## Facts

- Eli Lilly and Company and Emisphere Technologies, Inc. entered research collaboration and option agreements (RCOA I and RCOA II) and a related exclusive license for Emisphere “carrier” compounds enabling oral delivery of certain Lilly therapeutic proteins.
- The collaboration required extensive reciprocal sharing of confidential and proprietary information and defined specific research “Programs” (initially focused on parathyroid hormone (PTH)).
- Lilly exercised an option and paid $4 million for an exclusive license covering designated compounds within the parties’ contractual framework.
- During the relationship, Lilly conducted internal, undisclosed research applying Emisphere carrier technology to other Lilly compounds outside the defined Programs, including glucagon-like peptide-1 (GLP-1).
- Lilly filed and published an international patent application claiming oral GLP-1 delivery using Emisphere proprietary carriers (WO 03/072195).
- After learning of Lilly’s off-program work and patenting activity, Emisphere treated the conduct as a material breach and terminated the collaboration and license agreements.
- Lilly sued to prevent termination and establish its rights; Emisphere pursued a counterclaim for breach of contract.

## Issues

1. Whether a collaborative research agreement requiring open exchange of proprietary information includes an implied covenant barring use of the other party’s proprietary information outside the scope of the defined contractual programs.
2. Whether Lilly’s secret off-program research using Emisphere carrier technology and its GLP-1 patent application constituted a material breach permitting Emisphere to terminate the collaboration and license agreements.
3. Whether the GLP-1 inventions and patent application were required by contract (including RCOA II § 1.5(c)) to be treated as “Emisphere Technology” and assigned to Emisphere.

## Decision

- The court found Lilly breached the collaboration and license agreements by using Emisphere’s proprietary carrier technology outside the defined Programs through undisclosed internal research and patenting efforts.
- The court held the agreements contained an implied covenant limiting Lilly’s use of Emisphere proprietary information to the contractual Programs, given the open-disclosure structure of the collaboration.
- The breach was material, and Emisphere was entitled to terminate the collaboration and license agreements effective August 23, 2004.
- The court concluded the oral GLP-1 inventions were “closely related” to Emisphere technology and arose at least in part from communications between the parties’ scientists, bringing them within RCOA II § 1.5(c).
- As a result, Lilly was required to treat the GLP-1 patent application as “Emisphere Technology,” and equitable relief later required Lilly to assign WO 03/072195 and any resulting patents to Emisphere.

## Legal Principles

- In R&D collaborations that require broad, reciprocal sharing of proprietary information to achieve defined joint programs, contract law may imply a covenant restricting use of the disclosed proprietary information to the contract’s scope.
- A party’s undisclosed, off-scope use of the other party’s proprietary technology—especially to obtain separate patent rights—can constitute a material breach supporting termination where the collaboration depends on trust and transparent information use.
- Contractual invention-allocation clauses can require ownership reclassification and assignment of inventions and patent applications when the inventions are closely related to the disclosed technology and arise, in whole or in part, from joint scientific discussions.

## Conclusion

The court held that Lilly’s secret off-program use of Emisphere’s carrier technology and related patenting activity violated an implied contractual limitation inherent in an open-disclosure research collaboration, amounted to a material breach permitting termination, and triggered contractual ownership provisions requiring assignment of the GLP-1 patent application to Emisphere.


Eli Lilly & Co. v. Emisphere Techs., Inc., 408 F. Supp. 2d 668 (S.D. Ind. 2006)