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Luitpold Pharmaceuticals, Inc. v. Ed. Geistlich Sohne A.G. Fur Chemische Industrie

United States Court of Appeals, Second Circuit

April 10, 2015

LUITPOLD PHARMACEUTICALS, INC., Plaintiff-Counter-Defendant-Appellant-Cross-Appellee,
v.
ED. GEISTLICH SÖ HNE A.G. FÜ R CHEMISCHE INDUSTRIE, Defendant-Counterclaimant-Appellee-Cross-Appellant, OSTEOMEDICAL LTD., Defendant-Appellee.

Argued: June 25, 2014.

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[Copyrighted Material Omitted]

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In this commercial contract dispute, Plaintiff-Counter-Defendant Luitpold Pharmaceuticals, Inc., appeals from an April 17, 2013 judgment of the United States District Court for the Southern District of New York (Katherine B. Forrest, Judge) to the extent that it made final (1) the court's earlier dismissal, under Fed.R.Civ.P. 12(b)(6), of certain of Luitpold's claims, and (2) the court's grant of summary judgment to Defendant-Counterclaimant Ed. Geistlich Sö hne A.G. Für Chemische Industrie and Defendant Osteomedical Ltd. on Luitpold's remaining claims. Geistlich cross-appeals, challenging the court's grant of summary judgment to Luitpold on Geistlich's counterclaims.

HUNTER T. CARTER (Mark Bloom, Jennifer Bougher, Jeff Leung, and Martin Cunniff, on the brief), Arent Fox LLP, New York, New York and Washington, D.C., for Luitpold Pharmaceuticals, Inc.

JOSEPH W. HAMMELL (David Y. Trevor, Shari L.J. Aberle, Erin P. Davenport, and Christopher G. Karagheuzoff, on the brief), Dorsey & Whitney LLP, Minneapolis, Minnesota, and New York, New York, for Ed. Geistlich Sö hne A.G. Für Chemische Industrie and Osteomedical Ltd.

Before: CABRANES, CARNEY, and DRONEY, Circuit Judges.

OPINION

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Susan L. Carney, Circuit Judge :

In this commercial contract dispute, Plaintiff-Counter-Defendant Luitpold Pharmaceuticals, Inc. (" Luitpold" ) appeals from an April 17, 2013 judgment of the United States District Court for the Southern District of New York (Katherine B.

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Forrest, Judge ) to the extent that it made final (1) the court's dismissal, under Rule 12(b)(6) of the Federal Rules of Civil Procedure, of certain of Luitpold's claims, and (2) the court's grant of summary judgment to Defendant-Counterclaimant Ed. Geistlich Sö hne A.G. Für Chemische Industrie (" Geistlich" ) and Defendant Osteomedical Ltd. (" Osteomedical" ) on Luitpold's remaining claims. Geistlich cross-appeals, challenging the court's grant of summary judgment to Luitpold on Geistlich's counterclaims.

Because we conclude that the District Court erred in its decisions on the motions to dismiss and for summary judgment, we VACATE and REMAND.

BACKGROUND

Many of the facts are not in dispute; we flag those that are.

Luitpold is a New York corporation engaged in the development and marketing of an array of drugs and medical devices, including dental implant products. Geistlich is a Swiss chemical and pharmaceutical corporation that develops and manufactures various dental products. Osteomedical is an Irish corporation and a Geistlich affiliate. Osteomedical owned the patents and trademarks for the two groups of dental products at issue in this case--namely, Bio-Oss, Bio-Oss Collagen, and Bio-Tape (collectively, the " Bio-Oss Products" ), and Bio-Gide, Bio-Gide Perio, and Bio-Gide Comp. (collectively, the " Bio-Gide Products" ). Osteomedical has since transferred those assets to Geistlich. The Bio-Oss and Bio-Gide Products are used to aid bone and tissue growth in dental patients following tooth removal or other dental procedures.

A. Agreements Among the Parties and Geistlich's " Termination Notice"

In the early 1990s, following several failed attempts to market its Bio-Oss Products in the United States through other companies, Geistlich engaged Luitpold in negotiations regarding a potential collaboration. In March 1994, the parties entered into interdependent commercial and license agreements (respectively, the " Commercial Agreement" and the " 1994 License Agreement" ) that established a distribution relationship among Luitpold, Geistlich, and Osteomedical for the sale of Geistlich's dental products throughout the United States and Canada and their territories.

