NOVOTECH (AUSTRALIA) PTY No. 2:22-cv-01259-JAM-AC LIMITED, an Australian proprietary limited company,
Plaintiff, ORDER GRANTING PLAINTIFF NOVOTECH (AUSTRALIA) PTY v. LIMITED’S MOTION FOR PRELIMINARY INJUNCTION SURECLINICAL INC., a Nevada corporation, Defendant.
The matter before the Court is Novotech (Australia) Pty
Limited’s (“Novotech”) motion for preliminary injunction. See
Mot. for Preliminary Inj. (“Mot.”), ECF No. 18. SureClinical
Inc.’s (“SureClinical”) opposed the motion. See Opp’n, ECF
No. 19. Novotech replied. See Reply, ECF No. 21.1
I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
As the facts are already known to the parties, the Court
repeats them only as necessary to explain its decision.
1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for November 1, 2022. Novotech is a clinical research organization, which
facilitates and manages clinical trials for biotechnology,
pharmaceutical, and research clients. Mot. at 4. Part of
Novotech’s services includes maintaining the electronic Trial
Master File (“eTMF”) for each clinical trial they conduct for a
client to ensure that the trial is safe, sound, and in strict
compliance with the FDA. Id. Novotech contends that continuous
access to eTMFs is essential to the viability of clinical trials
and that even temporary loss of access can result in:
(1) regulatory violations and citations; (2) rejection of the
trial by regulators; (3) threats to the safety of patient-
participants; and (4) contractual breaches that damage business
relationships and reputations. Id. at 4. SureClinical licenses
its suite of cloud-based software applications to assist in the
operation of clinical trials, including the storage and
management of eTMFs. Id. In 2014, SureClinical and Novotech
entered into a contract, the Master Subscription Agreement
(“MSA”), where SureClinical agreed to license its software to
Novotech for use in Novotech’s clinical trials and the management
of its eTMFs. Id. at 5; MSA, Exhibit 3 to Declaration of Rajiv
Dharnidharka, ECF No. 13. Novotech alleges that its access to
SureClinical’s platform was contingent upon payment of an annual
fee and a monthly per-trial fee. Mot. at 5. SureClinical
alleges that access to its software platform is based on a
subscription fee and a user fee. Opp’n at 2. Novotech contends that the MSA permitted access for: (1) Novotech’s employees, agents, representatives, consultants, and independent contractors; (2) Novotech’s clients; (3) Novotech’s clients’ agents, employees, representatives, consultants, and independent
contractors; (4) any other persons or entities Novotech bound to
the MSA; and (5) the agents, employees, representatives,
consultants, and independent contractors of those bound third
parties. Mot. at 5. SureClinical alleges that Novotech
contracted to use SureClinical’s software solely for its internal
use with a limited number of one hundred named users, as outlined
in its supplemental Order Form, and that Novotech expressly
turned down the right to use and distribute SureClinical’s
platform outside of Novotech with users not affiliated with
Novotech. Opp’n at 4-5.
Novotech expressed its intention to not renew the MSA in
February 2022 and to export its trial data off of SureClinical’s
platform to a new provider. Mot. at 5-6. Under the MSA, the
contract term is set to expire on December 31, 2022. Id. at 5.
Novotech alleges that SureClinical took several measures against
Novotech following its stated intention to not renew the MSA,
including: (1) impeding Novotech’s ability to export eTMFs off of
SureClinical’s platform; (2) demanding that SureClinical pay
millions of dollars in additional fees; (3) unilaterally
modifying the terms and fee structure of the MSA to exclude
previously covered users; and (4) demanding that Novotech commit
to an audit of its financial records. Id. at 6-7. Novotech
further contends that on November 3, 2022 SureClinical cut off
Novotech and its users from SureClinical’s platform; they are no longer able to access and manage their eTMF’s and other trial data. Second Supplemental Declaration of Michael F. Donner (“Supp. Decl.”), ECF No. 27. SureClinical claims that it only cut off access for unauthorized, external accounts on November 3.
