MDS (Can.) Inc. v. RAD Source Techs., Inc.

Decision Date01 July 2013
Docket NumberNo. 11-15145,D.C. Docket No. 0:09-cv-61652-ASG,11-15145
PartiesMDS (CANADA) INC., a Canadian corporation, BEST THERATRONICS, LTD., a Canadian corporation, BEST MEDICAL INTERNATIONAL, INC., a.k.a. Beast Medical International, Inc., Plaintiffs - Counter Defendants - Appellants, v. RAD SOURCE TECHNOLOGIES, INC., a Florida corporation, Defendant - Counter Claimant - Appellee.
CourtU.S. Court of Appeals — Eleventh Circuit

[PUBLISH]

Appeal from the United States District Court

for the Southern District of FloridaBefore DUBINA, Chief Judge, PRYOR and ANDERSON, Circuit Judges.

PER CURIAM:

This appeal presents a jurisdictional issue of first impression in our Court: whether the Federal Circuit has exclusive jurisdiction to hear an appeal of a breach of contract claim that would require the resolution of a claim of patent infringement for the complainant to succeed. We conclude that this Court does have appellate jurisdiction. We then address the merits of this breach of contract claim, discuss the district court's findings of facts and conclusions of law after the bench trial, and affirm in part and certify questions to the Florida Supreme Court.

I. BACKGROUND

Rad Source Technologies is a Florida corporation with its principal place of business in Georgia. It specializes in research and development of irradiation technologies and participated in the development of the technology contained in the RS 3000 blood irradiation device. Blood is irradiated to eliminate pathogens and other microbes in blood to, among other things, reduce the risk of Graft Versus Host Disease (a common side effect in transplants). Rad Source's device replaced radioactive isotopes with X-rays as the means of irradiating the blood and was the first to do so. Rad Source developed its first product, the RS 3000, in the late 1990s, and received FDA approval in 1998. Rad Source manufactured and sold the RS 3000 in 1999 as a one blood bag device, but by 2001 had changed thedevice to hold 2 or 3 bags. Until August 2003, Rad Source sold the RS 3000 for $110,000 to $120,000.

Rad Source obtained three patents for its work in connection with the RS 3000. These patents were U.S. Patent Nos. 6,212,255 (the '255 patent), 6,489,099 (the '099 patent), and 6,614,876 (the '876 patent). These three patents are the patents to which the License Agreement between the parties refers.

Rad Source began work on a different type of technology in the late 1990s that would generate high doses of X-ray radiation through a long tube or cylindrical anode with an electron emitter centered through its entire length to generate a field of X-rays in three dimensions. Rad Source obtained two patents related to this long tube technology, the '147 and the '686.

In the late 1990s, Rad Source approached MDS Nordion, now known as Nordion and referred to throughout this opinion as Nordion, about the RS 3000 but Nordion was not interested. Nordion is a Canadian company with a specialty in the detection, prevention, and diagnosis of disease. Nordion sold gamma-source blood irradiators and other irradiation products worldwide, but had no knowledge or focus on X-ray technology.

After 2002, when sales of the RS 3000 had increased, Nordion approached Rad Source about acquiring an interest in the RS 3000. Because Rad Source did not have the funding to launch the RS 3000 internationally as it desired, it wasinterested. Further, Rad Source's resources were tied up in further development of X-ray technologies, including the long tube technology. Because of Nordion's expertise in irradiation, Rad Source thought that a partnership would be a good fit. But Nordion stated that it was not yet interested in the long tube technology.

On August 20, 2003, Rad Source and Nordion entered the License Agreement that is the focus of this dispute. The negotiation for the agreement had lasted over a year. The Food and Drug Administration cleared Nordion to market and sell the RS 3000 in the United States on September 26, 2003, and that date served as the closing date for the License Agreement. Nordion thereafter began marketing the RS 3000 as the "Raycell."

Rad Source received $1.7 million as compensation under the Agreement. The term of the license extended from the closing date until the last of the patents expired in 2022, and Rad Source agreed in effect to receive compensation only in the first four years of the Agreement, although Rad Source could receive compensation in the fifth year if Nordion sold more than forty systems that year.

