Medtronic, Inc. v. Catalyst Research Corp., 4-77-Civ. 201.

• Decision Date: 06 July 1981
• Docket Number: No. 4-77-Civ. 201.,4-77-Civ. 201.
• Citation: 518 F. Supp. 946
• Parties: MEDTRONIC, INC., Plaintiff, v. CATALYST RESEARCH CORPORATION, Defendant.
• Court: U.S. District Court — District of Minnesota

518 F. Supp. 946

MEDTRONIC, INC., Plaintiff, v. CATALYST RESEARCH CORPORATION, Defendant.

No. 4-77-Civ. 201.

United States District Court, D. Minnesota, Fourth Division.

July 6, 1981.

Robert O. Vidas, Schroeder, Siegfried, Ryan, Vidas, Steffey & Arrett, Lawrence C. Brown, Faegre & Benson, Minneapolis, Minn., for plaintiff.

Peter Dorsey, Dorsey, Windhorst, Hannaford, Whitney & Halladay, Minneapolis, Minn., Berj A. Terzian, Pennie & Edmonds, New York City, for defendant.

MEMORANDUM ORDER

LARSON, Senior District Judge.

The continuing battle over production rights to the lithium-iodine battery — a significant development in the cardiac pacemaker industry — is once again before the Court. The plaintiff in this lawsuit, Medtronic, seeks in this motion a preliminary injunction enjoining defendant Catalyst Research Corporation ("CRC") from instituting or prosecuting any action that would enjoin Medtronic from manufacturing lithium-iodine batteries or selling pacemakers which contain the batteries. The motion is based on an alleged breach of a written agreement between the parties which allegedly bars CRC from interfering with Medtronic's production of the battery. This written agreement ("Agreement") is the basis for Count III of the amended complaint which was added along with other allegations when the Magistrate granted Medtronic's motion to amend the complaint. That Order has been appealed by CRC and is also before the Court. The primary issue, however, that the Court is now being asked to resolve concerns the proper interpretation of the Agreement.

Medtronic initially filed this lawsuit against CRC and its parent company, Mine Safety Appliances Co., seeking a declaratory judgment that two patents held by CRC¹ on the lithium-iodine battery are invalid and that Medtronic's use of the battery has not been infringing. CRC then counterclaimed alleging patent infringement. Mine Safety Appliances Co. was dismissed as a defendant by this Court in 1979. Meanwhile, on May 2, 1980, CRC filed a patent infringement action in Canada against Medtronic's Canadian subsidiary alleging infringement of CRC's Canadian patents that are the equivalent of CRC's United States patents at issue in this case. A similar lawsuit was filed in the Federal Republic of Germany against Medtronic's German subsidiary, Medtronic GmbH, on December 10, 1980. Like the Canadian case, the German action involves CRC's German patents on the lithium-iodine battery. A final hearing in the German infringement proceeding was scheduled for June 30, 1981, in Dusseldorf. CRC requests injunctive relief in both the Canadian and German lawsuits.² On May 7, 1981, the Magistrate granted Medtronic's motion to amend the complaint to allege that title to the disputed patents is vested in the United States because the inventions resulted from classified government research, that CRC failed to disclose this government research in its patent application, and that a Retroactive Foreign Filing License for the patents that was recently issued was improper. Medtronic was also permitted to add a breach of contract cause of action that is based on the Agreement.

I. THE AGREEMENT

The parties in this lawsuit have a long history of doing business with each other. Much of that history is recounted in the Court's earlier memorandum issued in this case. See Medtronic, Inc. v. Mine Safety Appliances Company and Catalyst Research Corporation, 468 F.Supp. 1132 (D.Minn. 1979). Of particular relevance here are negotiations concerning the lithium-iodine battery which commenced in early 1976: Dissatisfied with the lithium-iodine batteries it was purchasing and convinced that the battery was a significant development, Medtronic sought to obtain the technology necessary to manufacture the batteries itself. On March 16, 1976, Medtronic achieved this objective by entering into an agreement with Wilson Greatbatch, Ltd. ("WGL") under which WGL would transfer certain technology and patent interests to Medtronic. WGL was a licensee of CRC³ and although WGL agreed to transfer to Medtronic some rights that it owned exclusively, some of the material was believed to be proprietary information owned by CRC and licensed to WGL.⁴ Consequently, CRC objected to the WGL/Medtronic proposed transfer and threatened to bring legal action against the two parties if confidential, licensed information was revealed. Despite WGL's assurances that no such material would be disclosed, CRC demanded the right to review all material in advance. WGL had no right to sub-license the information, and CRC was certain that WGL could not possibly provide Medtronic with lithium-iodine battery technology and not disclose licensed information. The proposed reviewal right was apparently unworkable. Faced with the possibility of legal action, WGL seriously considered not going ahead with its technology transfer to Medtronic. By this time, Medtronic had undertaken significant preparation for the manufacture of the lithium-iodine battery including the construction of facilities and the training of personnel. Medtronic believed that inhouse manufacture of lithium-iodine batteries was essential if it was to retain its market share in the developing pacemaker industry.

