Metabolite Laboratories, Inc. v. Laboratory Corp. of America Holdings
Metabolite Laboratories, Inc. v. Laboratory Corp. of America Holdings
Opinion of the Court
ORDER
The matters before the Court are (1) Plaintiffs’ Motion For Court To Issue Draft On Letter Of Credit, (2) Defendant’s Motion For Clarification Of Stay Order And Related Letter Of Credit, (3) Defendant’s Motion For Clarification Of Injunction, and (4) Plaintiffs’ Motion For Order To Show Cause. The Court has read the moving and responding papers and has considered carefully the parties’ arguments and the relevant legal authority.
1. Letter of Credit
The jury returned a verdict in this case on November 20, 2001, awarding patent infringement damages to Plaintiff Competitive Technologies, Inc. (CTI), in the amount of $1,019,365.01, and breach of contract damages to Plaintiff Metabolite Laboratories, Inc. (Metabolite) in the amount of $3,652,724.61.
This Court held a hearing on LabCorp’s motion to stay the injunction on November 26 and 27, 2002. At the outset of the hearing, the Court voiced concern that patient care would be endangered if the testing were to be halted by an injunction.
On January 13, 2003, the Court entered a Stipulated Order Staying Injunction Pending Appeal (Stipulated Stay Order) which modified the Order issued at oral argument. The Stipulated Stay Order ordered that LabCorp was to pay a 6% royalty to CTI for tests performed from November 1, 2002, though final disposition of the case, and was to provide Metabolite with an accounting of 21.5% of the Net Sales attributable to the tests LabCorp performed after November 1, 2001. The Stipulated Stay Order stated that Lab-Corp will “secure its obligation to pay such 21.5% amount to Metabolite (in the event it is held liable therefor in this case) with a bond or letter of credit....” The final paragraph of the Stipulated Stay Order
The Federal Circuit affirmed the jury verdict and Judgment on June 8, 2004.
Plaintiffs argue that all of the conditions of the letter of credit now have been satisfied and that the Court therefore should issue a draft on the full amount of the letter of credit. However, one of the requirements for release of funds under the letter of credit is that this Court has issued a final judgment or order stating that “the amount of the draft stated above is now due and owing to Metabolite Laboratories.” The Court has never issued such a judgment or order; to the contrary, whether LabCorp can be liable for a 21.5% royalty to Metabolite for alleged breaches of the License Agreement after the entry of judgment has never been resolved, either by this Court or by the Federal Circuit.
LabCorp argues that the License Agreement cannot form the basis for continuing breach of contract damages after the date of the judgment because the jury found that the License Agreement was terminated. Plaintiffs argue that only the 6% patent license was terminated, not the 21% know-how license. Question No. 5 on the Special Verdict Form asked:
Do you find, by a preponderance of the evidence, that LabCorp breached its license agreement by terminating it with respect to its performance of the Abbott test? [Answer: yes.]
The jury had to answer “yes” to Question No. 5 in order for it also to find that LabCorp’s performance of the Abbott test constituted patent infringement, because a licensee cannot infringe.
The Court thus concludes that neither the jury verdict nor the Federal Circuit opinion established that the know-how license was terminated, only that the patent license was terminated. Therefore, even though the injunction was based on the Patent Act, the conduct permitted by the Stipulated Stay Order, continued performance of the tests, could constitute a continued breach of LabCorp’s obligation to pay the 21.5% royalty to Metabolite. LabCorp should have expected that if it proceeded to perform the tests during the period of the stay, and the know-how portion of the License Agreement had not been terminated, then LabCorp could be liable for breach of contract damages, in the form of the 21.5% royalty, stemming from those tests. Otherwise, there was no reason for the parties to agree to the accounting process set forth in the Stipulated Stay Order. However, there has never been a legal determination that Lab-Corp actually committed any breach after the date of the Amended Judgment, or of the amount of any resulting damages. Because there are no claims remaining in this case, the issue of whether actions taken by LabCorp subsequent to the Amended Judgment constitute breach of contract, and the amount of damages for any such breach, cannot be resolved herein as a matter of procedure. As a result, the Court is not able to state in this case, at this juncture, that the amount stated on the letter of credit is now “due and owing to Metabolite Laboratories.”
