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Board of Trustees of the University of Illinois v. Organon Teknika Corporation LLC

July 27, 2010

BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS, PLAINTIFF-APPELLEE,
v.
ORGANON TEKNIKA CORPORATION LLC, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 C 4251-Ronald A. Guzmán, Judge.

The opinion of the court was delivered by: Easterbrook, Chief Judge.

ARGUED APRIL 1, 2010

Before EASTERBROOK, Chief Judge, and BAUER and HAMILTON, Circuit Judges.

Organon Teknika, a subsid- iary of the pharmaceutical manufacturer Merck & Co., licenses from the University of Illinois some intellectual-property rights needed to make Tice BCG, a drug for cancer. The royalty that the University receives depends on what Organon Teknika collects from its customers.

Because the license allows Organon Teknika to sell to affiliated firms, the University was concerned that the transfer prices would be too low and depress its royalty revenue. The license permits the University to reopen the royalty rate if it believes that Organon Teknika's intra-corporate-family prices are lower than the price it charges (or would charge) after arms'-length negotiations with unrelated buyers. The contract provides that an arbitrator will look at comparable pharmaceutical transactions to determine whether Organon Teknika is charging arms'-length prices.

In 2006 the University exercised its option to arbitrate the pricing question. The parties selected as their arbitrator William Albrecht, III, a consultant with CONSOR

Intellectual Asset Management. Albrecht received evidence about 39 supposedly comparable selling arrangements. The University denied that any of the 39 was the sort of comparable arms'-length deal that the license contemplated. Albrecht eventually concluded that four particular transactions serve as benchmarks, that they had been negotiated at arms' length, and that they establish that the University is continuing to receive the return for which it negotiated. Albrecht entered an award that closed the proceeding without changing the royalty rate. The report was accompanied by a cover letter that described the award as "final"; CONSOR sent a "final" bill for its services. (The award itself was withheld until the bill had been paid.)

The University was not satisfied with this defeat, but it did not seek judicial review of the award or ask Albrecht to modify it within the 90 days allowed by 9 U.S.C. §12. Six months after the bills had been paid and the award released to the parties, the University asked Albrecht to reconsider, contending that two of the four transactions he selected as comparable had not actually been negotiated at arms' length. It relied on these two sentences from Albrecht's opinion:

The foregoing opinions and conclusions contained in this report are based upon the documents, information, and research undertaken as of the date of this report. I reserve the right to revisit my analysis and amend my conclusions, should additional information become available for review.

CONSOR asked its lawyers whether it was legally permitted to reopen the arbitration; counsel said yes, but that it should not do so unless the parties agreed. CONSOR re- layed this conditional willingness (adding, as an additional condition, the parties' undertaking to pay for the extra work). The University promptly consented; Organon Teknika did not.

Frustrated by this lack of cooperation, the University filed this suit and asked the district court to compel Organon Teknika to resume the arbitration. It describes its claim for relief as a demand that Organon Teknika honor its commitment to arbitrate any dispute about reopening the royalty rate. Organon Teknika replied that it did honor its obligation, that the arbitration was completed, that the University lost, and that the time for further review has expired.

Instead of resolving the parties' dispute, the district court held that there was no dispute to resolve. The district judge wrote a brief order dismissing the suit on the ground that Albrecht had not made a final award, so the matter remained before him and there was nothing for a court to do. Both sides were stunned by this disposition, which neither had suggested.

Surprisingly, Organon Teknika has appealed. Its appeal is surprising because it is the apparent victor. The University commenced this litigation in quest of an order requiring Organon Teknika to resume the arbitration; it emerged empty-handed. Organon Teknika asked the district court to deny the University's request. The judge obliged-and though the judge's reason differs from Organon Teknika's, a victory for the "wrong" reason is still a victory. Yet the University, which lost, did not appeal; and Organon Teknika, which won, did. What's going on?

We asked that question at oral argument. Organon Teknika's lawyer says that it appealed because it disagrees with the district judge's reason for entering a judgment in its favor. It believes that the reason may come back to haunt it if, in the future, the University files another suit and insists that Organon Teknika is liable for abandoning the arbitration before its completion. Yet litigants can't appeal from district judges' opinions; only their judgments are subject to appellate review. California v. Rooney, 483 U.S. 307, ...


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