Objection and Request to Strike, ECF No. 27, at 1. SureClinical
further contends that its limit on exports to one per day
occurred in the summer of 2021 following a near complete system
collapse after one of its clients attempted to export fifty
studies off of the platform at one time. Opp’n at 5. In order
to avoid another near collapse and because users tended to
average one study export per month, SureClinical modified its
platform to allow only one study export per day for all of its
users; Novotech was promptly notified of this change and spent
six months testing the updated version of the platform without
objection and had its requests for accommodations met, when
feasible. Id. at 5-6. SureClinical contends that Novotech had
ample time to export its clinical data from SureClinical’s
platform from the day Novotech notified SureClinical of its
decision to not renew the MSA and that for SureClinical to allow
unlimited daily exports again for Novotech would cost the company
approximately $2.7 million. Id. at 6. SureClinical argues that
Novotech breached the terms of the MSA by (1) exceeding the scope
of its license by granting access to the platform to more than
the authorized one hundred internal users and (2) evading the
audit authorized under the terms of the MSA; Novotech’s
injunction is simply a way to distract the Court from its
misconduct. Id. at 7-8.
On July 15, 2022, Novotech filed the operative complaint against SureClinical, alleging breach of contract and seeking declaratory relief from the Court regarding the parties’ respective rights and obligations under the MSA. See Compl., ECF. No. 1. SureClinical filed a first amended answer and
counterclaim alleging breach of contract and copyright
infringement and seeking declaratory relief on the disputed terms
of the MSA. See First Amend. Answer and Counterclaim, ECF. No.
12. Several weeks later, Novotech filed this motion for
preliminary injunction seeking to: (1) prohibit SureClinical from
impeding or terminating the access of Novotech, its clients, its
client’s agents, and regulatory authorities to SureClinical’s
platform; and (2) prohibit SureClinical from imposing or
maintaining any restrictions on Novotech’s ability to export its
clients’ data and documents off of SureClinical’s platform. Mot.
at 1. SureClinical opposes the motion. See Opp’n. Novotech
replied. See Reply.
A. Legal Standard
A preliminary injunction is an “extraordinary remedy” that a
court may award only “upon a clear showing that the petitioner is
entitled to such relief.” Winter v. Natural Resources Defense
Council, Inc., 555 U.S. 7, 22 (2008). To obtain a preliminary
injunction, a petitioner must demonstrate that: (1) they will
likely succeed on the merits, (2) they will suffer irreparable
harm in the absence of preliminary relief, (3) the balance of
equities tips in their favor, and (4) an injunction is in the
public interest. Boardman v. Pacific Seafood Group, 822 F.3d
1011, 1020 (9th Cir. 2016) (quoting Winter, 555 U.S. at 20). Post-Winter, the Ninth Circuit kept a “sliding scale approach” to preliminary injunctions known as the “serious questions test.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). Under this approach, a
“likelihood” of success is not an absolute requirement. Id. at
1132. “Rather, serious questions going to the merits and a
hardship balance that tips sharply toward the [petitioner] can
support issuance of an injunction, assuming the other two
elements of the Winter test are also met.” Drakes Bay Oyster Co.
