Bayer Ag v. Housey Pharmaceuticals, Inc.

• Decision Date: 22 October 2002
• Docket Number: No. CIV.A.01-148-SLR.,CIV.A.01-148-SLR.
• Citation: 228 F.Supp.2d 467
• Parties: BAYER AG and Bayer Corporation, Plaintiffs, v. HOUSEY PHARMACEUTICALS, INC., Defendant.
• Court: U.S. District Court — District of Delaware

228 F.Supp.2d 467

BAYER AG and Bayer Corporation, Plaintiffs, v. HOUSEY PHARMACEUTICALS, INC., Defendant.

No. CIV.A.01-148-SLR.

United States District Court, D. Delaware.

October 22, 2002.

Jeffery B. Bove and Mary W. Bourke of Connolly, Bove, Lodge & Hutz, LLP, Wilmington, Delaware. Counsel for Plaintiffs.

M. Duncan Grant and Joseph S. Naylor, of Pepper, Hamilton, LLP, Wilmington, Delaware. Counsel for Defendant. Of Counsel: Rolf Stadheim, Joseph A. Grear, and George Summerfield of Stadheim & Grear, Ltd., Chicago, Illinois.

MEMORANDUM OPINION

SUE L. ROBINSON, Chief Judge.

I. INTRODUCTION

Plaintiffs Bayer AG and Bayer Corporation filed this action on March 6, 2001 seeking a declaratory judgment that four patents assigned to defendant Housey Pharmaceuticals, Inc. are invalid, unenforceable and not infringed.¹ (D.I.1) Defendant has filed a counterclaim of infringement. (D.I.5) The court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331, 1338(a) and 2201(a). Currently before the court are plaintiffs' motion for summary judgment of unenforceability of the patents in suit on grounds of misuse (D.I.190) and defendant's motion for summary judgment on plaintiffs' affirmative defense of patent misuse. (D.I.184) For the following reasons, the court shall deny plaintiffs' motion and grant defendant's motion.

II. BACKGROUND

The ICT patents, each entitled, "Method of Screening for Protein Inhibitors and Activators," generally relate to research methods used by pharmaceutical companies for discovering drugs. (D.I.1) The patented methods enable companies to screen substances for active compounds that indicate a potential for development as pharmaceuticals. (Id.) This court's October 17, 2001 order found that the defendant's patents cover only research methods, not manufacturing methods. See Bayer AG v. Housey Pharmaceuticals, Inc., 169 F.Supp.2d 328 (D.Del.2001). Thus, the patent claims at issue do not cover end products, but rather the identification and generation of data used to develop new pharmaceuticals.

Defendant has licensed the ICT patents to over 30 companies. (D.I.192, Ex. 27) Among the licensees are SCIOS, Inc. ("SCIOS"), Eli Lilly and Company ("Eli Lilly"), and Takeda Chemical Industries, Ltd. ("Takeda"). (Id., Exs. 6, 10, 16) Defendant also sent several letters to plaintiffs attempting to negotiate a license. (Id., Exs. 17-20, 21-26)

Defendant has agreed to, and proposed, two different types of licensing arrangements with licensees and potential licensees. One type is a running royalty license that requires the licensee to pay a royalty for sales of pharmaceutical products discovered using the subject invention. This is the type of license accepted by SCIOS and Eli Lilly. (Id., Exs. 6, 10) The second type is a lump sum payment license that requires the licensee to pay a lump sum royalty based upon the licensee's research and development budget. This is the type of license accepted by Takeda. (Id., Ex. 16) Both types of licenses were offered to plaintiffs. (Id., Exs. 17-20, 21-26)

III. STANDARD OF REVIEW

A court shall grant summary judgment only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of proving that no genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n. 10, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "Facts that could alter the outcome are `material,' and disputes are `genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Horowitz v. Fed. Kemper Life Assurance Co., 57 F.3d 300, 302 n. 1 (3d Cir.1995) (internal citations omitted). If the moving party has demonstrated an absence of material fact, the nonmoving party then "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587, 106 S.Ct. 1348 (quoting Fed.R.Civ.P. 56(e)). The court will "view the underlying facts and all reasonable inferences therefrom in the light most favorable to the party opposing the motion." Pa. Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir.1995). The mere existence of some evidence in support of the nonmoving party, however, will not be sufficient for denial of a motion for summary judgment; there must be enough evidence to enable a jury reasonably to find for the nonmoving party on that issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the nonmoving party fails to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof, the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

