Intermedics Infusaid, Inc. v. Regents of University of Minnesota

Decision Date22 October 1986
Docket NumberNo. 85-2811,85-2811
Citation231 USPQ 653,804 F.2d 129
Parties, 35 Ed. Law Rep. 925 INTERMEDICS INFUSAID, INC. and the Infusaid Company, Appellants, v. The REGENTS OF the UNIVERSITY OF MINNESOTA, Appellee.
CourtU.S. Court of Appeals — Federal Circuit

Neil B. Siegel, of Sughrue, Mion, Zinn, MacPeak & Seas, Washington, D.C., argued for appellants. With him on the brief were Edwin A. McCabe, George P. Field, David S. Godkin, and Valerie S. Carter, of McCabe/Gordon, Boston, Mass.

Scott C. Moriearty, of Bingham, Dana & Gould, Boston, Mass., argued for appellee. With him on the brief was Kenneth J. Withers, of Bingham, Dana & Gould, Boston, Mass.

Before BALDWIN, NIES and ARCHER, Circuit Judges.

NIES, Circuit Judge.

Intermedics Infusaid, Inc., and The Infusaid Company appeal from the August 22, 1985, orders of the United States District Court for the District of Massachusetts (Tauro, J.), (1) denying Intermedics' motion to enjoin an action between the parties in a Minnesota state court and (2) granting a motion to stay the action before the federal district court. We affirm.

I.

In May, 1973, United States Patent No. 3,731,681, issued to a group of employees of the University of Minnesota, with the University named as assignee. The patent discloses and claims an implantable drug infusion pump--a device designed to be implanted in the human body for pumping drugs on a constant basis to a specific organ or location in the body.

In October, 1980, the University granted an exclusive license of the patent to Metal Bellows Corporation, who in turn granted an exclusive, royalty-free sublicense to its subsidiary, Infusaid Corporation. In January, 1981, Infusaid Corporation entered into a joint venture with an unrelated company, Intermedics Infusaid, Inc., a subsidiary of Intermedics, Inc. The purpose of the joint venture (which operates as Infusaid Company) was, in part, to develop and commercialize the drug pump. Under the terms of the joint venture agreement, Infusaid Corporation granted an exclusive, royalty-free sub-license to the Venture. 1

The business relationship apparently soured and, in May, 1982, Infusaid Corporation and its parent, Metal Bellows, sued Intermedics (parent and subsidiary) in the United States District Court for the District of Massachusetts, seeking dissolution of the joint venture and an accounting and distribution of their interests therein (the Venture suit). During a hearing in the course of that suit, counsel for Intermedics at one point asserted that the University's patent was worthless and moved to amend its complaint to so allege. That motion was denied. After a trial and an appeal, on September 21, 1984, the district court (Judge McNaught) issued an injunction which granted exclusive possession of the assets and control of the Venture to Intermedics. That order did not, however, terminate the suit as an accounting remained necessary.

On or about October 17, 1984, the University filed a declaratory judgment action in Minnesota state court against Metal Bellows, Infusaid Corp., Intermedics (parent and subsidiary), and the Venture seeking a declaratory judgment that the original license agreement with Metal Bellows "is valid and enforceable in all respects" against the defendants and asking the Minnesota court to determine the amount of royalties owed (the Minnesota suit). In defense of that suit, Intermedics and the Venture asserted, inter alia, a royalty-free license.

In November, 1984, Intermedics reacted to the Minnesota suit with motions in the Venture suit (then at the accounting stage) to make the University a party and to enjoin the Minnesota suit. Their argument was that the validity of the patent was germane to those proceedings. Judge McNaught denied the motions on March 20, 1985. In his order of that date, Judge McNaught observed that the only issue concerning the University's patent was the value of the patent license at the date of dissolution of the joint venture "at which time the patent had not been declared invalid and carried a presumption of validity, whether or not it had been challenged." Doubts of the parties with respect to validity were considered germane to the evaluation of the license, but the actual validity of the patent was held to be irrelevant.