v. Jewell, 747 F.3d 1073, 1085 (9th Cir. 2014). “Serious
questions” under this approach constitutes “questions which
cannot be resolved one way or the other at the hearing on the
injunction,” but which suggest that the petitioner has a “fair
chance” of prevailing. Republic of the Philippines v. Marcos,
862 F.2d 1355, 1362 (9th Cir. 1988).
B. Analysis
1. Motion for Preliminary Injunction
a. Factor One: Success on the Merits
Novotech argues that it is likely to succeed on its breach
of contract claims because SureClinical breached and repudiated
its contractual duties under the MSA. Mot. at 13. Novotech
states that, under the MSA, SureClinical agreed to provide access
to its platform until December 31, 2022 and Novotech has prepaid
all of its annual fees for these services and has offered to
prepay its future monthly fees. Id. at 14. Novotech claims
that, despite its payments and offer to prepay, SureClinical
committed an anticipatory breach of its duty to provide Novotech
and its users with continuous access to SureClinical’s platform when it notified Novotech that it would terminate access on November 3, 2022 unless Novotech agreed to additional terms outside of the MSA, including: (1) assenting to SureClinical’s modification of the MSA’s use terms and fee structure; (2) paying
millions of dollars in extra fees to SureClinical based on these
modifications; and (3) complying with an audit requested by
SureClinical under Section 11.8 of the MSA. Id. at 14.
SureClinical also allegedly breached its duty of good faith and
fair dealing by modifying its software to limit Novotech’s
ability to transfer its clients’ eTMFs off of SureClinical’s
platform. Id. These breaches will force Novotech to extend the
MSA and pay SureClinical millions of dollars in unwarranted
license and service fees. Id.
SureClinical responds that Novotech fails to support
its breach of contract claims with any section of the MSA or the
applicable Order Form. Opp’n at 14. SureClinical contends that
Novotech has failed to sufficiently allege express or implied
repudiation to support its anticipatory breach allegation because
SureClinical’s decision to cut off access on November 3, 2022
applies only to unauthorized users; SureClinical’s right to deny
access to these unauthorized users is consistent with its
authority under Section 2.7 of the MSA. Id. at 14-15. As for
the duty of good faith and fair dealing claim, SureClinical
contends that state law does not permit this duty to impose
substantive terms and conditions beyond the express terms of the
MSA and Order Form; neither document refers to free, unlimited
export capabilities for platform users, so it would be
inappropriate for the implied duty of good faith and fair dealing to impose such a responsibility on SureClinical. Id. at 15-16. SureClinical argues that the express terms of the MSA and Order Form allow SureClinical to change its platform and charge an hourly rate for services not expressly stated in writing, which
applies to the custom export services that Novotech is
requesting. Id.
The Court finds that Novotech has raised serious
questions on the merits of its breach of contract claims,
specifically with respect to SureClinical’s express notice to
Novotech that SureClinical would cut off access to its platform
to alleged unauthorized users on November 3, 2022. A preliminary
injunction is appropriate where a petitioner shows “serious
questions going to the merits and a hardship balance that tips
sharply toward” their favor. Drakes Bay, 747 F.3d at 1085.
Serious questions are those “which cannot be resolved one way or
the other at the hearing on the injunction,” but which suggest
that the petitioner has a “fair chance” of prevailing. Republic
of the Philippines, 862 F.2d at 1362. A cause of action for
breach of contract requires a showing of: (1) a contract;
(2) performance by petitioner or excuse for non-performance;
(3) breach; and (4) damage to petitioner from the breach.
Acoustics, Inc. v. Trepte Constr. Co., 14 Cal. App. 3d 887, 913
(Ct. App. 1971). A contract is to be interpreted solely from the
written provisions of the contract, if possible. Foster-Gardner,
Inc. v. Nat'l Union Fire Ins. Co., 18 Cal. 4th 857, 868 (1998).
“If the contractual language is clear and explicit, it governs.”
Id. If an alleged ambiguity in the contract is not resolved by
the language or context of the contract, the ambiguity is “generally construed against the party who caused the uncertainty to exist.” Id. Repudiation, also known as “anticipatory breach,” occurs when the contract is repudiated by the promisor before the promisor’s performance under the contract is due. See
Taylor v. Johnston, 15 Cal. 3d 130, 137 (1975). Novotech has
sufficiently alleged (1) the existence of a contract between the
parties, through the MSA and Order Form, (2) performance of the
contract by Novotech, and (3) damages that would result if
Novotech and its clients are unable to access SureClinical’s
platform and are forced to assent to SureClinical’s demand to pay
additional fees. While the Court does not find that Novotech has
sufficiently alleged that SureClinical’s notice cutting off
access to unauthorized users on November 3 constitutes an
anticipatory breach, it finds that there are serious questions
concerning the distinction between authorized and unauthorized
users that implicate Novotech’s claim. The MSA defines
authorized users as the “employees, representatives, consultants,
or agents” of Novotech or any other legal entity for which
Novotech is accepting the MSA’s terms; the MSA contains no
express limit on the number of authorized users. MSA at 3.
