C. § 253(a).
8
  Manual of Patent Examining Procedure § 1490 (2020) (defining statutory disclaimer). A terminal
disclaimer “is a statement in which a patentee . . . disclaims or dedicates to the public the entire
term or any terminal part of the term of a patent . . . .” Id. A terminal disclaimer “disclaims or
dedicates to the public the entire term or any terminal part of the term of a patent or patent to be
granted.” 35 U.S.C. § 253(b) and 37 CFR 1.321(a) and (b).

                                                 6
GSK. GSK informed DRIT that the statutory disclaimer eliminated any “Valid

Claim” for royalties under the Agreement. In 2016, DRIT filed an action in the

Superior Court and asserted claims for breach of contract and breach of the implied

covenant of good faith and fair dealing for what it described as GSK’s bad faith

disclaimer of the ‘092 Patent.

      GSK moved to dismiss the complaint. For the breach of contract claim, GSK

argued that the Agreement expressly authorized GSK to disclaim the patent. For the

implied covenant claim, GSK contended that the implied covenant cannot be used

to imply terms—like a good faith requirement before disclaiming a patent—that are

absent from the Agreement and that Biogen could have sought in negotiations. And,

according to GSK, the implied covenant cannot modify action expressly permitted

by the Agreement.

      DRIT responded with an imaginative interpretation of Section 1.49. As DRIT

argued, the phrase “in an order or decision” modified more than its closest

antecedent.9 In addition to modifying “held enforceable, invalid, or cancelled by a

court or administrative agency,” DRIT claimed that it also modified a patent “that

has not been dedicated to the public, disclaimed.”10 Thus, any disclaimer must result

from “an order or decision” and cannot be disclaimed voluntarily, as was the case

9
  App. to GSK Opening Br. at A145 (Memorandum Opinion on Defendants’ Motion to Dismiss,
DRIT LP v. Glaxo Group Ltd. and Human Genome Sciences, Inc., C.A. No. N16-07-218 WCC
NCC, at 13 (Del. Super. Ct. Apr. 6, 2017) [hereinafter Motion to Dismiss Opinion]).
10
   Id.

                                          7
here. DRIT also argued that, for the implied covenant claim, the parties did not

anticipate that GSK could use a statutory disclaimer to undermine the economic

basis for the Agreement. Thus, according to DRIT, the implied covenant required

GSK to exercise its right to disclaim in good faith instead of acting in its economic

self-interest.

       The Superior Court found DRIT’s interpretation of Section 1.49 “both legally

and grammatically flawed.” 11 The court reasoned that GSK had the express

contractual right to disclaim the patent, and DRIT’s request for the court to “interpret

the Agreement as requiring that a Court/agency order or decision precede any

disclaimer” violated the closest antecedent rule and was “untenable.”12 The court

dismissed the breach of contract claim and held there was “no express contractual

restriction” in the Agreement that limited GSK’s ability to disclaim its rights to the

patent.13

       But the court allowed DRIT’s implied covenant claim to proceed. As the court

held, “[w]hen material aspects of an agreement are left to one party’s discretion, the

implied covenant demands that party exercise its discretion reasonably and in good

11
   Id. at A146 (Motion to Dismiss Opinion, at 14). The Superior Court observed that, “the plain
and customary meaning of the term ‘disclaim’ in the context of patent rights refers to a patentee’s
renunciation of legal rights to claims of a patent, which is achieved by the patentee’s filing of a
disclaimer with the [PTO].” Id. at A147 (Motion to Dismiss Opinion, at 15).
12
   Id. at A148 (Motion to Dismiss Opinion, at 16).
13
   Id. at A149-50 (Motion to Dismiss Opinion, at 17-18).

                                                8
faith.”14 The court also noted that “the royalty payments were a ‘critical component

of the consideration Biogen accepted in exchange for giving up its claim to

ownership of the inventions at issue’” and “it is ‘virtually unknown for the owner of

a patent voluntarily to disclaim a patent.’”15 Thus, according to the court, whether

GSK acted in bad faith when it disclaimed the ‘092 Patent was a factual issue to be

determined by the jury.

