MAYO CLINIC JACKSONVILLE v. ALZHEIMER'S INSTITUTE

• Decision Date: 24 November 2009
• Docket Number: 8:05-cv-01049-T-23TBM.,Case No. 8:05-cv-00639-T-23TBM
• Citation: 683 F. Supp.2d 1292
• Parties: MAYO CLINIC JACKSONVILLE, et al., Plaintiffs, v. ALZHEIMER'S INSTITUTE OF AMERICA, INC., Defendant.
• Court: U.S. District Court — Middle District of Florida

683 F.Supp.2d 1292

MAYO CLINIC JACKSONVILLE, et al., Plaintiffs, v. ALZHEIMER'S INSTITUTE OF AMERICA, INC., Defendant.

Case Nos. 8:05-cv-00639-T-23TBM, 8:05-cv-01049-T-23TBM.

United States District Court, M.D. Florida, Tampa Division.

November 24, 2009.

Elizabeth M. Flanagan, Jonathan E. Singer, Michael E. Florey, Michael J. Kane, Sara Cotton, Thomas S. McClenahan Fish & Richardson, PC, Minneapolis, MN, Michael L. Chapman, Holland & Knight, LLP, Tampa, FL, for Plaintiffs.

Dan Cleveland, Jr., Lathrop & Gage, LC, Boulder, CO, David V. Clark, Lathrop & Gage, L.C., Kansas City, MO, Frederick K. Starrett, Jeffrey R. King, William A. Rudy, Lathrop & Gage, L.C., Overland Park, KS, Richard H. Martin, Akerman Senterfitt, Tampa, FL, for Defendant.

ORDER

STEVEN D. MERRYDAY, District Judge.

The plaintiffs move to dismiss (Doc. 133) counts two and three of the defendant's second amended counterclaim (Doc. 130). Additionally, the defendant moves for leave to join Dr. Todd Golde as a counterclaim defendant (Doc. 117).

Background

On September 13, 1996, the defendant, Alzheimer's Institute of America ("AIA"), granted the plaintiff, Mayo Foundation for Medical Education and Research ("Mayo"), a license in patents owned by AIA.¹ On December 13, 2003, AIA sued in the United States District Court for the District of Kansas and claimed that Mayo infringed AIA's patents. (Doc. 23 in Case No. 8:05-cv-01049) Subsequently, when Mayo sued in Florida state court to compel arbitration, AIA removed the action (Doc. 1).² After removal, Mayo requested (Doc. 25) a stay of AIA's patent infringement action pending arbitration. An October 12, 2005, order (Doc. 40) consolidated the Kansas and Florida actions and stayed the litigation pending arbitration.

The arbitration addressed (1) whether the license includes Mayo's use of "`cell lines' of the patented technology" (Doc. 60-2) and (2) whether Mayo owed AIA compensation under the license agreement for benefits received by Mayo through third-party agreements. The arbitrator found that Mayo's use of cell lines fell outside the scope of the license and that Mayo owed no compensation under the license agreement to AIA for any benefit received by Mayo (Doc. 60-2). After the arbitrator's decision and after resumption of the litigation, AIA filed a counterclaim that included a claim for patent infringement, a claim for breach, a claim for an "equitable interest," and a claim for unjust enrichment (Doc. 71-1). After Mayo moved to dismiss (Doc. 81), the third and fourth counts of AIA's counterclaim were dismissed (Doc. 116) because federal patent law preempts a state law claim premised upon patent infringement.

Count one of AIA's second amended counterclaim (Doc. 130) alleges patent infringement, and count two alleges that, if Mayo infringed AIA's patents, Mayo also breached the license agreement. Count three alleges that Mayo breached the license agreement's "no-challenge" clause, in which Mayo contracted to not "initiate or voluntarily participate in any action" to undermine, invalidate, or declare unenforceable claims of AIA's patents.

Discussion

1. Enforceability of the No-Challenge Clause

Mayo argues that Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), bars enforcement of the no-challenge clause because, implementing the "important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain," Lear abrogates licensee estoppel, which bars a patent licensee's challenging the licensed patent. 395 U.S. at 669-71, 89 S.Ct. 1902. Observing that the prospective economic gain sufficiently motivates only a licensee to challenge a patent, Lear determines that "federal patent policy prevails over `the technical requirements of contract doctrine.'" Ransburg Electro-Coating Corp. v. Spiller & Spiller, Inc., 489 F.2d 974, 978 (7th Cir.1973) (quoting Lear, 395 U.S. at 670, 89 S.Ct. 1902); see also Hemstreet v. Spiegel, Inc., 851 F.2d 348, 351 (Fed.Cir.1988); Pope Mfg. Co. v. Gormully, 144 U.S. 224, 234, 12 S.Ct. 632, 36 L.Ed. 414 (1892) (finding unenforceable a licensee's promise not to challenge the validity of a patent and noting that "it is as important to the public that competition should not be repressed by worthless patents, as that the patentee of a really valuable invention should be protected in his monopoly....").