While SureClinical asserts that the authorized users under the
MSA’s terms are limited to one hundred named users focused solely
on Novotech’s internal operations, the terms of the MSA are
unclear as to (1) what constitutes internal operations and
(2) how trial sponsors and federal regulators, who must have
access to trial eTMFs to ensure federal compliance, are to be
classified. Even SureClinical’s reference to the Order Form to
support its claim that it only authorized one hundred Novotech users to access the platform is unclear; the Order Form refers, in part, to “100 Ent. Named Users Std Adobe digital certs,” in its line-item description but, on its face, the Order Form provides no clarity on what that means or how it is to be applied
to Novotech. Order Form, Exhibit 4 to Declaration of Rajiv
Dharnidharka, ECF No. 13. This ambiguity is furthered by the
context of the parties’ eight-year continuous, contractual
relationship, during which the issue of Novotech granting access
to the platform to alleged unauthorized users was not brought up
by SureClinical until shortly after Novotech expressed its
decision to not renew the contract. In light of these
contractual ambiguities, which must be construed against
SureClinical as the party that created the MSA and Order Form,
the Court finds that serious questions have been raised regarding
Novotech’s breach of contract claims and that Novotech has a fair
chance of prevailing on these claims.
b. Factor Two: Irreparable Harm
Novotech alleges that it will suffer irreparable harm from
SureClinical’s cutting off its access to the SureClinical
platform in the form of: (1) damaging the viability and success
of Novotech’s clinical trials and eTMFs currently on the
platform; (2) delaying or preventing the approval of new drugs
and devices; (3) preventing trial sponsors from being fully
transparent with institutional review boards; (4) exposing
Novotech to increased scrutiny from federal regulators;
(5) exposing Novotech to legal liability to clients;
(6) threatening the safety and privacy of clinical trial
patients; and (7) a general risk to public health. Mot. at 9-12. Novotech also alleges that SureClinical’s alleged slowing of Novotech’s export capabilities will result in: (1) Novotech being forced to maintain its contractual relationship with SureClinical until all files have been exported; (2) Novotech having to pay
SureClinical millions of dollars in extorted fees; and (3) the
delay or prevention of the approval of important drugs and
medical devices. Id. at 13.
SureClinical responds that all of Novotech’s claims
must fail because they are speculative, self-inflected, and can
be compensated with monetary damages. Opp’n at 16. SureClinical
states that it has offered Novotech a $2.7 million custom service
to assist Novotech with its eTMF exports, which Novotech has
refused to agree to, even though Novotech could recover those
costs if it succeeds in the underlying action. Id. at 16-17.
SureClinical argues that Novotech’s concerns relating to the
viability of its clinical trials, regulatory scrutiny, legal
liability, and public health are speculative because SureClinical
has not threatened to delete any data and Novotech does not
distinguish between the access privileges of authorized and
unauthorized users; Novotech’s one hundred authorized users that
it contracted for will be unaffected, while the unauthorized
users would lose access under the applicable terms of the MSA.
Id. at 18-21. Also, Novotech does not support its claims with
testimony from its trial sponsors, federal regulators, medical
professionals, or trial patients who are allegedly relying on
Novotech’s trials. Id. As for Novotech’s export capabilities,
SureClinical claims that Novotech’s alleged injury was self-
inflicted because Novotech had notice of the export limit in April 2022 and did not proceed to consistently conduct eTMF exports despite the end of year deadline on the MSA. Id. at 22. SureClinical also notes that Novotech delayed filing its injunction, which implies a lack of urgency and irreparable harm.
Id. at 23.