In 2007, Rad Source employees saw Nordion employees at a conference and indicated that the long tube technology was ready to be revisited. At the invitation of Rad Source, Nordion employee Carolin Vandenberg visited Rad Source's facilities outside of Atlanta with two other Nordion employees in July 2007. The district court found that Rad Source showed the Nordion employees some devicesusing the long tube technology in applications other than blood irradiation and spoke about whether the long tube technology had any application in blood irradiation. Rad Source heard from Nordion again in September when Rad Source's president, Randol Kirk, emailed Vandenberg about irradiation news and received a response from Vandenberg that seemed to suggest interest; she sought "a company profile, with some level of financials, if possible, that I can forward" and for his availability over the next few weeks. Rad Source provided the information in October, but never heard back from Nordion.

In November 2007, Nordion and Best Medical ("Best") executed an "Asset Purchase Agreement" for the sale of Nordion's External Beam Therapy and Self Contained Irradiator business for approximately $15 million. The closing of the agreement was conditioned on the execution of a non-compete clause by Nordion and the consent of about twenty-five companies to the assignment of their Nordion contracts to Best.

In December 2007, Nordion requested that Rad Source consent to an assignment of the License Agreement to Best. Rad Source was completely taken aback by the news of the agreement between Nordion and Best, in light of the recent visit by Vandenberg, and refused to consent. Rad Source stated that the assignment would not be in Rad Source's best economic or business interest, butasked for the documents pertaining to the sale and said that it would reconsider the transaction. Nordion did not provide the information.

The parties participated in a conference call in January 2008 to discuss the request for consent to assignment. Nordion told Rad Source that it would sublicense its rights under the contract to Best if Rad Source did not consent. Rad Source protested that Nordion did not have that right and continued to oppose the assignment. Within the month, the owner of Best called the president of Rad Source, stating that he wanted to arrange a meeting and that he was closing the deal with Nordion that week. But Rad Source never heard back from the president and no meeting was arranged.

Nordion and Best entered the sublicense agreement on April 30, 2008. Nordion purported to grant Best all of the rights it had under the License Agreement, but the sublicense ended a day before Nordion's license ended. Best agreed to assume and perform all of Nordion's obligations and agreed that Best would indemnify Nordion in the event of a suit by Rad Source alleging a breach of the License Agreement. Further, the sublicense agreement provided that Nordion would not be required to make any payments to Rad Source until Nordion received payment from Best.

The asset purchase agreement between Nordion and Best closed in May 2008. Nordion executed a non-compete agreement, promising not to directly orindirectly manufacture, develop, market or sell technology based on blood irradiators. At closing, 155 employees were transitioned to Best as was the Nordion building. The agreement lists as items sold the intellectual property from Rad Source and the Raycell line.

Rad Source employees heard about the closing shortly afterward via an article, a press release, and public filings. Rad Source did not at that point send a default notice to Nordion because it thought it would be futile and expensive as well as time-consuming. Rad Source finally sent a default notice and notice of termination in January 2011, well over a year after Nordion and Best filed suit.

In August 2008, Rad Source began developing a new blood irradiation device, the RS 3400, which used the long tube technology. In September of the same year, it submitted an application to the FDA, seeking approval to market the device. The FDA cleared Rad Source's application in February 2009, and in September 2009, Rad Source began to market the RS 3400 although it had not completed its design and development. Rad Source advertised the RS 3400 as a "direct medical upgrade of the Rad Source 3000 research and industrial irradiator." Rad Source told potential customers that it would be shipped by March 30, 2010, and submitted quotes to two potential customers.

Best and Nordion sent a cease and desist letter on September 30, 2009, that demanded Rad Source stop designing, marketing, and promoting the RS 3400.Rad Source responded by letter that it thought Nordion was in breach of the Agreement under Article 12. Nordion in turn responded that this notification was insufficient to constitute notice under Article 12.

Nordion and Best filed suit against Rad Source on October 15, 2009. The district court granted Nordion's motion for a temporary restraining order on October 27, 2009. Rad Source consolidated a separate matter it had filed that sought declaratory relief, and filed a counterclaim in this action.

During the course of the litigation, Nordion and Best discovered that Rad Source had failed to pay the maintenance fees on the '255 patent, and, as a result, the patent had expired. In April 2010, Rad Source petitioned to have the patent reinstated, but the United States Patent and...

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