Cardiovascular Sys., Inc. v. Cardio Flow, Inc.
| Decision Date | 02 November 2020 |
| Docket Number | Case No. 18-CV-1253 (SRN/KMM) |
| Citation | 498 F.Supp.3d 1080 |
| Parties | CARDIOVASCULAR SYSTEMS, INC., Plaintiff, v. CARDIO FLOW, INC., Defendant. |
| Court | U.S. District Court — District of Minnesota |
Daniel L. Allender and Roman M. Silberfeld, Robins Kaplan LLP, 2049 Century Park East, Suite 3400, Los Angeles, CA 90067; Thomas F. Berndt, Robins Kaplan LLP, 800 LaSalle Avenue, Suite 2800, Minneapolis, MN 55402, for Plaintiff.
Joseph W. Anthony and Daniel R. Hall, Anthony Ostlund Baer & Louwagie PA, 90 South Seventh Street, Suite 3600, Minneapolis, MN 55402, for Defendant.
This matter comes before the Court on Plaintiff Cardiovascular Systems, Inc.’s ("CSI") Motion for Partial Summary Judgment [Doc. No. 137], Defendant Cardio Flow, Inc.’s Motion for Summary Judgment [Doc. No. 142], Cardio Flow's first Motion to Strike and for Sanctions [Doc. No. 161], and Cardio Flow's second Motion to Strike and for Sanctions [Doc. No. 193]. For the reasons set forth below, the Court DENIES CSI's Motion for Partial Summary Judgment, GRANTS Cardio Flow's Motion for Summary Judgment, and DENIES as moot in part and DENIES in part Cardio Flow's Motions to Strike and for Sanctions.
In 2012, CSI and Ms. Lela Nadirashvili, the widow of CSI's founder, Dr. Leonid Shturman, resolved then pending patent litigation over the ownership of certain patents related to Dr. Shturman's former work at CSI, by way of a Settlement Agreement, which is the subject of this breach of contract action. That Settlement Agreement allocated the disputed patents and patent applications between the parties and, relevant to this action, inter alia , granted CSI an exclusive license under the "Nadirashvili Patent Portfolio to make, have made, use, offer to sell, sell and import rotational atherectomy devices or methods utilizing Solid Counterweights." Subsequently, Nadirashvili assigned her rights to the patents in the Nadirashvili Patent Portfolio to Cardio Flow, the defendant in this case.
The salient issue in this case is whether CSI can enforce the terms of that Settlement Agreement against Cardio Flow, a non-signatory to that Agreement, by way of a breach of contract action. As the Court explains further infra , because there is no legal basis on which to enforce the terms of the Settlement Agreement against Cardio Flow, CSI's breach of contract claim fails. Nonetheless, the exclusive license, to certain patents in the Nadirashvili Patent Portfolio, granted to CSI under the Settlement Agreement, runs with the patents. Accordingly, should CSI determine, in good faith, that Cardio Flow infringes any of those patents, it is free to seek a remedy in a separate lawsuit for patent infringement.
The parties to this lawsuit are competing medical device companies, targeting the market for orbital atherectomy devices. (Hall Decl. in Support of Motion for Summary Judgment [Doc. No. 145] Ex. 2; Sealed Allender Decl. in Op. to Motion for Summary Judgment [Doc. No. 152] Ex. M.) Orbital atherectomy devices are used to remove built-up plaque in arteries. (Hall Decl. in Support of Motion for Summary Judgment [Doc. No. 145] Ex. 2.) CSI is a medical device company incorporated in Delaware, with its principal place of business in Minnesota. (Id. ) Cardio Flow is also a Delaware corporation, with its principal place of business in Minnesota. (Sealed Allender Decl. in Op. to Motion for Summary Judgment [Doc. No. 152] Ex. M.) Cardio Flow was organized as a corporation in 2010. (Allender Decl. in Support of Motion for Partial Summary Judgment [Doc. No. 140] Ex. F, Petrucci Dep. at 17.)
In 2012, Nadirashvili brought a declaratory judgment action against CSI to resolve the ownership of certain patents and patent applications filed by her late husband, Dr. Leonid Shturman. (See Hall Decl. in Support of Motion for Summary Judgment [Doc. No. 145] Ex. 6.) Nadirashvili and CSI resolved this litigation by entering into the Settlement Agreement. (See id. at Ex. 1 (hereinafter, "Settlement Agreement").)
