Pharmaceutical giant GlaxoSmithKline lost a round in the U.S. Court of Appeals for the Third Circuit when a three-judge panel revived for trial a breach of contract claim brought by a generic drug manufacturer with rights to the formula for Paxil.

The U.S. District Court for the District of New Jersey should not have granted summary judgment to GSK without considering the evidence of an alternative reading of the contract between GSK and a generic drugmaker called Mylan, the appeals court held. The claim is back for the U.S. District Court for the District of New Jersey.

"The district court was not free to reject such evidence on the ground that it found the agreement on its face free from ambiguity," U.S. Court of Appeals Judge Thomas Ambro wrote on behalf the Third Circuit panel in Mylan v. GSK this week. Also on the panel were Senior Judge Anthony Scirica and Judge Julio Fuentes.

"This is especially so when the alternative reading of the contested language suggested by Mylan was both reasonable and supported by objective evidence of the parties' intentions," Ambro said. "This demonstrates latent ambiguity in the contractual language. Hence, summary judgment was not appropriate on Mylan's breach-of-contract cause of action."

In 2007, GSK sued Mylan for patent infringement when the company asked the Food and Drug Administration for approval of a generic form of paroxetine, an antidepressant that GSK markets as Paxil, before GSK's patent had expired, according to the opinion. The companies later reached a settlement, including a licensing agreement that, ultimately, gave Mylan exclusive rights to market the generic form of the drug, with two exceptions: GSK would be able to enter into settlements with other generic drug companies that had filed Abbreviated New Drug Applications with the FDA and GSK would be able to market a generic form of the drug after two years.

In 2010, GSK settled an unrelated suit with a company called Apotex. The terms of that settlement included the agreement that Apotex would sell a generic form of paroxetine provided to it by GSK. Apotex hadn't filed an ANDA with the FDA, so the agreement wouldn't fall under that exception.

Mylan argued that the agreement wouldn't fall under the second exception, either, which runs counter to the district court's holding.

The district court ruled that the agreement between Mylan and GSK allowed GSK to market its own generic version of the drug freely after the two-year time period had passed.

However, the Third Circuit agreed with Mylan that there is a reasonable alternative reading to that part of the contract that would limit GSK from supplying its generic form of the drug to a third-party generic competitor to Mylan.

"The district court needed to take into account the alternative meaning suggested by Mylan, and the nature of the objective evidence offered in support of its suggested meaning, to determine whether that extrinsic evidence 'demonstrate[d] the existence of a latent ambiguity,'" Ambro said, quoting from the Third Circuit's 1995 opinion in Duquesne Light v. Westinghouse.

The Third Circuit did uphold the district court's holding with regard to its grant of summary judgment in favor of GSK on Mylan's good faith and fair dealing claim and its grant of summary judgment to Apotex on Mylan's tortious interference claim.

Regarding the former, Ambro concluded that although the agreement between GSK and Apotex might well have intruded on the expected profits of Mylan for its sale of the generic drug "by introducing a direct third-party competitor, it has not produced any evidence that GSK entered into that subsequent agreement with bad faith or improper motive."

Regarding the latter, the Third Circuit similarly held that Apotex didn't have the requisite knowledge of the agreement between GSK and Mylan nor the malicious intent to frustrate it in order to sustain a tortious interference claim.

Christopher Mizzo, of Kirkland & Ellis in Washington, D.C., represented GSK and referred requests for comment to the company.

Kevin Colgan, spokesman for GSK, said in a prepared statement, "While we are disappointed with the decision, we are pleased that parts of the summary judgment were affirmed. We intend to continue our defense of the matter."

Michael Johnson, of Alston & Bird in New York, represented Mylan and couldn't be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or Follow her on Twitter @SSpencerTLI.

(Copies of the 20-page opinion in Mylan v. GSK, PICS No. 13-2195, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)