Infusaid Corp. v. Intermedics Infusaid, Inc.

• Decision Date: 07 August 1984
• Docket Number: 83-1882,Nos. 83-1841,s. 83-1841
• Citation: 739 F.2d 661
• Parties: INFUSAID CORPORATION and Metal Bellows Corporation, Plaintiffs, Appellants, v. INTERMEDICS INFUSAID, INC., and Intermedics, Inc., Defendants, Appellees. INFUSAID CORPORATION and Metal Bellows Corporation, Plaintiffs, Appellees, v. INTERMEDICS INFUSAID, INC., and Intermedics, Inc., Defendants, Appellees. The Regents of the University of Minnesota, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 661

739 F.2d 661

INFUSAID CORPORATION and Metal Bellows Corporation, Plaintiffs, Appellants, v. INTERMEDICS INFUSAID, INC., and Intermedics, Inc.,

Defendants, Appellees.

INFUSAID CORPORATION and Metal Bellows Corporation, Plaintiffs, Appellees, v. INTERMEDICS INFUSAID, INC., and Intermedics, Inc.,

Defendants, Appellees.

The Regents of the University of Minnesota, Appellants.

Nos. 83-1841, 83-1882.

United States Court of Appeals First Circuit.

Argued Jan. 6, 1984.

Decided May 30, 1984.

As Amended on Denial of Rehearing and Rehearing En Banc Aug. 7, 1984.

Harvey E. Bines, Boston, Mass., with whom Louis A. Rodriques, and Sullivan & Worcester, Boston, Mass., were on briefs, for Infusaid Corp. and Metal Bellows Corp.

Edwin A. McCabe, Boston, Mass., with whom Sydelle Pittas, George P. Field, and McCabe/Gordon, P.C., Boston, Mass., were on brief, for Intermedics Infusaid, Inc., and Intermedics, Inc.

Scott C. Moriearty, Boston, Mass., with whom Gerald L. Neuman, and Foley, Hoag & Eliot, Boston, Mass., on briefs, for The Regents of the University of Minnesota, amici curiae.

Before CAMPBELL, Chief Judge, BREYER, Circuit Judge, and PETTINE, ^* Senior District Judge.

PETTINE, Senior District Judge.

In No. 83-1841, appellants Metal Bellows and Infusaid are both incorporated in Delaware with their principal place of business in Massachusetts. Infusaid Corporation is Metal Bellows' majority-owned subsidiary. Appellees Intermedics Infusaid and Intermedics are Texas corporations with their principal places of business in that state. The former appellee is the wholly-owned subsidiary of the latter, and throughout this opinion they are identified collectively as "Intermedics".

Central to this litigation is a device known as the infusion pump, a small, self-powered pump that may be implanted below the human skin for the purpose of administering drugs. The pump is at least in part the result of research by several professors at the University of Minnesota, and the University is now the assignee of a patent on the device issued to the professors in 1973. Two years before the patent was issued, however, the University granted a license (which has since been amended from time to time) to Metal Bellows for the manufacture of the pump's precision components. The pump is now coming into widespread use, especially for cancer patients. It has been received by the scientific community with considerable enthusiasm, and in 1982 the Food and Drug Administration approved its commercial use in humans under certain conditions.

As contemplated in the 1980 version of its license from the University, Metal Bellows assigned its interest to its subsidiary, Infusaid Corporation, which in turn granted a sub-license to Infusaid Company. Infusaid Company is the joint venture between Intermedics and Infusaid Corporation that is the subject of this litigation. Needless to say, there has been a falling out.

As a preliminary matter, we observe that Appellants have assumed throughout this litigation that partnership law controls the dispute. This assumption has not been challenged directly by Appellees, who stated at oral argument that they "don't think it matters whether or not" the Uniform Partnership Act (UPA) applies to this case. In our opinion, the matter is not quite so simple. There are some minor distinctions between a partnership and a joint venture, see 46 Am.Jur.2d Joint Ventures Sec. 4 (1969), although only one of those distinctions, which is discussed in a later section of this opinion, is relevant to the appeal. More significant is the following language from Eastern Electrical v. Taylor Woodrow Blitman Construction Corp., 11 Mass.App. 192, 414 N.E.2d 1023, 1027 (1981):

We are of the opinion that the Uniform [Partnership] Act ... should not be interpreted as having direct statutory and mandatory application to at least joint ventures which include corporate participants, in the absence of some explicit legislative extension of the act's coverage to such joint ventures.... Accordingly, we treat the uniform act as having relevance to joint ventures with corporate participants only by way of analogy and only when the use of the analogy in particular circumstances will achieve a just result.

