Lab. Corp. Of v. Laboratories
| Decision Date | 11 March 2010 |
| Docket Number | No. 2008-1597.,2008-1597. |
| Citation | 599 F.3d 1277 |
| Parties | LABORATORY CORPORATION OF AMERICA HOLDINGS (doing business as LabCorp), Plaintiff-Appellee, v. METABOLITE LABORATORIES, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Federal Circuit |
Gregory A. Castanias, Jones Day, of Washington, DC, argued for plaintiff-ap-pellee. With him on the brief was Leon F DeJulius, Jr., of Pittsburgh, PA. Of counsel on the brief were Natalie Hanlon-Leh and Nina Y. Wang, Faegre & Benson LLP, of Denver, CO.
Mark A. Perry, Gibson, Dunn & Crutcher LLP, of Washington, DC, argued for defendant-appellant. With him on the brief were Glenn K. Beaton and Kourtney M. Mueller, of Denver, CO.
Before GAJARSA, DYK, and MOORE Circuit Judges.
Opinion for the court filed by Circuit Judge GAJARSA. Dissenting Opinion filed by Circuit Judge DYK.
Metabolite appeals from the United States District Court for the District of Colorado's grant of summary judgment. See Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 571 F.Supp.2d 1199 (D.Colo.2008). The district court granted LabCorp's motion for summary judgment on its complaint for declaratory judgment that it did not breach a license agreement for failure to pay know-how royalties on homocysteine assays performed after judgment had been entered in a prior patent infringement and breach of contract action brought, in part, by Metabolite. Because the present cause of action does not arise under federal patent law nor does Metabolite's right to relief necessarily depend on resolution of a substantial question of federal patent law, this court does not have jurisdiction over this appeal. The action is a state law contract dispute over knowhow royalties brought pursuant to the district court's diversity jurisdiction. Therefore, we transfer the appeal to the United States Court of Appeals for the Tenth Circuit.
Competitive Technologies, Inc. ("CTI") owns U.S. Patent No. 4, 940, 658 (the "'658 patent"). The '658 patent claims a method for detecting deficiencies of vitamin B12 and folate by assaying total homocysteine levels and correlating an elevated level of total homocysteine with a deficiency in either cobalamin or folate. Metabolite is a nonexclusive licensee of the '658 patent with the right to sublicense. It also developed know-how technology, including software, to automate the testing process. In 1991, Metabolite granted LabCorp a license to the know-how and a sublicense to the '658 patent ("License Agreement"). The License Agreement covered four assays, including a total homocysteine assay referred to as the "homocysteine-only assay." In 1998, LabCorp began using an alternative homocysteine-only assay in serum samples using an immunoassay kit developed by Abbott Laboratories (the "Abbott Test") and stopped paying both patent and know-how royalties on just the serum-based homocysteine-only assays.1Metabolite and CTI brought an action against LabCorp for breach of contract and patent infringement. Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings 2001 WL 34778749 (D.Colo. Dec. 3, 2001) ("Metabolite I") (jury trial) off'd, 370 F.3d 1354 (Fed.Cir.2004) ("Metabolite II"), cert granted, 546 U.S. 999, 126 S.Ct. 601, 163 L.Ed.2d 501 (2005), cert. dismissed as improvidently granted, 548 U.S. 124, 126 S.Ct. 2921, 165 L.Ed.2d 399 (2006).
In the first case, Metabolite claimed breach of contract with respect to the homocysteine-only assay for failing to pay know-how royalties and sought contract damages, and CTI claimed patent infringement and sought infringement damages. The case was tried before a jury (Metabolite I). LabCorp contended that because the Abbott Test did not infringe the '658 patent it was not a Licensed Assay as defined by the License Agreement. The termination provision of the License Agreement states in relevant part:
4.02 [LabCorp] shall have the right to terminate this Agreement with respect to a particular Licensed Assay if (i) in the case of Licensed Assays of homocysteine, a more cost effective commercial alternative is available that does not infringe a valid and enforceable claim of the Licensed Patents;.... 2
J.A. 8999. Thus, LabCorp argued, it did not violate its contractual obligations for the homocysteine-only assay as to either the know-how license or the patent sublicense.
A Special Verdict Form was submitted to the jury. It was asked the threshold question of whether the License Agreement had been terminated with respect to the homocysteine-only assay.
Do you find, by a preponderance of the evidence, that LabCorp breached its li cense agreement by terminating it with respect to its performance of the Abbott [T]est?
