Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH.

• Decision Date: 08 March 2013
• Docket Number: C.A. No. 5589–VCP.
• Citation: 62 A.3d 62
• Court: Court of Chancery of Delaware
• Parties: MESO SCALE DIAGNOSTICS, LLC, Meso Scale Technologies, LLC, Plaintiffs, v. ROCHE DIAGNOSTICS GMBH., Roche Diagnostics Corp., Roche Holding Ltd., Igen International, Inc., Igen LS LLC, Lilli Acquisition Corp., Bioveris Corp., Defendants.

62 A.3d 62

MESO SCALE DIAGNOSTICS, LLC, Meso Scale Technologies, LLC, Plaintiffs,

v.ROCHE DIAGNOSTICS GMBH., Roche Diagnostics Corp., Roche Holding Ltd., Igen International, Inc., Igen LS LLC, Lilli Acquisition Corp., Bioveris Corp., Defendants.

C.A. No. 5589–VCP.

Court of Chancery of Delaware.

Submitted: Nov. 5, 2012.

Decided: Feb. 22, 2013.

Revised: March 8, 2013.

Collins J. Seitz, Jr., Esq., David E. Ross, Esq., Seitz Ross Aronstam & Moritz LLP, Wilmington, Delaware; Mark C. Hansen, Esq., Michael J. Guzman, Esq., Gregory G. Rapawy, Esq., Joseph S. Hall, Esq., Christopher C. Funk, Esq., Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C, Washington, D.C.; Attorneys for Plaintiffs.

Andre G. Bouchard, Esq., Jamie L. Brown, Esq., Bouchard Margules & Friedlander P.A., Wilmington, Delaware; Nancy J. Sennett, Esq., Paul Bargren, Esq., Brett H. Ludwig, Esq., Eric L. Maassen, Esq., Foley & Lardner LLP, Milwaukee, Wisconsin; Attorneys for Defendants.

OPINION

PARSONS, Vice Chancellor.

This action is before me on a motion for summary judgment relating to, among other things, license rights to sophisticated diagnostic and assay technology. In 2003, a foreign pharmaceutical and diagnostic holding company lost or was in danger of losing its exclusive license to that technology. The holding company sought to acquire a new license from the then-patent holder. In 2003, the holding company entered into a series of contemporaneously executed agreements that granted it a new non-exclusive license from the patent holder. The plaintiffs, two Delaware limited liability companies with disputed springing rights to the same patented technology, consented to the second nonexclusive license. As part of that transaction, the holding company acquired the patent holder, but not before the intellectual property assets were transferred to a separate company. In 2007, the holding company acquired that separate company through a reverse triangular merger.

In 2010, the plaintiffs filed the complaint in this action asserting that the foreign holding company and a number of their affiliates breached two agreements related to the 2003 transaction. In the first count, the plaintiffs claim that the 2007 reverse triangular merger was an assignment by operation of law that required their consent. The plaintiffs' second count asserts that the defendants breached the new 2003 license by selling products and services based on the technology outside the licensed field of use.

The defendants have moved for summary judgment on multiple grounds. As a preliminary matter, the defendants contend that the first count is time-barred by the doctrine of laches. The defendants also seek summary judgment on the first count on the grounds that: (1) the anti-assignment clause in a global consent signed by the plaintiffs was intended to govern only the assignment of rights contained in that global consent and (2) a reverse triangular merger cannot be an assignment by operation of law. In seeking summary judgment on the second count, the defendants contend that the plaintiffs were not parties to the license agreement with the right to enforce the provisions of that agreement. In that regard, the defendants argue that the contract in question is unambiguous and that there is no triable issue of material fact relating to its meaning. Having considered the parties' extensive briefing and arguments and the voluminous record before me at this stage, I grant summary judgment on the first count on the basis that the reverse triangular merger was not an assignment by operation of law or otherwise, such that it would have required the plaintiffs' consent. I deny, however, the defendants' motion for summary judgment on the second count because the license agreement is ambiguous, the defendants failed to prove that New York law conclusively bars the plaintiffs' claim, and the plaintiffs have raised triable issues of material fact.

I. BACKGROUND

A. The Parties

Plaintiffs Meso Scale Diagnostics, LLC (“MSD”) and Meso Scale Technologies, LLC (“MST” and, collectively, “Plaintiffs” or “Meso”) are Delaware limited liability companies. MST was founded by Jacob Wohlstadter to commercialize his invention of a new application of electrochemiluminescent (“ECL”) technology. In 1995, MST and IGEN International, Inc. (“IGEN”) formed MSD as a joint venture.¹ The joint venture was created to research and develop the use of various technologies in diagnostic procedures, including procedures utilizing ECL technology.² Jacob Wohlstadter is the President and Chief Executive Officer (“CEO”) of MSD and MST.

