Applera Corp. v. Mj Research, Inc., 3:98 CV 1201(JBA).

• Decision Date: 16 March 2004
• Docket Number: No. 3:98 CV 1201(JBA).,3:98 CV 1201(JBA).
• Citation: 309 F.Supp.2d 293
• Parties: APPLERA CORPORATION and Roche Molecular Systems, Inc., plaintiffs, v. MJ RESEARCH INC. and Michael and John Finney, defendants.
• Court: U.S. District Court — District of Connecticut

Page 293

309 F.Supp.2d 293

APPLERA CORPORATION and Roche Molecular Systems, Inc., plaintiffs, v. MJ RESEARCH INC. and Michael and John Finney, defendants.

No. 3:98 CV 1201(JBA).

United States District Court, D. Connecticut.

March 16, 2004.

Asim Varma, David Gersch, Michael J. Klyce, Jr., Arnold & Porter, Washington, DC, James Sicilian, Jennifer K. Lawson, Day, Berry & Howard, Hartford, CT, Jennifer Gordon, John Josef Molenda, Patrick J. Hoeffner, Robert A. Cote, Sharon Yang, Rita Lynn Berardino, Orrick, Herrington & Sutcliffe, David Greenbaum, Weil, Gotshal & Manges, New York, NY, Edward R. Reines, Paul Ehrlich, Weil, Gotshal & Manges, Redwood Shores, CA, James T. Shearin, Pullman & Comley, Bridgeport, CT, for Plaintiffs.

Albert L. Jacobs, Jr., Gerard F. Diebner, Joseph M. Manak, Greenberg Traurig, Daniel A. Ladow, Graham & James, Christine Cora True-Frost, David A. Hoffman, John E. Beerbower, Cravath, Swaine & Moore, New York, NY, David S. Panzer, C. Allen Foster, Kevin E. Stern, Timothy C. Bass, Greenberg Traurig, LLP, Washington, DC, Joseph B. Darby, III, Greenberg & Traurig, Boston, MA, Donna Nelson Heller, Harold Bolton Finn, III, Meghan A. Laganza, Patrick J. McHugh, Finn Dixon & Herling, Stamford, CT, for Defendants.

Ruling on Motion in Limine to Preclude Evidence and Argument that Applera Packaged or Tied PCR Process Patent Rights With Thermal Cycler Patent Rights [Doc. # 773(4)]

ARTERTON, District Judge.

Plaintiffs Applera Corporation and Roche Molecular Systems, Inc. seek to exclude any evidence or argument by defendants MJ Research Inc. and Michael and John Finney that Applera has unlawfully packaged or tied PCR process patent rights with thermal cycler patent rights. For the reasons discussed below, plaintiffs' motion is denied.

I. Discussion

MJ's antitrust counterclaim and patent misuse defense are based in part on the allegation that Applera unlawfully tied the rights to its PCR process patents with its thermal cycler patents by coercing suppliers and end users to buy licenses for both sets of patent rights, even if they need or want only one kind of license. Applera seeks to exclude evidence and argument on this claim, arguing that it is untenable as a matter of law because it is undisputed that Applera offered MJ the rights to the two sets of patents separately. While MJ does not dispute that Applera offered rights to the two sets of patents separately, MJ asserts that (1) the separate offer was valid only for suppliers who purchased licenses for the PCR process patent rights; and (2) even if Applera offered licenses for the two sets of patent rights separately, suppliers including MJ were coerced into purchasing the entire package.

A. Separate Licenses

It is well established that "[i]f each of the products may be purchased separately in a competitive market, one seller's decision to sell the two in a single package imposes no unreasonable restraint on either market ...." Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984); see also Northern Pac. R. Co. v. United States, 356 U.S. 1, 6 n. 4, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958) ("Of course where the buyer is free to take either product by itself there is no tying problem even though the seller may also offer the two items as a unit at a single price.").

Applera provides substantial support for its contention that it offered separate licensing arrangements for its process patents and its thermal cycler patents. First, it is undisputed that Applera offered MJ separate rights to the PCR process patents and thermal cycler patents under both the Supplier Authorization Program (SAP) and End User Authorization Program (EAP). In a letter dated December 22, 1994, for example, Applera stated:

As we discussed during our meeting, rights for either the authorization under the PCR process patents or the license under the instrument patents are available separately to thermal cycler suppliers. The financial terms to thermal cycler suppliers for an agreement granting only authorization rights under the PCR process patents are $30,000 issuance fee and per instrument fee, based on the capacity of the thermal cycler, as follows: $400 for a capacity of up to 96 samples plus $25 for each additional 96 samples or part thereof. The financial terms to thermal cycler suppliers for an agreement granting only rights under the instrument patents are $90,000 issuance fee and 9% Net Sales Price.... [Applera] makes the above rights available to end users. As you requested, I am enclosing current copies of [Applera's] three types of end user thermal cycler agreements: authorization rights under the PCR process patents and license under the PCR instrument patents, authorization rights under the PCR process patents only, and license under the PCR instrument patents only.

