MDS (Canada) Inc. v. Rad Source Techs., Inc.

• Decision Date: 10 July 2014
• Docket Number: No. SC13–1215.,SC13–1215.
• Citation: 143 So.3d 881
• Parties: MDS (CANADA) INC., et al., Appellants, v. RAD SOURCE TECHNOLOGIES, INC., etc., Appellee.
• Court: Florida Supreme Court

143 So.3d 881

MDS (CANADA) INC., et al., Appellants,
v.
RAD SOURCE TECHNOLOGIES, INC., etc., Appellee.

No. SC13–1215.

Supreme Court of Florida.

July 10, 2014.

Charlie C.J. Lee of Moore & Lee, LLP, Ft. Lauderdale, FL; and Robert M. Moore, Kristen A. Bennett, and Richard O. Wolf, of Moore & Lee, LLP, McLean, VA, for Appellants.

Andrew R. Spector of Spector Rubin, P.A., Miami, FL; and Scott E. Taylor, Richard A. Mitchell, and Anuj Desai of Arnall Golden Gregory LLP, Atlanta, GA, for Appellee.

PARIENTE, J.

In this complex commercial litigation involving a patent license agreement that has at its core issues of Florida contract

[143 So.3d 882]

law, the certified question from the United States Court of Appeals for the Eleventh Circuit involves whether the licensee's transfer of its interest in the patent license agreement constituted an assignment or a sublicense.¹ The legal issue that is the crux of the question presented to this Court is whether Florida law recognizes a “bright-line rule” that distinguishes an assignment from a sublicense when a licensee transfers its entire interest in a license agreement except for one day. Accordingly, to focus on this narrow issue of Florida law, we rephrase the question certified by the Eleventh Circuit ² as follows:

DOES FLORIDA RECOGNIZE A “BRIGHT–LINE RULE” TO DISTINGUISH AN ASSIGNMENT OF A LICENSE AGREEMENT FROM A SUBLICENSE?

We answer the rephrased certified question in the negative and hold that under Florida law, whether an agreement transferring the licensee's interest in the license agreement constitutes an assignment or a sublicense is not determined by the mere application of a “bright-line rule.” Instead, this legal determination depends on a multitude of factors, including the language of the license agreement and its subject matter, the substance of the interest that was actually transferred by the licensee, and whether the licensee retained any substantial rights in the license agreement. Further, we conclude that the analysis concerning the issue of assignments and subleases in cases involving interests in real property, which is the primary case law upon which the Appellants rely, does not readily translate to a transfer of rights in a patent license agreement, and that cases construing patents, such as those relied on by the federal district court, are instructive in providing guiding principles for the type of interest at the heart of this case.

In many cases, including this one, a consideration of the pertinent factors and the ultimate resolution of whether the transfer of the licensee's interest constitutes an assignment or a sublicense is a mixed question of law and fact. For this reason, we limit our discussion in this opinion to the rephrased certified question of Florida law. We decline to decide the ultimate issue regarding whether the transfer of the licensee's interest in this case was a sublicense or an assignment, leaving that legal determination for the Eleventh Circuit in this complex case involving patents that has been extensively litigated in the federal courts.

FACTS AND PROCEDURAL HISTORY

The Eleventh Circuit described the factual scenario of this case as “complex.” MDS (Canada), Inc. v. Rad Source Techs., Inc., 720 F.3d 833, 850 (11th Cir.2013). Because this case is before us to answer a legal question where the underlying facts have been extensively litigated in federal court, we accept as true the relevant facts presented in the detailed opinions of the Eleventh Circuit and the federal district

[143 So.3d 883]

court. As a means of providing background and context to our review of the certified question, we briefly set forth an overview of those facts.

The relevant parties are Rad Source Technologies, Nordion,³ and Best Medical. Rad Source, a Florida corporation with its principal place of business in Georgia, is a company that specializes in research and development of irradiation technologies. Id. at 838. Irradiation refers to a process by which pathogens and microbes are eliminated from blood to reduce the risk of disease in transfusions. Id.

In the late 1990s, Rad Source became the first company to replace radioactive isotopes with X-rays as the means of irradiating blood, when it developed the RS 3000 blood irradiation device, for which Rad Source acquired three patents. Id. Rad Source manufactured and sold the RS 3000 device from 1999 until 2003, at which time it entered into a license agreement with Nordion, a Canadian company specializing in the detection, prevention, and diagnosis of disease, who then marketed the RS 3000 as the “Raycell.” Id. This license agreement extended until the last of the patents expires in 2022. Id. at 838–39.

