In Eli Lilly & Co. v. Emisphere Technologies, Inc., a district court judge has decided that Eli Lilly doesn’t have any rights to a patent it applied for based on its partner’s technology after ruling that Lilly breached its contract with Emisphere by setting up a secret research team to study its partner’s technology.

Under a Research Collaboration and Option Agreement, Lilly and Emisphere agreed to collaborate on a research and development program to study the use of Emisphere Technology for oral delivery of PTH and related compounds, as well as some non-oral methods of delivery. The parties agreed that Emisphere would grant Lilly an option for an exclusive worldwide license to make and use the Emisphere carrier technology to develop oral PTH products. Lilly could exercise that option by giving notice to Emisphere and by paying Emisphere a sum of money. They also agreed on the terms of the separate license agreement that would take effect if and when Lilly exercised the option.

The parties defined Emisphere Technology broadly as: proprietary synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means (including all related patents, patent applications and Know-How presently owned by Emisphere and all patents, patent applications, and Know-How relating to inventions developed by Emisphere pursuant to the Program . . . ).

The PTH License Agreement also included detailed provisions for confidentiality, including limits on Lilly’s internal distribution and use of information relating to the PTH and carrier research. Emisphere contends that Lilly violated confidentiality clauses by having the employees who worked on the PTH program provide confidential Emisphere information to the Lilly team working on the secret projects researching Emisphere’s carriers with proteins other than PTH.

A second research collaboration on oral delivery of PTH and hGH provided that Emisphere would own all patents, patent applications and Know-How relating to the Emisphere Technology to the extent that Lilly and/or Emisphere invents and/or develops same during the course of and as part of the Programs, including, but not limited to, any Lilly Improvements.

It didn’t help any that Lilly apparently set up a secret Oral Protein Delivery Team to study the mechanism of action of the Emisphere carriers, but with protein molecules other than PTH. The Secret Team had access to detailed information about results of unpublished research, experience with methods for synthesizing the carrier molecules, and methods for testing the carriers.

After getting promising results from its secret research on Emisphere carriers, Lilly began negotiating with Emisphere for a license to commercialize products containing Emisphere’s carriers and GLP. While those negotiations were going on, Lilly filed a PCT application for combinations of GLP with 56 different delivery agents, including Emisphere’s proprietary carriers that had been used in the collaborative research on PTH.

The court held that Lilly’s refusal to assign the GLP patent application to Emisphere violated Section 1.5(c) of the research agreement, which stated:

It will not be Lilly’s responsibility or intent to develop new synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means (the Carriers) as part of the Programs. Any new Carriers or inventions which are closely related to the Emisphere Technology (as it exists as of the Effective Date) that arise, in whole or in part, out of suggestions, recommendations or discussions held between Emisphere and Lilly scientists shall be Emisphere Technology.

Despite Lilly’s contention that the OPD/GLP team relied only on published data and that none of the information from the Emisphere collaboration was useful in selecting carriers for GLP, two of the carriers in the Lilly GLP patent application were carriers in Emisphere’s database of unpublished carriers. The court felt that any work Kahn did on carriers must have arisen at least in part from discussions, recommendations, and suggestions between Lilly and Emisphere scientists in the PTH project.

The court held that:

… Emisphere has shown that the Oral GLP team did not rely solely on published information, but had already received a running start on carrier research because of the help they received from [Lilly researchers], who got their start with the Emisphere-Lilly collaboration on PTH. In other words, Lilly’s Oral GLP team already knew a lot about what had worked with the PTH research. The effort to develop a sanitized paper trail relying on only published information did not accurately reflect the reality of what had occurred, yet it reflects an awareness of the benefits of making the project appear to be based on only public information.

The research efforts for any one therapy could easily require Emisphere to disclose to its research partner a vast amount of valuable information about the Emisphere carriers, as in the PTH project with Lilly. Much of that information was not public, such as the best procedures for synthesizing and manufacturing particular carriers, how to deal with impurities in the carriers, which excipients were likely to work well or not so well with carriers, toxicology data, dose response data from animal experiments, and whether solid or liquid doses produced better absorption, among many others. If a partner with vast scientific, intellectual, and commercial resources like Lilly could take the information gleaned in one project and use it in an independent project with other therapeutic proteins, Emisphere would have effectively sold its entire business for the relatively cheap price of a license for only one application of its technology. In addition, Emisphere’s existing licenses to its other research partners working on other proteins would weaken and lose value, and Emisphere’s ability to enter into new exclusive licensing agreements would also be diminished.

While Lilly contends that under Emisphere’s case, Lilly would be prohibited from carrying out research that any other company in the world may carry out, the court put weight to the fact that no other company in the world had the kind of access to Emisphere’s technology that Lilly had. In the court’s view, Lilly deliberately chose a course that was too aggressive, which resulted in the termination of the contracts and the loss of much of Lilly’s investment in the oral PTH program.

The court held that Lilly should hand over the international patent application to Emisphere Technologies by May 5.

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