Court Opinion

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Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

5-8-1995

Amer Cyanmid v Fermenta
Precedential or Non-Precedential:

Docket 94-5413

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Recommended Citation
"Amer Cyanmid v Fermenta" (1995). 1995 Decisions. Paper 124.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/124

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              UNITED STATES COURT OF APPEALS
                  FOR THE THIRD CIRCUIT

                       N0. 94-5413

                 AMERICAN CYANAMID COMPANY,
                         Appellant

                            v.

             FERMENTA ANIMAL HEALTH COMPANY,
                  a Delaware corporation

     On Appeal From the United States District Court
              For the District of New Jersey
           (D.C. Civil Action No. 93-cv-04936)

                 ARGUED OCTOBER 28, 1994

              OPINION VACATED APRIL 26, 1995

            SUBMITTED PURSUANT TO LAR 34.1(a)
            ON PANEL REHEARING MARCH 28, 1995

BEFORE:   STAPLETON, HUTCHINSON and ROSENN, Circuit Judges

               (Opinion Filed    May 8, 1995)

                     John Vanderstar (Argued)
                     Christopher N. Sipes
                     Covington & Burling
                     1201 Pennsylvania Ave., N.W.
                     P. O. Box 7566
                     Washington, D.C. 20044
                          and
                     Donald A. Robinson
                     Robinson, St. John & Wayne
                     Two Penn Plaza East
                     Newark, N.J. 07105-2249

                     Of Counsel:
                     Ronald J. Cracas
                     Jane Y.C. Mathews
                     American Cyanamid Company
One Cyanamid Plaza
Wayne, N.J. 07470-8426

    Attorneys for Appellant
                         Clinton R. Batterton (Argued)
                         Edward John Allera
                         Naomi Joy Levan
                         Akin, Gump, Strauss, Hauer & Feld
                         1333 New Hampshire Ave., N.W.
                         Suite 400
                         Washington, D.C. 20036-1511

                         Of Counsel:
                         James B. Daniels
                         Friedman Siegelbaum
                         7 Becker Farm Road
                         Roseland, N.J. 07068
                              and
                         Lars H. Liebeler
                         The Robinson Law Firm
                         717 D Street, N.W., #400
                         Washington, D.C. 20004

                              Attorneys for Appellee

                      OPINION OF THE COURT

STAPLETON, Circuit Judge:

          The issue in this case is whether a 1980 contract

between the parties and a 1983 amendment thereto conveyed to

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

the federal regulatory authority of Fermenta Animal Health

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

Cyanamid marketed the drug under the trademark Aureozol.    Before

the district court, both sides maintained that these documents

are unambiguous, although each side differed on what was

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

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

negotiations and post-contract conduct, did not convey that

right.   We will affirm.

                                I.

           This dispute arises from a contract that was signed

between Cyanamid, a chemical and pharmaceutical conglomerate, and

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

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

interest to Diamond Shamrock through an acquisition in 1985.     The

purpose of the contract was to enable Cyanamid to produce and

sell an animal feed drug that Diamond Shamrock had developed and

was marketing.   The drug was an antibiotic animal feed supplement

consisting of chlortetracycline, sulfathiazole and penicillin,

known as CSP 250.   As consideration, Diamond Shamrock would

receive an advance royalty and future royalties from Cyanamid's

sales.

           In order for Cyanamid to manufacture and sell Diamond

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

First, Cyanamid was given access to Diamond Shamrock's

proprietary information about its animal feed drug for the

purpose of manufacturing and selling it.   Equally important, the

agreement obligated Diamond Shamrock to seek federal regulatory

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

"supplemental NADA" designating Cyanamid as a distributor of the

drug.
          The FDA licenses the sale in interstate commerce of

animal drugs by approving a manufacturer's New Animal Drug

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

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

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

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

its animal feed drug.1

          Obtaining a NADA can be an expensive and lengthy

process because of the amount of resources that must be expended

on researching and demonstrating the safety and efficacy of the

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

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

market a drug identical to that already marketed by another

company which has obtained federal regulatory approval for the

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

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

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

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

1
 . When Fermenta became the successor in interest to Diamond
Shamrock's animal drug business, it acquired Diamond Shamrock's
NADA authority, as noted in 21 C.F.R. § 558.15(g)(1).
2
.   21 C.F.R. § 514.8(a)(4)(v) provides in part:

          A communication proposing a change in a new
          animal drug application should provide for
          any one of the following kinds of changes:
          . . . .

