Cambridge Biotech Corporation v. Pasteur Sanofi Diagnostics

• Decision Date: 10 November 2000
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: CAMBRIDGE BIOTECH CORPORATION & another v. PASTEUR SANOFI DIAGNOSTICS & others.

433 Mass. 122

740 NE 2d 195

CAMBRIDGE BIOTECH CORPORATION & another¹ v. PASTEUR SANOFI DIAGNOSTICS & others.²

Supreme Judicial Court of Massachusetts, Middlesex.

November 10, 2000.

December 22, 2000.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, & SOSMAN, JJ.

William J.T. Brown, of New York (Allen C.B. Horsley & David A. Hoffman with him) for the plaintiffs.

Jeffrey D. Sternklar (Michael R. Gottfried with him) for Pasteur Sanofi Diagnostics.

GREANEY, J.

We transferred this case to this court on our own motion to decide whether a forum selection clause in a licensing agreement between the plaintiff Cambridge Biotech Corporation (CBC) and the defendant Pasteur Sanofi Diagnostics (Pasteur) should be enforced. The clause required any controversy "exist[ing] or aris[ing]" under the agreement to be brought in the courts of the defending party (in this instance the courts of France where Pasteur is based). A judge in the Superior Court allowed Pasteur's motion to dismiss the claims against it brought by CBC and Cambridge Affiliate Corporation (CAC), on the basis that the forum selection clause should be enforced. The judge also ordered the immediate entry of judgment pursuant to Mass. R. Civ. P. 54 (b), 365 Mass. 820 (1974). The plaintiffs appealed from the judgment. We conclude that the clause is enforceable and, as a result, the controversy between the plaintiffs and Pasteur should be decided by the courts in France. After modifying the judgment to incorporate a declaration of rights, we shall order that the judgment be affirmed.

The background necessary to decide the appeal is as follows.³ CBC is a technology licensing company holding patent licenses for diagnostic tests that detect the presence of the human immunodeficiency virus (HIV) associated with Acquired Immune Deficiency Syndrome (AIDS). Pasteur is a French company that is the exclusive licensee of diagnostic patents developed by Institut Pasteur, a nonprofit French foundation engaged in research and development to combat AIDS.

On October 25, 1989, CBC and Pasteur (then Diagnostics Pasteur) entered into two cross-licensing agreements, one royalty free and the other royalty bearing, to make available patented technology that the other wanted, including technology useful in developing diagnostic products to detect the presence of HIV. Both cross-licensing agreements prohibited sublicensing of the licensed patents, but they specifically permitted the benefits of the agreement to accrue to any "Affiliated Company" of CBC or Pasteur.⁴ Both cross-licensing agreements also specifically provided that the rights or benefits of the agreements were not assignable by any party, in whole or in part, without the prior written consent of the other. Both also gave each party the right to terminate the agreements "in the event of a substantial breach of any of the articles of this Agreement" by giving sixty days' written notice, if the breach was not rectified within those sixty days. In addition, each of the cross-licensing agreements contained the following provision: "Should any controversy exist or arise under the present Agreement, it is herewith agreed that the parties shall bring it before the courts in the country of the respective defendant." Massachusetts law, however, would govern the interpretation of the agreements. It is the royalty-bearing cross-licensing agreement (licensing agreement), under which Pasteur cross licensed its HIV-2 technology to CBC in exchange for other viral technology of CBC, that is the subject matter of this dispute.

In 1994, CBC filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Massachusetts. While under Chapter 11 reorganization, CBC continued to manage and operate its business as a debtor in possession. At the time of the reorganization, CBC operated a wholly owned subsidiary in Galway, Ireland, then known as Cambridge Biotech Limited, but subsequently renamed Cambridge Diagnostics Ireland Ltd. (CDIL). CDIL was primarily engaged in the manufacture and sale of HIV diagnostic products using patented technology owned by or licensed to CBC, including patented technology licensed to CBC by Pasteur. Because CDIL was an affiliated company of CBC, it had access to this technology under the cross-licensing agreements.

CDIL was a cash drain on CBC, and steps were taken in the bankruptcy proceeding to sell it to a third party, Selfcare, Inc. (Selfcare). At least one problem needed to be overcome for the sale of CDIL to Selfcare to succeed: in the event that Selfcare acquired CDIL, CDIL would lose its affiliated company status and, consequently, the rights to certain of Pasteur's licensed patents. Without those patent rights, CDIL would be unable to manufacture HIV diagnostic products, and would have little value to Selfcare.

