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Elorac, Inc. v. Sanofi-Aventis Canada Inc.

United States District Court, N.D. Illinois, Eastern Division

December 19, 2014

ELORAC, INC., Plaintiff,


AMY J. ST. EVE, District Judge.

Before the Court is Defendant's motion to dismiss. For the following reasons, the Court denies Defendant's motion.


Plaintiff Elorac, Inc., ("Elorac" or "Plaintiff"), the assignee of all rights previously held by Winston Laboratories, Inc. ("Winston") filed a complaint alleging two counts of breach of contract against Defendant Sanofi-Aventis Canada Inc. ("Sanofi Canada" or "Defendant"), based on (1) failure to pay royalties for net sales (Count I) and (2) failure to use commercially reasonable efforts to commercialize the product (Count II). ( See generally R.1, Compl.) Elorac alleges that it is entitled to payments relating to the development, marketing, promotion and sale of a topical cream used to treat osteoarthritis, known as Civamide, under a License Agreement that Winston assigned to Elorac. (R.1, ¶¶ 1, 2.) Sanofi Canada moves to dismiss Elorac's complaint pursuant to Rule 12(b)(2) for lack of personal jurisdiction and Rule 12(b)(3) for improper venue. ( See Fed.R.Civ.P. 12(b)(2); Fed.R.Civ.P. 12(b)(3); R.22, Defs.' Motion to Dismiss, at 7-15.)

I. The Parties

Elorac is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Vernon Hills, Illinois. (R.1, Compl., ¶ 3.)[1] Winston, at all times relevant to this dispute, was a corporation organized and existing under the laws of the State of Delaware, with its principal place of business located in Vernon Hills, Illinois. (R.1, ¶ 5.) Defendant Sanofi-Aventis Canada Inc. ("Sanofi Canada" or "Defendant"), is a corporation organized and existing under the laws of Canada, with its principal place of business located at 2150, Saint Elzear Blvd. West., Laval, Quebec, Canada, H7L 4A8. (R.1, ¶ 6.)

II. The Product - Civamide Cream

Winston developed pharmaceutical products that treat a wide range of pain indications, including episodic cluster headaches, chronic daily headaches, neuropathic pain, cancer pain, post-operative pain, and osteoarthritis. (R.1, ¶ 9.) Winston developed Civamide, a proprietary compound to treat the symptoms of osteoarthritis. (R.1, ¶ 10.) Civamide is a TRPV-1 receptor modulator and neuronal calcium channel blocker and is the primary active ingredient in a topical cream for treating osteoarthritis ("Civamide Cream"). (R.1, ¶¶ 11, 12.)

III. The Meetings

In March of 2007, Dr. Joel Bernstein-founder, President, and C.E.O. of Winston[2]- contacted Mr. Anjan Aralihalli-U.S. Director of Business Development for Sanofi-Aventis U.S. ("Sanofi U.S.")-to see whether Sanofi U.S. might be interested in licensing the Civamide Cream. (R.25-1, Bernstein Declaration, ¶ 8; R.22-1, Megyery Declaration, ¶ 4.) During discussions with Sanofi U.S., Mr. Aralihalli informed Dr. Bernstein that Sanofi Canada wanted to talk with him, as it was interested in licensing Winston's Civamide Cream. (R.25-1, ¶ 9.) In July 2007, Dr. Bernstein followed up on Mr. Aralihalli's request and contacted Ms. Manon Decelles-Director of Business Development for Sanofi Canada-to discuss Sanofi Canada's interest in promoting and distributing the Civamide Cream. (R.25-1, ¶ 10.) Ms. Decelles' primary responsibility was to research and identify business development opportunities for Sanofi Canada, she was also responsible for product licensing at Sanofi Canada. (R.22-1, ¶ 3; R.27-1, ¶ 2.)

