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Applera Corp. v. MP Biomedicals

April 30, 2009; as modified May 28, 2009

APPLERA CORPORATION, PLAINTIFF AND APPELLANT,
v.
MP BIOMEDICALS, LLC, DEFENDANT AND APPELLANT.



Appeal and cross-appeal from a judgment and postjudgment order of the Superior Court of Orange County, Andrew P. Banks, Judge. Judgment affirmed. Postjudgment order reversed and remanded with directions. (Super. Ct. No. 05CC09341).

The opinion of the court was delivered by: Ikola, J.

CERTIFIED FOR PUBLICATION

OPINION

Following a bench trial, the court below awarded plaintiff Applera Corporation $1,125,195 in contract damages based on defendant MP Biomedicals, LLC's alleged failure to pay royalties on products sold under a patent licensing agreement. Defendant appeals the judgment, claiming the court erred in spectacular fashion by allowing the wrong plaintiff (standing is contested, as plaintiff is an alleged assignee of the patent owner) to sue the wrong defendant (defendant is the ultimate parent corporation of a French entity that manufactured the licensed products at issue) in the wrong court (federal courts have exclusive jurisdiction over cases in which the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law). Not to be outdone, plaintiff cross-appeals, asserting the court awarded it too little in actual damages and improperly refused to tack on an award of attorney fees to the judgment. We affirm the judgment in its entirety, but reverse the postjudgment order denying plaintiff's request for an award of attorney fees.

FACTS

As a matter of substantive contract law, this is an extraordinarily simple case. The parties acknowledge the existence and enforceability of a patent licensing agreement. Licensed products were sold by the agreement's licensee; indeed, the licensee prepared and provided to plaintiff certified royalty reports, which indicated the number of licensed products sold during the relevant time period. The licensee did not pay all royalties owed on the reported sales during the time period at issue. And finally, the licensing agreement prescribes a specific method for calculating royalties based on the number of units of licensed products sold under the agreement. In setting damages, the court accepted plaintiff's theory that some adjustments to the data and calculations in the certified royalty reports were necessary to arrive at the proper measure. Nevertheless, there is truth in the court's observation that "this [is] a straightforward breach of contract enforcement" and "under the facts of [the] case [plaintiff] may have been able to [plead the case as] an account stated."

Just beyond this apparent simplicity arises a tangle of unruly issues. Preeminent among the disputes is the propriety of the state court exercising subject matter jurisdiction over this case. In addition to this foundational inquiry, the parties also contest whether either is appropriately named in litigation over the contract at issue. Neither plaintiff nor defendant is named in the licensing agreement. The court awarded damages to plaintiff against defendant, but only for the time period following defendant's acquisition of the previous licensee corporation (and not for royalties owed for products sold prior to that acquisition). Some exposition of the terms of the licensing agreement, the history of the parties' involvement with the licensing agreement, the procedural history of the case, and the evidence actually presented at trial will be necessary to assess each of the issues raised by the parties.

License Agreement

On July 1, 1997, Roche*fn1 and Appligene Oncor (a French corporation) entered into a contract entitled "Enzymes/PCR Patent License Agreement." The parties agree this is the relevant contract at issue. Under this contract, Roche granted to Appligene Oncor "a royalty bearing nonexclusive [worldwide] license" "to manufacture,... to use and to sell" a variety of products utilizing Roche's patent rights, as well as a license for performance of related scientific processes on which Roche owned the patents. The patents at issue describe and claim "nucleic acid amplification processes including, inter alia, a process known as the polymerase chain reaction ('PCR') process." The PCR process reproduces large quantities of individual strands of DNA for use in research (e.g., the human genome project), medical care, and other fields (e.g., forensics). The importance of the processes claimed by the patents is illustrated by the inventor's (Kary Mullis) receipt of the Nobel Prize in chemistry for his efforts.

Appligene Oncor agreed to pay royalties for the license rights. Utilizing highly technical and complex defined terms (highlighted in bold), the agreement sets forth a royalty schedule for several categories of products: "a) for a Roche Patented Enzyme or an APPLIGENE Enzyme, 15.5ó per Royalty Unit for each such enzyme; [¶] b) for Licensed Research Products and Licensed Application Products that include Roche Patented Enzymes and/or APPLIGENE Enzyme, 15% of the Net Sales of each Licensed Research Product and Licensed Application Product or 15.5ó per Royalty Unit for each such enzyme included in such Product, whichever is larger; [¶] c) for Licensed Application Products which contain neither Roche Patented Enzymes nor APPLIGENE Enzymes, 15% of the Net Sales of each Product."

It is unnecessary for our purposes to set forth the contractual definition of each term. It suffices to say that the definitions for these terms incorporate the claims of various United States patents as well as foreign patents which correspond to and claim priority from the U.S. patents. For instance, the definition of "Licensed Research Product" indicates such products "consist of or contain a Licensed Product...." "'Licensed Product' shall mean: [¶] a) a Roche Patented Enzyme or [an] APPLIGENE Enzyme used or sold in a country where the use or sale of such Roche Patented Enzyme or APPLIGENE Enzyme would infringe at least one Valid Claim of a patent or patent application within [variously contractually defined categories of patent rights]." "'Valid Claim,'" in turn, "shall mean the claim of a patent or pending patent application which has not been held invalid or otherwise unenforceable by a court from which no appeal has or can be taken, or has not otherwise finally been held unpatentable by the appropriate administrative agency." In short, the license agreement links its definitions of various licensed products to patent claims, and does not purport to require continued royalty payments on products or processes in the absence of a valid patent claim on such products or processes.