       Following discovery, GSK moved for summary judgment on DRIT’s implied

covenant claim. The Superior Court denied the motion and found that, despite

GSK’s express contractual right to disclaim the ‘092 Patent, GSK still had an

“overarching obligation to comply with the implied covenant and [to] use good faith

when exercising [its] right to disclaim as it impacts [DRIT]’s royalty payments

defined in the Agreement.”16 The court concluded that genuine issues of material

fact remained “whether [GSK] disclaimed the ‘092 Patent for the sole reason of

eliminating royalty payments and therefore acted in bad faith[,]” or if GSK did so

14
   Id. at A150 (Motion to Dismiss Opinion, at 18 (citing Airborne Health, Inc. v. Squid Soap, LP,
984 A.2d 126, 146-47 (Del. Ch. 2009); Black Horse Capital, LP v. Xstelos Hldgs., Inc., 2014 WL
5025926, at *30 (Del. Ch. Sept. 30, 2014))).
15
   Id. at A152 (Motion to Dismiss Opinion, at 20 (quoting Pl.’s Answ. Br. in Opp’n to Defs.’ Mot.
to Dismiss at 14-15; Compl. at ¶ 50)).
16
   Ex. A to GSK Opening Br. at 19 (Memorandum Opinion on Defendants’ Motion for Summary
Judgment; Defendants’ Motion to Dismiss; and Plaintiffs’ Motion for Partial Summary Judgment,
DRIT LP v. Glaxo Grp. Ltd. & Human Genome Sciences, Inc., C.A. No. N16-07-218 WCC NCC,
at 19 (Del. Super. Ct. Aug. 17, 2018)).

                                               9
for strategic business reasons because the patent was likely invalid and no longer

commercially viable.17

       After trial, the jury returned a verdict that GSK breached the implied covenant

by statutorily disclaiming the ‘092 Patent. GSK renewed its motion for judgment as

a matter of law. The Superior Court denied the motion, holding that GSK’s

disclaimer “was such an unusual event” that “it would not have been reasonably

anticipated by the parties.”18 And, even if it had been anticipated, “it certainly would

have been addressed in the contract as it went to the “fundamental underpinning of

the Agreement, the continued payment of royalties for which Biogen bargained.”19

After rejecting GSK’s argument that misleading and prejudicial testimony by

DRIT’s expert witness warranted a new trial, the court awarded damages to DRIT

for lost royalties.

                                          II.

       GSK argues on appeal that the Superior Court erred by allowing DRIT to rely

on the implied covenant of good faith and fair dealing to displace express contract

terms. GSK contends that the Agreement permitted disclaimer of the ‘092 Patent.

Thus, the Agreement leaves no gap, and the implied covenant cannot be used to alter

the Agreement’s express terms. GSK further asserts that because neither party

17
   Id. at 20.
18
   DRIT LP v. Glaxo Grp. Ltd., C.A. No. N16C-07-2018 WCC CCLD, 2019 WL 5420095, at *3
(Del. Super. Ct. Oct. 17, 2019).
19
   Id.

                                          10
disputes that the Patent Act gives GSK the right to disclaim its patent, the parties

could have reasonably foreseen the possibility of a disclaimer, given the express use

of the term in the Valid Claim definition. GSK also argues that DRIT failed to prove

that GSK would have agreed to limit its right to disclaim the ‘092 Patent while the

parties were negotiating the Agreement. Finally, GSK contends that the Superior

Court erroneously implied a limitation on GSK’s right to disclaim because the

Agreement did not require GSK to exercise any discretion before disclaiming the

‘092 Patent.20

       In response, DRIT asserts that the Agreement does not expressly authorize

GSK to disclaim the ‘092 Patent. Rather, the term “disclaimer” only appears in the

definition of a Valid Claim, and according to DRIT, definitions do not confer any

affirmative rights. DRIT further contends that the parties failed to foresee GSK’s

use of a disclaimer as it did here. Thus, the Superior Court correctly held that the

implied covenant required GSK to exercise its discretion to disclaim reasonably and

in good faith. According to DRIT, the evidence presented at trial was sufficient to

support the jury’s verdict that GSK acted in bad faith and breached the implied

covenant. On cross-appeal, DRIT argues that if the Court finds that the implied

20
  GSK makes two additional arguments on appeal: (1) that GSK is entitled to a new trial because
the Superior Court admitted misleading and irrelevant testimony from DRIT’s expert witness, and
(2) that court erred in basing its damages calculation on the date that the patent was issued.
Because we find that the Superior Court erred in applying the implied covenant, we need not reach
GSK’s second and third arguments on appeal.

