Unreported / Non-Citable
Background
Pacira Pharmaceuticals paid royalties to Research Development Foundation under protest and then sued for a declaratory judgment that it did not owe royalties related to two technologies: the 45L Exparel technology and the 200L Exparel technology. The district court granted summary judgment to Pacira on the 45L technology and, after a bench trial, found for Pacira on the 200L technology. The court ordered RDF to return the disputed funds with prejudgment interest.
RDF appealed, arguing that the district court misinterpreted the parties' contract. The dispute centered on a 2004 Amendment to a 1994 Agreement between the parties. The 2004 Amendment defined proprietary property to include Skye's multivesicular liposome DepoFoam technology and stated that the definition 'shall include' not only technology defined under the 1994 Agreement but also 'existing and future patent or proprietary rights of Skye in DepoFoam technology.'
The district court concluded that the 2004 Amendment did not expand the category of 'Assigned Proprietary Property' from the 1994 Agreement. Pacira argued that 'existing and future patent or proprietary rights' referred only to technology Pacira possessed in 2004, and that requiring royalties on future patents would be absurd, contrary to public policy, or unconscionable.
The Court’s Holding
The Ninth Circuit reversed in part, holding that the contract's plain language resolved the dispute in RDF's favor. The court explained that the 2004 Amendment's definition of proprietary property included a technical definition both parties agreed encompassed the 200L Exparel technology. The phrase 'existing and future patent or proprietary rights' reached not-yet-existent patent and proprietary rights as a matter of ordinary meaning. Because the 200L technology met the technical definition of DepoFoam technology and did not exist in 2004, it qualified as a 'future patent' right under the contract.
The court rejected Pacira's argument that the phrase referred only to technology possessed in 2004. Neither the possessive form nor the present-tense phrasing conveyed such a limitation. The court noted that the 1994 Agreement contained explicit language about pending patent applications and patents issuing during the agreement's term, which would have been used if the parties intended Pacira's interpretation. The court also emphasized that 'patent' and 'proprietary rights' were separated by the disjunctive 'or,' requiring separate meanings, and Pacira had no explanation for how 2004 technology could produce future 'proprietary rights.'
The court rejected Pacira's public policy and unconscionability arguments. The contract did not provide royalties for post-expiration use of a patent, so it did not violate the public policy recognized in Kimble v. Marvel Entertainment. Both parties were sophisticated business entities aided by counsel, and the contract's consequences were readily ascertainable on its face. The court also held that the district court applied the wrong prejudgment interest statute and remanded for recalculation under Nevada's contract-specific statute, Nevada Revised Statutes section 99.040.
Key Takeaways
- Contract language defining rights to include 'future patent or proprietary rights' unambiguously reaches technology that did not exist when the contract was signed, according to the Ninth Circuit's application of Nevada contract interpretation principles.
- When parties use different language in the same contract to address parallel issues, courts infer they intend different meanings, making the absence of explicit temporal limitations significant.
- A contract requiring royalties on future patents does not violate public policy against post-expiration patent royalties if the obligation ends when the patent expires.
- Sophisticated parties represented by counsel cannot easily establish unconscionability when contract terms are clear and their consequences readily ascertainable.
- Nevada's contract-specific prejudgment interest statute, section 99.040, applies to actions arising out of contract, including disputes over allegedly overpaid royalties.
Why It Matters
This decision reinforces the primacy of plain contract language under Nevada law, even when the resulting obligations seem disadvantageous or unexpected to one party. The ruling demonstrates that courts will not rewrite clear contractual terms based on arguments about absurdity, public policy, or unconscionability when sophisticated parties negotiated with counsel and the terms are unambiguous.
The case also clarifies the application of Nevada's prejudgment interest statute to contract disputes involving overpayments, ensuring that parties who wrongfully detain funds pay interest at the contract rate from the time the money became due. The remand for recalculation will affect the final amount RDF must return to Pacira on the 45L Exparel portion of the judgment.