In Re Cambridge Biotech v. Cambridge Biotech Corp.

• Decision Date: 07 July 1999
• Parties: (Fed. Cir. 1999) IN RE CAMBRIDGE BIOTECH CORPORATION INSTITUT PASTEUR and GENETIC SYSTEMS CORPORATION, Plaintiffs-Appellants, v. CAMBRIDGE BIOTECH CORPORATION, Defendant-Cross Appellant. 98-1012,-1013,-1041,-1265,-1276 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1356

186 F.3d 1356 (Fed. Cir. 1999)

IN RE CAMBRIDGE BIOTECH CORPORATION INSTITUT PASTEUR and GENETIC SYSTEMS CORPORATION, Plaintiffs-Appellants, v. CAMBRIDGE BIOTECH CORPORATION, Defendant-Cross Appellant.

98-1012,-1013,-1041,-1265,-1276

United States Court of Appeals for the Federal Circuit

DECIDED: July 7, 1999

Appealed from: United States District Court for the District of Massachusetts

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Judge Nathaniel M. Gorton

Albert J. Breneisen, Kenyon & Kenyon, of New York, New York, argued for plaintiffs-appellants. With him on the brief were Richard S. Gresalfi, Donna M. Praiss, and Frederick H. Rein.

William J.T. Brown, LeBoeuf, Lamb, Greene & MacRae, L.L.P., of New York, New York, argued for defendant-cross appellant. With him on the brief was Steven E. Levitsky. Of counsel was Henri-Frederic Hibon, Donovan Leisure Newton & Irvine, of New York, New York.

Before LOURIE, Circuit Judge, ARCHER, Senior Circuit Judge, and RADER, Circuit Judge.

LOURIE, Circuit Judge.

Institut Pasteur and Genetic Systems Corporation (collectively "appellants") appeal from the decisions of the United States District Court for the District of Massachusetts in their patent infringement suit against Cambridge Biotech Corporation ("Cambridge"). Appellants first appeal from the district court's affirmance of the bankruptcy court's denial of their motion to dismiss certain portions of Cambridge's "Answer and Counterclaim" under Rule 19 of the Federal Rules of Civil Procedure. See Institut Pasteur v. Cambridge Biotech Corp. (In re Cambridge Biotech Corp.), 212 B.R. 10, 15-19 (D. Mass. 1997); Institut Pasteur v. Cambridge Biotech Corp., No. 95-40189-NMG (D. Mass. Aug. 26, 1997) (order of dismissal). Second, appellants appeal from the district court's affirmance of the bankruptcy court's grant of summary judgment that Cambridge does not infringe Institut Pasteur's U.S. Patents 5,055,391 and 5,051,496 because these patents were licensed to Cambridge under a cross-licensing agreement. See id. Third, appellants appeal from the district court's affirmance of the bankruptcy court's determination of a 1% royalty rate as damages for past infringement and as compensation for future practice of the invention of Institut Pasteur's U.S. Patent 5,217,861. See Institut Pasteur, 212 B.R. at 19-21; Institut Pasteur v. Cambridge Biotech Corp. (In re Cambridge Biotech Corp.), No. 96-40025-NMG (D. Mass. Aug. 26, 1997) (order of dismissal). Finally, appellants appeal from the district court's August 15, 1997 informal order denying its motion requesting a jury trial. Cambridge cross-appeals, urging that we dismiss appellants' appeal under the equitable mootness doctrine. We affirm all of the district court's rulings appealed by appellants and thus do not reach the issue raised by Cambridge's cross-appeal.

BACKGROUND

A. The Patents

The three patents at issue, all of which are assigned to Institut Pasteur, are directed to structural components of and methods of detecting the presence of two types of Human Immunodeficiency Virus ("HIV"), HIV-1 and the less common HIV-2. Infection with either type of HIV leads to Acquired Immune Deficiency Syndrome ("AIDS"), and thus assays that can detect HIV-1 and HIV-2 are crucial to diagnosing, treating, and arresting the spread of AIDS. The '861 patent generally pertains to certain HIV-1 peptides (amino acid sequences which comprise part of the structure of the virus) and methods for detecting the presence of HIV-1. The '391 patent is directed to diagnostic assays for detecting the presence of HIV-2, and the '496 patent claims a number of structural peptides of HIV-2. The issues central to this appeal focus on the interpretation of licensing agreements that govern these patents, not on the claims or any other aspect of the patents themselves.

B. The Parties and Related Companies

1. Institut Pasteur, Genetic Systems Corporation, and Related Entities

Institut Pasteur is a scientific research institute headquartered in Paris, France, that specializes in biochemical and biomedical research. Institut Pasteur is among the world's premier institutions involved in HIV research. Genetic Systems Corporation, a biotechnology company located in the United States, acquired via license exclusive rights in the United States under the '861, '391, and '496 patents, including the right to bring suit for infringement. These patents are enmeshed in a complex web of licensing and cross-licensing agreements that have prompted the present dispute. To interpret these agreements, one must understand the corporate structures of which both Institut Pasteur and Genetic were a part during the time period in question.

