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BIOSITE, INC. v. XOMA LTD.

September 25, 2001

BIOSITE, INC., PLAINTIFF,
V.
XOMA LTD., XOMA (US) LLC, XOMA IRELAND LIMITED, AND XOMA CORPORATION, DEFENDANTS. XOMA LTD., XOMA (BERMUDA) LTD., XOMA IRELAND LTD., AND XOMA TECHNOLOGY LTD., PLAINTIFF V. BIOSITE, INC., DEFENDANT



The opinion of the court was delivered by: Hamilton, District Judge.

ORDER RE: MOTIONS TO DISMISS

Defendants' motions to dismiss the above-entitled related actions came on for hearing on September 12, 2001, before this court, the Honorable Phyllis J. Hamilton presiding. Biosite, Inc., appeared by its counsel Kirk M. Hasson and Sharon L. O'Grady, and XOMA Ltd., XOMA (Bermuda) Ltd., XOMA Ireland Ltd. and XOMA Corporation appeared by their counsel Charles A. Gilman and Matthew B. Lehr. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, and good cause appearing, the court hereby rules as follows.

BACKGROUND

Plaintiff Biosite Diagnostics, Inc. ("Biosite"), filed suit against defendants XOMA Ltd., XOMA (U.S.) LLC, XOMA Ireland Ltd., and XOMA Corporation ("XOMA"), seeking a declaratory judgment that it does not infringe XOMIA's patents, and that the license agreements between Biosite and XOMA remain valid, and seeking injunctive relief barring XOMA from purporting to terminate the license agreements (Case No. C-01-2251 PJH — "the declaratory judgment action").

A month later, plaintiffs XOMA Ltd., XOMA (Bermuda) Ltd., XOMA Ireland Ltd., and XOMA Technology, Ltd. ("XOMA") filed suit against defendant Biosite, alleging patent infringement, fraud, breach of contract, misappropriation, and unfair business practices (Case No. C-01-2580 PJH — "the direct action").

Biosite is a biotech research company, which develops medical diagnostic tests. XOMA is a biopharmaceutical company whose primary business is the identification and development of novel therapeutic protein products, including the identification and development of antibodies for therapeutic purposes. XOMA is the owner of various patents relating to technology for methods of expression and secretion of antibodies in bacterial cells. In 1998 and 1999, various XOMA entities granted licenses to Biosite pursuant to three written license agreements (see below).

XOMA now moves for an order dismissing the complaint brought by Biosite (the declaratory judgment action). XOMA argues that 1) Biosite sought declaratory judgment only after being put on clear notice; 2) the direct action is the more appropriate vehicle to address the issues; and 3) Biosite's claims are defenses to the direct action.

Biosite opposes XOMA's motion on the basis that 1) Biosite's complaint was first filed; 2) the two parties in the actions are identical; 3) the issues in the two actions are the same; and 4) no valid purpose would be served by granting Xoma's motion.

Biosite seeks an order dismissing the complaint brought by XOMA (the direct action), or in the alternative, to dismiss or stay certain claims. Biosite argues that 1) the complaint is duplicative of Biosite's pending declaratory relief action, which is favored over XOMA's direct action since the declaratory relief action was filed first; 2) XOMA (Bermuda) and XOMA Technology Ltd. lack the requisite standing to sue; 3) the XOMA plaintiffs are not qualified to do business in California, and the state law claims are subject to abatement until plaintiffs comply with the requirements of California Corporations Code § 2105; and 4) the fraud claim should be dismissed because XOMA has failed to comply with the requirements of Federal Rule of Civil Procedure 9(b).

XOMA opposes Biosite's motion, arguing 1) Biosite's reliance on the first-to-file rule is misplaced and therefore the declaratory relief action is not favored over XOMA's direct action; 2) XOMA (Bermuda) has standing by way of assignment of 2 of the 3 licenses at issue, and XOMA Technology Ltd. has standing by way of assignment of ownership of each of the 5 patents at issue; 3) XOMA may properly bring state law claims since the basis of the Court's jurisdiction is the assertion of federal patent claims; and 4) Biosite is on sufficient notice to defend itself against fraud claims.

DISCUSSION

A. XOMA's Motion to Dismiss

XOMA seeks an order dismissing the declaratory judgment action. At the hearing, both parties agreed that a single case is preferable to two cases in resolving their dispute. Therefore, the court need only decide whether to proceed with the direct action or the declaratory judgment action.

Biosite argues that its declaratory judgment action was filed first and that the first-to-file rule dictates that XOMA's direct action should be dismissed. Additionally, Biosite argues that because XOMA's claims are compulsory counterclaims to the declaratory judgment action, dismissal of the direct action, rather than a stay, is appropriate. XOMA contends that Biosite's reliance on the first to file rule is misplaced and that its action sets forth the complete dispute between the parties.

The first-to-file rule provides that when identical suits are pending in two courts, the court in which the first suit was filed should generally proceed to judgment . . . It is "not a rigid or inflexible rule to be mechanically applied." Rather, "[t]he most basic aspect of the first-to-file rule is that it is discretionary." "The decision and the discretion belong to the district court."

St. Helena Wine Co. v. Allied Mgt., Inc., 1998 WL 480190, *1 (N.D.Cal. 1998) (citations omitted); see also In re Burley, 738 F.2d 981, 988 (9th Cir. 1984); Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 2142, 132 L.Ed.2d 214 (1995). Thus, it is clear that the ...


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