On July 22, 2013, in Mylan Inc. v. SmithKline Beecham Corp., the US Court of Appeals for the Third Circuit issued an opinion affirming in part and reversing in part the district court's grant of summary judgment to Mylan on its breach of contract, breach of the implied covenant of good faith and fair dealing, and tortious interference claims. The Third Circuit affirmed the district court's rulings on the implied covenant and tortious interference claims, but held that the district court improperly ruled that an unambiguous contract term permitted GSK to supply codefendants Apotex, Inc. and Apotex Corp. (collectively, Apotex) with a generic version of controlled release Paxil that was arguably subject to GSK's exclusive license to Mylan. Accordingly, the Court reversed and remanded the case for trial of the breach of contract claim.

In August 2007, GSK's predecessor, SmithKline Beecham, Corp. sued Mylan, Inc. for patent infringement after Mylan attempted to introduce a generic version of Paxil (paroxetine hydrochloride) to the market before GSK's patent on this drug had expired. The parties entered into a settlement agreement in which GSK granted Mylan an exclusive license to produce, market and sell generic paroxetine and to sell authorized generic paroxetine manufactured by GSK. The following month, in response to the FTC's concerns about the length and exclusivity of the parties' license agreement, GSK and Mylan amended their license agreement to provide that:

In 2008, Mylan launched its generic version of the drug. In 2010, as part of an unrelated antitrust settlement with Apotex, GSK and Apotex entered into a supply and distribution agreement under which GSK agreed to supply authorized generic paroxetine to Apotex for further sale and distribution. Soon after Apotex began selling authorized generic paroxetine, Mylan filed suit alleging:

The US District Court for the District of New Jersey granted summary judgment in favor of GSK and Apotex on all claims, ruling that the amended GSK-Mylan license agreement was clear and unambiguous in permitting GSK to market and sell authorized generic paroxetine to whomever it wished, including Apotex.

On Mylan's appeal, the Third Circuit:

The Third Circuit noted that, in the proceedings below, Mylan had pointed to various forms of evidence of the parties' intent respecting the scope of Mylan's exclusive rights under the GSK-Mylan license agreement, including:

The Third Circuit concluded that the district court had erred in rejecting this evidence in support of Mylan's alternate interpretation of the parties' agreement in favor of a finding that the agreement was, on its face, free from ambiguity. The court reasoned that the objective evidence Mylan offered to support its interpretation of the agreement's restrictions on GSK's sales of paroxetine made it clear that these contract terms contained a latent ambiguity. Accordingly, because both Mylan and GSK offered reasonable, but disputed, interpretations of their contract, the court reversed the grant of summary judgment and remanded the breach of contract claim to the district court to proceed to trial.

This case highlights the importance of precision in contract drafting and the licensor's need to state clearly and explicitly all reservations of right and other carve outs it wishes to make from any self-restrictions or grants of exclusive rights under its license agreements.