Discussions between Sanofi Canada and Winston continued into 2008. (R.22-1, ¶ 6.) On May 30, 2008, Dr. Bernstein met with Ms. Decelles in Chicago to discuss Sanofi Canada's interest in promoting and distributing the Civamide Cream. (R.1, ¶ 13; R.22-1, ¶ 7.) Sanofi Canada employees were in Chicago during that time to attend the 2008 American Society of Clinical Oncology (ASCO) conference and agreed to also meet with Dr. Bernstein to "continue[] assessment of a potential business opportunity." (R.22-1, ¶ 7.) A second meeting occurred during that visit, on June 2, 2008, to again discuss promotion and distribution of the Civamide Cream. (R.1, ¶ 14; R.22-1, ¶ 9.) Sanofi Canada attended this meeting with "the goal of.... get[ting] to know Dr. Bernstein and Winston, understand and confirm, as best possible, the representations regarding Winston and Civamide that Dr. Bernstein had made, and to gain comfort that Winston would be a reliable business partner." (R.22-1, ¶ 9.) At this second meeting, Sanofi Canada presented to Winston representatives, including Dr. Bernstein, its abilities related to selling and promoting the Civamide Cream, emphasizing its market access, sales and marketing expertise, experienced brand management, result-driven sales force, sales support, trade and customer support, trade knowledge, and relationships, launch support, hospital contracts, and competitive sales organization. (R.1, ¶¶ 17, 21; R.22-1, ¶¶ 10, 11; R.25-1, ¶ 14.) During this same meeting, Sanofi Canada also shared with Winston information regarding its budget, employee force, past sales success with other pharmaceutical products, familiarity with marketing osteoarthritis products, as well as predictions relating to anticipated success of Winston's Civamide Cream, including the number of anticipated sales representatives Sanofi Canada would allocate for promoting the Civamide Cream if Sanofi Canada became Winston's licensee. (R.25-1, ¶¶ 19, 20, 22-28.) A third meeting occurred in Chicago on July 3, 2008 between Dr. Bernstein and Mr. Edward Dahl-Director, Mergers & Acquisitions at Sanofi Canada-to discuss ideas for collaboration with Sanofi Canada related to Winston's other dermatologic product formulations. (R.27-1, ¶¶ 3-5.) After the June 2, 2008 meeting, the parties began negotiations, each from their respective locations, i.e., Sanofi Canada in Quebec, and Winston in Illinois. (R.22-1, ¶ 12.)

On July 24, 2008, Dr. Bernstein again met with Ms. Decelles in Chicago to negotiate and finalize terms of an agreement-in-principle between Winston and Sanofi Canada, which was necessary before an actual written agreement could be drafted. (R.25-1, ¶ 16; R.22-1, ¶ 13.) During this meeting, discussions focused on areas that became key terms of the potential license agreement, and the attendees agreed to, among other things: (i) the scope of the license; (ii) the development process; (iii) the manufacturing and supply process; (iv) how to calculate the purchase price; (v) Sanofi Canada's obligations with respect to promoting and marketing the Civamide Cream; (vi) a signing fee; (vii) milestone royalty payments; (viii) performance payments; (ix) royalty payments; and (x) payment terms. (R.25-1, ¶ 16.) In the months that followed, the parties worked to document formally the agreements that they reached during the July 24, 2008 meeting. (R.25-1, ¶ 17; R.22-1, ¶ 12.)

IV. The License Agreement

A few months later, on October 30, 2008, Sanofi Canada and Winston subsequently executed a license agreement pertaining to Winston's Civamide Cream (the "License Agreement"). (R.1, ¶ 31; R.22-1, ¶ 15; see generally, R.1-1, License Agreement.) The License Agreement granted Sanofi Canada the exclusive right to develop, manufacture, and commercialize the Civamide Cream (as well as a second generation cream) in Canada. (R.1, ¶¶ 32, 33; R.22-1, ¶ 20.) The License Agreement included terms relating to Sanofi Canada's agreement to use commercially reasonable efforts to commercialize the product in Canada. (R.1, ¶¶ 34-37.) Other "material aspects" of the License Agreement included Winston's obligations to develop, obtain regulatory approval, and manufacture Civamide Cream. (R.22-1 ¶ 21; R.1-1, §§ 3, 4.) The License Agreement required Sanofi Canada to use good faith efforts consistent with (i) those generally utilized by similarly sized companies with respect to their own internally developed pharmaceutical products with similar market potential and (ii) Sanofi Canada's past marketing and sales practices, to sell, offer for sale, import, export, transport, register, distribute, promote, and market the Civamide Cream in Canada. (R.1, ¶ 38.) Sanofi Canada also agreed to pay royalties for its exclusive license with respect to the Civamide Cream. (R.1, ¶¶ 39-42.) The License Agreement contains a forum selection clause in Article 15, entitled "Governing Law and Dispute Resolutions" that states:

15.1 Governing Law - This Agreement shall be governed by and construed in accordance with the laws in force in the State of New York, without reference to its conflict of laws principles.
15.2 Disputes - Unless otherwise set forth in this Agreement, in the event of a dispute arising out of or under this Agreement between the Parties, such dispute shall be referred to the respective executive officers of the Parties or their designees, for good faith negotiations attempting to resolve the dispute.
15.3 Should the Parties fail to agree on ways to resolve the dispute within thirty (30) days of the notice sent by one Party to the other, than the party having sent the notice shall be entitled to seek redress from the Courts of the State of New York.