                                               11
covenant does not apply, we should uphold the Superior Court’s judgment on the

alternative ground rejected by the Superior Court—that GSK breached the

Agreement by failing to pay royalties even after GSK disclaimed the ‘092 Patent.

         We review questions of contract law and contract interpretation de novo.21

Likewise, we review de novo the denial of a motion for judgment as a matter of

law.22

                                            A.

         We address first whether the Superior Court erred when it dismissed DRIT’s

breach of contract claim. Section 3.4 of the Agreement states that GSK must pay

royalties until expiration of the last “Valid Claim” of any patent within the scope of

the Agreement. Under Section 1.49, a “Valid Claim” of a patent is one “that has not

expired, lapsed, or been cancelled or abandoned, and that has not been dedicated to

the public, disclaimed . . . .”23 GSK disclaimed the ‘092 Patent and its claims. After

disclaimer, GSK no longer had a “Valid Claim.” Thus, its royalty obligation ceased

under the Agreement.

         DRIT argues that “the Agreement unambiguously provides that GSK must

continue to make royalty payments if it voluntarily disclaims the royalty-bearing

patent.”24 As DRIT argues, a voluntary disclaimer “is not an event which would

21
   Salamone v. Gorman, 106 A.3d 354, 367 (Del. 2014).
22
   Trievel v. Sabo, 714 A.2d 742, 744 (Del. 1998).
23
   App. to GSK Opening Br. at A083 (Settlement Agreement § 1.49).
24
   DRIT Answering Br. on Appeal and Opening Br. on Cross-Appeal at 53 (emphasis added).

                                            12
take a royalty-bearing patent out of the corpus of valid claims.”25 But DRIT resorts

to the same tortured reading of Section 1.49 that was rejected by the Superior

Court—that the phrase “ordered by a court or administrative agency” modifies

disclaimers and other voluntary acts such that only disclaimers ordered by a court or

administrative agency terminate the royalty payment obligation.

       We agree with the Superior Court that DRIT’s interpretation of Section 1.49

is “both legally and grammatically flawed.” 26 Under the Agreement, a “Valid

Claim” is one “that has not been . . . disclaimed . . . or held unenforceable, invalid,

or cancelled by a court or administrative agency.”27 DRIT reads the word “or” out
                        28
of the agreement.             It also ignores the fact that declaring patent claims

“unenforceable, invalid, or cancelled” are actions taken by courts and administrative

agencies, while a disclaimer is an action taken by the patent holder. And DRIT

disregards the last antecedent rule, where “by a court or administrative agency”

logically refers to its closest antecedent—“held unenforceable, invalid, or

cancelled.”29 The Superior Court correctly held that, under the express terms of the

25
   Id. at 54.
26
   App. to GSK Opening Br. at A146 (Motion to Dismiss Opinion, at 14).
27
   Id. at A083 (Settlement Agreement § 1.49).
28
   See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting Kuhn Constr.,
Inc. v. Diamond State Port Corp., 990 A.2d 393, 396-97 (Del. 2010)) (Delaware courts “read a
contract as a whole and . . . give each provision and term effect, so as not to render any part of the
contract mere surplusage”).
29
   Rubick v. Sec. Instrument Corp., 766 A.2d 15, 18 (Del. 2000) (“The [last antecedent] rule . . . is
that ‘[r]eferential and qualifying words and phrases, where no contrary intention appears, refer
solely to the last antecedent.’”) (alteration in original) (citation omitted).

                                                 13
Agreement, “once Defendants disclaimed the patent rights covering Benlysta, they

were no longer required under the Settlement Agreement to pay royalties with

respect to U.S. sales of the product.”30

                                                 B.