II. Injunction
Once the Federal Circuit mandate issued in this ease on August 12, 2004, and
An injunction issued under the Patent Act “is only proper to the extent it is ‘to prevent the violation of any right secured by patent.’ ”
Every order granting an injunction ... shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained; and is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.19
The Court’s November 20, 2002, Order on Plaintiffs’ motion for permanent injunction states that “Plaintiffs seek to enjoin LabCorp from performing ‘any homocysteine-only test, including without limitation homocysteine-only tests via the Abbott method,’ ” and then proceeds to grant the motion. Though Plaintiffs’ motion had also contained language requesting that “anyone on [LabCorp’s] behalf’ be enjoined from performing the tests, the Court’s Order does not include that additional language. Because an injunction must describe the acts to be enjoined without reference to any other document,
In its July 21, 2006, supplemental brief, LabCorp adds that since filing its original motion, LabCorp has purchased Esoterix, Inc. (Esoterix), which owns a testing laboratory called Colorado Coagulation, Inc. (Colorado Coagulation) which is a licensee under the '658 Patent. Colorado Coagulation’s license agreement with
Accordingly, it is
ORDERED that Plaintiffs’ Motion For Court To Issue Draft On Letter Of Credit (Doc. No. 345) is denied without prejudice. It is
FURTHER ORDERED that Defendant’s Motion For Clarification Of Stay Order And Related Letter Of Credit (Doc. No. 338) is granted to the extent set forth herein, and the issue of whether LabCorp breached the License Agreement after the date of the Amended Judgment shall be resolved in Case No. 04-cv-01662-ZLW-CBS. It is
FURTHER ORDERED that Defendant’s Motion For Clarification Of Injunction (Doc. No. 339) is granted to the extent set forth herein, and (1) LabCorp may refer the homocysteine-only test to a laboratory, such as Specialty, that is licensed under the '658 patent without violating the permanent injunction issued in this case, and (2) LabCorp may refer homocysteineonly tests to Colorado Coagulation, Lab-Corp’s subsidiary and thus a separate entity, without violating the injunction, but LabCorp may not itself perform homocysteine-only tests without violating the injunction. It is
FURTHER ORDERED that Plaintiffs’ Motion For Order To Show Cause (Doc. No. 379) is denied. It is
FURTHER ORDERED that the parties shall pay their own costs and attorneys’ fees with regard to the four motions addressed in this Order.
. The Court will not recite herein the full factual and procedural background of this case, with which the parties are familiar.
. See November 26, 2002, Hearing Transcript at 3:17-22.
. See id. at 34:17-37:13.
. See id. at 18:13-19:18, 31:16-32:5; November 27, 2002, Hearing Transcript at 4:11-20, 31:16-23.
. See November 27, 2002, Hearing Transcript at 9:11-19.
. See id. at 10:6-8.
. See id. at 6:14-23, 8:7-21.
. See id. at 24:23-25.
. See id. at 12:3-12.
. See id. at 7:20-8:12, 35:11-36:15.
. Id. at 36:10-15.
. Metabolite Laboratories, Inc. v. Laboratory Corporation of America Holdings, 370 F.3d 1354 (Fed.Cir. 2004).
. See 35 U.S.C. § 271(a) (patent is infringed by one who uses it "without authority”). See also, e.g., Milprint, Inc. v. Curwood, Inc., 562 F.2d 418, 420 (7th Cir. 1977) ("the existence of a license precludes the possibility of infringement”).
. Although the Federal Circuit stated that "[a] material breach” of a license "constitutes termination,” the authorities cited by the court in support state only that a material breach gives rise to the right to terminate. See Metabolite, 370 F.3d at 1370 (citing Apex Pool Equip. Corp. v. Lee, 419 F.2d 556, 562 (2nd Cir. 1969); Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 217 F.3d 8, 10 (1st Cir. 2000); Restatement (Second) of Contracts § 237 (1981)).
. See Plaintiffs’ Combined Response And Reply Regarding Letter Of Credit, Ex. 14.
. Given the Court's determinations herein, it would seem that LabCorp indeed would be liable for breach of contract damages to Metabolite for homocysteine-only tests LabCorp performed itself after the date of the Amended Judgment. However, again, there is no such claim for breach before the Court in this case, nor can there be, since final judgment was entered long ago.
. Eli Lilly and Co. v. Medtronic, Inc., 915 F.2d 670, 674 (Fed.Cir. 1990).
. Johns Hopkins University v. CellPro, Inc., 152 F.3d 1342, 1366 (Fed.Cir. 1998).
. Fed.R.Civ.P. 65(d).
. Fed.R.Civ.P. 65(d).
. Reliance Ins. Co. v. Mast Const. Co., 84 F.3d 372, 377 (10th Cir. 1996).
. LabCorp’s Supplemental Brief In Support Of Its Motion To Clarify Injunction And Motion To Clarify Stay And Letter Of Credit, Ex. A-9 at 2.
. Id., Ex. A-ll at 2.
. See Benton v. Cameco Corp., 375 F.3d 1070, 1081 (10th Cir. 2004) (quoting Quarles v. Fuqua Indus., Inc., 504 F.2d 1358, 1362 (10th Cir. 1974)) (a “parent company has a separate corporate existence and is treated separately from the subsidiary in the absence of circumstances justifying disregard of the corporate entity.”).
. There is no evidence before the Court that Colorado Coagulation merged with LabCorp such that LabCorp, as a successor corporation, would succeed to Colorado Coagulation’s contract rights. See Colo.Rev.Stat. § 7-90-204(l)(a).
Reference
- Full Case Name
- METABOLITE LABORATORIES, INC., a Colorado corporation, and Competitive Technologies, Inc., a Delaware corporation v. LABORATORY CORPORATION OF AMERICA HOLDINGS d/b/a Labcorp, a Delaware corporation
- Status
- Published