(R.22-1, ¶ 22; R.1-1, at 30, § 15.1-15.2 (emphasis in original), § 15.3 (emphasis added).) Winston subsequently assigned the License Agreement to Elorac on October 11, 2012. (R.1, ¶ 68.)

V. The Dispute

In the years following entry of the License Agreement, Winston and Sanofi Canada met to discuss Winston's concerns with Sanofi Canada's performance. In May 2009, Dr. Bernstein and Ms. Decelles met in Atlanta during a conference to discuss Sanofi Canada's performance obligations. (R.25-1, ¶ 22b.) Winston's problems with Sanofi Canada's performance under the License Agreement continued after Winston received regulatory approval for its Civamide Cream in Canada. (R.1, ¶¶ 43, 44; R.22-2, ¶¶ 3, 5.) On August 3, 2010, Sanofi Canada informed a Winston consultant that it no longer planned to market the Civamide Cream and would be "out-licensing the product to a third party." (R.1, ¶¶ 45, 46.) After being notified of this development, Winston contacted Sanofi Canada to object to the transfer of its obligations to a third party. (R.1, ¶¶ 47, 48.) Over the next months, Winston continued to complain about Sanofi Canada's failure to commercialize the Civamide Cream and sent formal notice identifying three issues upon which it would seek redress. (R.1, ¶¶ 49, 50.) Namely, Winston inquired concerning: (i) launching of the Civamide Cream in Canada, (ii) payment of regulatory approval expenses, and (iii) Sanofi's failure to provide market research studies. (R.1, ¶ 51.) After addressing these issues in a conference call on December 8, 2010, Sanofi Canada agreed to (i) launch the Civamide Cream in early to mid-April of 2011; (ii) pay 50% of certain development costs; and (iii) inquire with legal counsel regarding the market research studies. (R.1, ¶ 54.) Sanofi Canada did not perform as agreed. (R.1, ¶ 55.)

On July 18, 2011, without consulting Winston, Sanofi Canada informed Winston that Valeant International ("Valeant") would be taking over Sanofi Canada's marketing and sales responsibilities with respect to the Civamide Cream. (R.1, ¶ 56.) On August 15, 2011, Winston notified Sanofi Canada of its alleged breach of the License Agreement, including Sanofi Canada's failure to disclose the rights and obligations transferred to Valeant and whether Valeant planned to abide by the terms of the License Agreement. (R.1, ¶ 59.) After additional disagreements, including Winston's request for Sanofi Canada's assistance in requesting removal of an indication for the Civamide Cream that limited its use to "no more than three months, " Winston sent a letter to Sanofi Canada identifying seven alleged breaches pursuant to the Notice provision of Section 14.2 of the License Agreement. (R.1, ¶¶ 61-66.)

A number of face-to-face meetings were held to discuss Winston's allegations of breach during the License Agreement, including a one-day meeting in Chicago. In October 2011, Dr. Bernstein and other Winston representatives met in New York with Thomas DeRosier-General Counsel of Sanofi North America-and other representatives to discuss Sanofi Canada's performance. (R.25-1, ¶ 22c.) On December 10, 2012, a meeting was held in Chicago between Elorac, Winston representatives-including Dr. Bernstein-and Jon Fairest (President of Sanofi Canada), Pat Papillo (C.F.O. of Sanofi Canada), and To-Dong Sec (Business Development, Sanofi Canada). (R.25-1, ¶ 22d.) After the December 10 meeting, Sanofi Canada agreed to apply to Health Canada for the label modification and provided information pertaining to Valeant's plans to promote the Civamide Cream. (R.1, ¶¶ 70-73.) Sanofi Canada later instructed Elorac to prepare the regulatory submission and upon its receipt, Sanofi Canada submitted it to Health Canada and notifed Elorac of the submission evalution fee that would be necessary to ensure evaluation of the submission. (R.1, ¶¶ 74-78.)

On November 26, 2013, Sanofi Canada informed Elorac that Valeant had stopped promoting the Civamide Cream altogether. (R.1, ¶ 79.) On March 17, 2014, Elorac filed its Complaint alleging Sanofi Canada ...

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