       Next, we turn to DRIT’s implied covenant claim. Under Delaware law,

sophisticated parties are bound by the terms of their agreement. Even if the bargain

they strike ends up a bad deal for one or both parties, the court’s role is to enforce

the agreement as written.31 As we have explained, “[p]arties have a right to enter

into good and bad contracts, the law enforces both.” 32 Holding sophisticated

contracting parties to their agreement promotes certainty and predictability in

commercial transactions.33

       There are, however, instances when parties fail to foresee events not covered

by their agreement or defer decisions to later. “No contract, regardless of how tightly

or precisely drafted it may be, can wholly account for every possible contingency.”34

30
   App. to GSK Opening Br. at A150 (Motion to Dismiss Opinion, at 18).
31
   11 Williston on Contracts § 31.5 (4th ed. 2020) (“Unless the contract is voidable due to mistake,
fraud, unconscionability, or another invalidating cause, or invalid in whole or in part due to
illegality or another violation of public policy, the court must enforce it as drafted by the parties,
according to the terms employed, and may not make a new contract for the parties or rewrite their
contract while purporting to interpret or construe it.”).
32
   Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010).
33
   Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006) (courts
should not use the implied covenant to grant substantive rights a party did not extract during
negotiation because “[b]y such judicial action, the reliability of written contracts is undermined,
thus diminishing the wealth-creating potential of voluntary agreements”).
34
   Amirsaleh v. Board of Trade of City of New York, Inc., 2008 WL 4182998, at *1 (Del. Ch. Sept.
11, 2008).

                                                 14
Subject to the express terms of the agreement, when gaps in an agreement lead to

controversy, the court has in its toolbox the implied covenant of good faith and fair

dealing to fill in the spaces between the written words. The implied covenant,

inherent in all agreements, ensures that the parties deal honestly and fairly with each

other when addressing gaps in their agreement.35 The court’s goal is to preserve the

economic expectations of the parties.36

       The implied covenant, however, is a “cautious enterprise.” 37 As we have

reinforced on many occasions, it is “a limited and extraordinary legal remedy”38 and

“not an equitable remedy for rebalancing economic interests that could have been

anticipated.”39 It cannot be invoked “when the contract addresses the conduct at

issue.”40

       The implied covenant should not have been deployed in this case. There was

no gap to fill in the Agreement. As the Superior Court found, and we affirm on

35
   Dieckman v. Regency GP LP, 155 A.3d 358, 361, 367 (Del. 2017) (explaining that “[t]he implied
covenant is inherent in all contracts[,]” and that the covenant is well-suited to imply obvious
contractual terms–“like the requirement that [a party] not engage in misleading or deceptive
conduct to obtain [certain] approvals”).
36
   Nemec, 991 A.2d at 1126 (the implied covenant is invoked to “imply contract terms when the
party asserting the implied covenant proves that the other party has acted arbitrarily or
unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably
expected”).
37
   Cincinnati SMSA LP v. Cincinnati Bell Cellular Sys. Co., 708 A.2d 989, 992 (Del. 1998).
38
   Nemec, 991 A.2d at 1128.
39
   Id; see also Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 445 (Del. 2005) (“[A]bsent
grounds for reformation, courts should not rewrite contracts.”).
40
   Oxbow Carbon & Materials Hldgs., Inc. v. Crestview-Oxbow Acquisition LLC, 202 A.3d 482,
507 (Del. 2019) (citing Nationwide Emerging Managers, LLC v. Northpointe Hldgs., LLC, 112
A.3d 878, 896-97 (Del. 2015)).

                                              15
appeal, the parties agreed that GSK could voluntarily disclaim patents. GSK filed a

statutory disclaimer of the ‘092 Patent. The parties excluded “disclaimed” patents

from royalty payments. “[O]ne generally cannot base a claim for breach of the

implied covenant on conduct authorized by the terms of the agreement.”41

       Further, that GSK might act voluntarily to end its patent rights was not an

event outside the contemplation of the parties. Disclaimer was just one of several

ways for GSK to voluntarily end its patent rights. GSK could let the patent “lapse”

for failing to pay periodic maintenance fees.42 GSK could also “abandon” the patent

by “permitting the invention to be subject to open competition.”43 And, as happened

here, GSK disclaimed the ‘092 Patent.             Biogen knew that court rulings or

administrative proceedings were not the only way GSK’s patent rights could be

terminated. The time to demand restrictions on an express contractual right was

during negotiations—not years later through the implied covenant.44

       Finally, we disagree with the Superior Court’s characterization of GSK’s right

to disclaim patents as a discretionary act that GSK had to exercise in good faith. It

is one thing to imply a good faith obligation when the parties have expressly agreed