               (v) Provision for outside firm to
          participate in the preparation, distribution,
          or packaging of a new animal drug (new
          Cyanamid entered into this contract with Diamond

Shamrock because its own animal drug, which competed in the

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

FDA for the possible carcinogenic effects of one of its

components, sulfamethazine.   Cyanamid sought to "insure" itself

in the event the FDA took adverse action against its existing

animal product by expanding its own product line to include

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

entered negotiations with Diamond Shamrock, hoping to obtain the

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

Cyanamid could not sell Diamond Shamrock's drug without federal

regulatory authority, the agreement required Diamond Shamrock to

prepare and file a supplemental NADA establishing Cyanamid's

facility as an alternate manufacturing site and designating

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

an agreement with Diamond Shamrock, Cyanamid was formulating

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

aureomycin, sulfathiazole and penicillin, a combination similar

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

Diamond Shamrock during the course of negotiations in December of

1979.

          Cyanamid and Diamond Shamrock executed their contract

on July 23, 1980.   Diamond Shamrock obtained the supplemental

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

(..continued)
          distributor, packer, supplier, manufacturer,
          etc.).
commenced on that date.    Cyanamid thus enjoyed both commercial

and regulatory rights to manufacture and sell the animal feed

drug through June of 1987.

            The contract also gave Cyanamid an option at the

expiration of the agreement to purchase a perpetual license from

Diamond Shamrock. Article 9.2 provides in part:
               Upon expiration of the full term of this
          Agreement . . . CYANAMID shall have the right
          to obtain a perpetual, paid-up, non-exclusive
          license, without right to sublicense, under
          TECHNICAL INFORMATION as shall have been
          licensed hereunder to CYANAMID upon the
          payment of twenty-five thousand ($25,000)
          dollars to DIAMOND SHAMROCK for such
          perpetual rights.

App. 158.

            The option described in Article 9.2 was exercised

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

the agreement.    The amendment provides in part:
                 You will grant to us [Cyanamid] a
            perpetual paid-up nonexclusive license
            without right to sub-license under TECHNICAL
            INFORMATION as shall have been licensed under
            the Agreement upon our payment to you of
            $87,500 for such perpetual rights. . . .

                 All other terms and conditions of the
            Agreement will remain in effect.

App. 165.

            The dispute before the district court turned on whether

this 1983 amendment, when read together with the original

contract, gives Cyanamid a perpetual right to use the

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

right ceased in 1987 with the expiration of the original

contract.

            Fermenta acquired Diamond Shamrock's interest in the

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

monitored Cyanamid's regulatory compliance with the NADA.     Prior

to 1993, Fermenta never informed Cyanamid that its right to

reference its NADA had expired with the termination of the

original contract in 1987.    Fermenta claims not to have realized

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

Fermenta more closely examined the entire contract because of

Cyanamid's alleged regulatory breaches associated with the

supplemental NADA.    Fermenta thereupon demanded that Cyanamid pay

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

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

which Cyanamid may have obtained on any related product.    When

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

informing it that Cyanamid was no longer authorized to use the

supplemental NADA that accessed Fermenta's NADA.

            In response to Fermenta's action, Cyanamid filed a

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

Jersey seeking a preliminary injunction and a declaration that it

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

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

counterclaimed, seeking a declaration that Cyanamid's right to

use the supplemental NADA had expired in 1987.    The jurisdiction

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

listened to extrinsic evidence of intent tendered by each side,

the district court entered a declaratory judgment that Cyanamid

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

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

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

analyzed the structure and text of the original agreement and the

amendment and concluded that they could not reasonably be read to

convey to Cyanamid a perpetual right to utilize Diamond

Shamrock's regulatory authority.       The court also concluded that

the   extrinsic evidence provided no basis for interpreting the

scope of the rights conveyed by the agreements more broadly than

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

structure and text.

           We have conducted a plenary review of the district

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

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

conducted of district court's conclusion that term of contract

read against the background of the relevant extrinsic evidence

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

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

court, that difference is not material for present purposes and

our conclusions are the same as those reached by the district

court.

