Medtronic Ave. v. Advanced Cardiovascular Sys.

• Decision Date: 12 February 2001
• Docket Number: No. 00-5230,00-5230
• Citation: 247 F.3d 44
• Parties: (3rd Cir. 2001) MEDTRONIC AVE, INC. v. ADVANCED CARDIOVASCULAR SYSTEMS, INC., Appellant
• Court: U.S. Court of Appeals — Third Circuit

Page 44

247 F.3d 44 (3rd Cir. 2001)

MEDTRONIC AVE, INC. v. ADVANCED CARDIOVASCULAR SYSTEMS, INC., Appellant

No. 00-5230

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued February 12, 2001

Filed April 17, 200

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Before: BEFORE: SCIRICA, FUENTES, and GREENBERG, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

This matter is before the court on an appeal from an order of the district court dated September 30, 1999, denying American Cardiovascular Systems' ("ACS") motion for a stay of patent infringement litigation pending arbitration pursuant to 9 U.S.C. 3. ACS sought a stay in this litigation brought by Medtronic/Arterial Vascular Engineering,¹ Inc. ("AVE") so that it could enforce the arbitration clauses in two agreements containing a release and a covenant not to sue, respectively, into which ACS had entered with C.R. Bard, Inc. ("Bard"). After ACS and Bard executed these agreements, AVE, in 1998, purchased Bard's coronary catheter business. At that time Bard assigned the two agreements to AVE. AVE and ACS agree that the arbitration clauses are valid and that their provisions bind them, but AVE asserts that the claims it advances in this patent infringement litigation are outside the scope of the two agreements. The district court agreed with AVE and ACS appeals. We will affirm the district court's order denying the motion to stay the litigation pending arbitration because Bard never owned the claims involved in this litigation and, as a result, disputes regarding them are not subject to the arbitration provisions of either agreement. Thus, although AVE has stepped into Bard's shoes, inasmuch as it owes to ACS only obligations it derived from Bard, the arbitration clauses in the two agreements do not apply to AVE's separate claims involved here.

I. BACKGROUND

ACS's coronary stent delivery systems consist of small pieces of stainless steel that are laser cut from a tube and affixed to a stent delivery catheter. The FDA-approved coronary stent is pre-mounted on a catheter that positions the stent in the appropriate region of the blood vessel. The balloon end of the catheter is inflated to expand the stent and place it against the vessel wall. The catheter then is withdrawn.

(a) The 1992 Agreement

Bard, a company involved in the development, manufacture and sale of medical devices, sued ACS in 1988, alleging infringement of certain of its patents for catheter technology. See C.R. Bard, Inc. v. Advanced Cardiovascular Sys., Inc., 1989 U.S. Dist. LEXIS 18439, No. SA CV 88-646 JSL (C.D. Cal. July 28, 1989); app. at 352-56. ACS then sued Bard in 1990, alleging infringement of several of ACS's patents for catheter technology, but Bard asserted counterclaims for infringement of Bard's catheter technology patents in that litigation. See Advanced Cardiovascular Sys., Inc. v. C.R. Bard, Inc., 1992 U.S. Dist. LEXIS 20050, No. C90-0503 FMS, 1992 WL 478215 (N.D. Cal. Dec. 22, 1992); app. at 293-351. In January 1992, ACS and Bard settled the actions through an agreement (the "1992 Agreement") in which they cross-licensed various catheter patents to each other and agreed to pay royalties.

The 1992 Agreement contained mutual releases which provided that each party:

on behalf of [itself and its] respective predecessors, successors, parents, subsidiaries, assigns, stockholders, officers, directors, attorneys, agents, employees and representatives hereby releases and discharges the other party, and its respective predecessors and successors, parents, subsidiaries and their respective assigns, stockholders, officers . . . from any and all debts, claims, demands, damages, liabilities, obligations, causes of action, agreements, suits, sums of money, and rights, whether known or unknown, suspected or unsuspected, which are based on any actions or inaction occurring prior to the date of this Agreement and which the party now owns or holds, or at any time heretofore owned or held, by reason of any act, matter, cause or thing whatsoever [subject to certain exceptions not relevant here].

