Applera Corp. v. Mj Research, Inc.

• Decision Date: 22 December 2004
• Docket Number: No. 3:98 CV 1201 JBA.,3:98 CV 1201 JBA.
• Citation: 349 F.Supp.2d 321
• Court: U.S. District Court — District of Connecticut
• Parties: APPLERA CORPORATION and Roche Molecular Systems, Inc., plaintiffs, v. MJ RESEARCH INC. and Michael and John Finney, defendants.

Page 321

349 F.Supp.2d 321

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.

December 22, 2004.

Brian M. Poissant, Bruce J. Barker, Pennie & Edmonds, Charles W. Bradley, Jennifer Gordon, Joseph Evall, Robert A. Cote, Stephen J. Lieb, John Josef Molenda, Patrick J. Hoeffner, Sharon Yang, Orrick, Herrington & Sutcliffe, Lawrence B. Goodwin, Chadbourne & Parke, Wendy Schechter, Heller Ehrman White & McAuliffe LLP, William J. Hone, Fish & Richardson, PC, David J. Lender, Gianluca Morello, David Greenbaum, Rita Lynn Berardino, Weil, Gotshal & Manges, New York, NY, David Gersch, Asim Varma, Bertrand R. Lanciault, III, Jean C. Kalicki, Michael J. Klyce, Jr., Arnold & Porter, Mary L. Azcuenaga, Heller Ehrman White & McAuliffe LLP, Washington, DC, James T. Shearin, Aimee Jennifer Wood, Pullman & Comley, Bridgeport, CT, Gwen P. Weisberg, James Sicilian, Mario R. Borelli, Robin L. Smith, Day, Berry & Howard, Hartford, CT, Jennifer K. Lawson, Testa, Hurwitz & Thibeault, Boston, MA, Edward R. Reines, Matthew D. Powers, Paul Ehrlich, Weil, Gotshal & Manges, Redwood Shores, CA, for Plaintiffs.

A. Jason Mirabito, Brett N. Dorny, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., William A. Marino, Geri L. Haight, Ivor R. Elrifi, John A. Harre, Joseph G. Blute, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Joseph B. Darby, III, Greenberg & Traurig, Boston, MA, Albert L. Jacobs, Jr., Joseph M. Manak, Gerard F. Diebner, Greenberg Traurig, Christine Cora True-Frost, Latisha Thompson, Radu A. Lelutiu, Rudolf Koch, John E. Beerbower, Cravath, Swaine & Moore, Daniel A. Ladow, Graham & James, David A. Hoffman, Cravath, Swaine & Moore, Mary Morabito Rosewater, Schulte, Roth & Zabel, New York, NY, C. Allen Foster, Kevin E. Stern, Timothy C. Bass, David S. Panzer, Greenberg Traurig, LLP-DC, William C. Brashares, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, Washington, DC, Donna Nelson Heller, Finn Dixon & Herling, Harold Bolton Finn, III, Meghan A. Laganza, Patrick J. McHugh, Finn Dixon & Herling, Stamford, CT, for Defendants.

Ruling on Motion of MJ Research, Inc. for Summary Judgment Determining that Plaintiffs' Licensing Scheme Imposes a Total Sales Royalty [Doc. # 1123] and Plaintiffs' Cross Motion for Summary Judgment Seeking a Determination that Applera's Licensing Program does not Impose an Improper Total Sales Royalty and Thus is Not Patent Misuse [Doc. # 1153]

ARTERTON, District Judge.

Defendant/counterclaim plaintiff MJ Research, Inc. ["MJ"] and plaintiffs/counterclaim defendants Applera Corp.¹ and Roche Molecular Systems, Inc. have filed cross motions for summary judgment on defendant's patent misuse defense that Applera's licensing program improperly requires suppliers to pay royalties on all thermal cycler sales, when some portion of those thermal cyclers are not used in a manner which infringes Applera's patent. While this issue previously had been raised in a summary judgment motion, it was not addressed in the Court's (Squatrito, J., presiding) ruling. See [Doc. # 624]. After plaintiffs sought to exclude evidence on the total sales royalty issue through a motion in limine, the Court gave the parties leave first to supplement their briefing and record on this issue and later to renew their summary judgment motions. For the reasons discussed below, Applera's motion is granted, and MJ's motion is denied.

I. Background

Applera has patented the performance of PCR on a thermal cycler,² and licenses the right to perform PCR on a thermal cycler in its fields in two ways. First, an end user performing PCR on a thermal cycler pays a royalty when purchasing "reagents," or enzymes used in the PCR process, from Applera or from a licensee of Applera. Second, a licensing fee is paid for each thermal cycler, after which the thermal cycler is referred to as "authorized" for use in performing PCR without infringing Applera's PCR process patents. Applera has both end user and supplier authorization programs for licensing "authorized" thermal cyclers. That is, an end user either may buy a thermal cycler that has already been authorized for use in PCR, because the supplier purchased a license through Applera's Supplier Authorization Program ("SAP"), or an end user may purchase an unlicensed thermal cycler and obtain the right to use the thermal cycler to perform PCR through Applera's End User Authorization Program ("EAP"). Applera has aggressively sought suppliers' participation in the SAP, telling suppliers who refuse to participate that they are at risk of liability for inducing infringement of Applera's PCR Process Patent. The SAP, therefore, serves two independent purposes: (1) it serves as a means of administering the licensing of end users to perform PCR on thermal cyclers, and (2) it allows suppliers to promote their thermal cyclers for PCR without risking inducement liability.

