## Facts

- Genentech and Eli Lilly entered an “Insulin Agreement” licensing Genentech’s recombinant DNA technical information, know-how, and biological materials to Lilly.
- The agreement granted Lilly rights “for the limited purpose of manufacturing, selling and using Recombinant Insulin,” and described the license as exclusive for that stated purpose.
- Genentech alleged Lilly used the licensed biological material and information beyond insulin, including to develop human growth hormone (hGH) to compete with Genentech.
- Genentech pursued a contract claim for breach of the Insulin Agreement (not a patent infringement claim in this motion).
- While discovery was ongoing, Genentech moved for partial summary judgment, arguing the “limited purpose” clause necessarily implied a negative covenant barring any non-insulin use.
- Lilly opposed, arguing the agreement contained no express prohibition on other uses and that the parties’ intent and negotiation history were disputed.
- Lilly also sought Rule 11 sanctions, asserting Genentech’s implied-covenant theory lacked merit.

## Issues

1. Whether a license granting rights “for the limited purpose” of making and selling recombinant insulin implied, as a matter of law, a negative covenant prohibiting non-insulin uses of the licensed materials and know-how.
2. Whether genuine disputes of material fact regarding contract meaning and the parties’ intent precluded partial summary judgment under Rule 56, particularly with discovery incomplete.
3. Whether Genentech’s motion warranted Rule 11 sanctions as frivolous or unsupported.

## Decision

- The court denied Genentech’s motion for partial summary judgment on its implied negative covenant theory.
- The court found genuine issues of material fact concerning the parties’ intent and the proper construction of the “limited purpose” language, requiring further factual development.
- The court denied Lilly’s request for Rule 11 sanctions, concluding Genentech’s position was not sanctionably baseless.

## Legal Principles

- A “limited purpose” grant in a technology or patent-related license does not automatically create, as a matter of law, an implied negative covenant barring all other uses.
- Whether a negative covenant should be implied is a state-law contract interpretation question that may depend on extrinsic evidence, including negotiation history and commercial context.
- Summary judgment is inappropriate where contract meaning turns on disputed intent and the evidentiary record is undeveloped due to ongoing discovery.
- Rule 11 sanctions are not warranted merely because a party advances an unsuccessful contract construction; the position must be frivolous or objectively unreasonable.

## Conclusion

The court refused to treat “limited purpose” license language as conclusively establishing an implied promise not to use licensed biotechnology materials for other products, holding that intent and contract meaning required fact development; it therefore denied partial summary judgment and declined to impose Rule 11 sanctions.


Eli Lilly & Co. v. Genentech, Inc., 17 U.S.P.Q.2d 1531 (S.D. Ind. 1990)