The defendants in this case are all affiliates or subsidiaries of the F. Hoffmann–La Roche, Ltd. family of pharmaceutical and diagnostics companies. Roche Holding Ltd. (“Roche Holding”) is a publicly traded joint stock company organized under the laws of Switzerland.³ Roche Diagnostics GmbH is a limited liability company organized under the laws of Germany and a wholly owned subsidiary of Roche Holding.⁴ Defendant Roche Diagnostics Corp., which is incorporated in Indiana, is also a wholly owned subsidiary of Roche Holding.⁵ IGEN is a Delaware corporation that was acquired by Roche Holding in 2003 and remains a wholly owned subsidiary of Roche Holding. ⁶ IGEN LS, LLC (“IGEN LS”) is a Delaware limited liability company and wholly owned subsidiary of IGEN.⁷ BioVeris Corp. (“BioVeris”) is a Delaware corporation and wholly owned subsidiary of Roche Holding.⁸ BioVeris owns and licenses a portfolio of patents based on and related to ECL technology.⁹ Lili Acquisition Corp. (“Lili Acquisition”) was a subsidiary of Roche Holding that was merged into BioVeris on June 26, 2007 and no longer exists.¹⁰ The following diagram depicts the relationships of the defendants (collectively “Defendants” or “Roche”):

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B. Facts¹¹

1. The 1992 License

In 1992, IGEN granted Boehring Mannheim GmbH (“BMG”), a company acquired by Roche in 1998, a license (the “1992 License”) to use its patented ECL technology.¹² The 1992 License was narrow in scope and only allowed BMG to use the licensed technology in hospitals, blood banks, and clinical reference laboratories.¹³ The license explicitly excluded use of the technology in the proximity of a patient, such as home, patient bedside, ambulance, and physician office uses.¹⁴

2. The MSD License

MSD was formed in 1995 as a joint venture between IGEN and MST, and was intended to be the exclusive vehicle for developing and commercializing the use of various technologies in diagnostic procedures, including procedures utilizing ECL technology.¹⁵ IGEN also “granted to MSD an exclusive, worldwide, royalty-free license [ i.e., the “MSD License”] to practice the IGEN Technology to make, use and sell products or processes (A) developed in the course of the Research Program, or (B) utilizing or related to the Research Technologies.” ¹⁶ Those technologies included “selection and screening methods,” “electrodes,” and “multi-array diagnostic[s].” ¹⁷ The MSD License has a perpetual term and provides that it will survive a termination of the MSD joint venture for any reason.¹⁸ The MSD License also contains a now-disputed springing right under which, if an exclusive license previously granted to a third party, such as the exclusive rights granted to Roche under the 1992 License, was terminatedor IGEN was no longer restricted by such a license from licensing to MSD, the technology automatically would be licensed to MSD.¹⁹ Finally, IGEN agreed, as part of the MSD joint venture agreement (the “Joint Venture Agreement”) and for the term of that agreement, that it would not use or allow its technology to be used to compete with MSD with respect to the Research Program.²⁰

3. The Fourth Circuit litigation

In 1997, IGEN brought suit against Roche for breach of contract for, among other things, failing to pay royalties, failing to share ECL improvements with IGEN, and selling ECL-based products outside the contractually limited field.²¹ While the suit was ongoing, Roche allegedly sought to settle with IGEN by acquiring ownership or access to the ECL rights.²² In 2001, Roche made a public tender offer to acquire IGEN for $1.5 billion. ²³ After conducting due diligence, however, Roche became concerned that acquiring IGEN “would not achieve the stated objectives of unencumbered ownership, avoidance of future litigation and discontinuation of business relationships with business entities controlled by the Wohlstadter family.” ²⁴ Roche ultimately informed IGEN that it could not pursue an acquisition at that time.²⁵ During later settlement negotiations in 2002, Roche sought to have MSD and MST “consent to and join in the license granted to Roche as necessary to [e]nsure Roche's non-exclusive use of the ECL Technology in Roche's Field.” ²⁶

While negotiations were still ongoing, the jury returned a special verdict in IGEN's favor finding that Roche had materially breached the 1992 Agreement and awarding compensatory and punitive damages against it.²⁷ As a result, the United States District Court for the District of Maryland then allowed IGEN to terminate the 1992 License; the United States Court of Appeals for the Fourth Circuit affirmed that decision on July 9, 2003.²⁸ That same day, IGEN sent Roche a notice purporting to terminate the 1992 License. ²⁹ As a result of the termination of the 1992 License and MSD's springing rights in the MSD License, those rights, according to MSD, were automatically and exclusively licensed to MSD.³⁰ In other words, Plaintiffs appear to contend that the ECL rights IGEN previously had licensed to Roche were now exclusively licensed to MSD.³¹

4. The 2003 Transaction

Roche had expressed concern over the possible termination of the 1992 License in its 10–K for the fiscal year ended March 31, 2003, stating that in the event the 1992 License was terminated, its business would be materially adversely affected.³² Not surprisingly, therefore, just two weeks after the appellate...