Under the Settlement Agreement, Nadirashvili and CSI divided the patents and patent applications at issue in the lawsuit into two portfolios: (1) the Nadirashvili Patent Portfolio, found at Schedule 1 to the Settlement Agreement; and (2) the CSI Patent Portfolio, found at Schedule 2 to the Settlement Agreement. (See id. ) Nadirashvili assigned any interest she had in the patents and patent applications within the CSI Patent Portfolio to CSI, and CSI assigned any interest it had in the patents and patent applications within the Nadirashvili Patent Portfolio to Nadirashvili. (Id. § 2.) Both sides affirmed that their assignments "shall be free of any liens or encumbrances." (Id. )
Nadirashvili and CSI also exchanged exclusive licenses with regard to certain devices or methods claimed under each other's patent portfolio. (Id. § 3.) Nadirashvili granted to CSI a "worldwide, royalty-free, paid-up, irrevocable exclusive right and license under the Nadirashvili Patent Portfolio to make, have made, use, offer to sell, sell and import rotational atherectomy devices or methods utilizing Solid Counterweights." (Id. § 3(A).) This license did "not include any rights to practice any device or method that utilize counterweights other than Solid Counterweights or any other technology in the Nadirashvili Patent Portfolio." (Id. ) Section 3(A) further clarified that "a device that includes both Solid Counterweights and other technology claimed in the Nadirashvili Patent Portfolio that is not fully disclosed in the CSI Patent Portfolio will not be licensed." (Id. )
CSI's license to Nadirashvili was similar in form. (See id. § 3(B).) CSI granted to Nadirashvili a "worldwide, royalty-free, paid-up, irrevocable exclusive right and license under the CSI Patent Portfolio to make, have made, use, offer to sell, sell and import rotational atherectomy devices or methods utilizing Fluid Inflatable Counterweights." (Id. ) This license did "not include any right to practice any device or method that utilizes one or more Solid Counterweights." (Id. )
Section 7 of the Settlement Agreement provided that Nadirashvili could partner with an individual or entity to develop the Nadirashvili Patent Portfolio. (Id. § 7.) It provided in full as follows:
Nadirashvili Partner. Nadirashvili may partner (which may include the formation of an entity to own the Nadirashvili Patent Portfolio or the sale of the Nadirashvili Patent Portfolio to a person or entity) with any individual or entity to develop the Nadirashvili Patent Portfolio, including Gary Petrucci. However, CSI reserves all rights available to it under the law to pursue any and all claims arising out of or based on the actions of Nadirashvili, Petrucci or any other individual or entity, including without limitation claims for the use or disclosure of any of CSI's confidential, trade secret, and/or proprietary information; for any tortious activity directed at CSI; and for breach of any contractual and/or fiduciary duties owed to CSI. CSI acknowledges that it would not breach any contractual or fiduciary duties for Petrucci to enter into a business transaction with Nadirashvili for the purpose of developing and commercializing the technology of the Nadirashvili Patent Portfolio as long as no confidential, trade secret, or other proprietary information of CSI is used or disclosed before, during or after the transaction.
(Id. )
The Settlement Agreement further described whether and under what circumstances the parties could assign or transfer their rights under the Settlement Agreement. (Id. § 10.) The full text is as follows:
Assignment or Transfer. The rights, obligations and privileges granted to the parties in this Settlement Agreement are personal to the parties and may not be assigned or transferred by a party without the written consent of the other party. The preceding sentence notwithstanding, either party may assign, without the consent of the other party, this Settlement Agreement and the rights, obligation and privileges herein in conjunction with a sale or transfer of the respective party's Patent Portfolio to a third party who has agreed, in writing promptly delivered to the other party, to be bound to this Agreement as if it were a party.
(Id. )
Later in 2012, after Nadirashvili and CSI executed the Settlement Agreement, Nadirashvili entered into an assignment agreement with Cardio Flow. (See Hall Decl. in Support of Motion for Summary Judgment [Doc. No. 145] Ex. 10.) Under this agreement, Nadirashvili assigned to Cardio Flow all of the patent interests comprising the Nadirashvili Patent Portfolio that she acquired by virtue of the Settlement Agreement. (Id. ) In exchange for the patent interests, Nadirashvili and Petrucci agreed that Nadirashvili would receive shares of Cardio Flow and two monetary payments. (Id. ) There is no evidence of record that, in connection with that assignment, Cardio Flow agreed to be bound by the terms of the Settlement Agreement.
On April 6, 2018, CSI sued Cardio Flow. Under the operative complaint, CSI alleges three causes of action against Cardio Flow. (See Am. Compl. [Doc. No. 34].) First, CSI alleges breach of contract, contending that, by virtue of the assignment of the Nadirashvili Patent Portfolio to Cardio Flow, Cardio Flow became bound by the terms of the Settlement Agreement as if it were a party thereto and then breached those terms by developing an atherectomy device that uses solid counterweights and by prosecuting patents that constructively practice solid counterweights. (Id. ¶¶ 22-27.) Second, CSI seeks a declaratory judgment, declaring that CSI is the owner of several counterweight patents that it believes Cardio Flow wrongly claims to...
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