Beal Corp. Liquidating Trust v. Valleylab, Inc., Civil Action No. 94-B-2480.

• Decision Date: 16 May 1996
• Docket Number: Civil Action No. 94-B-2480.
• Citation: 927 F. Supp. 1350
• Parties: BEAL CORP. LIQUIDATING TRUST, successor to Beal Corp., f/k/a Beacon Laboratories, Inc., a Minnesota Corporation, Plaintiff, v. VALLEYLAB, INC., a Colorado Corporation, Defendant.
• Court: U.S. District Court — District of Colorado

927 F. Supp. 1350

BEAL CORP. LIQUIDATING TRUST, successor to Beal Corp., f/k/a Beacon Laboratories, Inc., a Minnesota Corporation, Plaintiff, v. VALLEYLAB, INC., a Colorado Corporation, Defendant.

Civil Action No. 94-B-2480.

United States District Court, D. Colorado.

May 16, 1996.

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Thomas P. McMahon, Musgrave & Theis, Denver, CO, R. Gregory Stutz, Charles A. Miller, Paul G. Urtz, Stutz and Miller, Denver, CO, for plaintiff.

Theodore S. Halaby, Halaby Cross Liechty, Schluter & Buck, Denver, CO, Joseph A. Tate, Christine C. Levin, Dechert Price & Rhoads, Philadelphia, PA, for defendant.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

Pursuant to the Sherman Act, 15 U.S.C. §§ 1 and 2, and the Colorado Antitrust Act, C.R.S. §§ 6-4-104 and 6-4-105 (1992 Repl. Vol.), plaintiff BEAL Corp. Liquidating Trust (successor to BEAL Corp., formerly known as Beacon Laboratories, Inc.) (Beacon) brings antitrust claims against defendant Valleylab, Inc. (Valleylab). Beacon also alleges three state law claims: breach of contract, promissory estoppel, and breach of a covenant of good faith and fair dealing. Supplemental jurisdiction exists over Beacon's state law claims pursuant to 28 U.S.C. § 1367(a). It is undisputed that Colorado law applies to Beacon's state contract based claims. Both Valleylab and Beacon manufactured and sold electrosurgical devices during the years relevant to this action.

Beacon asserts seventeen different claims for relief. Claims one and eight allege that Valleylab engaged in a horizontal group boycott of Beacon's products. Claims two and nine contend that Valleylab participated in a horizontal market allocation scheme. Claims three, four, ten and eleven argue that Valleylab created tying arrangements between products it controlled and products it had no right to control. Claims five and twelve allege that Valleylab monopolized a market of surgical devices. Claims six and thirteen contend that Valleylab attempted to monopolize a market of surgical devices. Claims seven and fourteen argue that Valleylab conspired to monopolize a market of surgical devices. Claims fifteen, sixteen, and seventeen allege breach of contract, promissory estoppel, and breach of covenant of good faith and fair dealing, respectively.

Valleylab moves to dismiss all of Beacon's claims pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state claims upon which relief can be granted. Valleylab makes the following arguments in its motion to dismiss: (1) Valleylab obtained a valid patent license which exempts its alleged activities from antitrust scrutiny; (2) Beacon fails to allege an actionable conspiracy to violate antitrust laws; (3) Beacon fails to allege Valleylab acted willfully; and (4) Beacon's state law claims do not state claims upon which relief can be granted.

Valleylab also moves for summary judgment with respect to Beacon's seventeen claims. Valleylab makes the following contentions in its motion for summary judgment: (1) Valleylab obtained a valid patent license which exempts its alleged activities from antitrust scrutiny; (2) Beacon's first tying arrangement claim is invalid as a matter of law; (3) the record contains no evidence establishing that Beacon has been injured; and (4) the record contains no genuine issues of material fact with regard to any of Beacon's claims.

Plaintiff Beacon moves for partial summary judgment: Beacon requests an order of summary judgment declaring the invalidity of Beacon's asserted patent law defense. Beacon also moves to amend its complaint pursuant to Fed.R.Civ.P. 15(a). The parties have fully briefed each motion and presented argument on relevant issues.

I. BACKGROUND

This controversy involves the manufacture and sale of electrosurgical devices. Electrosurgery is the process of performing surgery by utilizing an electrical current to coagulate blood at the situs of an incision. At issue is an electrosurgical device which relies on ionized argon gas to create an electrical current. The electrical current and argon gas flow from a base unit to a hand-held instrument which the surgeon points at tissue. This hand-held instrument resembles a pencil and is called a "handpiece" in the surgical industry. Surgeons hold the handpiece approximately one or two centimeters from the target tissue. The swift stream of argon gas forces away fluid and debris from the incision, providing a relatively clean tissue surface on which the electric energy coagulates blood. The argon gas, having been ionized by the electricity, emits a visible beam of light. Because the beam of light allows the operator to see exactly where the combination of gas and electricity will flow, the operator can use the instrument in a precise manner.