On May 15, 1985, the Minnesota court issued an order requiring Intermedics 2 to "plead any additional affirmative defenses not contained in its Answer, including patent invalidity ... no later than June 12, 1985, or [Intermedics] shall be precluded from raising any such defense as an affirmative defense to this action." Intermedics did not afford itself of that opportunity. Instead, on June 12, 1985, approximately 9 months after the Minnesota suit began and discovery was virtually complete, Intermedics filed the instant action in the Massachusetts district court against the University, seeking a declaratory judgment that the University's patent is invalid and unenforceable and to recover royalties they had previously paid (the Patent declaratory judgment action). 3 As part of the relief requested, Intermedics sought to enjoin proceedings in the Minnesota suit and filed a motion seeking that relief immediately. Two reasons were put forth for the requested injunction: (1) the Minnesota suit was an attempt by the University to circumvent the federal district court's exclusive jurisdiction under the patent laws, 4 and (2) Intermedics would suffer irreparable harm from being "subjected to multiple and repetitive litigation and the risk of inconsistent judgments." The University countered with a motion for a stay of the Patent declaratory judgment action before the federal district court.

On August 22, 1985, the district court refused to enjoin the Minnesota suit and granted a stay of the Patent declaratory judgment action. Intermedics timely appealed to this court seeking reversal of both orders of the district court. 5

During the pendency of this appeal, summary judgment was entered for the University in the Minnesota suit with an award made in the sum of $235,245.35. Regents of the University of Minnesota v. Metal Bellows Corp., No. 84-16041 (4th D.Minn.1986) (Durda, J.). The validity of the University's patent is not mentioned in the opinion. Intermedics has appealed that judgment to the Minnesota appeals court.

II. Issues

1. Are the district court's interlocutory orders appealable?

2. Did the district court improperly decline to enjoin the state court proceedings?

3. Did the district court improperly stay its own proceedings?

III.

This case falls into the familiar pattern of a suit by the licensor of a patent in state court to secure royalties due under a license agreement and a counterattack by the licensee in federal court to have the patent declared invalid. In this federal declaratory judgment action, the licensee sought to enjoin the state court proceedings which was denied. The order of the court denying such request is a denial of an injunction and is, therefore, appealable under 28 U.S.C. Sec. 1292(c)(1) (1982).

The Anti-Injunction Act, 28 U.S.C. Sec. 2283 (1982 & Supp. II 1984) provides:

A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments. (Emphasis added.)

Intermedics first argues that the requested injunction of state proceedings falls within the exception, underlined above, which requires, per Intermedics, a federal court to exercise its injunctive power "in aid of its jurisdiction." Intermedics argues that 28 U.S.C. Sec. 1338(a) (1982), the provision giving the federal district courts "exclusive" jurisdiction over patent suits, codifies a policy that patent questions be decided in the federal courts.

While made in a different procedural context, this argument was considered and rejected by this court in In re Oximetrix, Inc., 748 F.2d 637, 641-42, 223 USPQ 1068, 1071 (Fed.Cir.1984). Contrary to Intermedics argument, there are no policies reflected in acts of Congress which require that the federal courts enjoin (or, as asserted in Oximetrix, "remove") a state court contract suit seeking royalties payable under a patent license wherein the state court is or could be asked by the defendant to rule on the validity of the patent. The Supreme Court held to the contrary in Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 162 USPQ 1 (1969).

In Lear v. Adkins, patent invalidity was held to be a defense which could be made by a licensee to a claim for royalties in state court. Although Intermedics was given that opportunity in the Minnesota suit by a specific order of that court, Intermedics failed to do so. The University argues that Intermedics' failure in the Minnesota suit to raise that defense, which it could have litigated there and which the University asserts was a mandatory counterclaim, makes the issue of validity of the patent res judicata between the parties. Intermedics urges that the order of the Minnesota court was narrow and that it is precluded from asserting invalidity only in the Minnesota suit.

We do not, of course, have the issue of res judicata before us. At the time of the federal court order under review, the Minnesota suit had not reached judgment. Intermedics' objective in attempting to enjoin the state suit is, however, candidly stated. It seeks to prevent the entry of a judgment which could possibly be res judicata of the issue of patent validity. If the state court judgment is ultimately held to subsume the issue of patent validity, Intermedics will have bypassed the opportunity it had to challenge the patent, and its tactic of not litigating the defense of invalidity in state court will turn out to have been legally disastrous. See Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380-81, 105 S.Ct. 1327, 1331-32, 84 L.Ed.2d 274 (1985)...

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