Medtronic, Inc. v. Catalyst Research Corp., s. 81-1748

• Decision Date: 06 November 1981
• Docket Number: 81-1917,Nos. 81-1748,s. 81-1748
• Citation: 664 F.2d 660
• Parties: MEDTRONIC, INCORPORATED, Appellee, v. CATALYST RESEARCH CORPORATION, Appellant. *
• Court: U.S. Court of Appeals — Eighth Circuit

Page 660

664 F.2d 660

MEDTRONIC, INCORPORATED, Appellee, v. CATALYST RESEARCH CORPORATION, Appellant.

Nos. 81-1748, 81-1917. ^*

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 16, 1981.

Decided Nov. 6, 1981.

Pennie & Edmonds, Stanton T. Lawrence, Jr., Berj A. Terzian, argued, Walter G. Marple, Jr., Rory J. Radding, New York City, Dorsey, Windhorst, Hannaford, Whitney & Hallady, Peter Dorsey, Minneapolis, Minn., for appellant Catalyst Research Corp. Schroeder, Siegfried, Ryan, Vidas, Steffey & Arrett, P. A., Robert O. Vidas, Faegre & Benson, John D. French, Lawrence C. Brown, argued, John F. Beukema, John D. Shively, Minneapolis, Minn., for appellee Medtronic, Inc.

Before BRIGHT, HENLEY and ARNOLD, Circuit Judges.

BRIGHT, Circuit Judge.

Catalyst Research Corporation (CRC) appeals from an order of the district court ¹ granting Medtronic, Inc. (Medtronic), a preliminary injunction. The injunction prohibits CRC from instituting or prosecuting any action to enjoin Medtronic from manufacturing lithium-iodine batteries or selling pacemakers containing the batteries. The district court issued the preliminary injunction based on its conclusion that CRC's written agreement (the Agreement) with Medtronic bars CRC from interfering with Medtronic's production of lithium-iodine batteries. We affirm the grant of the preliminary injunction for reasons set forth in this opinion, and remand this case to the district court for prompt resolution of the underlying contract dispute.

I. Background.

This dispute ² centers around two patents related to lithium-iodine batteries owned by CRC: United States Letters Patent No. 3,660,163 for "Solid State Lithium-Iodine Primary Battery" (the Moser Patent) and No. 3,674,562 for "Primary Cells and Iodine Containing Cathodes Therefor" (the Schneider Patent).

In 1972, CRC granted Wilson Greatbatch, Ltd. (WGL), an exclusive license under the patents to market the lithium batteries. WGL supplied the batteries to Medtronic, a leading manufacturer of cardiac pacemakers. When Medtronic realized the importance of the lithium-iodine batteries to the production of cardiac pacemakers, it took steps that would make possible its own production of the batteries. Toward this end, in March 1976, Medtronic negotiated an agreement with WGL to exchange technology and know-how. ³

CRC objected to the proposed transfer on the ground that WGL had no right to reveal to any other party the information it had received under a license from CRC. CRC maintained that supplying Medtronic the information that would enable it to produce lithium-iodine batteries internally would necessarily disclose information related to the Moser/Schneider patents that CRC had licensed to WGL. Rather than risk legal action by CRC to enjoin the exchange, WGL indicated to Medtronic its unwillingness to proceed with the proposed exchange. By this time, Medtronic had undertaken substantial preparations for in-house production of the lithium-iodine batteries, and urgently needed the technological information from WGL. Consequently, Medtronic began direct negotiations with CRC. On June 25, 1976, Medtronic entered the Agreement with CRC under which Medtronic paid CRC $250,000 in return for CRC's promise not to impede the exchange between WGL and Medtronic. By 1977, Medtronic had begun manufacturing its own lithium-iodine batteries.

This litigation began when Medtronic sought a declaratory judgment in the United States District Court for the District of Minnesota challenging the validity of CRC's two patents on the lithium-iodine battery. CRC counterclaimed, alleging that Medtronic's production of the batteries infringed the Moser/Schneider patents. In addition, CRC filed patent infringement actions against Medtronic's Canadian and German subsidiaries for infringement of its patents in those countries.

In this phase of the dispute, Medtronic seeks to prohibit CRC from enjoining its production of lithium-iodine batteries pending a determination of the patents' validity. Medtronic contends, among other things, that the Agreement bars CRC from seeking an injunction for alleged patent infringement.

In evaluating Medtronic's right to a preliminary injunction, the district court used the analysis of Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109 (8th Cir. 1981) (en banc), which prescribes:

Whether a preliminary injunction should issue involves consideration of (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest. (Id. at 113.)

The court concluded that Medtronic would likely "succeed at trial in showing that the Agreement prevents CRC from enjoining Medtronic from manufacturing the lithium-iodine battery on the basis of the technology received from WGL." Medtronic, Inc. v. Catalyst Research Corp., supra, at 953. The district court, however, indicated that the agreement does not prevent CRC from seeking damages for patent infringement. See id. at 953.

In addition, the court determined that Medtronic would suffer irreparable harm through loss of market share in the highly competitive pacemaker industry if CRC succeeded in interrupting its production of lithium-iodine batteries during the patent infringement action. Based on its conclusion that legal damages would compensate CRC for any harm suffered as a result of Medtronic's infringement, the court ruled that the balance of equities favors Medtronic.

CRC does not face any loss of rights-its damage actions are not affected-and as a result, the Court believes that the balance of hardships tips in favor of Medtronic. (Medtronic, Inc. v. Catalyst Research Corp., supra, at 954.)

Finally, the court noted that consideration of the public interest "does not detract in any way from the balance of equities favoring Medtronic." Id. at 656. Because a preliminary injunction would have only limited effect on CRC's prosecution of its actions in Canada and Germany, the court concluded that its issuance did not offend principles of comity.

The issues raised on this appeal require some analysis of the Agreement in light of the record made in the application for the preliminary injunction.

II. The Agreement.

CRC argues on appeal that the Agreement with Medtronic authorized only the transfer of proprietary information to CRC, but did not in any way modify its patent rights. Medtronic, on the other hand, asserts that the Agreement effected a compromise between itself and CRC, whereby CRC authorized WGL to transfer to Medtronic the information that CRC had licensed to WGL, in exchange for Medtronic's promise to drop any claim that CRC wrongfully interfered with the transfer. Medtronic contends that the Agreement permitted it to manufacture lithium-iodine batteries free from interference by CRC through legal actions.

The parties' differing interpretations depend on the following provisions of the Agreement:

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.

This court has previously held that "(a) contract is ambiguous if reasonably susceptible of more than one construction, and the question of whether an ambiguity exists is a matter of law for the court." Sun Oil Co. v. Vickers Refining Co., 414 F.2d 383, 386 (8th Cir. 1969).

The district court determined that it could not resolve this suit solely by reference to the Agreement, because, "(o)n their face, the terms are incompatible. That the express terms of the Agreement are reasonably susceptible of more than one construction cannot * * * be seriously disputed." Medtronic, Inc. v. Catalyst Research Corp., supra, at 951. This court agrees that the various provisions of the Agreement are ambiguous.

When a contract is ambiguous or obscure, the court should interpret it in light of the surrounding facts and circumstances to ascertain the intent of the parties. Sun Oil Co. v. Vickers Refining Co., supra, 414 F.2d at 388. The district court properly considered evidence relating to the parties' intent in entering the Agreement and determined that Medtronic acquired neither an express nor implied patent license from CRC under the Agreement. Nevertheless, the court decided that CRC had granted Medtronic rights of use short of a patent license, by contracting not to exercise its right to seek an injunction for...