Background
In 2016, Eli Lilly sued Teva Pharmaceuticals for patent infringement of six patents covering Forteo, an osteoporosis treatment. Teva had filed a paragraph IV certification with the FDA, challenging the patents’ validity and seeking to launch a generic version. Two years later, the parties settled. Under the settlement, Teva agreed not to sell the generic until an Entry Date no later than August 12, 2019. In return, Lilly covenanted not to “take any action to prevent or delay the approval, launch, or manufacture” of Teva’s generic drug and granted Teva a royalty-free license to the patents, promising to waive any regulatory exclusivities necessary to effectuate the license.
The six Forteo patents expired on August 19, 2019, but Teva had not yet entered the market. In January 2020—months after patent expiration—Lilly filed a supplemental new drug application with the FDA for packaging changes to Forteo. The FDA approved the supplement in November 2020, and Lilly obtained three additional years of regulatory market exclusivity lasting until November 16, 2023. Lilly did not notify the FDA of its waiver of exclusivity in favor of Teva until weeks before the exclusivity period expired, and only at Teva’s urging. Teva alleged this prevented it from obtaining final FDA approval and entering the market sooner.
In November 2024, Teva sued for breach of contract, asserting that Lilly violated its covenant not to interfere with Teva’s generic approval and entry. The district court dismissed for failure to state a claim, reasoning that the settlement agreement could not have remained in effect after August 19, 2019, because the underlying patent litigation had ended with patent expiration.
The Court’s Holding
The Seventh Circuit reversed, holding that Teva plausibly alleged breach of contract despite the settlement agreement’s silence on its expiration date. Under Indiana contract law, which governed the settlement, a contract without a specified duration is effective for “a reasonable time.” The court rejected Lilly’s argument that because the settlement arose from patent litigation, it necessarily expired when the patents did. The agreement’s text distinguished between provisions tied to patent expiration (the license was granted only “through the expiration of the [Forteo patents]”) and other covenants (the covenants were effective only “during the time that this Settlement Agreement is in effect”). This textual difference indicated the parties contemplated different end dates for different provisions.
The court reasoned that if Teva’s covenant not to sue Lilly remained effective after patent expiration—a covenant that would logically bar antitrust suits even after patents expired—then the underlying Settlement Agreement itself must remain “in effect.” Lilly’s covenants protecting Teva’s market entry, being central to the parties’ original compromise, similarly should survive patent expiration. At the motion to dismiss stage, Teva need only allege plausibility, not pinpoint an exact termination date. The “reasonable time” for the settlement’s duration involves factual questions about the subject matter, the parties’ circumstances, and the contract’s purposes—questions unsuitable for resolution on pleadings alone.
Key Takeaways
- Settlement agreements can extend beyond the expiration of underlying patents if the contract text does not expressly limit their duration to the patent term.
- Courts will not infer an implied termination date from silence; the burden is on the drafter to clearly specify when contractual obligations end.
- At the motion to dismiss stage, a plaintiff need only allege that contract obligations remain in effect at the time of the alleged breach; specifying the exact expiration date is premature and not required under federal pleading standards.
- Covenants that logically extend beyond patent expiration—such as covenants not to sue or not to interfere with market entry—support an inference that the entire settlement remains effective for a reasonable time.
Why It Matters
This decision significantly impacts how pharmaceutical companies draft and interpret settlement agreements in Hatch-Waxman disputes. It establishes that parties cannot rely on implicit termination tied to patent expiration; they must explicitly define end dates or face uncertainty about whether obligations survive. For generic manufacturers, the ruling provides important protection: even after patents expire, a brand manufacturer cannot use supplemental approvals or regulatory tactics to circumvent settlement covenants designed to guarantee market entry. The decision also clarifies pleading standards, making clear that defendants cannot defeat a breach-of-contract claim at the motion to dismiss stage merely by arguing that an ambiguous contract term should be interpreted against the plaintiff.
The practical effect is to incentivize more careful drafting of settlement terms and to hold brand manufacturers accountable for covenants that extend beyond patent protection. In an industry where timing of market entry is crucial—particularly where 180 days of regulatory exclusivity can mean hundreds of millions of dollars—this decision ensures that settlement agreements protecting generic entry cannot be undermined by regulatory maneuvers undertaken after the patent’s formal expiration.