In the Commercial Agreement, Geistlich agreed, among other things, to supply Luitpold with all of Luitpold's requirements for the Bio-Oss Products and to aid Luitpold in the marketing and distribution of those products in the covered territory. See Commercial Agreement ¶ 2.01. In exchange, Luitpold agreed to purchase from Geistlich--at a price equal to a fixed percentage of Luitpold's " net sales" --its requirements for the Bio-Oss Products, and to use its " best efforts" to enter and develop markets in those products within the covered territory. See id. ¶ ¶ 2.02-.03, 7.01. Luitpold also agreed to pay Geistlich a $15 million fee. See id. ¶ 6.01.

In the 1994 License Agreement, Osteomedical--which then held the patent and trademark rights in the Bio-Oss Products--granted Luitpold (1) " an exclusive, non-transferable license . . . to market, sell, distribute and use" the Bio-Oss Products for covered uses in the covered territory; (2) " an exclusive, non16 transferable license . . . to use the TRADEMARKS" relating to the Bio-Oss Products in the covered territory " in connection with the [products'] marketing, sale, distribution, and use" ; and (3) an " an exclusive, non-transferable license" to use the " Osteomedical" trade name. 1994 License Agreement ¶ 3.02. The agreement emphasized, however, that Osteomedical was " the

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exclusive owner of the TRADEMARKS and all of the goodwill thereto, and [that] except for the rights licensed [t]herein, [Osteomedical] . . . retain[ed] the full rights to the TRADEMARKS, the goodwill relating thereto and all registrations granted thereon." Id. ¶ 6.03. Luitpold agreed to pay Osteomedical a $5 million fee, as well as a royalty equaling a fixed percentage of its net sales for the products, as consideration for the licenses. See id. ¶ ¶ 4.01, 5.01.

Also in March 1994, all three parties signed a letter agreement (the " 1994 Letter Agreement" ) that stated, with respect to the Commercial Agreement and the 1994 License Agreement, that " the rights and obligations set forth in the one agreement cannot be severed or performed separately or apart from those rights and obligations set forth in the other agreement." 1994 Letter Agreement at 1. Thus, under the 1994 Letter Agreement, the breach of either the Commercial Agreement or the 1994 License Agreement would be deemed a breach of the other, and the termination of one would result in the immediate termination of the other. See id. at 2.

In the years following their execution of the 1994 Agreements, the parties entered into several additional agreements and amendments to the original agreements. In 1996, for example, Geistlich and Luitpold entered into an Exclusive Distribution Agreement under which Luitpold received from Geistlich the exclusive right to market, distribute, and sell certain Geistlich Bio-Oss products in additional territory--certain countries in Central and South America--and Luitpold agreed not to sell any identical or similar products in that territory. Also in 1996, Geistlich and Luitpold amended the Commercial Agreement to include Mexico as covered territory.

Further, in 1998, through another amendment to the Commercial Agreement and the execution of a second license agreement (the " 1998 License Agreement" ), Geistlich and Osteomedical granted to Luitpold rights relating to Geistlich's Bio-Gide Products. The 1998 License Agreement, with terms parallel to those of the 1994 License Agreement, conferred upon Luitpold the same rights in the Bio-Gide Products as Luitpold held in the Bio-Oss Products. And like the agreements entered in 1994, the 1998 License Agreement was accompanied by a letter agreement (the " 1998 Letter Agreement" ) that provided, among other things, that termination of the Commercial Agreement would result in the immediate termination of the 1998 License Agreement and vice versa. See 1998 Letter Agreement at 2. Luitpold agreed to pay Osteomedical a $6 million fee, as well as a royalty, for these additional licenses. See 1998 License Agreement ¶ ¶ 4.01, 5.01.

To carry out its responsibilities under the agreements, and at Geistlich's encouragement, Luitpold in 1994 created a separate division, Osteohealth, under which name it sold and marketed Geistlich products over the next decade and a half. Osteohealth became a market leader in the field of dental implant products within the covered territory, and, through Osteohealth, Luitpold eventually made substantial profits based on the Geistlich relationship. Geistlich calculated that those profits amounted to over $100 million.

On September 13, 2010--a little more than sixteen years after the first agreements were signed--Geistlich, which by then had assumed Osteomedical's rights under the License Agreements, declared its intent to terminate the Commercial Agreement and the 1994 and 1998 License Agreements in a letter to Luitpold that it labeled " Termination Notice." See Letter

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from Geistlich to Luitpold dated Sept. 13, 2010. In that letter, Geistlich informed Luitpold that it was terminating their distribution relationship, without compensation to Luitpold, as of March 31, 2011--a date that Geistlich later revised to June 30, 2011. Geistlich did not allege any material breach of the parties' agreements; rather, Geistlich declared that the agreements in question had been in effect for a " reasonable" time and that therefore, under New York law, Geistlich could unilaterally terminate them upon reasonable notice given to Luitpold. Id. at 1.