In the 1970's, Valleylab became the first company to obtain a patent for argon beam coagulation. Valleylab obtained separate patents for a base unit and handpiece. In 1989, Birtcher Medical Systems, Inc. (Birtcher) entered the argon beam coagulation market by acquiring United States Patent No. 4,781,175 from Bard Electro Medical Systems, Inc. (Bard). The United States issued Patent No. 4,781,175 based on Bard's improved design for a base unit. Beacon entered the market in 1989 when it began manufacturing and marketing argon beam coagulation devices after applying for patents based on improved designs. The primary manufacturers of argon beam coagulation devices in 1990 were Valleylab, Birtcher, and Beacon. Each company sold argon beam coagulation base units as well as handpieces.

In 1990, Birtcher sued Beacon in this federal district court, alleging that Beacon's base unit infringed upon Patent No. 4,781,175 (Case No. 90-B-432). After a two week trial, a federal jury concluded that Beacon's clients had been using Beacon's base unit in a manner that infringed Birtcher's patent. In order to prevent Beacon from contributorily infringing Birtcher's patent, Beacon was enjoined on December 27, 1991 from selling its base unit and from selling its handpieces for use with any Beacon base unit. Beacon, however, was permitted to sell its handpieces for use with Valleylab and Birtcher base units. While Beacon continued to manufacture and sell handpieces for use with Valleylab and Birtcher base units, the injunction made Birtcher and Valleylab the sole remaining manufacturers of base units.

After the injunction, Beacon discussed with Birtcher the possibility of the sale of Beacon's assets to Birtcher. These negotiations terminated when Valleylab and Beacon executed a letter of intent to negotiate a requirements contract for Valleylab's purchase of Beacon handpieces. Beacon and Valleylab executed this letter of intent in December of 1991. Also in December of 1991, Valleylab loaned $400,000 to Beacon to meet certain expenses and obligations. In consideration for the loan, Beacon executed a promissory note, offered its base unit and handpiece patents to Valleylab as collateral, and terminated its negotiations with Birtcher. The letter of intent terminated by its terms in February of 1992.

Unable to agree on a requirements contract, Beacon and Valleylab entered into an interim distribution agreement in March of 1992. The interim distribution agreement ran through the end of 1992 and automatically renewed in annual increments unless terminated. The interim distribution agreement provided for termination by either party, by written notice, provided notice was given at least ninety days in advance of the annual renewal date. Pursuant to this interim agreement, Valleylab purchased handpieces worth $1,100,000.00 during November and December of 1992.

Concurrent with its execution of the interim distribution agreement, Valleylab sued Birtcher, alleging that Birtcher infringed upon Valleylab's patents and seeking to invalidate Birtcher's Patent No. 4,781,175. In August of 1992, Valleylab and Birtcher entered into a patent litigation settlement agreement which also serves as a patent license agreement. Pursuant to this agreement which serves as the crux of Beacon's antitrust claims, Valleylab became a licensee of Birtcher's Patent No. 4,781,175. The agreement limited Valleylab's purchases of handpieces from outside sources to 30,000 units prior to February of 1993 and, thereafter, prohibits Valleylab's purchase of handpieces from outside sources altogether. Valleylab purchased no more than 30,000 units from Beacon before the end of 1992, and terminated negotiations with Beacon regarding a requirements contract.

In February of 1993, Beacon repaid the $400,000 loan it had received from Valleylab with interest. On March 1, 1993, Beacon sold substantially all of its assets to Birtcher. As part of this asset sale, Beacon covenanted not to sue Birtcher. BEAL filed this suit against Valleylab on October 31, 1994, as Beacon's successor in interest.

II. STANDARDS FOR MOTIONS TO DISMISS AND MOTIONS FOR SUMMARY JUDGMENT

A. Motion to Dismiss

For purposes of a motion to dismiss, I accept all factual allegations as true and resolve all reasonable inferences in favor of the plaintiffs. Tri-Crown, Inc. v. American Federal Sav. & Loan Ass'n, 908 F.2d 578, 582 (10th Cir.1990). A case should not be dismissed for failure to state a claim unless I determine that Beacon can prove no set of facts which would entitle it to relief. Id.

B. Motion for Summary Judgment

Fed.R.Civ.P. 56 provides that summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The nonmoving party has the burden of showing that there are issues of material fact to be determined. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A party...