Delaware Court of Chancery patent ownership dispute addresses jurisdiction for pharmaceutical companies

A litigation regarding patent ownership rights is heating up in the Delaware Court of Chancery, a court of equity that is an atypical forum for pharmaceutical company and intellectual property disputes. CyDex Pharmaceuticals, Inc. (CyDex) filed a breach of contract action against Bexson Biomedical, Inc. (Bexson) on August 28, 2024, seeking a judgment that it co-owns Bexson’s recent patent and related applications, and specific performance assigning such ownership rights to CyDex.

The Chancery Court must now decide Bexson’s motion to dismiss, which hinges on whether CyDex pled sufficient facts for equity jurisdiction. Through a broader lens, the CyDex litigation presents an opportunity for the Chancery Court to contribute to the resolution of intellectual property ownership disputes arising under research and cooperation agreements.

The parties’ initial agreement required further negotiations regarding patent filings.

As alleged in the verified complaint, CyDex is the manufacturer of Captisol®, a breakthrough product used to improve solubility, bioavailability, and stability of active pharmaceutical ingredients (APIs) in multiple pharmaceutical products. CyDex’s business model involves partnering with other pharmaceutical companies. CyDex provides Captisol® and an array of proprietary knowledge about its formulation and use to its licensees. In return, its licensees provide ongoing information on their research and a co-ownership stake in any intellectual property arising from the use of Captisol®.

In March 2019, Bexson took a license to obtain medical-grade Captisol® in connection with its research on a new formulation of ketamine (the In Vivo Agreement). The In Vivo Agreement narrowly defined the scope of Bexson’s use as related to development of a subcutaneous administration of low dose ketamine in a pump delivery system for the treatment of chronic pain. The In Vivo Agreement also provided that any inventions resulting from the parties’ collaboration would be jointly owned and that neither party would file for any intellectual property rights absent further agreement. The In Vivo Agreement terminated in March 2020, but certain post-expiration terms survive, including that the “accrued rights and obligations of the parties shall survive” termination.

CyDex alleges that Bexson used Captisol® and CyDex’s proprietary knowledge outside of the permitted uses.

By its suit, CyDex alleges that Bexson improperly used CyDex’s confidential information and know-how to develop nonketamine formulations without its knowledge. Bexson filed a patent application in 2021 covering these formulations and was issued US Patent No. 11,534,454 (the ’454 patent) in 2022. More specifically, the ’454 patent describes removing the salt from Captisol® and combining it with N, N-Dimethyltryptamine (DMT). Further applications were filed in 2022 and 2023 and remain in prosecution. Bexson did not notify CyDex of these filings.

CyDex seeks relief in equity; Bexson seeks a dismissal.

The Delaware Chancery Court is a court of equity jurisdiction. Thus, CyDex seeks a declaratory judgment that Bexson breached the In Vivo Agreement and asks for the remedy of specific performance “requiring Bexson to recognize and effectuate CyDex’s co-ownership rights” in its patents.

On October 9, 2024, Bexson moved to dismiss in lieu of an answer. Bexson alleges that the In Vivo Agreement was intended to be a short-term agreement, and in any event, was superseded and rendered null by the parties’ April 2019 Captisol® Use/Supply Agreement (the CUSA). Bexson thus argues that CyDex’s action under the In Vivo Agreement must be dismissed. Bexson further argues that the Chancery Court lacks subject matter jurisdiction because specific performance is not necessary for CyDex to obtain relief; an adequate legal remedy exists because a court of law can determine the parties’ property rights, and parties are presumed to act in accordance with declaratory judgments. In response to Bexson’s motion, CyDex filed a sealed amended complaint on November 6, 2024. Per the parties’ stipulation and order governing response to motion to dismiss, Bexson will have an opportunity to reply no later than November 20, 2024.

A venue for patent ownership disputes?

Although the issues of patent validity and infringement are questions of federal law, issues related to ownership of patent rights are questions for state courts. Without a federal question or diversity, a party must turn to a state court to address patent ownership disputes. This case presents a rare opportunity for the Delaware Court of Chancery, a state court of equity, to consider whether it has jurisdiction to decide declarations of joint ownership rights in patents. This will not be answered in the abstract, as the question in this case is framed by whether CyDex has pled sufficient facts in its amended complaint to establish that no legal remedy exists.

The CyDex litigation could position the Delaware Chancery Court – typically home to corporate disputes – as a venue for actions by pharmaceutical companies seeking declarations of inventorship rights. According to the Delaware Division of Corporations, 68.2 percent of all Fortune 500 companies are incorporated in Delaware, and 79 percent of US-based IPOs in 2022 listed Delaware as their “corporate home.” For the many pharmaceutical companies subject to jurisdiction in Delaware, the CyDex litigation is a case to watch.

For more information, please contact the authors.