Institut Pasteur v. Cambridge Biotech Corp.

• Decision Date: 05 November 1996
• Docket Number: No. 96-2028,96-2028
• Citation: 104 F.3d 489
• Parties: , 37 Collier Bankr.Cas.2d 588, 30 Bankr.Ct.Dec. 221, Bankr. L. Rep. P 77,242, 41 U.S.P.Q.2d 1503 INSTITUT PASTEUR and Pasteur Sanofi Diagnostics, Appellants, v. CAMBRIDGE BIOTECH CORPORATION, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 489

104 F.3d 489

65 USLW 2506, 37 Collier Bankr.Cas.2d 588,

30 Bankr.Ct.Dec. 221,

Bankr. L. Rep. P 77,242, 41 U.S.P.Q.2d 1503

INSTITUT PASTEUR and Pasteur Sanofi Diagnostics, Appellants, v. CAMBRIDGE BIOTECH CORPORATION, Appellee.

No. 96-2028.

United States Court of Appeals First Circuit.

Heard Nov. 5, 1996.

Decided Jan. 17, 1997.

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.

I BACKGROUND

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 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.

II DISCUSSION

A. 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 "deal-busting" component of the Plan. See Plan § IX.B.2.a ("[P]rovisions of the Confirmation Order are nonseverable and mutually dependent."). We disagree.

Contrary to CBC's suggestion, our Public Service decision does not reduce to the simplistic theme that appellate courts invariably are deprived of jurisdiction by the lack (or premature dissolution) of a stay which results in substantial plan consummation prior to final disposition of the appeal. Rather, we rested our decision in Public Service primarily on two circumstantial considerations. See In re Andreuccetti, 975 F.2d 413, 418 (7th Cir.1992) (noting that Public Service contemplates that " '[t]he court should reach a determination upon close consideration of the relief sought in light of the facts of the particular case' ") (citation omitted).

First, the equities weighed heavily against the appellants in Public Service, who repeatedly and inexplicably failed to avail themselves of interlocutory appeals from earlier denials of their requests for stay by the courts below. As a consequence of their notable lack of diligence, a full sixteen months had elapsed from the date of confirmation, during which "implementation of the confirmed plan proceeded apace." In re Public Serv., 963 F.2d at 472. In contrast, Pasteur assiduously preserved its stay throughout the three-month period which elapsed following confirmation, and, on the day this court dissolved the temporary stay, we expedited the Pasteur appeal.

Second, Public Service involved extraordinarily intricate Plan provisions, as well as a multi-billion dollar enterprise, with the result that any attempted Plan dismantling following the substantial and unexcused lapses by appellants would have produced " 'a nightmarish situation for the bankruptcy court on remand.' " Id. at 474 (citation omitted); see, e.g., Baker & Drake, Inc. v. Public Serv. Comm'n of Nev., 35 F.3d 1348, 1351-52 (9th Cir.1994) (finding appellate jurisdiction, and noting that reorganization plan at issue was "not a complex, billion-dollar affair" like the plans in Trone and Public Service ). Although the CBC Plan is not without its own complexities, CBC is a much less complex enterprise than Public Service, and its Plan was substantially consummated much more recently in relation to the date of appeal. ⁵

We need not resolve the jurisdictional challenge urged upon us by CBC, however, since the merits of Pasteur's contention--that CBC's assumption of the cross-licenses and its sale of stock to the bioMerieux subsidiary contravene Bankruptcy Code § 365(c)--are readily dispatched. See Casco N. Bank. N.A. v. DN Assocs. (In re DN Assocs.), 3 F.3d 512, 515 (1st Cir.1993) (noting that appellate court may bypass jurisdictional questions where appeal would falter on merits even assuming jurisdiction) (citing Norton v. Mathews, 427 U.S. 524, 532, 96 S.Ct. 2771, 2775-76, 49 L.Ed.2d 672 (1976)).

B. The Merits ⁶

Pasteur argues that the CBC Plan effects a de facto assignment of its two cross-licenses to bioMerieux, contrary to Bankruptcy Code § 365(c)(1) which provides as follows:

The trustee [viz., CBC] ⁷ may not assume or assign any executory contract ..., whether or not such contract ... prohibits or restricts assignment of rights or delegation of duties, if ----

(1)(A) applicable law excuses a party[ ] other than the debtor[ ] [viz., Pasteur] to such contract ... from...