                                 II.
          The district court exercised its diversity

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

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

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

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

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

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

their briefs, implicitly recognize New Jersey as providing the

controlling law of contracts.    The parties do not contend,

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

way from the generally accepted principles of contract law

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

"traditional rules of contract interpretation" that we described

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

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

urged the district court to follow the principles which we

articulated in Rolls-Royce and Fermenta relies heavily on those

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

collective bargaining agreement alleged to be ambiguous:
               Although federal law governs the
          construction of collective bargaining
          agreements, traditional rules of contract
          interpretation apply when not inconsistent
          with federal law. To decide whether a
          contract is ambiguous, we do not simply
          determine whether, from our point of view,
          the language is clear. Rather, we "hear the
          proffer of the parties and determine if there
          [are] objective indicia that, from the
          linguistic reference point of the parties,
          the terms of the contract are susceptible of
          different meanings." Sheet Metal Workers,
          949 F.2d at 1284 (brackets in original)
         (quoting Mellon Bank, N.A. v. Aetna Business
         Credit, Inc., 619 F.2d 1001, 1011 (3d Cir.
         1980)). Before making a finding concerning
         the existence or absence of ambiguity, we
         consider the contract language, the meanings
         suggested by counsel, and the extrinsic
         evidence offered in support of each
         interpretation. Id.; Mack Trucks, 917 F.2d
         at 111; see also Restatement (Second) of
         Contracts § 223 cmt. b (1981) ("There is no
         requirement that an agreement be ambiguous
         before evidence of a course of dealing can be
         shown. . . ."). Extrinsic evidence may
         include the structure of the contract, the
         bargaining history, and the conduct of the
         parties that reflects their understanding of
         the contract's meaning.

Id. at 135 (citations omitted).

          These teachings appear to us to be consistent with

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

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

Jersey summarized this area of the law in the following terms:
               Evidence of the circumstances is always
          admissible in aid of the interpretation of an
          integrated agreement. This is so even when
          the contract on its face is free from
          ambiguity. The polestar of construction is
          the intention of the parties to the contract
          as revealed by the language used, taken as an
          entirety; and, in the quest for the
          intention, the situation of the parties, the
          attendant circumstances, and the objects they
          were thereby striving to attain are
          necessarily to be regarded. The admission of
          evidence of extrinsic facts is not for the
          purpose of changing the writing, but to
          secure light by which to measure its actual
          significance. Such evidence is adducible
          only for the purpose of interpreting the
          writing--not for the purpose of modifying or
          enlarging or curtailing its terms, but to aid
          in determining the meaning of what has been
          said. So far as the evidence tends to show,
          not the meaning of the writing, but an
          intention wholly unexpressed in the writing,
          it is irrelevant. The judicial interpretive
          function is to consider what was written in
          the context of the circumstances under which
          it was written, and accord to the language a
          rational meaning in keeping with the
          expressed general purpose. Casriel v. King,
          2 N.J. 45, 65 A.2d 514 (1949).

Id. at 656.

          It is important for present purposes to note that

extrinsic evidence of the negotiations, conduct and other

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

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

that such evidence provides "objective indicia that, from the

linguistic reference point of the parties, the terms of the

contract are susceptible of different meanings."    Mellon Bank,
N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 (3d Cir.

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

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

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

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

may be ambiguous when understood from "the linguistic reference

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

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

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

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

the parties, and a text unambiguous when accorded the commonly

understood meaning of its words cannot be disregarded unless the

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

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

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

Aetna Business Credit, Inc., a case to which we looked in Rolls-

Royce for the "traditional rules of contract interpretation."

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

Business Credit were commercial lending institutions.      In the

transaction giving rise to the dispute, Mellon was the

construction lender and Aetna was the permanent lender.      Mellon

alleged that Aetna breached their contract by refusing to

purchase the construction loan held by Mellon.      Under the

agreement, Aetna had "no obligation to acquire the construction

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

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

          Mellon contended that the parties intended "insolvency"

to mean that the borrower's liabilities exceeded its assets

without reference to the liabilities or assets of the borrower

that accrued from the particular project being financed.        The

district court heard extrinsic evidence and held, based on the

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

reading was "required by the clear allocation of lending risks

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

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

following terms:
          The district court found that Aetna in
          analyzing the security for its permanent loan
          did not consider the borrowers' cash flow,
          did not condition its obligation upon any
          occupancy level, and therefore concluded
          "Aetna recognized that the financial
          transaction in question was not a basis for
          finding insolvency." The district court
          cited no basis in the contract document or
          wording of the insolvency clause for its
          conclusion. Our task is to decide if the
          district court permissibly used extrinsic
          evidence to interpret the contract and, if
          so, whether it drew the proper legal
          conclusions therefrom.

