Inamed Corp. v. Kuzmak

• Decision Date: 28 May 2002
• Docket Number: No. CV 99-02160 MMM.,CV 99-02160 MMM.
• Parties: INAMED CORPORATION, Inamed Development Company and Bioenterics Corporation, Plaintiffs, v. Lubomyr I. KUZMAK, Defendant.
• Court: U.S. District Court — Central District of California

275 F.Supp.2d 1100

INAMED CORPORATION, Inamed Development Company and Bioenterics Corporation, Plaintiffs, v. Lubomyr I. KUZMAK, Defendant.

No. CV 99-02160 MMM.

United States District Court, C.D. California, Western Division.

May 28, 2002.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Shirli Fabbri Weiss, Gray Cary Ware & Freidenrich, Stewart M. Brown, Gray Cary Ware & Freidenrich, San Diego, CA, for Plaintiffs.

Jonathan Solish, Steven J. Prough, Jenkens & Gilchrist, Marjorie E. Lewis, Gail Jeanne Standish, Gibson Dunn & Crutcher, Wayne M. Barsky, DoHoang Thien Duong, Gibson Dunn & Crutcher, Los Angeles, CA, for Defendants.

ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND GRANTING PARTIAL SUMMARY JUDGMENT FOR DEFENDANTS

MORROW, District Judge.

On February 26, 1999, plaintiffs Inamed Corporation, Inamed Development Company, and Bioenterics Corporation filed a complaint against Lubomyr I. Kuzmak, seeking a declaration that certain patents held by Kuzmak were invalid and unenforceable, and that plaintiffs had not infringed the patents. Plaintiffs also alleged that Kuzmak had engaged in patent misuse, and that he had breached certain licensing agreements. The parties engaged in settlement negotiations regarding these and other disputes that culminated in a letter agreement on January 24, 2000. A dispute arose regarding the enforceability of the agreement, however, and claims related to that issue were added to the action in plaintiffs' First Amended Complaint. Kuzmak has since sold his interest in the patents and the damage claims asserted in his counterclaim against the Inamed companies to Ethicon Endo-Surgery, Inc., which was added as a co-defendant/counterclaimant on March 6, 2002.

Plaintiffs have moved for summary judgment on their seventh cause of action, which seeks specific performance of the purported settlement agreement, or alternatively, for partial summary judgment on their eighth cause of action, which seeks damages for its breach. Because the court finds that there are no triable issues of material fact regarding the enforceability of the letter agreement, that it is not enforceable as a matter of law, and that plaintiffs have had notice and an adequate opportunity to bring forward all evidence relevant to the question, it grants partial summary judgment in defendants' favor on plaintiffs' seventh and eighth causes of action.

I. FACTUAL AND PROCEDURAL BACKGROUND

Lubomyr Kuzmak is the inventor or coinventor of a silicone gastric band used in treating morbid obesity (the '339 patent) and a gastrostenometer used to measure the exact size of the stoma opening (the '288 patent). He has also secured two other patents relative to gastric banding — the '868 patent (for a "reversible" gastric band) and the '429 patent. The complaint and answer/counterclaim allege that between 1989 and 1993, Kuzmak and Inamed Development Corporation entered into four license agreements concerning the patents-in-suit. Inamed agreed to pay Kuzmak a royalty for the right to exploit the patents.¹ Between 1992 and 1998, it manufactured and sold gastric bands pursuant to the license, and made annual royalty payments to Kuzmak of more than $1.3 million. In 1998, Inamed allegedly attempted to renegotiate the license agreements because it believed that some of the patents were invalid or unenforceable, and felt that the agreements had an improper territorial scope.² After negotiations proved unsuccessful, Inamed terminated the agreements, in accordance with their provisions, on December 6, 1998.³ Kuzmak sought to arbitrate the issue of royalties allegedly due under the 1993 license, and Inamed filed suit, seeking a declaratory judgment that Kuzmak's patents were invalid and that it had not infringed the patents.

The present motion does not address the merits of the parties' underlying disputes but rather the enforceability of a purported settlement of those disputes that was reached in January 2000. As respects the parties' negotiations and purported agreement, the following facts are undisputed unless otherwise noted. Roxana Kuzmak has been married to Lubomyr Kuzmak for more than 35 years. She has served as her husband's business manager since 1989,⁴ and has held power of attorney for his business affairs since 1999.⁵ Roxana supervised the work of Kuzmak's attorneys in this case.⁶