The Court finds Novotech’s argument persuasive. A
petitioner “may not obtain a preliminary injunction unless they
can show that irreparable harm is likely to result in the absence
of the injunction.” Cottrell, 632 F. 3d at 1135. “Indeed,
suffering irreparable harm prior to a determination of the merits
is perhaps the single most important prerequisite for the
issuance of a preliminary injunction.” See Nutrition
Distribution LLC v. Lecheek Nutrition Inc., No. CV 15-1322-MWF
(MRWx), 2015 WL 12659907 (C.D. Cal. June 5, 2015) (internal
citations omitted). A petitioner must demonstrate “immediate
threatened injury.” Caribbean Marine Servs. Co. v. Baldrige, 844
F.2d 668, 674 (9th Cir. 1988). The Ninth Circuit has established
that irreparable harm can include damage to a company’s brand,
reputation, or goodwill, particularly as they relate to standards
of quality control and customer service; damage to one’s
competitive position and market share are also grounds for a
finding of irreparable harm. Apple Inc. v. Psystar Corp., 673 F.
Supp. 2d 943, 948–49 (N.D. Cal. 2009), aff'd, 658 F.3d 1150 (9th
Cir. 2011); see also Regents of Univ. of California v. Am. Broad.
Companies, Inc., 747 F.2d 511, 520 (9th Cir. 1984). Novotech has
sufficiently alleged damage to (1) the viability of its clinical
trials, (2) its reputation and goodwill with clients and federal
regulators, and (3) the safety of its trial patients; also, these concerns have moved beyond speculation because of SureClinical’s recent actions to restrict Novotech’s access to its platform, so the harm is immediate. While the Court notes Novotech’s delay in pursuing injunctive relief, delay is not “particularly probative
in the context of ongoing, worsening injuries” and is
insufficient on its own to dismiss a claim of irreparable harm.
Disney Enterprises, Inc. v. VidAngel, Inc., 869 F.3d 848, 866
(9th Cir. 2017). Therefore, Novotech has demonstrated
irreparable harm absent an injunction.
c. Factor Three: Balance of the Equities
Novotech argues that the balance of equities tips sharply in
its favor because SureClinical cutting off access to its platform
before December 31, 2022 would result in considerable irreparable
harm to Novotech, its clients, and the general public, which
Novotech extensively described in the preceding section. Mot. at
15. Granting the injunction would maintain the status quo
because SureClinical would be compelled to follow through with
its contractual obligations, as it has done for the past eight
years. Id. Novotech claims that SureClinical would not suffer
any financial harm because Novotech has already paid what it owes
under the MSA; should the Court find that SureClinical prevails
on the merits of its claims, monetary damages would be adequate.
Id.
SureClinical responds that it would face great hardship
if it were compelled to write new code to accommodate Novotech’s
export demands and give platform access to unauthorized, non-
paying third parties. Opp’n at 23. SureClinical argues that
Novotech has failed to identify specific trials that would be harmed absent an injunction or a specific provision in the MSA that requires SureClinical to provide the free export services that Novotech is seeking. Id. SureClinical claims that the issuance of Novotech’s injunction would cost it over $2.7 million
and would divert engineering resources away from other parts of
the platform. Id. at 24. Also, granting access to unauthorized
users adversely affects SureClinical’s copyright protections and
oversight capabilities, particularly because of Novotech’s
refusal to comply with the Section 11.8 audit. Id.
The Court finds that the balance of equities weighs sharply
in favor of Novotech. A court must “balance the interests of all
parties and weigh the damage to each” in determining the balance
of the equities. CTIA-The Wireless Ass'n v. City of Berkeley,
California, 928 F.3d 832, 852 (9th Cir. 2019) (citing Stormans,
Inc. v. Selecky, 586 F.3d 1109, 1138 (9th Cir. 2009)).