Id. at 1009.

          We reversed, holding as follows:
          Although extrinsic evidence may be considered
          under proper circumstances, the parties
          remain bound by the appropriate objective
          definition of the words they use to express
          their intent. . . .

               We have concluded that the district
          court here exceeded the permissible boundary
          of interpretation. . . . When the district
          judge received Mellon's evidence it should
          have rejected it as insufficient to vary the
          meaning of a commercial term as well
          established as "insolvent." In this case the
          district court added a term which made the
          condition a nullity. It ruled that, although
          the solvency of the borrowers was a condition
          in the written contract, the fact that the
          borrowers' solvency was not significantly
          considered by Aetna in evaluating the take-
          out loan minimized or nullified this clause
          of the contract.

          . . . The fact that the insolvency of the
          borrowers was not significantly considered by
          Aetna in evaluating the take-out loan is
          immaterial given the expression of that
          concern in the written words of the contract.

Id. at 1013-14.

          Our approach in Mellon Bank is consistent with the law

of New Jersey.    Although the New Jersey Supreme Court in Atlantic
Northern Airlines extolled the use of extrinsic evidence to aid
in ascertaining the intent of the parties, even when the terms of

the instrument are otherwise unambiguous, it cautioned that such

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

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

understanding of the controlling law, we turn to examine the

structure and text of the agreements and then to consider the

extrinsic evidence offered by the parties.

                                III.

            The preamble of the 1980 agreement clearly and tersely

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

access to Diamond Shamrock's proprietary information and the

right to sell the drug under a supplemental NADA:
          DIAMOND SHAMROCK has developed or otherwise
          acquired certain proprietary information
          relating to the manufacture of an animal feed
          supplement and is the owner of an approved
          New Animal Drug Application (NADA) which
          permits the sale of such animal feed
          supplement; and

            . . . CYANAMID desires to manufacture and
            sell such animal feed supplement and would
            like to obtain the right to utilize DIAMOND
            SHAMROCK's proprietary information and have
            DIAMOND SHAMROCK file supplemental NADA's to
            establish CYANAMID as an alternate
            manufacturing site and to designate CYANAMID
            as a distributor pursuant to 21 CFR 514.8.

App. 151.

            Two separate sections of the contract implement the

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

this controversy.

           Article 2.1 provides:
                DIAMOND SHAMROCK grants to CYANAMID a
           non-exclusive license to use TECHNICAL
           INFORMATION to practice the LICENSED PROCESS
           and to make, use and sell PRODUCT under its
           own name and trademarks.

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

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

information licensable by DIAMOND SHAMROCK as of the effective

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

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

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

the manufacture of an animal feed supplement presently sold under

the trademark CSP 250 and comprising chlortetracycline,

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

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

Cyanamid to use Diamond Shamrock's proprietary information to

manufacture, distribute and sell CSP 250.

           Article 11.1, on the other hand, commits Diamond

Shamrock to seek regulatory authority for Cyanamid to market CSP

250.   That clause provides in part:
                Promptly upon execution of this
           Agreement, DIAMOND SHAMROCK shall prepare and
           submit to the FDA supplemental new animal
           drug applications to establish CYANAMID's
           facility as an alternate manufacturing site
           and to designate CYANAMID as a distributor of
           PRODUCT under 21 CFR 514.8.
App. 160.    This provision was, of course, a critical term of the

agreement.   If Diamond Shamrock failed to obtain a supplemental

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

terminate the agreement.

            The dichotomy between commercial and regulatory rights

reflected in the preamble and in Articles 2.1 and 11.1 is

important for present purposes because the scope of the perpetual

license Cyanamid claims to have received by virtue of the 1983

amendment is defined in that amendment and Article 9.2 of the

original agreement solely by reference to the rights conferred by

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

option to obtain upon the termination of the agreement a

perpetual "license . . . under TECHNICAL INFORMATION as shall

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

license that Cyanamid acquired in 1983 when it was granted a

perpetual "license . . . under TECHNICAL INFORMATION as shall

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

license to use "all information licensable by Diamond Shamrock as

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

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

of [CSP 250]."

