Cepheid v. Roche Molecular Sys., Inc.

• Decision Date: 17 January 2013
• Docket Number: No. C-12-4411 EMC,C-12-4411 EMC
• Parties: CEPHEID, Plaintiff, v. ROCHE MOLECULAR SYSTEMS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

CEPHEID, Plaintiff,

v.ROCHE MOLECULAR SYSTEMS, INC., et al., Defendants.

No. C-12-4411 EMC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Dated: January 17, 2013

ORDER GRANTING DEFENDANT'S

MOTION TO STAY AND MOTION TO

DISMISS

(Docket No. 50)

I. INTRODUCTION

Plaintiff brought this suit for declaratory judgment seeking that this Court declare that two of Defendants' patents (the '375 patent and the '155 patent) are invalid and have expired, and that Plaintiff has not infringed those patents. Plaintiff further seeks a declaration that the '155 patent is unenforceable due to inequitable conduct. In the motion now pending, Defendant Roche Molecular System asks that the claims as to the '375 patent be stayed pending the outcome of related arbitration proceedings, and that the claims as to the '155 patent be dismissed for lack of subject matter jurisdiction because there is no Article III standing. Docket No. 50. Both parties have filed associated motions to file their briefs and exhibits under seal, which this Court granted on December13, 2012. On December 28, 2012, Plaintiff filed a motion for leave to file a post-hearing statement on an issue raised by this Court in the hearing on this motion.¹ Docket No. 61.

II. FACTUAL & PROCEDURAL BACKGROUND

In 2004, Plaintiff Cepheid entered a licensing agreement with Defendant Roche Molecular Systems ("RMS") and Defendant R. Hoffmann-La Roche Ld. ("Hoffman") (together "Roche" or "Defendants"). First Amended Complaint ("FAC") ¶ 10. The terms of this agreement granted Plaintiff certain license rights to a number of Roche-owned U.S. Patents on chemical processes used in polymerase chain reaction ("PCR") diagnostic testing. Id. The patents covered by the licensing agreement included U.S. Patent No. 5,804,375 ("the '375 patent"), but not U.S. Patent No. 6,127,155 ("the '155 patent"). Id. The parties executed a revised agreement in 2005, which again covered the '375 patent but not the '155 patent. Rabinowitz Declaration in Support of Defendant's Motion ("Rabinowitz Decl."), Ex. 2 § 1.13, Appx. 1.

A. The Dispute Regarding the '375 Patent

Under the terms of the 2005 licensing agreement, Plaintiff was to pay Defendants royalties for the sale of Plaintiff's products made with the covered patented technology. Rabinowitz Decl. Ex. 2 §§ 4.4-4.4. Plaintiff had the option of terminating the agreement with respect to any or all of the licensed patents at any time by providing Defendants with written notice. Id. § 8.2(a). The agreement further provided that

In the event of the termination of any license, in whole or in part, under this Agreement, the manufacture and/or Sale by the CEPHEID Sellers of products covered by such license shall cease immediately to the extent that such manufacture and/or Sale no longer is licensed as a result of such termination, except that such products in inventory as of the date of such termination may be Sold in accordance with the terms and subject to the conditions and restrictions of this Agreement for a period of one hundred eighty (180) days following such termination and royalties shall be due and payable on the Net Sales of such products in accordance with the terms and conditions of this Agreement.

Id. § 8.2(e).

The 2005 licensing agreement contains an arbitration clause stating that if a dispute "relating to or arising out of any provision of [the] Agreement," cannot be resolved through specified informal channels, it shall be subject to final and binding arbitration. Rabinowitz Decl. Ex. 2 §§ 11.1, 11.2. The agreement provides that the arbitration shall be conducted pursuant to the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris. Id. § 11.2. The agreement specifies how the arbitrators shall be chosen, and that the proceedings shall be held in the English Language in Zurich, Switzerland. Id.

In a letter dated May 19, 2010, RMS informed all of its licensees that two patents in its portfolio would be expiring on August 6, 2010. Rabinowitz Decl. Ex. 3. The letter also noted the expiration dates of other patents in RMS's portfolio. Id. The letter noted that the '375 patent would expire on September 8, 2015, and that the '155 patent would expire on October 3, 2017. Id. at 2.

On July 30, 2010, Plaintiff sent Defendants a letter terminating the licensing agreement as to the '375 patent. Rabinowitz Decl. Ex. 4. The letter stated that "[p]ursuant to Section 8.2(e) of that Agreement, any royalty obligation under the '375 patent will end at midnight on August 5, 2010 concurrently with expiration of the other patents in the '375 patent family." Id. This letter did not terminate the licensing agreement as to any of the other patents Plaintiff was then licensing from Defendants. Id.

