Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc.

599 F.3d 1277, 94 U.S.P.Q. 2d (BNA) 1224, 2010 U.S. App. LEXIS 5134, 2010 WL 841200
CourtCourt of Appeals for the Federal Circuit
DecidedMarch 11, 2010
Docket2008-1597
StatusPublished
Cited by19 cases

This text of 599 F.3d 1277 (Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Federal Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., 599 F.3d 1277, 94 U.S.P.Q. 2d (BNA) 1224, 2010 U.S. App. LEXIS 5134, 2010 WL 841200 (Fed. Cir. 2010).

Opinions

Opinion for the court filed by Circuit Judge GAJARSA. Dissenting Opinion filed by Circuit Judge DYK.

GAJARSA, Circuit Judge.

Metabolite appeals from the United States District Court for the District of Colorado’s grant of summary judgment. See Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 571 F.Supp.2d 1199 (D.Colo.2008). The district court granted LabCorp’s motion for summary judgment on its complaint for declaratory judgment that it did not breach a license agreement for failure to pay know-how royalties on homocysteine assays performed after judgment had been entered in a prior patent infringement and breach of contract action brought, in part, by Metabolite. Because the present cause of action does not arise under federal patent law nor does Metabolite’s right to relief necessarily depend on resolution of a substantial question of federal patent law, this court does not have jurisdiction over this appeal. The action is a state law contract dispute over know-how royalties brought pursuant to the district court’s diversity jurisdiction. Therefore, we transfer the appeal to the United States Court of Appeals for the Tenth Circuit.

BACKGROUND

Competitive Technologies, Inc. (“CTI”) owns U.S. Patent No. 4,940,658 (the “'658 patent”). The '658 patent claims a method for detecting deficiencies of vitamin B12 and folate by assaying total homocysteine levels and correlating an elevated level of total homocysteine with a deficiency in either cobalamin or folate. Metabolite is a nonexclusive licensee of the '658 patent with the right to sublicense. It also developed know-how technology, including software, to automate the testing process. In 1991, Metabolite granted LabCorp a license to the know-how and a sublicense to the '658 patent (“License Agreement”). The License Agreement covered four assays, including a total homocysteine assay referred to as the “homocysteine-only assay.” In 1998, LabCorp began using an alternative homocysteine-only assay in serum samples using an immunoassay kit developed by Abbott Laboratories (the “Abbott Test”) and stopped paying both patent and know-how royalties on just the serum-based homocysteine-only assays.1 Metabolite and CTI brought an action against LabCorp for breach of contract and patent infringement. Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 2001 WL 34778749 (D.Colo. Dec. 3, 2001) (“Metabolite I ”) (jury trial) aff'd, 370 F.3d [1280]*12801354 (Fed.Cir.2004) (“Metabolite II ”), cert. granted, 546 U.S. 999, 126 S.Ct. 601, 163 L.Ed.2d 501 (2005), ceH. dismissed as improvidently granted, 548 U.S. 124, 126 S.Ct. 2921, 165 L.Ed.2d 399 (2006).

A.

In the first case, Metabolite claimed breach of contract with respect to the homocysteine-only assay for failing to pay know-how royalties and sought contract damages, and CTI claimed patent infringement and sought infringement damages. The case was tried before a jury (Metabolite I). LabCorp contended that because the Abbott Test did not infringe the '658 patent it was not a Licensed Assay as defined by the License Agreement. The termination provision of the License Agreement states in relevant part:

4.02 [LabCorp] shall have the right ... to terminate this Agreement with respect to a particular Licensed Assay if (i) in the case of Licensed Assays of homocysteine, a more cost effective commercial alternative is available that does not infringe a valid and enforceable claim of the Licensed Patents;.... 2

J.A. 8999. Thus, LabCorp argued, it did not violate its contractual obligations for the homocysteine-only assay as to either the know-how license or the patent sublicense.

A Special Verdict Form was submitted to the jury. It was asked the threshold question of whether the License Agreement had been terminated with respect to the homocysteine-only assay.

Do you find, by a preponderance of the evidence, that LabCorp breached its license agreement by terminating it with respect to its performance of the Abbott [T]est?

J.A. 21072-73. The jury found in the affirmative. It awarded infringement damages to CTI of $1.02 million and breach of contract damages to Metabolite of $3.65 million.

Upon Metabolite’s and CTI’s post-verdict motions in Metabolite I, the district court granted a permanent injunction to enjoin LabCorp from performing any homocysteine-only assay, including any homocysteine-only assay performed using the Abbott Test. LabCorp moved for a stay pending appeal, and the court entered the stay subject to LabCorp paying a 6% royalty to CTI for all homocysteine-only assays performed after entry of judgment. LabCorp was further required to provide Metabolite with an accounting of the 21.5% of the sales attributable to the homocysteine-only assays that LabCorp performed after entry of judgment.

This court affirmed the jury’s finding that LabCorp breached the License Agreement holding that LabCorp’s refusal to pay royalties was a material breach that constitutes termination even if the contract requires written notice. See Metabolite II, 370 F.3d at 1370. Once the stay of the injunction was lifted, LabCorp stopped performing the homocysteine-only assays itself but outsourced the assay by entering into an agreement with Specialty Laboratories, Inc. (“Specialty”) that was independently licensed by CTI to perform the homocysteine-only assays referred by Lab-Corp. In response, Metabolite filed a post-judgment motion in Metabolite I as[1281]*1281serting that LabCorp’s referral of the assays to a third party violated the injunction. LabCorp also filed a post-judgment motion in Metabolite I seeking clarification of the injunction.

Simultaneously, LabCorp filed a new action in the same district court seeking a declaratory judgment that it had not violated the License Agreement. Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 571 F.Supp.2d 1199 (D.Colo.2008) (‘Metabolite III”) (instant matter below). On September 21, 2006, the district court ruled on the post-judgment motions, filed in Metabolite I, and stated in relevant part:

[TJhere has never been a legal determination that LabCorp actually committed any breach after the date of the Amended Jtidgment, or of the amount of any resulting damages. Because there are no claims remaining in this case, the issue of whether actions taken by Lab-Corp subsequent to the Amended Judgment constitute breach of contract, and the amount of damages for any such breach, cannot be resolved herein as a matter of procedure. As a result, the Court is not able to state in this case, at this juncture, that the amount stated on the letter of credit is now “due and owing to Metabolite Laboratories.” However, LabCorp has filed a separate action [Metabolite III], seeking “a declaratory judgment that LabCorp has not violated the Agreement with various conduct occurring since the time period covered by the Amended Judgment and occurring into the future.” Whether LabCorp committed a contract breach after the date of the Amended Judgment is appropriately resolved in [Metabolite III].

J.A. 21124-25 (emphasis added). The '658 patent expired on July 9, 2007.

B.

As noted above, in

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599 F.3d 1277, 94 U.S.P.Q. 2d (BNA) 1224, 2010 U.S. App. LEXIS 5134, 2010 WL 841200, Counsel Stack Legal Research, https://law.counselstack.com/opinion/laboratory-corp-of-america-holdings-v-metabolite-laboratories-inc-cafc-2010.