            The 1983 amendment provides that, save for the grant of

this perpetual license of Diamond Shamrock's proprietary

information, all other terms and conditions of the original

agreement were to remain unchanged.   Since one such term and

condition was the five year limit on the rights originally

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

necessarily follows that any right Cyanamid had under the 1983

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

          Before the district court, Cyanamid insisted that, when

Diamond Shamrock conveyed in Article 2.1 a "license to use

TECHNICAL INFORMATION to practice the LICENSED PROCESS and to

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

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

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

and those of the remainder of the agreement are given their

commonly understood meaning, Article 2.1 simply does not make

such a grant.

          When the definitions of the defined terms are inserted

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

conveyance of a license to use Diamond Shamrock's proprietary

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

product -- such proprietary information consisting of "all

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

which relates to the practice of [its manufacturing process for

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

conveyance is consistent with the dichotomy we have previously

3
 . As we discuss in part V, infra, Cyanamid now argues that
Article 2.1 conveys the commercial license to sell the product,
and that once this right was perpetually conveyed through the
1983 amendment, Cyanamid enjoyed clear commercial and regulatory
authority to sell the product, since only the FDA could terminate
its right to use the supplemental NADA. However, Cyanamid did
not argue before the district court that Fermenta could not
terminate its right to use the supplemental NADA. Indeed, it
proceeded on the contrary assumption.
identified in the preamble and between the grants made in

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

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

use and sell CSP 250 using Diamond Shamrock's proprietary

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

Diamond Shamrock hoped to obtain for Cyanamid, Article 11 would

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

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

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

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

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

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

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

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

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

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

"determined as a whole").

          Moreover, as the district court also noted, an

understanding of Article 2.1 that includes a conveyance of

regulatory rights as well as a commercial license to use

proprietary information is inconsistent with its time focus.

Article 2.1 effects a conveyance of rights Diamond Shamrock

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

Diamond Shamrock had no authority on that date to give Cyanamid

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

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

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

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

substantial period of time.

           Cyanamid correctly points out that the reading of

Article 2.1 which Fermenta champions and we adopt is not entirely

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

The district court interpreted Article 2.1 to convey two rights,

a "license to use TECHNICAL INFORMATION to practice the LICENSED

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

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

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

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

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

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

Diamond Shamrock had no patent on CSP 250, and the only non-

regulatory basis for excluding Cyanamid from competing in the CSP

250 market was the rights Diamond Shamrock possessed in its

proprietary information.    We do not, however, regard our

difference with the district court as material in the present

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

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

text of the agreement and the 1983 amendment ambiguous as to

whether Cyanamid possesses a perpetual right to use the

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

this is so because the scope of the only perpetual license

acquired by Cyanamid is defined solely by reference to the

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

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

INFORMATION segment that is the subject of the perpetual license.

TECHNICAL INFORMATION is a defined term and, as we have

demonstrated, its meaning cannot be stretched to include a

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

Cyanamid in the future.

                                IV.

          The extrinsic evidence of intent heard by the district

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

license to make, use and sell CSP 250 utilizing proprietary

information into something else.      Indeed, that evidence tends to

support the reading of the agreements that accords the words

their ordinarily accepted meaning.

