Maryland Pharma Company Could Reap $500 Million in Damages for Breach of Licensing Agreement

A six-year battle over an anti-viral drug has ended in a victory for Annapolis, Maryland-based PharmAthene over Siga Technologies Inc. Now it is up to a judge to decide how much the winner should receive in damages. The calculation depends heavily on the legal theory the court relied on to decide the case.

The dispute arose over the two companies’ joint development of the vaccine Arestvyr, designed for use during smallpox outbreaks resulting from terrorist attacks. PharmAthene sued in 2006, claiming a share of the profits under a licensing agreement. Siga responded that there was no agreement, that its negotiations with PharmAthene were never concluded, and that documents outlining a possible agreement were non-binding.

In 2011, the Delaware Chancery Court ruled that Siga had negotiated in bad faith. Despite the absence of a completed contract, it awarded PharmAthene half of the profits from the vaccine under the theory of “promissory estoppel.” Under this doctrine, if one party takes action in reliance on a promise from another, it can often enforce the promise, even without a formal contract.

That decision was reversed, because the Delaware Supreme Court said there actually was a valid contract between the partiesa “Type II preliminary agreement, ” in which the two companies had agreed on major terms and left others open for further negotiation. That contract should have been used as the basis for the decision, it ruled, not promissory estoppel.

In its rehearing of the case, the Chancery Court once again ruled in favor of PharmAthene, this time citing Siga’s breach of contract. Instead of awarding PharmAthene half of the profits as before, though, the Court is awarding PharmAthene contract or “expectancy” damages — the sum the company could reasonably have expected to receive from commercialization of the vaccine had Siga kept its word.

Without yet deciding on the amount, the court outlined the factors it would considerthe drug’s commercial prospects, the number of orders, sales to the U.S. government and other countries, and other considerations. The resulting sum could be anywhere from $50 million to $500 million. PharmAthene’s stock rose 43% on the news.

The case is a lesson in how enormous financial consequences may hinge on legal reasoning. A contract need not be finalized for a court to find that it meets essential requirements and is binding. The legal principle a court relies on for its decision can greatly alter the size of the remedy.

Business litigation frequently raises complex questions involving contract interpretation, damages, and remedies. It demands counsel well versed in both business practices and the law. The experienced attorneys at Longman & Van Grack handle all types of civil law suits and commercial disputes. Contact (301) 291-5027 for civil litigation representation today.