Caldera Pharm., Inc. v. Regents of the Univ. of Cal.

• Decision Date: 24 April 2012
• Docket Number: A129727.
• Citation: 205 Cal.App.4th 338,140 Cal.Rptr.3d 543
• Parties: CALDERA PHARMACEUTICALS, INC., Plaintiff and Appellant, v. REGENTS OF the UNIVERSITY OF CALIFORNIA et al., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

205 Cal.App.4th 338

140 Cal.Rptr.3d 543

CALDERA PHARMACEUTICALS, INC., Plaintiff and Appellant,

v.REGENTS OF the UNIVERSITY OF CALIFORNIA et al., Defendants and Respondents.

No. A129727.

Court of Appeal, First District, Division 2, California.

April 24, 2012.

Review Denied Aug. 8, 2012.

Certiorari Denied Feb. 25, 2013.

See 133 S.Ct. 1459.

SNR Denton US, San Francisco, Arthur S. Beeman, Joel T. Muchmore ; Barr and Barr Attorneys, Danville, Andrew R. Verriere ; Gregg Rzepczynski, Gregg Rzepczynski & Associates, for Plaintiff and Appellant.

Fenwick & West, Mountain View, Lynn H. Pasahow, Charlene M. Morrow, Carolyn Chang, Mary E. Milionis, Theis Finlev, for Defendants and Respondents.

RICHMAN, J.

Federal courts have exclusive jurisdiction to try suits that are based on patents, which are themselves a creature of the federal Constitution. The appearance of a patent in state court is more than likely to unsettle lawyers and judges because, as one academic commentator observed: "Patents scare many lawyers. Mental charts of the law are apt to designate this unexplored territory as a federal enclave, peopled by dragons and serpents of purely federal origin." (Cooper, State Law of Patent Exploitation (1972) 56 Minn. L.Rev. 313.) Even federal judges can be uneasy. One of the most eminent wrote that the federal courts "deal ... with a great number of patents in the higher reaches of electronics, chemistry, biochemistry, pharmacology, optics, harmonics and nuclear physics, which are quite beyond the ability of the usual judge to understand without the expenditure of an inordinate amount of educational effort by counsel and of attempted self-education by the judge, and in many instances, even with it." (Friendly, Federal Jurisdiction: A General View (1973) pp. 156–157.)

But the academic commentator cautioned that this trepidation is unreasonably exaggerated: "Even a timid glance into the unknown land, however, reveals the friendly wagging tail of state contract law.... At least a living ghost of state tort law lingers in these lands too. For, surprising at it may seem, it is well established that most aspects of contractual transactions affecting patents are governed by state law. State law has likewise afforded tort remedies for a variety of wrongs by and against patent owners...." (Cooper, State Law of Patent Exploitation, supra, 56 Minn. L.Rev. 313.) Another commentator, now the author of a leading treatise on patents, characterized the interface between state and federal law as "one of the darkest corridors of ... jurisdiction." (Chisum, The Allocation of Jurisdiction Between State and Federal Courts in Patent Litigation (1971) 46 Wash. L.Rev. 633, 639.)

Here we must go down that corridor, to decide whether the trial court correctly granted judgment on the pleadings against a patent licensee which sued the licensor for fraud and breach of a license agreement. Applying the standards of Christianson v. Colt Industries Operating Corp. (1988) 486 U.S. 800, 809, 108 S.Ct. 2166, 100 L.Ed.2d 811 (Christianson ), we conclude from a careful reading of the licensee's complaint that, at most, only a fraction of the licensor's allegedly wrongful acts implicate the patent law jurisdiction of the federal courts, with the vast majority of those acts involving a claim for relief solely under California law. Because they do, we conclude that the trial court erred in assigning jurisdiction to the federal courts, and we reverse.

BACKGROUND

On the last day of 2007 Caldera Pharmaceuticals, Inc. (Caldera), commenced this action with a complaint for fraud and breach of the "Exclusive Patent Licensing Agreement" (license agreement) Caldera executed with the Regents of the University of California (Regents or University) in September 2005.¹ Because the Regents had assigned their rights under the agreement to Los Alamos National Security, LLC (LANS), in April 2006, Caldera made LANS a codefendant.² The relevant pleading for present purposes is Caldera's second amended complaint, which was filed in July 2008. Its pertinent allegations may be summarized as follows:

The Regents possessed four patents "related to a Method for Detecting Binding Constants Using Micro X-Ray Fluorescence."³ Section 11 of the license agreement was titled "PATENT PROSECUTION, MAINTENANCE AND DISCLAIMER." Under section 11.1, the Regents agreed that it "will prosecute U.S. patent applications identified in Appendix A ... and will maintain U.S. patents identified in Appendix A." Section 11.5 provided that "The University agrees to provide written notification to the Licensee if the University intends to terminate prosecution of any of the U.S. patent applications identified in Appendix A.... [A]bandonment of any of the U.S. patent applications will be at the sole discretion of the University. If the University elects to terminate prosecution of a U.S. patent application ..., the Licensee may elect in writing to assume responsibility for such prosecution at its own expense." Section 11.6 provided that "The costs associated with U.S. and Patent Cooperation Treaty (PCT) cases will be borne by the University." And section 11.7 specified that in order "to obtain and maintain international rights," Caldera "must diligently pursue, at the Licensee's expense, in the name of the University and assigned to the University, the filing, prosecution, and maintenance of all international patent applications and patents listed in Appendix A."

To develop this technology, the Regents granted Caldera the "exclusive license to make, have made, use, import, sell and offer to sell, and have sold, LICENSED INVENTIONS and LICENSED SERVICES under the PATENT RIGHTS." Caldera agreed to "use its best efforts" to develop the technology, and to make available to the Regents "any improvements or developments" Caldera might make to the patents.⁴

Caldera alleged that "On or about August 8, 2005, the defendants abandoned the patent application known as DOE S-99,911 and filed DOE S-104,901 as a continuing patent application. On or about May 31, 2006, the defendants abandoned the patent application known as DOE S-104,901. The abandonment of patent application DOE S-104,901 was done without providing the contractually required notice to plaintiff ... [and] constitutes a material breach of Section 11.5 of the License Agreement."

"The subject matter of patent applications DOE S-99,911 and DOE S-104,901 was resubmitted by the defendants to the U.S. Patent & Trademark Office as a ‘continuation-in-part’ (‘CIP’)⁵ application styled S-109,085 on or about May 31, 2006. Such conduct had the effect of removing the invention claimed by this particular patent application from the scope of the License Agreement and has deprived Caldera of one of the primary benefits granted by the License Agreement.⁶ Defendants have refused plaintiff's request for transfer of the rights created by this CIP patent application."

Caldera continued: "Patent application DOE S-102,376 was filed by the Regents with the United States Patent & Trademark Office [ (Patent Office) ] prior to execution of the License Agreement for the purpose of obtaining foreign patent protection for certain key elements of the technology being licensed to Caldera." In order for Caldera to act to protect its international rights to the patents under section 11.7, "it was necessary for the Regents to make timely PCT filings with patent applications DOE S-99,911, DOE S-100,585, and DOE S-102,376."

"On or about October 5, 2006, plaintiff Caldera discovered that the defendants had failed to make the necessary filing for patent application DOE S-102,376. The fact that the defendants had failed to file this PCT patent application was not disclosed to plaintiff Caldera prior to execution of the License Agreement." "The defendants' failure to file the PCT for patent application DOE S-102,376 that would have enabled plaintiff to proceed with patent filings in Japan and with the European Patent Office constitutes a material breach of the License Agreement."

Then Caldera alleged this same failure also amounted to fraud: "At the time that it entered into the License Agreement, Caldera reasonably believed that a PCT filing for patent application DOE S-102,376 had been or would be timely made by the Regents such that Caldera would be able to proceed with its written election in Appendix A of the License Agreement to seek patent protection in Japan and in the European Union countries and at all times relevant hereto relied to its detriment on such belief and the ability to proceed with such Japanese and European filing as authorized by Appendix A by entering into the License Agreement and proceeding to operate its business thereunder." LANS assumed that responsibility when it became the Regents' assignee in April 2006, whereupon "LANS and its legal staff became responsible for the prosecution and handling of the pertinent U.S. and foreign patent applications."

Because Caldera had "a relationship of trust and confidence" with them, "LANS and its lawyers have acted as legal counsel for Caldera with respect to efforts related to the securing and protection of the licensed inventions and patent rights, and ... had a duty to Caldera to ensure that the appropriate and necessary actions were taken to protect Caldera's domestic and international patent rights." "The fact that the PCT application for patent application DOE S-102,376 had not been timely filed was intentionally concealed from and not disclosed to Caldera prior to execution of the License Agreement, notwithstanding that the Regents were fully aware that obtaining foreign protection in Japan and the European Union was of great importance to Caldera." LANS "also intentionally concealed from Caldera the loss of the rights to the invention covered by patent application DOE S-104,901." LANS was aware that, in "expectation ... that the international patent rights for patent application DOE S-102,376 would be secured, Caldera proceeded...