          When one who is unfamiliar with the background reads

the agreement and the 1983 amendment, an important question

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

use Diamond Shamrock's proprietary information concerning CSP 250

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

supplemental NADA would expire in mid-1987?      The extrinsic

evidence supplies the answer.   Cyanamid could apply for its own

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

intended to do so.   Both the correspondence between the parties

during the negotiation of the agreement and the testimony of

Cyanamid's employees indicate that during the relevant period it

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

sulfathiazole and penicillin.   Thus, Cyanamid did not contemplate

having to use the supplemental NADA indefinitely.   It was buying

time through these agreements insofar as regulatory authority was

concerned, but it wanted continuing commercial authority to use

the proprietary information regarding CSP 250 (which contained

sulfathiazole, a component of the drug that Cyanamid was

developing).4

          The record also establishes that prosecution of an

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

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

consideration to be paid by Cyanamid provides further evidence

that the agreement was deliberately drafted to treat the

supplemental NADA as a right separate and apart from the

TECHNICAL INFORMATION.   The single most important part of the

agreement was the commitment to seek regulatory authority,

without which Cyanamid could terminate the agreement.   Under

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

royalty (which was creditable against 50 percent of earned

royalties), Cyanamid was committed to pay earned royalties out of
4
 . Cyanamid's former manager of animal regulatory affairs
testified that prior to 1980, Cyanamid had been selling a product
containing chlortetracycline, penicillin and sulfamethazine, and
that Cyanamid had become interested in Diamond Shamrock's
product, which contained sulfathiazole instead of sulfamethazine,
because "[s]ulfamethazine was coming under a great deal of
scrutiny by FDA" and "sulfamethazine was retained in the tissues
longer than sulfathiazole." App. 16-17. Thus, even if Cyanamid
did not intend to market CSP 250 in the future, the information
about sulfathiazole could be relevant with respect to future
product development.
the proceeds of its sales.    Diamond Shamrock was entitled to a

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

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

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

not receive this sum, it could terminate the agreement under

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

sales, Diamond Shamrock could earn a much larger sum in

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

a permanent license to use the TECHNICAL INFORMATION was only

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

and expense of prosecuting a NADA application and on the amount

of the royalties specified in the agreement for the rights

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

it seems highly unlikely that Diamond Shamrock would have been

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

include both the right to use its proprietary information and the

right to use the supplemental NADA.    Stated conversely, the

5
 . The $87,500 price paid by Cyanamid as consideration for the
Amendment consisted of two components: (1) the $25,000 provided
for by Article 9.2 of the Agreement in exchange for a perpetual
license to the TECHNICAL INFORMATION, and (2) $62,500 for the
royalties which Cyanamid would have owed under Article 8 of the
Agreement on its minimum sales obligation of $5 million. The
$62,500 was calculated as follows: Article 3 of the Agreement
provided that earned royalties were to be calculated at the rate
of 2.5 percent on the first $10,000,000 of net sales, and at the
rate of one percent thereafter. Therefore, on $5,000,000, the
royalty would be $125,000 ($5,000,000 x 2.5%). However, Article
3 also provided for an advance royalty of $150,000 creditable
against 50 percent of earned royalties. Accounting for that
credit, the royalty remaining to be paid on $5,000,000 minimum
sales would be $62,500.
economics of the matter at least suggest that the option to buy a

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

not include the use of the supplemental NADA in perpetuity.

             In these respects, the extrinsic evidence confirms that

according the terms of the agreements their plain meaning makes

commercial sense.

             The extrinsic evidence stressed most heavily by

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

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

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

Biotech acquired Diamond Shamrock's animal health business.    SDS

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

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

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

original agreement.     Thus, after Fermenta succeeded to Diamond

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

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

and the original five year term of the agreement expired,

Cyanamid continued to sell CSP 250 under its own name and

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

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

explanation for this failure to protest, which was uncontradicted

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

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

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

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

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

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

general counsel reviewed the contract in its entirety.

            The significance of Fermenta's failure to protest is

diminished by the fact that Diamond Shamrock, rather than

Fermenta, negotiated the original agreement and the 1983

amendment and oversaw its execution during the period when

Cyanamid was paying royalties.    Nevertheless, we acknowledge that

the evidence does not rule out the possibility that the failure

to protest may have been attributable in part to someone at

Fermenta having read the agreements at some point after June of

1987 and having concluded that they conveyed to Cyanamid the

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

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

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

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

quite common in agreements of this kind with generally accepted

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

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

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

agree with the district court that a reasonable person reading

the agreements against the background of the extrinsic evidence

could not find them susceptible of a reading that would bestow

upon Cyanamid a perpetual right to use the supplemental NADA.

                                 V.
          On appeal, Cyanamid advances an additional argument

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

reverse the declaratory judgment of the district court.

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

right to apply for authority to permit others to manufacture its

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

supplemental NADA, by operation of law, permanently deprives the

holder of control over the continued manufacture of its product

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

transcript of the proceedings before the district court and the

brief Cyanamid submitted to it that Cyanamid did not advance this

legal argument before the district court.   "It is well

established that failure to raise an issue in the district court

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

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

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

established principle of appellate review to consider the merits

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

view with respect to it.

                               VI.

          For these reasons, the judgment of the district court

will be affirmed.