SureClinical, as the platformer through which Novotech continues
to manage and operate a number of its clinical trials, has
exclusive control over whether Novotech and its clients can
access their trial eTMFs and documents, and SureClinical has
recently demonstrated that it is prepared to exercise that
control absent an injunction. It has been alleged that even
temporary loss of access can result in considerable hardship to
Novotech, including regulatory citations, rejection of clinical
trials, threats to patient safety, and reputational damage, all
of which shift the balance of equities in Novotech’s favor.
Also, issuance of the injunction will return the parties to the
status quo with respect to access to the platform, considering
the underlying action marks the first time in the parties’ eight- year relationship that SureClinical has raised an issue regarding unauthorized users. SureClinical’s concerns about the engineering costs of complying with the injunction and Novotech’s resistance to the Section 11.8 audit can be addressed by a
monetary damages award in the underlying action and
SureClinical’s own pending motions for a preliminary injunction
and stay.
d. Factor Four: Public Interest
Novotech argues that an injunction is in the public interest
because the effects of SureClinical’s threatened actions extend
beyond Novotech to include its trial sponsors, trial patients,
and the general public. Mot. at 15. SureClinical responds that
the public interest goes against issuance of the injunction
because: (1) the public has a strong interest in enforcing
contracts and not imposing obligations inconsistent with express
terms, which is what Novotech is requesting the Court do in this
case; and (2) SureClinical’s compliance with the injunction will
require it to shift engineering resources away from other
customers’ trials to accommodate Novotech’s needs. Opp’n at 24-
25.
The Court finds that the public interest favors
granting the injunction. Special consideration is given to the
potential impact on nonparties by the issuance or denial of
injunctive relief. League of Wilderness Defenders/Blue Mts.
Biodiversity Project v. Connaughton, 752 F.3d 755, 766 (9th Cir.
2014). In this instance, the potential damage to trial sponsors,
trial patients, and the general public if Novotech and its
clients’ clinical trials are interrupted or corrupted by SureClinical’s threatened actions outweighs the burden on SureClinical’s other clients, particularly in light of the parties’ extensive business relationship and SureClinical’s exclusive control over its platform’s functions and capabilities.
The public’s interest in enforcing the express terms of a
contract is not strongly implicated here because of the serious
questions that have been raised about the terms at issue in the
MSA and Order Form.
e. Bond
Novotech argues that the Court should not require a bond
because (1) SureClinical will not suffer any harm from the
injunction, (2) Novotech has shown a likelihood of success on the
merits, and (3) the injunction is in the public interest. Mot.
at 17. If a bond is appropriate, the amount should be nominal.
Id. SureClinical contends that a $15 million bond is appropriate
because that is the amount it would cost for SureClinical to
comply with the injunction. Opp’n at 25.
The Court imposes a $2.7 million bond. The Court has
broad discretion to require a bond under Fed. R. Civ. P. 65(c).
Johnson v. Couturier, 572 F.3d 1067, 1086 (9th Cir. 2009). That
discretion vests the Court with the authority to not require a
bond if (1) there is no evidence the party to be enjoined will
suffer damages from the injunction or (2) the party requesting
the preliminary injunction is likely to succeed on the merits of
its claims at trial. Conn. Gen. Life Ins. Co. v. New Images of
Beverly Hills, 321 F.3d 878, 882 (9th Cir. 2003). The Court
finds that SureClinical has put forth sufficient evidence that it
will cost $2.7 million to modify its platform to accommodate Novotech’s export requirements. However, in light of the serious questions raised by Novotech regarding the distinction between authorized and unauthorized users on SureClinical’s platform as nee ene eee III EE OE OSI OI III ee
they relate to the license fees allegedly owed by Novotech, the Court does not require a bond beyond that amount. Til. ORDER For the reasons set forth above, the Court GRANTS Novotech’s motion for preliminary injunction and requires a $2.7 million bond to be posted by Novotech pursuant to Fed. R. Civ. P. 65(c). Dated: December 2, 2022
. FM ney JOHN A. MENDEZ SENIOR UNITED*STATES DISTRICT JUDGE 17