1992 Agreement P 8; app. at 87-88.

The agreement also provided for arbitration to settle certain disputes:

Any dispute between the parties concerning the construction, interpretation, and effect of this Agreement or any clause herein contained, or the rights and liabilities of the parties hereunder, or the coverage of any patent claims licensed herein, shall be resolved, if necessary, by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

1992 Agreement P 15.a; app. at 92.

(b) The 1998 Agreement

In 1997 Bard sued ACS for infringement of certain of its patents for catheters based on actions not covered by the 1992 Agreement. See C.R. Bard, Inc. v. Advanced Cardiovascular Sys., Inc., 997 F. Supp. 556 (D. Del. 1998); app. at 357-62. Then in 1998 Bard sued ACS again for infringement of its catheter patents. See C.R. Bard, Inc. v. Advanced Cardiovascular Sys., Inc., No. 98-120 (RRM) (D. Del.); app. at 363-67. To resolve these actions, Bard and ACS entered into a settlement agreement on or about April 4, 1998, in which ACS agreed to pay Bard $ 100,000,000, and the parties cross-licensed certain catheter patents to each other. This agreement did not contain any releases but did include mutual covenants not to sue which, with respect to Bard, provided as follows:

Bard and its Affiliates covenant not to sue ACS and its Affiliates for any and all debts, claims, demands, and liabilities, whether known or unknown, suspected or unsuspected, which are based in any way on any and all of ACS's and its Affiliates past and current domestic and foreign angioplasty catheters including stent delivery catheters. For purposes of this section, 'ACS's and its Affiliates past and current domestic and foreign angioplasty catheters including stent delivery catheters' shall mean ACS's and its Affiliates past and current domestic and foreign angioplasty catheters including stent delivery catheters and shall specifically exclude any future modifications to such products.

1998 Agreement P 4.b; app. at 110.

The 1998 Agreement required ACS to deliver to Bard certain catalogues and materials which showed "current domestic and foreign angioplasty catheters including stent delivery catheters" to identify products exempted from suit by the Agreement. See app. at 110 (1998 Agreement P 4.b). The ACS Coronary Stent Delivery Systems, including the ACS RX Multi-Link and the ACS RX Multi-Link HP, were listed and pictured in the materials that ACS provided to Bard, and these products were the subject of the infringement action. See app. at 56-57. The U.S. and International Product Brochures ACS delivered listed the integrated stent delivery systems which consist of a stent mounted on a stent delivery catheter. See app. at 20-38.

In this 1998 Agreement, Bard and ACS also agreed to settle certain disputes by arbitration as provided in the following clause:

Any dispute between the parties concerning the construction, interpretation, and effect of this Agreement or any clause herein contained, or the rights and liabilities of the parties hereunder, or the coverage of any patent claims licensed herein, shall be resolved, if necessary, by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

1998 Agreement P 13; app. at 116.

(c) Actions Between ACS and AVE and AVE's Purchase of Bard's Business

During the period of its disputes with Bard, ACS also was involved in litigation with AVE. ACS first sued AVE in December 1997 in the Northern District of California, and AVE sued ACS on February 18, 1998, in the District of Delaware. AVE's complaint for patent infringement of its stent technology patents against ACS involves two ACS coronary stent delivery systems: the ACS RX Multi-link Stent Delivery System and the ACS RX Multi-link HP Stent Delivery System. AVE also has advanced various state law claims against ACS (including breach of contract, misappropriation of trade secrets, unfair competition, and wrongful acquisition of property and conversion) regarding the development of the stent delivery systems and events that occurred between 1989 and 1991. Then, in April 1998, ACS brought a second patent infringement action in the Northern District of California against AVE.

While these three actions were pending, on October 1, 1998, AVE purchased the assets of Bard's coronary catheter business which included its various catheter technology patents. See app. at 176. The 1992 Agreement allowed its assignment as long as the patents that were the subject of the Agreement were transferred, see app. at 95-96 (1992 Agreement P 22), and the 1998 Agreement allowed its assignment in connection with a merger, consolidation or sale of its stock or sale of the assets of its business. See app. at 119-20 (1998 Agreement P 20). Accordingly, Bard assigned all of its rights and obligations under the two agreements to AVE.

On February 8, 1999, in response to AVE's action against it and after the California court transferred the two cases pending before it to Delaware, ACS moved to stay AVE's district court action, Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., No. 98-80-SLR (D. Del.), pending arbitration of whether either the release in the 1992 Agreement or the covenant not to sue in the 1998 Agreement bars the action. In addition, ACS filed a demand for arbitration. Obviously, the demand for arbitration was somewhat unusual as ACS predicated it on provisions in agreements to which AVE was not a party when it brought the...