The license agreement between Rad Source and Nordion provides that no assignment of either party's rights or obligations may occur without the express written consent of the other party. Specifically, article 13.9 of the license agreement, entitled “Assignment,” states as follows:

This Agreement shall inure to the benefit of and shall be binding upon the heirs, successors and permitted assigns of the parties. Neither Nordion nor Rad Source may assign any of its rights or delegate any of its obligations under this Agreement without the express written consent of the other party, such consent not to be unreasonably withheld; provided that (i) either party may assign any of its rights or delegate any of its obligations under this Agreement, in whole or in part, to any of its Affiliates, without consent of the other party, but without relieving the delegating party from the responsibility for performance of any of such obligations and (ii) either party may assign its rights and delegate its duties and obligations (in whole and not in part) under this Agreement to an entity which acquires all, or substantially all, of its assets or business, without the consent of the other party, provided that such assignee duly and effectively assumes all of the obligations of the assigning party hereby by instrument satisfactory to the other party. Any assignment in violation of the provisions of this section shall be void.

Although the license agreement clearly prohibits the licensee, Nordion, from assigning any of its interests without the consent of the licensor, Rad Source, article 3.1 of the license agreement, entitled “Grant of License,” grants Nordion an exclusive right and license that is transferable, with the right to grant sublicenses to third parties, “on such terms as are consistent with this Agreement to Use the Licensed Technology for the System (including as modified by Nordion) and for the single power supply version of the System, in the Territory.”

In December 2007, Nordion requested that Rad Source consent to an assignment of the license agreement to Best, a third party that was buying Nordion's External Beam Therapy and Self Contained Irradiator

[143 So.3d 884]

business. MDS (Canada), 720 F.3d at 839. Rad Source initially refused, but then agreed to consider the transaction and asked for further information on the sale, which it never received. Id. In a phone conference the following month, Nordion “told Rad Source that it would sublicense its rights under the contract to Best if Rad Source did not consent,” but Rad Source continued to withhold its consent to the assignment. Id.

In April 2008, without the express written consent of Rad Source, Nordion and Best entered into an agreement they titled a “sublicense agreement.” Under this agreement, Nordion “purported to grant Best” all of Nordion's rights under the license agreement, while Best agreed to assume and perform all of Nordion's obligations, as well as to “indemnify Nordion in the event of a suit by Rad Source alleging a breach of the License Agreement.” Id.

The term of the agreement entitled a “sublicense agreement” between Nordion and Best was one day shorter than the term of Nordion's license agreement with Rad Source. Id. Further, the agreement between Nordion and Best provided that “Nordion would not be required to make any payments to Rad Source until Nordion received payment from Best.” Id. Nordion also remained liable to Rad Source under the original license agreement. Id. at 856.

In addition, and as part of the asset purchase agreement between Nordion and Best, Nordion signed a non-compete agreement, “promising not to directly or indirectly manufacture, develop, market or sell technology based on blood irradiators.” Id. at 839. The asset purchase agreement listed as items sold to Best “the intellectual property from Rad Source and the Raycell line.” Id. at 840.

When Rad Source began marketing a new device, the RS 3400, which used different technology than the technology used in the RS 3000 device licensed to Nordion, Rad Source received a cease and desist letter from Nordion and Best, demanding that it stop doing so. Id. Rad Source responded by letter, alleging that Nordion was in breach of the license agreement. Id. Soon after, Nordion and Best filed suit, and Rad Source filed a counterclaim. Id.

After a ten-day bench trial, the United States District Court for the Southern District of Florida denied recovery of damages for either party and dismissed the case on the merits. Id. As relevant to the sole issue before this Court, the federal district court concluded that the agreement between Nordion and Best was a prohibited assignment and not a sublicense, providing the following reasoning:

The Sublicense Agreement substantively transferred all rights held by [Nordion] in the technology licensed under the License Agreement to Best Medical and Best Theratronics. Indeed, it was originally [Nordion's] intent to completely assign and transfer any interest that [Nordion] had in the License Agreement to Best prior to Rad Source's withheld consent. The provisions of the Sublicense Agreement reveal that [Nordion] attempted to divest itself of all rights and obligations under the License Agreement and, as a practical matter,...