104 F.3d 489 (1st Cir. 1997), 96-2028, Institut Pasteur v. Cambridge Biotech Corp.

Docket Nº:96-2028.
Citation:104 F.3d 489
Party Name:U.S.P.Q.2d 1503 INSTITUT PASTEUR and Pasteur Sanofi Diagnostics, Appellants, v. CAMBRIDGE BIOTECH CORPORATION, Appellee.
Case Date:January 17, 1997
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

Page 489

104 F.3d 489 (1st Cir. 1997)

U.S.P.Q.2d 1503

INSTITUT PASTEUR and Pasteur Sanofi Diagnostics, Appellants,



No. 96-2028.

United States Court of Appeals, First Circuit

January 17, 1997

Heard Nov. 5, 1996.

Page 490

Jeffrey D. Sternklar, with whom Michael Gottfried and Burns & Levinson, L.L.P., Boston, MA, were on brief, for appellants.

Joseph F. Ryan, with whom Jeffrey L. Jonas, Anthony L. Gray, Andrew P. Strehle and Brown, Rudnick, Freed & Gesmer, P.C., Boston, MA, were on brief, for appellee.

Before CYR, BOUDIN and LYNCH, Circuit Judges.

CYR, Circuit Judge.

Unsuccessful in their intermediate appeal to the district court, Institut Pasteur and Pasteur Sanofi Diagnostics [collectively: "Pasteur"] again appeal from the bankruptcy court order which confirmed the chapter 11 reorganization plan ("Plan") proposed by debtor-in-possession Cambridge Biotech Corporation ("CBC"), the holder of two licenses to utilize Pasteur patents. The Plan provision central to the present dispute calls for the sale of all CBC stock to a subsidiary of bioMerieux Vitek, Inc. ("bioMerieux"), a major competitor of appellant Pasteur. Finding no error, we affirm.



CBC manufactures and sells retroviral diagnostic tests for detecting the human immunodeficiency virus (HIV) associated with AIDS. Its HIV diagnostics division annually generates approximately $14 million in revenues. Institut Pasteur, a nonprofit French foundation engaged in AIDS-related research and development, owns various patented procedures for diagnosing HIV Virus Type 2 ("HIV2 procedures"). Pasteur Sanofi Diagnostics holds the exclusive right to use and sublicense Institut Pasteur's patents.

In October 1989, CBC and Pasteur entered into mutual cross-license agreements, whereby each acquired a nonexclusive perpetual license to use some of the technology patented or licensed by the other. Specifically, CBC acquired the right to incorporate Pasteur's HIV2 procedures into any diagnostic kits sold by CBC in the United States, Canada, Mexico, Australia, New Zealand and elsewhere. 1

Each cross-license broadly prohibits the licensee from assigning or sublicensing to others. See Royalty-Free Cross-License, at § 7.1; Royalty-Bearing Cross-License, at § 8.1 ("[N]o other person shall acquire or have any right under or by virtue of this Agreement."). Nevertheless, either Pasteur or CBC was authorized to "extend to its Affiliated Companies the benefits of this Agreement so that such party shall remain responsible with regard [to] all [license] obligations." Id. § 1.4. "Affiliated Company" is defined as "an organization which controls or is controlled by a party or an organization which is under common control with a party." Id.

CBC filed its chapter 11 petition on July 7, 1994, and thereafter continued to operate its retroviral diagnostic testing business as debtor-in-possession. Its reorganization plan proposed that CBC assume both cross-licenses, see 11 U.S.C. § 365 (executory contracts), 2 continue to operate its retroviral diagnostics division utilizing Pasteur's patented HIV2 procedures, and sell all CBC stock to a subsidiary of bioMerieux, a giant French biotechnology corporation and Pasteur's direct competitor in international biotechnology sales. Pasteur previously had licensed bioMerieux to use its HIV2 procedures, but the earlier license related to a single product manufactured by bioMerieux (i.e., bioMerieux's VIDAS automated immunoassay test system), and applied only to VIDAS sales in markets other than the United States, Canada, Mexico, Australia, and New Zealand, markets expressly encompassed within the CBC cross-licenses.

Not surprisingly, in due course Pasteur objected to the Plan. Citing Bankruptcy Code § 365(c), 11 U.S.C. § 365(c), it contended

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that the proposed sale of CBC's stock to bioMerieux amounted to CBC's assumption of the patent cross-licenses and their de facto "assignment" to a third party in contravention of the presumption of nonassignability ordained by the federal common law of patents, as well as the explicit nonassignability provision contained in the cross-licenses. Isabelle Bressac, Pasteur's licensing director, attested that Pasteur would not have granted its competitor, bioMerieux, or a subsidiary, a patent license under the terms allowed CBC.

The bankruptcy court authorized CBC to assume the cross-licenses over Pasteur's objection. It ruled that the proposed sale of CBC stock to bioMerieux did not constitute a de facto "assignment" of the cross-licenses to bioMerieux, but merely an assumption of the cross-licenses by the reorganized debtor under new ownership, and that Bankruptcy Code § 365(c) enabled CBC to assume the cross-licenses as debtor-in-possession because the prepetition licensing relationship between Pasteur and CBC was neither "unique" nor "something in the category of a personal services contract." In re Cambridge Biotech Corp., No. 94-43054, slip op. at 17-18, 24 (Bankr.D.Mass. Sept. 18, 1996); Tr. 176-77. 3 The district court upheld the bankruptcy court ruling on intermediate appeal.



  1. Appellate Jurisdiction

    Citing our decision in Rochman v. Northeast Utils. Serv. Group (In re Public Serv. Co. of N.H.), 963 F.2d 469 (1st Cir.) ("Public Service "), cert. denied, 506 U.S. 908, 113 S.Ct. 304, 121 L.Ed.2d 226 (1992), CBC now moves to dismiss the appeal for lack of appellate jurisdiction. It contends that Pasteur failed to pursue all available remedies for preserving a temporary stay of the confirmation order pending appeal after this court lifted the temporary stay on October 9, 1996. 4 See Trone v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 798 (9th Cir.1981) (noting that appellant should file motion to stay judgment with Circuit Justice if necessary). Since CBC substantially consummated its Plan on October 21, 1996, it argues that Pasteur can no longer be afforded complete relief because neither this court nor the bankruptcy court has jurisdiction over the many third parties affected by, and much of the res distributed pursuant to, the consummated Plan. Finally, CBC argues, no court can now provide Pasteur with meaningful partial relief, such as selective rescission of the stock sale or the cross-license assumption/assignment provisions, because retention of these cross-licenses by CBC is indispensable to any successful reorganization of its retroviral diagnostics business, and, from bioMerieux's standpoint, is a...

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