From 1989 until 1998, Kuzmak was party to four successive license agreements with Inamed.⁷ Kuzmak personally signed each of the agreements.⁸ Inamed gave notice of its intention to terminate the last of the agreements, which Kuzmak executed in 1993, on November 6, 1998.⁹ Less than two weeks later, Inamed's lawyer sent Kuzmak's attorney a proposal for a license to exploit the '288 and '429 patents, which included a $200,000 lump sum royalty to be paid over four years and a covenant not to sue on the '339 and '868 patents.¹⁰ In February 1999, Kuzmak demanded that Inamed arbitrate the royalties due under the 1993 license agreement before the American Arbitration Association.¹¹ On February 26, 1999, Inamed filed this lawsuit, seeking a declaratory judgment that Kuzmak's patents were invalid and that it had not infringed.¹² While litigating the royalty issue before the AAA, and while an appeal of this court's ruling regarding personal jurisdiction over Kuzmak was being considered by the Federal Circuit, Inamed and Kuzmak exchanged a number of letters regarding the terms of a possible settlement of the parties' disputes.¹³

On October 1, 1999, Kuzmak's lawyer wrote Inamed's attorney to communicate an "offer of settlement" from his clients. The offer included provisions for (1) payment of past due royalties under the 1993 license agreement and an audit of Inamed's books to enable Kuzmak to determine the amount of royalties due under that agreement; (2) an acknowledgment that Kuzmak was the sole inventor of the '429 patent; (3) payment of a non-refundable lump sum based on estimates of future sales of the lap band and royalties on sales above the estimate; (4) an agreement that Kuzmak would grant Inamed an exclusive license to exploit his gastric band patents; and (5) an agreement that Kuzmak would make available the medical records Inamed required to obtain market approval by the Food and Drug Administration ("FDA") of its lap band device.¹⁴

Inamed responded on October 5, 1999, with what it termed a "final offer of settlement." It offered to pay (1) $500,000 in settlement of Kuzmak's claim for past royalties due under the 1993 agreement and any exploitation of the patents prior to the date a new license agreement was signed; and (2) $2,000,000 as an advance against future U.S. royalties, to be paid within sixty days of pre-market approval ("PMA") by the FDA of Inamed's lap band device. As respects future payments, it proposed a 3% royalty on lap band sales, with a guaranteed royalty of $36 per unit. Inamed proposed that the license remain in effect through 2005, when the '339 patent expired, and that the parties meet in 2004 to discuss a possible license under the '429 patent based on products and methods in use at that time. It agreed not to dispute that Kuzmak was the inventor of the '429 patent, so long as he agreed to abandon his Application No. 09/205,195 and his attempt to provoke an interference with Patent No. 5,601,604. Finally, Inamed requested that Kuzmak grant it "immediate access" to clinical data so that it could prepare submissions due in connection with FDA approval at month's end.¹⁵

On October 13, 1999, Kuzmak made the following "counter-proposal": (1) that Inamed pay $1,000,000 in consideration of his claim for past due royalties under the 1993 license agreement and any exploitation of the patents prior to execution of a new license agreement; (2) that Inamed pay Kuzmak $36 for every lap band manufactured or sold in the United States or any foreign country where Kuzmak held a patent or had a patent application pending; (3) that Inamed pay Kuzmak a $3,000,000 non-refundable advance against royalties, one-half to be paid upon execution of an agreement and one-half by March 31, 2000; (4) that Inamed recognize Kuzmak as the sole inventor of the '429 patent; (5) that Kuzmak maintain his Application No. 09/205,195, and that Inamed reissue Patent No. 5,601,604, with narrower claims reflective of a particular embodiment; and (6) that Kuzmak grant Inamed an exclusive license to exploit the '339, '288, '429, '176, and all related foreign patents, with the license remaining in effect until the last of the patents expired.¹⁶

Inamed's attorney responded on October 14, 1999. The letter noted that the parties had made progress on certain points, but moved farther apart on others. It stated that, if a resolution could be reached on other outstanding issues, Inamed would address Kuzmak's demand for an amount in excess of $500,000 on the past due royalties claim. It then offered the following point-by-point response to the Kuzmaks' proposal: (1) noting that Kuzmak had apparently accepted the $36 royalty figure, Inamed rejected the concept of a royalty based not only on sales, but on units manufactured as well; (2) it similarly rejected Kuzmak's proposal that it pay a royalty on lap band sales in any foreign country where he had a patent application pending; rather, Inamed stated, it would agree to pay a royalty only in those countries where a patent had been issued to Kuzmak; (3) Inamed also rejected Kuzmak's counter-proposal regarding the amount and timing of the advance royalty payment, and reiterated its willingness to make a $2,000,000 non-refundable payment within sixty days of FDA approval of the PMA; (4) it indicated that it would recognize Kuzmak as the sole inventor of the '429 patent; (5) it suggested that the parties eliminate issues involving Kuzmak's Application No. 09/205,195 and Inamed's Patent No. 5,601,604 from the scope of the settlement; (6) it asserted that Kuzmak's obligation to...