J.A. 21072-73. The jury found in the affirmative. It awarded infringement damages to CTI of $1.02 million and breach of contract damages to Metabolite of $3.65 million.
Upon Metabolite's and CTI's post-verdict motions in Metabolite I, the district court granted a permanent injunction to enjoin LabCorp from performing any homocysteine-only assay, including any homocysteine-only assay performed using the Abbott Test. LabCorp moved for a stay pending appeal, and the court entered the stay subject to LabCorp paying a 6% royalty to CTI for all homocysteine-only assays performed after entry of judgment, LabCorp was further required to provide Metabolite with an accounting of the 21.5% of the sales attributable to the homocysteine-only assays that LabCorp performed after entry of judgment.
This court affirmed the jury's finding that LabCorp breached the License Agreement holding that LabCorp's refusal to pay royalties was a material breach that constitutes termination even if the contract requires written notice. See Metabolite II, 370 F.3d at 1370. Once the stay of the injunction was lifted, LabCorp stopped performing the homocysteine-only assays itself but outsourced the assay by entering into an agreement with Specialty Laboratories, Inc. ("Specialty") that was independently licensed by CTI to perform the homocysteine-only assays referred by LabCorp. In response, Metabolite filed a post-judgment motion in Metabolite I as-serting that LabCorp's referral of the assays to a third party violated the injunction. LabCorp also filed a post-judgment motion in Metabolite I seeking clarification of the injunction.
Simultaneously, LabCorp filed a new action in the same district court seeking a declaratory judgment that it had not violated the License Agreement. Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 571 F.Supp.2d 1199 (D.Colo.2008) ("Metabolite III") (instant matter below). On September 21, 2006, the district court ruled on the post-judgment motions, filed in Metabolite I, and stated in relevant part:
[T]here has never been a legal determination that LabCorp actually committed any breach after the date of the Amended Judgment, or of the amount of any resulting damages. Because there are no claims remaining in this case, the issue of whether actions taken by LabCorp subsequent to the Amended Judgment constitute breach of contract, and the amount of damages for any such breach, cannot be resolved herein as a matter of procedure. As a result, the Court is not able to state in this case, at this juncture, that the amount stated on the letter of credit is now "due and owing to Metabolite Laboratories." However, LabCorp has filed a separate action [Metabolite III], seeking "a declaratory judgment that LabCorp has not violated the Agreement with various conduct occurring since the time period covered by the Amended Judgment and occurring into the future." Whether LabCorp committed a contract breach after the date of the Amended Judgment is appropriately resolved in [Metabolite III].
J.A. 21124-25 (emphasis added). The '658 patent expired on July 9, 2007.
As noted above, in Metabolite III, LabCorp brought a declaratory judgment action, premised upon diversity jurisdiction, under 28 U.S.C. § 1332, seeking a judgment on "whether Metabolite can recover damages for activity occurring after the time period covered by the Amended Judgment with respect to a part of an Agreement that has been terminated, " and "whether LabCorp's outsourcing activity violates any existing contract between LabCorp and Metabolite." In response to the declaratory judgment action, Metabolite counterclaimed for breach of contract, among other state-law claims, including breach of obligation of good faith and fair dealing, unjust enrichment, promissory estoppel, fraud, and equitable estoppel. The breach of contract claim was premised on LabCorp's continued referral of homocysteine-only assays to a third party without paying know-how royalties after entry of the jury's verdict. The parties filed cross motions for summary judgment. LabCorp moved for judgment on its contract claim and on each of Metabolite's counterclaims, and Metabolite moved for judgment on LabCorp's declaratory judgment claim and its breach of contract counterclaim. The Metabolite III district court held that no further royalties were due under the License Agreement. The court further stated that "[a] plain reading of the verdict form, coupled with the language of the License Agreement, leads to the conclusion that the License Agreement was both breached and terminated, " and resulted in the loss of all rights (both patent and know-how) under the contract, albeit limited to the homocysteine-only assay. Metabolite appeals.
On appeal, LabCorp filed a motion to dismiss or, in the alternative, transfer theappeal to the Tenth Circuit, for lack of jurisdiction. On February 2, 2009, a motion panel of this court denied the motion without prejudice to allow the parties to raise the jurisdictional issues in their merits briefs. The issue of this court's jurisdiction over Metabolite's appeal is now squarely before us.
Before reaching the merits of this case we must, however, first address whether we have appellate jurisdiction under 28 U.S.C. § 1295(a)(1).
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