During the relevant time period, Institut Pasteur and the French corporation Sanofi, S.A. owned nearly all of the stock (26% and 72%, respectively) of the company Pasteur Sanofi Diagnostics ("PSD," formerly known as Diagnostic Pasteur). PSD, in turn, wholly owned its subsidiary, Sanofi Diagnostics Pasteur ("SDP," formerly known as Kallestad Diagnostics). SDP ultimately acquired all of the stock of Genetic following a sequence of ownership changes in which: 1) Bristol-Myers transferred all of the outstanding capital stock of Genetic to Elf Sanofi, Inc., a subsidiary of Sanofi, S.A., and 2) Elf Sanofi, Inc. transferred this stock to SDP. In net effect, PSD ultimately owned all of the stock of SDP, which owned all of the stock of Genetic.

2. Cambridge Biotech Corporation

Cambridge Biotech Corporation (formerly known as Cambridge Bioscience Corporation) is a biotechnology company that manufactures and sells diagnostic kits for detecting the presence of HIV. Its facilities are located in Worcester, Massachusetts and Rockville, Maryland. On July 7, 1994, Cambridge filed a voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Pursuant to its reorganization plan, Cambridge sold its stock to bioMrieux Vitek, a subsidiary of bioMrieux, S.A.

C. The Licensing Agreements

1. The 1989 Agreement

Regarding the '391 and '496 patents (the HIV-2 patents), the dispute centers on a cross-licensing agreement entered into by Cambridge and PSD on October 25, 1989 (the "1989 Agreement"). Institut Pasteur had received an assignment of these patents from the inventors, and Institut Pasteur had granted an exclusive license, with the right to sublicense, to PSD. Under the 1989 Agreement, each party granted to the other licenses under various patents; significantly, at the time the 1989 Agreement was signed, PSD had no right to grant licenses under the '391 and '496 patents, as it had exclusively sublicensed the patents to Genetic pursuant to a 1984 joint venture agreement which created Blood Virus Diagnostics (the BVD Agreement). Under 2.2 of the 1989 Agreement, however, PSD agreed to make "best efforts" to recover that right from Genetic. Paragraph 2.2 provided that:

2.2. The license granted to CBS [Cambridge] by DP [PSD] under paragraph 2.1 shall be automatically extended under the Licensed Patents as defined herein and as enclosed in Exhibit C upon recovery by DP [PSD] from GENETIC SYSTEMS of the right to practice DP's [PSD's] letter[s] patent included in Exhibit C [including the '391 and '496 patents], which DP [PSD] shall use its best efforts to recover. DP [PSD] represents that it is currently discussing such recovery with GENETIC SYSTEMS and will inform CBS [Cambridge] with the progress and results of such discussions.

Joint App. at A1274 (emphasis added).

After PSD's wholly-owned subsidiary, SDP, acquired Genetic, Cambridge believed that PSD had in fact satisfied its obligation to use "best efforts" to recover the right to sublicense the '391 and '496 patents. Accordingly, Cambridge forwarded royalties from its sale of HIV-2 products using the '391 and '496 subject matter to PSD. PSD refused to accept the royalties, arguing that Cambridge had no license to the patents and maintaining that it reserved the right to proceed against Cambridge.

2. The 1987 Agreement

Regarding the '861 patent, the "1987 Agreement" is of central importance. On March 30, 1987, Institut Pasteur, the United States Department of Health and Human Services ("HHS"), and the National Technical Information Services of the United States Department of Commerce ("NTIS") entered into an agreement entitled "Settlement Agreement" to resolve a dispute between AIDS researchers from France (led by Dr. Luc Montagnier from Institut Pasteur) and the United States (led by Dr. Robert Gallo from HHS) involving discovery of the HIV virus and certain HIV technology that arose from that work. The parties agreed, inter alia, that researchers associated with Montagnier and Gallo had concurrently isolated HIV and developed a diagnostic assay to detect the presence or absence of antibodies to the virus. The parties cross-licensed each other on a world-wide, royalty-free basis, including the right to sublicense, with or without royalties, the existing technology embodied within the claims of a pending Institut Pasteur patent application, as well as an HHS patent and applications.

Under 2 of the 1987 Agreement, the parties also agreed to cross-license "improvement technology," which consisted of certain patents and patent applications belonging to Institut Pasteur and HHS. Included in this improvement technology was Institut Pasteur's application Serial No. 914,156, of which the '861 patent is a continuation. Section 2 reads in relevant part:

2. Licensing Improvements to Existing Technology

[1] Each party agrees that any patent rights covering Improvement Technology that it owns or may own shall be made available to any current licensee of the other Party, as denoted in Attachment A or Attachment B, as the case may be, and to such additional licensees of either Party that may be granted a license from time to time under the Gallo et al. Patent or Montagnier et...