A patent by its very nature is affected with a public interest. As recognized by the Constitution, it is a special privilege designed to serve the public purpose of promoting the `Progress of Science and useful Arts.' ... The far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.

Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co., 324 U.S. 806, 816, 65 S.Ct. 993, 89 L.Ed. 1381 (U.S.1945). Accordingly, Lear has been interpreted as "establishing that removalof restraints on commerce caused by improperly held patents should be considered more important than enforcing promises between contracting parties." Warner-Jenkinson Co. v. Allied Chem. Corp., 567 F.2d 184, 188 (2nd Cir.1977); Idaho Potato Comm'n v. M & M Produce Farm & Sales, 335 F.3d 130, 137 (2nd Cir.2003) ("Courts should weigh the federal policy embodied in the law of intellectual property against even explicit contractual provisions and render unenforceable those provisions that would undermine the public interest.").³ See also Panther Pumps & Equip. Co. v. Hydrocraft, Inc., 468 F.2d 225, 230-31 & n. 15 (7th Cir.1972) (Stevens, J.) (finding a no-challenge clause in a patent license agreement unenforceable under Lear); Plastic Contact Lens Co. v. W.R.S. Contact Lens Lab., Inc., 330 F.Supp. 441, 443 (S.D.N.Y. 1970) (finding that a no-challenge clause in a license agreement presented no bar to the defendants' challenging the patent's validity).⁴

Lear, however, "does not grant every licensee in every circumstance the right to challenge the validity of the licensed patent." Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376, 1381 (Fed.Cir.2004).⁵ For example, Lear permits enforcement of a no-challenge clause in a license agreement entered in settlement of litigation. See HERBERT F. SCHWARTZ, PATENT LAW AND PRACTICE, § 3.I.B n. 21 (6th ed.2008); see also Hemstreet, 851 F.2d at 350-51 (finding that the law favors the settlement of litigation more strongly than the furtherance of federal patent policy); Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469, 476-77 (Fed.Cir.1991) (finding no justification in Lear for allowing a challenge to validity if "under normal principles of res judicata applicable to a consent judgment, such challenge would be precluded."); Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1369 (Fed.Cir.2001) (finding no change after Lear to the rule that a consent decree gives rise to res judicata).

In Flex-Foot, the licensee procured a dismissal with prejudice of the licensor's patent infringement action in exchange for the licensee's covenant not to challenge the validity of the licensor's patent. The settlement agreement, coupled with the dismissal, precluded the licensee from challenging the validity of the patent. 238 F.3d at 1367-68. No bar to licensee estoppel was found under the public policy established in Lear because Lear was distinguishable. For example, the license agreement in Lear resulted neither from a litigation settlement nor a consent decree and contained no express waiver. Furthermore, absent from Lear was a discussion of res judicata and the public interest in settling patent litigation.⁶ 238 F.3d at 1368-69.

Lear stands for the proposition that the law will not infer from a license a bar to a licensee's challenging a patent. However, Lear fails to discuss whether (or under what circumstances) informed persons, acting from positions of substantial parity and benefitting from the advice of counsel, may negotiate a contract that, consequent upon the exchange of a valuable consideration, knowingly, intelligently, explicitly, and voluntarily waives the right to challenge a patent's validity.⁷

In this case, a no-challenge clause in the license agreement purports to prohibit Mayo's challenging the validity of the licensor's patent. The no-challenge clause states that, "MAYO hereby agrees not to initiate or voluntarily participate in, or knowingly permit its Affilliates to initiate or voluntarily participate in, any action directed at undermining, invalidating or declaring unenforceable any claims under the Patent Rights as and if information regarding such Patent Rights is provided by AIA to MAYO in writing." (Doc. 134-2 ¶ 7.02(a)) Because the no-challenge clause is neither part of an agreement reached in settlement of litigation nor the result of a consent decree, federal patent policy may invalidate the clause and permit Mayo to challenge the validity of AIA's patent. However, resolution of that question is unnecessary.

Even assuming for a moment that federal patent policy permits enforcement of the no-challenge clause, the no-challenge clause, which gravitates against patent policy in a manner reminiscent of Lear, receives the strict construction warranted by a provision that constrains a constitutional, statutory, or other legal right. Applying a strict construction to the no-challenge clause and confining the reach of the clause to that defined by its terms, count three fails to state a claim because the facts of this case present no event of breach of the no-challenge clause. In amended count three of AIA's counterclaims, AIA asserts (Doc. 130, ¶ 31) that Mayo breaches the no-challenge clause by counterclaiming—in Mayo's answer to AIA's counterclaim—for patent invalidity and thereby "initiating" an "action" in violation of the no-challenge clause. AIA's claim fails for several...