IV. DISCUSSION

Patent misuse is an equitable defense to a charge of patent infringement. The basic allegation is that the patentee has "extend[ed] the economic benefit beyond the scope of the patent grant." C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed.Cir.1998) (citing Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 703-04 (Fed.Cir.1992)). Patent misuse "requires that the alleged infringer show that the patentee has impermissibly broadened the physical or temporal scope of the patent grant with anticompetitive effect." Virginia Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868-71 (Fed.Cir.1997) (quoting Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed.Cir.1986)).

Plaintiffs assert defendant has committed the following acts of patent misuse: (1) extracting and attempting to extract royalties on products and activities that are not covered by the claims of any of the patents in suit; (2) imposing a requirement of royalty payments beyond the term of the patent; and (3) attempting to muzzle licensees. Defendant denies each of these allegations and asserts that, regardless of whether the above acts were committed, patent misuse requires an anti-competitive effect that is lacking in this case.² The court will discuss each of plaintiffs' allegations in turn.

A. Extracting and Attempting to Extract Royalties on Products and Activities That Are Not Covered by the Claims of Any of the Patents in Suit

1. License Agreements and Proposals Based on Products and Activities not Covered by the Patents

Citing both the existing licensing agreements and the licensing proposals, plaintiffs argue that defendant has insisted upon licenses that impose royalties on products and activities not covered by the patents. According to plaintiffs, this constitutes patent misuse. Defendant asserts that it has not conditioned the grant of a license on the inclusion of unpatented products and activities and, thus, cannot have committed patent misuse. Defendant further argues that license agreements based on products and activities not covered by the patent are not patent misuse if the license agreements are for the convenience of the parties.

Plaintiffs rely on Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969), for their contention that defendant's licensing activities constitute patent misuse. In Zenith Radio, the Supreme Court held "that conditioning the grant of a patent license upon payment of royalties on products which do not use the teaching of the patent does amount to patent misuse." Id. at 135, 89 S.Ct. 1562. The Court, however, limited the holding to particularly egregious circumstances. In refusing to reverse the district court's injunction, the Court stated:

The trial court's injunction does not purport to prevent the parties from serving their mutual convenience by basing royalties on the sale of all radios and television sets, irrespective of the use of [the patentee's] inventions. The injunction reaches only situations where the patentee directly or indirectly "conditions" his license upon the payment of royalties on unpatented products — that is, where the patentee refuses to license on any other basis and leaves the licensee with the choice between a license so providing and no license at all.

Id.

The key consideration of whether the patentee "conditions" a license upon the payment of royalties on unpatented products and activities is "the voluntariness of the licensee's agreement to the royalty provisions[.]" Engel Indus., Inc. v. Lockformer Company, 96 F.3d 1398, 1408 (Fed. Cir.1996) (citing Zenith Radio, 395 U.S. at 138, 89 S.Ct. 1562). If the license agreement is for the convenience of the parties in measuring the value of the license, then the agreement cannot constitute patent misuse. See, e.g., Engel Indus., 96 F.3d at 1408 (citing Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312 (1950); Zenith Radio, 395 U.S. at 138, 89 S.Ct. 1562).

Plaintiffs have provided no evidence that defendant has impermissibly "conditioned" its licenses upon royalty provisions covering unpatented products and activities. Plaintiffs have only established that licensees, including themselves, have objected to the terms proposed by defendant. Specifically, after receiving the initial offer from defendant, plaintiffs determined that the patents were invalid and the proposed licensing terms were improper. Defendant continued to make numerous offers to plaintiffs over the next several years. Plaintiffs make much of the fact that the license terms and proposals were drafted by defendant. However, plaintiffs provide no evidence of ever offering other terms they felt were equally convenient and more appropriate. In Zenith Radio, relied on by plaintiffs, the Supreme Court stated that "misuse inheres in a patentee's insistence on a percentage-of-sales royalty...