MJ, a manufacturer and supplier of thermal cyclers, has declined to participate in the SAP on the terms Applera has offered, and argues that the SAP is a form of patent misuse, because the SAP coerces suppliers to agree to pay a royalty on the total sales of all thermal cyclers sold, regardless of whether the thermal cyclers are in fact used for PCR.

Applera introduced its Supplier Authorization Program in 1994, informing several thermal cycler suppliers, including MJ, of their activities related to promotion for PCR use that Applera regarded as inducing infringement of its PCR process patents, and announcing that "Perkin-Elmer has adopted a licensing program that enables thermal cycler suppliers to promote their instruments as `authorized for PCR'." Letter from Hanna Fischer to John Finney, May 18, 1994 [Doc. # 1124, Ex. 1]. Following this announcement, the parties entered into negotiations over the terms of the licensing proposal. In January 1995, for example, MJ wrote to Applera asking for clarification about how the authorization program operated in practice.<sup>3</sup> See Letter of Michael Finney to Hanna Fischer, January 31, 1995 [Doc. # 1124, Ex. 3]. In February 1995, Applera responded, stating that in its view, its licensing plan was offered for "convenience" "using as a royalty base all thermal cyclers capable of performing PCR," and suggesting "as a royalty an amount that reflects that a minor percentage of thermal cyclers are not used for PCR for research (or another `Field')." Letter of Hanna Fisher to Michael J. Finney, Feb. 23, 1995 [Doc. # 1124, Ex. 4] at 2-3. Applera responded to MJ's particular concerns by stating:

If the user transfers an Authorized Thermal Cycler to another lab or another user, the up-front process rights go with the thermal cycler.... Certainly, for example, when an MJ thermal cycler quickly fails and is replaced free, we would waive a second authorization fee unless and until the first instrument were repaired and resold. If the situations you describe are not rare, I suggest, again for simplicity and convenience, taking them into account in the royalty rate based on figures you provide. However, if you insist, we can negotiate provisions for various situations based on your actual experience. I think other approaches to granting your company the right to convey up-front rights of a PCR license are less simple and more costly, but we are willing to consider any proposal."

Id.

In its reply, MJ expressed concern about the inability under the SAP for an end user to transfer the PCR process license between thermal cycler machines, and indicated that it was not inclined to accept a per-cycler license fee. See Letter from Michael Finney to Michael Hunkapillar, Feb. 28, 1995 [Doc. # 1189, Ex. 2] at PE 011906-07. MJ instead continued to focus on the possibility of distributing end user licenses to its customers, or on simply informing its customers of the need to obtain end user licenses from Applera, instead of itself participating in a supplier licensing program of any sort. See Letter from Michael Finney to Hanna Fischer, Mar. 15, 1995 [Doc. # 1124, Ex. 5] at PE 011902A ("We intend to provide to any customer who contacts us, a notice explaining that Authorizations are available from Perkin Elmer. We would also like to provide at the time of sale, a copy of your most recent Thermal Cycler Authorization Agreement. This should aid our customers in obtaining Authorizations."). Applera rejected this offer, stating that it raised "serious legal issues," in that the "act of distribution [might itself] be promoting [MJ's] instruments for PCR use," and MJ could incur liability if the customers did not execute the agreement. Applera suggested that they "lay [MJ's] offer aside, at least for now, as an unneeded complication." Letter from Hanna Fischer to Michael Finney, Mar. 22, 1995 [Doc. # 1124, Ex. 6].

While Applera's and MJ's initial negotiations did not produce agreements, Applera subsequently entered into SAP licensing agreements with several thermal cycler suppliers, at which point its negotiating position with MJ and other nonparticipating suppliers hardened. In a letter to John and Michael Finney on August 1, 1995, Applera's licensing director stated, "At present, my ability to vary the offered terms is limited ... because of our desire to treat the licensees equally. Your proposal ... is unacceptable for that reason, among others." Letter of Hanna Fischer to John and Michael Finney, Aug. 1, 1995 [Doc. # 1124, Ex. 8]. Applera also informed MJ at this time that Applera did not believe that MJ was immunized from inducement liability by its distribution of notices which informed its customers of their need to obtain end user licensing rights from Applera. See id. ("notwithstanding ... the distribution of such notices, MJ Research's sales of its thermal cyclers to facilitate [any practice of the PCR process] constitutes inducing infringement in any instance where the customer...