Faced with the probability of a serious delay in the commencement of its battery manufacturing operation, Medtronic began negotiating with CRC to avert the threat of legal action. Negotiations culminated in a written agreement executed on June 25, 1976, under which CRC agreed not to restrain the WGL technology transfer or Medtronic's use of the information in return for a Medtronic payment of $250,000. The relevant provisions of the Agreement include:

1. CRC hereby agrees that it will not directly or indirectly seek to (a) restrain WGL from transferring any information to Medtronic, or (b) restrain or in any way prevent, try to prevent or in any way interfere with Medtronic receiving and using any and all information, including any information whether received by WGL pursuant to the February, 1970 Agreement or otherwise, included or to be included in the Agreement between Medtronic and WGL.

2. In consideration of the payment made in paragraph 3 of this Agreement, CRC agrees to and does hereby grant to WGL and Medtronic a complete release and immunity from suit for any and all claims in law or in equity for damages, profits or any injunctive relief or relief of any kind resulting from the transfer by WGL and the receipt and use by Medtronic of the WGL technical information and patent rights relating to solid state power sources transferred to Medtronic.

* * * * * *

6. Nothing herein shall be construed to grant Medtronic a license in or to any patent or other information of CRC or to obligate CRC to provide Medtronic with information other than that transferred or to be transferred by WGL.

Subsequently, CRC and Medtronic began intermittent negotiations that would have given Medtronic a patent license under the two patents at issue in this case. Although the parties exchanged proposals for a number of months, they do not appear to have been close to achieving agreement. Negotiations ended when Medtronic filed this lawsuit. Medtronic has been manufacturing lithium-iodine batteries since its production facilities became operational in 1976.

II. LEAVE TO AMEND COMPLAINT

The liberal amendment policy of Rule 15(a) of the Federal Rules of Civil Procedure has long been a familiar precept of the law. Interpreting the rule in Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962), the Supreme Court noted that:

Rule 15(a) declares that leave to amend "shall be freely given when justice so requires"; that this mandate is to be heeded .... If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded the opportunity to test his claims on the merits.

Id. at 182, 83 S.Ct. at 230. In reviewing the Magistrate's Order on appeal, the Court must determine whether the Magistrate abused his discretion in granting leave to amend the complaint. Norbeck v. Davenport Community School Dist., 545 F.2d 63, 70 (8th Cir. 1976), cert. denied, 431 U.S. 917, 97 S.Ct. 2179, 53 L.Ed.2d 227 (1977).

CRC appears to argue that when a motion to amend a complaint is challenged on its merits, it must be tested by the standard normally applied to a motion to dismiss. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). The Eighth Circuit, however, recently reiterated its view that amendments should be denied on the merits of the claim only if they assert clearly frivolous claims. Buder v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 644 F.2d 690, 695 (8th Cir. 1981). The Magistrate applied this standard and found that he could not say at this stage that the additional claims were clearly frivolous. CRC's claim that an incorrect standard was applied lacks merit.

CRC also asserts that it will suffer actual prejudice if the Order is permitted to stand. The Court, however, is of the view that the Magistrate's Order separating the breach of contract count for later trial adequately protects CRC from any prejudice that it may perceive. Having reviewed the allegations sought to be amended to the complaint and the applicable standards, the Court finds that the Magistrate did not abuse his discretion in granting Medtronic leave to amend its complaint.

III. PRELIMINARY INJUNCTION

In determining whether a preliminary injunction should issue, the Court must consider (1) the threat of irreparable harm to the moving party, (2) the state of balance between this harm and the injury that granting the injunction will inflict on the other parties, (3) the probability that the movant will succeed on the merits of the claim, and (4) the public interest. Dataphase Systems, Inc. v. CL Systems, Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc). Dataphase Systems makes it clear that the Court's approach in...