41
   Dunlap, 878 A.2d at 441.
42
   See 35 U.S.C. § 41(b)(1).
43
   2 Moy’s Walker on Patents § 8:266 (4th ed.) (citing 35 U.S.C. §102(c) (pre-America Invents
Act)).
44
   Nemec, 911 A.2d at 1126 (“The implied covenant only applies to developments that could not
be anticipated, not developments that the parties simply failed to consider . . . .”).

                                             16
that a certain act is within a party’s discretion. 45 It is another matter to imply

discretion to restrict actions expressly permitted by the parties’ agreement. The

implied covenant imposes a good faith and fair dealing obligation when a contract

confers discretion on a party.46 It should not be used to imply terms that modify or

negate an unrestricted contractual right authorized by an agreement.

       GSK and Biogen agreed that GSK’s royalty obligations would end if GSK

disclaimed the ‘092 Patent.           Biogen no doubt assumed that GSK had strong

economic incentives to maintain its patent rights.                After all, a patent confers

monopoly power on the patent holder to eliminate competition and maximize profits.

Unfortunately for DRIT, the economic incentives shifted under the Agreement. It

45
   See Oxbow, 202 A.3d at 503-04 (observing that a shareholder agreement conferring discretion
to the board was a contractual choice that does not relieve the board of its obligation to exercise
that discretion in good faith) (emphasis added); Airborne, 984 A.2d at 146-47 & n.1 (“When a
contract confers discretion on one party, the implied covenant requires that the discretion be used
reasonably and in good faith.”); see also Gilbert v. El Paso Co., 420 A.2d 1050, 1055 (Del. Ch.
1984) (“[I]f one party is given discretion in determining whether the condition in fact has occurred
that party must use good faith in making that determination.”), aff’d, 575 A.2d 1131 (Del. 1990).
46
   See Miller v. HCP Trumpet Inv., LLC, 194 A.3d 908, 2018 WL 4600818, at *1 (Del. Sept. 20,
2018) (TABLE) (observing that “the mere vesting of ‘sole discretion’” to the board as an express
contractual term “[does] not relieve the Board of its obligation to use that discretion consistently
with the implied covenant . . .”); Charlotte Broad., LLC v. Davis Broad. of Atlanta, L.L.C., 2015
WL 3863245, at *7 (Del. Super. Ct. June 10, 2015) (concluding that where a contract permitted
either party “in its sole discretion” to terminate the agreement, the implied covenant required
plaintiffs to exercise that discretion in good faith); Amirsaleh, 2008 WL 4182998, at *8 (holding
that a party to a merger agreement was required to exercise its discretion in good faith where the
agreement mandated that election forms be submitted at a time and on a date that the contracting
parties “mutually agree”); see also Chamison v. HealthTrust, Inc., 735 A.2d 912, 922 (Del. Ch.
1999) (finding that the defendant-indemnitor breached the implied covenant by exercising its
“broad discretion” in an attempt to force the plaintiff-indemnitee to accept a defense that was
inferior to a known alternative), aff’d 748 A.2d 407 (Del. 2000); Bay Ctr. Apartments Owner, LLC
v. Emery Bay PKI, LLC, 2009 WL 1124451, at *7 (Del. Ch. Apr. 20, 2009) (applying the implied
covenant where an operating agreement gave the defendant “broad authority” to manage and
operate an LLC, but the defendant did so in bad faith).

                                                17
appears that GSK no longer needed the patent to protect Benlysta from competition.

As assignee, DRIT is stuck with the agreement that Biogen negotiated. DRIT cannot

use the implied covenant to vary the express terms of the Agreement, which gave

GSK an unqualified right to disclaim the ‘092 Patent and end its royalty obligation.

                                        III.

      The Superior Court’s judgment is reversed.

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