B. District Court Proceedings

On February 1, 2011, Luitpold filed a multi-count Complaint against Geistlich and Osteomedical (together, " Defendants" ) in the United States District Court for the Southern District of New York, properly invoking that court's diversity jurisdiction. The Complaint sought declaratory relief, specific performance, damages, and prejudgment attachment of Geistlich patents and trademarks based on Defendants' alleged breach of the various agreements. Count I alleged principally that the notice purporting to effect termination was invalid and that Geistlich had failed to meet its supply obligations under the Commercial Agreement. Counts II and V alleged that Geistlich had repudiated and anticipatorily breached the Commercial Agreement and the 1994 and 1998 License Agreements by delivering the Termination Notice. Counts IV and VI alleged that Geistlich breached the 1994 and 1998 License Agreements by advertising Bio-Oss and Bio-Gide Products in the United States in violation of Luitpold's exclusive rights in the trademarks to those products in that territory. Count VII alleged that Luitpold was entitled to prejudgment attachment of the patents and trademarks at issue based on its claims for breach of the various agreements and the likelihood that it would succeed on those claims. The parties eventually stipulated to the dismissal, with prejudice, of the remaining counts of the Complaint (Counts III, VIII, and IX), see Stipulation Pursuant to F.R.C.P. Rule 41(a)(1), filed Nov. 7, 2012, and these are not at issue in this appeal.

Geistlich and Osteomedical moved in April 2011 to dismiss all counts relevant here. The District Court denied the motion in part, but granted the motion as to Counts IV and VI, concluding that Defendants could not have violated Luitpold's contractual rights relating to the trademarks through direct advertising because Defendants had retained ownership of the trademarks. See Luitpold Pharm., Inc. v. Ed. Geistlich Sohne A.G. Fur Chemische Industrie (" Luitpold I " ), No. 11 Civ. 681 (KBF), 2012 WL 1372160, at *8 (S.D.N.Y. Apr. 17, 2012).

In May 2012, Defendants filed their responsive pleading. In the pleading, Geistlich stated four counterclaims, two of which are relevant here. Count II of the counterclaims alleged that Luitpold breached the Commercial Agreement by failing to pay Geistlich the agreed-upon purchase price. Count III of the counterclaims alleged principally that Luitpold breached the " best efforts" provision in the Commercial Agreement when it acquired the rights to and sold competing products.

In September 2012, following the close of discovery, Defendants moved for summary judgment on Luitpold's remaining claims. Concluding that no reasonable factfinder could find that the Commercial and License Agreements were not terminable at will, the District Court in a January 2013 order granted Defendants' motion and dismissed Counts I, II, V, and VII of Luitpold's Complaint. The court reasoned that each of those counts rested on the premise--mistaken, in the court's

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view--that Geistlich had breached the agreements because its Termination Notice was invalid. See Luitpold Pharm., Inc. v. Ed. Geistlich Sohne A.G. Fur Chemische Industrie (" Luitpold II " ), No. 11 Civ. 681 (KBF), 2013 WL 208908, at *5-11 (S.D.N.Y. Jan. 15, 2013).

In February 2013, after the District Court dismissed without prejudice Geistlich's other counterclaims at Geistlich's request, Luitpold and Geistlich filed cross-motions for summary judgment on Counts II (the purchase price counterclaim) and III (the " best efforts" counterclaim). On both counts, the District Court denied Geistlich's motion and granted summary judgment to Luitpold. See Luitpold Pharm., Inc. v. Ed. Geistlich Sö hne A.G. Für Chemische Industrie (" Luitpold III " ), No. 11 Civ. 681 (KBF), 2013 WL 1651624, at *8-10 (S.D.N.Y. Apr. 15, 2013). These rulings drew the litigation to a close in the district court, with no party recovering damages or other relief on any claim or counterclaim.

Following entry of final judgment in April 2013, Luitpold timely appealed. Geistlich timely cross-appealed.

DISCUSSION

A. Dismissal of Counts IV and VI of the Complaint

We review a district court's grant of a motion to dismiss under Rule 12(b)(6) de novo, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor. Cnty. of Erie v. Colgan Air, Inc., 711 F.3d 147, 149 (2d Cir. 2013). " To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). In our evaluation of the adequacy ...


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