In May 2012, we had
discussed
the case of Martin Marietta wherein a
confidentiality agreement was enforced in the context of an M&A
transaction. Now, a California court has similarly enforced a confidentiality
agreement in the case of Depomed, Inc. v.
Horizon Pharma, PLC (accessed via the website of Wachtell, Lipton,
Rosen & Katz).
discussed
the case of Martin Marietta wherein a
confidentiality agreement was enforced in the context of an M&A
transaction. Now, a California court has similarly enforced a confidentiality
agreement in the case of Depomed, Inc. v.
Horizon Pharma, PLC (accessed via the website of Wachtell, Lipton,
Rosen & Katz).
The facts of the
case are summarized in the ruling:
case are summarized in the ruling:
Depomed asserts that, for approximately the last five months,
Horizon has engaged in a campaign to take over Depomed through an acquisition
proposal that significantly undervalues Depomed. Depomed contends Horizon knows
its proposal is inadequate because it has detailed confidential and non-public
information about Depomed’s flagship product, NUCYNCTA. Depomed states that
Horizon obtained this information pursuant to a confidentiality agreement (the
“MNDA”) entered into as part of a competitive bidding process to acquire
NUCYNCTA from Janssen Pharmaceuticals, Inc. (“Janssen”) – a process in which
Depomed was the winning bidder earlier this year. Depomed argues that Horizon
is required under the MNDA to maintain this information in “trust and
confidence” and use it only in connection with a potential deal with Janssen
for NUCYNCTA, but Horizon is now misusing this confidential information to take
control of Depomed.
Horizon has engaged in a campaign to take over Depomed through an acquisition
proposal that significantly undervalues Depomed. Depomed contends Horizon knows
its proposal is inadequate because it has detailed confidential and non-public
information about Depomed’s flagship product, NUCYNCTA. Depomed states that
Horizon obtained this information pursuant to a confidentiality agreement (the
“MNDA”) entered into as part of a competitive bidding process to acquire
NUCYNCTA from Janssen Pharmaceuticals, Inc. (“Janssen”) – a process in which
Depomed was the winning bidder earlier this year. Depomed argues that Horizon
is required under the MNDA to maintain this information in “trust and
confidence” and use it only in connection with a potential deal with Janssen
for NUCYNCTA, but Horizon is now misusing this confidential information to take
control of Depomed.
In other words,
Depomed and Horizon were competing bidders to acquire NUCYNCTA from Janssen. Horizon
obtained confidential information in relation to NUCYNCTA but did not succeed
in acquiring it. Now, it sought to use that information to stage a takeover of Depomed,
which was the successful bidder.
Depomed and Horizon were competing bidders to acquire NUCYNCTA from Janssen. Horizon
obtained confidential information in relation to NUCYNCTA but did not succeed
in acquiring it. Now, it sought to use that information to stage a takeover of Depomed,
which was the successful bidder.
After considering
the facts and legal issues involved, the Court issued a preliminary injunction
against Horizon.
the facts and legal issues involved, the Court issued a preliminary injunction
against Horizon.
The first issue
related to whether the MNDA that bound Horizon pertained to its proposed acquisition
of NUCYNCTA. After considering the relevant evidence, the Court came to the
conclusion that it was indeed the case.
related to whether the MNDA that bound Horizon pertained to its proposed acquisition
of NUCYNCTA. After considering the relevant evidence, the Court came to the
conclusion that it was indeed the case.
The second issue
was whether Depomed lacked standing to bring the action because it was not a
party to the MNDA, which was between Horizon and Janssen. It was argued that
Depomed was only a third-party beneficiary. However, the Court found that
Janssen’s rights under the MNDA were transferred to Depomed as a part of its
acquisition of NUCYNCTA. Janssen therefore had no interest in the protection of
the confidential information.
was whether Depomed lacked standing to bring the action because it was not a
party to the MNDA, which was between Horizon and Janssen. It was argued that
Depomed was only a third-party beneficiary. However, the Court found that
Janssen’s rights under the MNDA were transferred to Depomed as a part of its
acquisition of NUCYNCTA. Janssen therefore had no interest in the protection of
the confidential information.
Finally, Depomed
succeeded in showing that the information used by Horizon in its bid for
Depomed came from Janssen and that it was not publicly available. Hence,
Depomed was likely to prevail in a breach of contract claim.
succeeded in showing that the information used by Horizon in its bid for
Depomed came from Janssen and that it was not publicly available. Hence,
Depomed was likely to prevail in a breach of contract claim.
Based on a
consideration of these issues, the Court came to the conclusion that “[w]ith
regard to the relative interim harm to the parties from the issuance of an injunction,
the harm to Depomed from not issuing an injunction would be greater than the
harm to Horizon from issuing an injunction”. Hence, Depomed was able to succeed
in the action.
consideration of these issues, the Court came to the conclusion that “[w]ith
regard to the relative interim harm to the parties from the issuance of an injunction,
the harm to Depomed from not issuing an injunction would be greater than the
harm to Horizon from issuing an injunction”. Hence, Depomed was able to succeed
in the action.
The outcome in
this case is similar to that in Martin
Marietta wherein the plaintiff was able to succeed in a claim for breach of
confidentiality in a hostile takeover although the confidentiality arrangement
itself was entered into in connection with a past transaction. In Martin Marietta, while the confidentiality
agreement was entered into between the bidder and the target company (albeit for
a different transaction), in the present case Depomed was not even a party to the
confidentiality agreement, the benefits of which it acquired from Janssen as
part of its NUCYNCTA acquisition.
this case is similar to that in Martin
Marietta wherein the plaintiff was able to succeed in a claim for breach of
confidentiality in a hostile takeover although the confidentiality arrangement
itself was entered into in connection with a past transaction. In Martin Marietta, while the confidentiality
agreement was entered into between the bidder and the target company (albeit for
a different transaction), in the present case Depomed was not even a party to the
confidentiality agreement, the benefits of which it acquired from Janssen as
part of its NUCYNCTA acquisition.
Although these
cases are set in the US context, they would have some relevance to parties in conceptualizing
and drafting confidentiality agreements in Indian M&A transactions.
cases are set in the US context, they would have some relevance to parties in conceptualizing
and drafting confidentiality agreements in Indian M&A transactions.