Defendants responded with a letter on August 31, reaffirming that the '375 patent did not expire until 2015, and that any of Plaintiff's products that used the technology of the '375 patent still required a licensing agreement. Rabinowitz Decl. Ex. 5. The letter stated that per the termination, Plaintiff no longer had rights to manufacture or sell products covered by the patent with the "narrow exception contained in article 8.2(e)." Id. at 1. Defendants noted that they would be conducting an assessment of whether certain products of Plaintiff and its affiliates infringed on the Patent, and would inform Plaintiff when the assessment was complete. Id. at 2. The parties dispute whether Plaintiff payed royalties as required under the licensing agreement during the 180 day period following the termination of the license for the '375 patent. Def.'s Mot. at 6; Pl.'s Opp. at 4 n.3.

Defendants requested arbitration with the International Chamber of Commerce ("ICC") in Zurich on August 9, 2011. Rabinowitz Decl. Ex. 7 at 6. In the arbitration proceedings, Defendants are contending that Plaintiff has continued to make and sell products that use the technology covered by claim 21 of the '375 patent, and that in doing so Plaintiff is breaching Section 8.2(e) of the licensing agreement. Id. at 14-15, ¶¶ 6, 12. Plaintiff contends that none of its products were covered by claim 21 of the '375 patent when it terminated the licensing agreement, and that none of its products have infringed upon claim 21 of the '375 patent. Id. at 16, ¶ 2(a). Plaintiff further contends that the entirety of the '375 patent is invalid, and that the term of the '375 patent cannot extend beyond August 5, 2010. Id. at 16-17, ¶¶ 2(b)-(c).

On September 21, 2011, Plaintiff informed the ICC that it was contesting the jurisdiction of the Arbitral Tribunal under Article 6(2) of the ICC Rules. Rabinowitz Decl. Ex. 7 at 7. Plaintiff's position was that the arbitration clause in the licensing agreement applied only to contractual claims arising during the existence of the licensing agreement, and that Defendant's arbitration claims were non-contractual and arose after Plaintiff had terminated the licensing agreement as to the '375 patent. Id. at 12. Additionally, Plaintiff terminated the entirety of the licensing agreement between the parties on October 20, 2011. Rabinowitz Decl. Ex. 14. Article 6(2) of the ICC's Rules provides that

if any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement, the [International Court of Arbitration] may decide, without prejudice to the admissibility or merits of the plea or pleas, that the arbitration shall proceed if it is prima facie satisfied than an arbitration agreement under the Rules may exist. In such a case, any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself. If the [International Court of Arbitration] is not so satisfied, the parties shall be notified that the arbitration cannot proceed.

Rabinowitz Decl. Ex. 1 at 7 (ICC Rules of Arbitration). The issue of jurisdiction was referred to the ICC court, which ruled on December 16, 2011 that there was a prima facie case of arbitral jurisdiction, and that the Arbitral Tribunal would thus decide the existence and of scope of jurisdiction. Rabinowitz Decl. Ex. 7 at 8, 12. A procedural timetable set in the arbitration proceedings indicates that a preliminary decision on the issue of jurisdiction is expected sometime in 2013. Rabinowitz Decl. Ex. 11.

Throughout much of 2012, the parties worked on drafting a procedural timetable and Terms of Reference for the arbitration. Rabinowitz Decl. Ex. 7 at 8-11. Though the parties were able to stipulate to almost all provisions for the Terms of Reference, they were unable to stipulate to a confidentiality provision that would govern the arbitration proceedings. Id. On August 15, 2012, over Plaintiff's objections, the Arbitral Tribunal determined that the ongoing dispute about the confidentiality provision did not prevent the signing of the Terms of Reference, and stated that the Terms of Reference would be sent for execution. Id. at 10-11. Plaintiff refused to sign the terms of reference because they did not contain any binding agreement about the confidentiality of the proceedings. Id.

B. The Dispute Regarding the '155 Patent

The '155 patent has apparently never been the subject of a licensing agreement or formal legal proceedings between the parties, but Plaintiff alleges that Defendants have threatened to assert their rights under the patent against Plaintiff in various ways.

The first communication regarding the '155 patent that Plaintiff references is a September 2007 draft licensing agreement that Defendants sent Plaintiff. Pl.'s Opp. at 6; Hulse Declaration in Support of Plaintiff's Opposition ("Hulse Decl.") Ex. 2. RMS's Head of Licensing emailed Plaintiff a draft licensing agreement with an attached list of Defendant's patents, and noted that Plaintiff "can either add individual patents - each has its own price . . . or convert to the full license with all the available patents and pay the difference of what you've paid already and the full price of...