Letter of Hanna Fischer to John and Michael Finney, Dec. 22, 1994 [Doc. # 788, Ex. 10] at PE 011991-2.¹

In fact, MJ received from Applera end user authorization licenses to the PCR process patents without obtaining rights to the thermal cycler patents.² Applera has also submitted copies of every Supplier Authorization Program (SAP) agreement that it reached with the various thermal cycler suppliers on the market, each, with one exception, stating that Applera offered the supplier the patent rights separately.³ In five of these agreements, the suppliers chose to accept only the process patent rights, without also taking the instrument patent rights. Applera also presented evidence that before the implementation of its Supplier Authorization Program, it granted Kodak thermal cycler rights only,⁴ and offered another thermal cycler supplier terms for a license for instrument patent rights only license, without requiring licensing of the PCR process patents.⁵ Moreover, Applera has entered into 20 end user authorization agreements with 11 companies, granting PCR process rights separately from the instrument patent rights. See Thermal Cycler Authorization Agreements [Doc. # 788, Ex. 31]. Applera's internal policy from February 7, 1994 provided that Applera "would be prepared to discuss terms for only the authorization [i.e. process patents] or the license [i.e. instrument patents]." See Thermal Cycler Licensing Program Status Update, Feb. 7, 1994 [Doc. # 788, Ex. 28] at PE 110559-10. The terms set forth in the policy statement were the following:

                ---------------------------------------------------------
                Authorization + License:    $100,000 upfront issuance
                                            fee + per instrument
                                            $300 + 7% net revenues
                Authorization only:         $30,000 upfront issuance
                                            fee + $400/instrument
                                            + $25/96 wells for
                                            instruments with
                                            >96 wells
                License only:               $90,000 upfront issuance
                                            fee + 7% net revenues
                ---------------------------------------------------------
                

The memo noted, however, that "[Applera] will discuss Authorization-only and License-only terms only when brought up by Supplier." See Thermal Cycler Licensing Program Status Update, Feb. 7, 1994 [Doc. # 788, Ex. 28] at PE 110559-10. Applera's "script" for responding to licenses inquiries also instructed that the suppliers be informed that the "patent rights are available separately, but [Applera] supplies them in a combined agreement at some financial savings." See PCR Licensing Script, updated 6/23/98 [Doc. # 788, Ex. 29] at PE 016233. Applera's letters to suppliers in the course of negotiating licensing agreements also specify that the patent rights are available separately. See [Doc. # 788, Ex. 30].

While MJ does not dispute this evidence, it challenges its implication. In particular, MJ contends that while process patent rights may have been available separately if suppliers like MJ did not wish to purchase licenses for the thermal cycler patents, Applera de facto refused to license its thermal cycler patent rights to "unauthorized" suppliers like MJ who refused to purchase process patent licenses.⁶

B. Coercion

Mandatory package licensing may be found if MJ was not provided with a realistic choice. The pricing scheme for the separate licenses must not be structured to compel purchase of the package, i.e. structured so that no reasonable buyer would purchase the rights separately. See Areeda, Elhauge & Hovenkamp, X Antitrust Law ¶ 1758b (1996) at 343. The threshold question, then, is "whether the discount has an effect similar to an outright refusal to sell tying product A separately." Id. at 341. As the Second Circuit stated in Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d 186, 192 (2d Cir.1992), the buyer "must allege facts sufficient to support an inference that [the seller] has `appreciable economic power' in the tying product, and affected a substantial amount of commerce. In other words, a reasonable trier of fact must be able to find `actual coercion by the seller that in fact force [d] the buyer to purchase the tied product....'" Such coercion "should be presumed when the defendant's separate price for either product equals or exceeds the package price." Hovenkamp, at § 1758.

MJ argues that a mandatory package licensing scheme was de facto present because the financial terms of the separate licenses were unreasonable, and coerced prospective licensees into purchasing the entire package of patent rights even though they did not want or need them. The record shows that MJ was offered two different pricing lists. The first, in 1994, priced the thermal cycler licenses less than the combined set of patent rights. MJ points to the second offer, made in 1996, which it interprets to price licenses for a complete set of instrument patent rights at a rate higher than the package for both instrument and process patent rights. Applera's proposal from February 9, 1996 provided the following terms:

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