CBC sought to resolve this dilemma through the creation of a pass-through entity, the plaintiff Cambridge Affiliate Corporation (CAC). According to the plan formulated, CAC would be fifty-one per cent owned by CBC (and so would be an affiliated company under the cross-licensing agreements) and forty-nine per cent owned by Selfcare. CBC would then grant CAC the license rights granted by Pasteur under the cross-licensing agreements, and CAC, in turn, would execute a manufacturing and sales agreement with CDIL, whereby CDIL could continue to manufacture and sell the same HIV diagnostic products it had previously manufactured as a CBC subsidiary. Because this plan was formally not a licensing agreement, it was arguably not a prohibited sublicensing under the cross-licensing agreements. Pragmatically, however, it resulted in CDIL, although owned and controlled by Selfcare, being able to use the same patented technology it had used before the Selfcare acquisition.

In an order dated November 18, 1994, the Bankruptcy Court allowed CBC's motion to approve the sale of CDIL to Selfcare. The order authorized CBC to transfer certain patented technology under the terms of the plan, but included the following provisions:

"PROVIDED, that with respect to rights to intellectual property licensed to [CBC] by [Pasteur] under [the cross-licensing agreements], this Order does not authorize the direct or indirect transfer, assignment or sublicensing of such rights to [CDIL] or to Selfcare without the prior consent of [Pasteur], as provided in the [cross-licensing agreements], but does authorize [CBC] as provided in the [cross-licensing agreements] to extend to an affiliated company (51% of whose voting stock is legally or beneficially owned, directly or indirectly, by [CBC]) the benefits of the [cross-licensing agreements] so that [CBC] shall remain responsible with regard to all obligations placed upon [CBC] by the basis of the [cross-licensing agreements]; and

"PROVIDED, further, that nothing in this Order shall affect any disputes between [CBC] and [Pasteur] concerning (i) the amount of any royalties payable by either party to the other under the [cross-licensing agreements] or (ii) [CBC]'s right to manufacture, use and/or sell Licensed Products (as defined in the [cross-licensing agreements]) in the [exclusive territory defined by the cross-licensing agreements]."

Pasteur consented to this order. Subsequently, on November 23, 1994, CBC, CDIL, and Selfcare executed an agreement providing for the sale of CDIL stock to Selfcare, and, on November 30, 1994, CBC and Selfcare executed a shareholders' agreement dealing with the governance of CAC. Under the provisions of this agreement, CBC (although the holder of a majority stock interest in CAC), granted Selfcare day-to-day management control over the company, including, effectively, the power to veto any act by CAC that Selfcare did not approve. CBC's voting control allowed CAC to permit CDIL to use Pasteur patented technology without violating the prohibition against sublicensing in the licensing agreements. Selfcare's governing control gave Selfcare the assurance that CDIL's manufacturing and sales agreement with CAC would not be subject to change by CBC without Selfcare's approval. (We shall hereafter refer to the above, and all related agreements, as the Selfcare arrangements.)

On May 9, 1996, in preparation for CBC's emergence from Chapter 11 reorganization, the Bankruptcy Court issued a so-called bar order, setting July 9, 1996, as the date beyond which all claims arising out of CBC's executory contracts or unexpired leases would forever be barred. On July 18, 1996, the Bankruptcy Court judge entered an order confirming CBC's reorganization plan, ruling that there were no breaches in any of the contracts assumed by CBC, or that, if there were any breaches, they were deemed cured; and approving CBC's assumption of the Selfcare arrangements and the cross-licensing agreements.⁵ Nothing in the confirmation order modified the terms of the earlier court order approving the sale of CDIL, or modified the antiassignment provisions in the cross-licensing agreements.

On September 30, 1998, Selfcare sold virtually all of CDIL's assets to Trinity Biotech Manufacturing Limited, a wholly owned subsidiary of Trinity Biotech, plc. (Trinity). As has been described, CDIL's right to use Pasteur's patented technology was enabled only by the manufacturing and sales agreement that CDIL had with CAC, and could not be assigned without the agreement of CAC. The chief executive officer of Selfcare, Ronald Zwanziger, was also the chief executive officer of CAC. Acting allegedly on his own, apparently without the knowledge of others at CAC and without consulting CBC, Zwanziger executed a manufacturing and sales agreement between CAC and Trinity, that was allegedly identical to the one that CAC had executed with CDIL. This arrangement purportedly permitted Trinity to use Pasteur patented technology in its manufacturing operations, as CDIL had done under the Selfcare agreements.

On November 20, 1998...