We note that at least one commentary states that even when a joint venture is merely analogized to a partnership the UPA applies to the results of its wrongful dissolution, although we do not necessarily endorse this viewpoint. See Crane and Bromberg on Partnership Sec. 35, at 192 (1968). In any case, we believe that this appeal presents "particular circumstances" such that application of the UPA will achieve a just result. This conclusion is based upon our inference that the parties intended for partnership law to govern their joint venture agreement. This inference is in turn based upon the January 20, 1981 amendment to the agreement, which was signed by both parties and provides that for federal income tax purposes "the venture shall be deemed to be and will file its income tax returns as a partnership." Plaintiff's Exhibit 2, "Amendment to Joint Venture Agreement" at 4, p 12. The previous page of the same amendment adds a new section captioned "Liquidation and Dissolution of the Partnership" (emphasis supplied), although we must note that the original instrument states that captions are not to be considered part of the agreement. We believe that these provisions distinguish the association between the parties from the associations considered in the recent Massachusetts cases refusing to apply partnership law to joint ventures. See Shain Investment Co. v. Cohen, 15 Mass.App. 4, 443 N.E.2d 126, 129-31 (1982); Eastern Electrical, 414 N.E.2d at 1024-28.

Furthermore, although Eastern Electrical did not apply partnership law to the dispute before it, the opinion stated:

The Massachusetts law concerning joint ventures is not fully developed, especially where a corporation or corporations purport to be coventurers. In Whittenton Mills v. Upton, 10 Gray 582, 598 (1858), it was held that the corporation, a party to that case, could not form a partnership with an individual. See Rosenblum v. Springfield Prod. Brokerage Co., 243 Mass. 111, 115-117, 137 N.E. 357 (1922). The Whittenton Mills decision, and others like it elsewhere, have led to the use of joint ventures for quasi-partnership operations of two or more corporations. In Mendelsohn v. Leather Mfg. Corp., 326 Mass. 226, 233, 93 N.E.2d 537 (1950), it was said of a joint venture, "The exact nature of this relationship has never been precisely defined in our decisions and we make no attempt to do so now. For present purposes, it is sufficient to state that it resembles a partnership and has many of its attributes."

414 N.E.2d at 1025-26. From this language as well as other passages of and cases cited in the opinion, see id. at 1025-27, we conclude that there was no real attempt by the Massachusetts courts to distinguish a partnership from a joint venture before the Eastern Electrical decision. This fact is significant because, as we have explained above, it is the intent of the joint venturers that controls the application of partnership law to this dispute, and Eastern Electrical was decided after the original draft of the joint venture agreement was completed. Therefore, we think that we can safely assume that the parties believed that partnership law would control their association.

With this preliminary matter disposed of, we turn to the merits of the appeal. The district court found that the parties entered into a joint venture agreement on January 20, 1981. The court further found that

[t]his agreement provided in part that Infusaid [Corporation] and [Intermedics] would develop, produce, manufacture and sell drug infusion devices. Intermedics would contribute $900,000 in cash immediately, together with such intellectual property as it owned or might acquire related to such products. Infusaid would contribute its licensing rights to certain intellectual property, records, test data, and other information relating to the development of that type of product.... From December of 1984 through June of 1985, Intermedics would make available to the venture up to three million dollars in loans, and would then have an option to buy Infusaid. A complicated formula provided for the price of the buy-out with adjustments for potential inflation and sales volumes during the year 1984.... Control of the venture was to be in the hands of a management committee consisting of five members acting as a board of directors. The plaintiffs were to enjoy, and have enjoyed, control of the committee. [Under normal conditions, Infusaid Corporation appointed three members of the Management Committee, and Intermedics appointed two.] The agreement provided, however, that if Infusaid should at any time be in material default, Intermedics would have the right to appoint the majority of the committee until the default were removed or cured.

District Court Opinion at 1-2.

The district court also found that since its inception, Metal Bellows' infusion pump program had concentrated on a constant-flow device, but that Metal Bellows, along with Intermedics, had recognized the importance of developing a programmable, variable-flow pump. Indeed, the district court explained, "[B]oth parties would benefit if the joint venture could be first in the marketplace with an implantable programmable drug infusion device." Id. at 3 (emphasis in original).

During the first few months of the joint venture, Infusaid Corporation awarded valve design contracts to several vendors, including a $10,000 contract to Consolidated Controls Corporation (CCC). On April 16-17, 1981, a representative from CCC presented his company's work to various Intermedics and Infusaid Corporation personnel, including one Mr. Tucker. At that time, Tucker was president of Infusaid Company, and, the district court found, by way of this position Tucker ...