The license agreement is "self-reporting," in that the licensee is required to prepare and submit to the licensor quarterly reports identifying royalty-bearing sales of licensed products and calculating the amount due based on the royalty rates identified above. "The correctness and completeness of each such report shall be attested to in writing by the responsible financial officer... or by [licensee's] external auditor or by the chairman or other head of [licensee's] internal audit committee." "Simultaneously with the delivery of each such royalty report, [licensee] shall pay... the royalty and any other payments due under this Agreement for the period covered by such report."

The license agreement indicates it is "subject to and shall be construed and enforced in accordance with the laws of Switzerland." Further, the license agreement provides that "all disputes arising from or in connection with" the agreement shall be resolved "by an Arbitral Tribunal in accordance with the International Arbitration Rules of the Zurich Chamber of Commerce."

Parties' Involvement with License Agreement

Following execution of the license agreement, licensee Appligene Oncor was acquired by a Canadian corporation, Qbiogene, Inc., which also had a licensing agreement with Roche. Following this consolidation of the two Roche licensees, Qbiogene, Inc.'s wholly-owned subsidiary, Qbiogene S.A., manufactured licensed products in France and sold the products in worldwide markets.*fn2 Qbiogene S.A. prepared royalty reports and forwarded such reports to Qbiogene, Inc.'s headquarters in Canada, and the reports were then forwarded to Roche. In 2002, Roche and Qbiogene, Inc., resolved a dispute concerning past royalties and confirmed the agreement descri herein would govern the parties' relationship in the future.

On March 10, 2004, Qbiogene, Inc., filed a debtor protection petition for reorganization in Canada. Royalties due prior to March 10, 2004 were paid to Roche (presumably at a discount) through the Canadian bankruptcy proceeding. Thereafter, Qbiogene, Inc. submitted reports and paid some royalties to Roche during its bankruptcy, although it failed to pay all of the royalties it reported.

On September 23, 2004, defendant MP Biomedicals, LLC, a Delaware limited liability company with its principal place of business in Irvine, California, acquired the stock of Qbiogene, Inc., through the Canadian bankruptcy process. Qbiogene, Inc. thereby became a wholly-owned subsidiary of defendant, while Qbiogene, S.A. remained a wholly-owned subsidiary of Qbiogene, Inc. Qbiogene, S.A., however, changed its name to MP Biomedicals, S.A. MP Biomedicals, S.A. continued to manufacture (in France) and sell licensed products under the agreement with Roche, and to prepare royalty reports for such sales of licensed products. There was no product catalogue for "Qbiogene" after 2005; all licensed products were advertised and sold under the name "MP Biomedicals." The parties contest both whether defendant MP Biomedicals, LLC can be held responsible for any of the royalties and, if so, whether defendant can be held liable for royalties that arose prior to September 23, 2004.

On May 6, 2005, Roche assigned plaintiff Applera Corporation (a Delaware corporation with its principal place of business in California) "as of the Effective Date all of [Roche's] rights under [the licensing agreement at issue here and other licensing agreements]. [A]ll collection efforts and enforcement actions in regard to the Existing License Agreements shall be conducted solely by Licensee and Licensee shall be entitled, subject to the terms and conditions of this Agreement, to collect all royalties and other consideration accruing or arising in respect of the Existing Licensee Agreements on and after the Effective Date." On May 11, 2005, Roche sent notification of this assignment to "Qbiogene S.A." at Qbiogene, Inc.'s Montreal address. The parties contest both whether plaintiff is entitled to sue to collect any royalties and, if so, whether plaintiff can sue for royalties that arose prior to May 2005.

Procedural History

On August 15, 2005, plaintiff filed a complaint for breach of contract and breach of the covenant of good faith and fair dealing against "MP Biomedicals, a Delaware corporation," in Orange County Superior Court; plaintiff attached a license agreement and incorporated such agreement into the pleading.*fn3 After describing the parties' relationship to the license agreement, the complaint alleges the license required royalty payments and the provision of royalty reports as described above. The complaint then alleges: "MP Biomedicals has materially breached the License by continuing to sell, distribute and/or transfer the [products]*fn4 covered by the License without providing any royalties or royalty reports to Applera for the sales, distribution or transfers of said patented technologies."

Defendant answered the complaint with a general denial of the allegations, and indicated that it appeared notwithstanding plaintiff's erroneous naming of "MP Biomedicals, a Delaware corporation" as defendant. Defendant also pleaded a number of affirmative defenses, including a defense alleging the expiration of the patents underlying the license agreement: "The United States patents governing the technology that forms the basis for Plaintiff's complaint expired on March 28, 2005 and therefore Plaintiff can claim no royalties on the obligations of products sold in the United States. Plaintiff's patent on said technology as used in Europe will expire on March 28, 2006 and thereafter no damages can be claimed by Plaintiff."

Plaintiff propounded written discovery requests to which defendant responded in March 2006. Included was a set of requests for admission. Remarkably, given its positions at trial and on appeal, defendant admitted, without qualification or explanation, the following statements: "1. Admit that YOU assumed or otherwise acquired the rights which arise out of the LICENSE. [¶] [2-7]. Admit that YOU have not paid APPLERA any royalties for the sales, distribution or transfer of [Roche Patented Enzymes, APPLIGENE Enzymes, Licensed Research Products, and Licensed Application Products], as defined in the LICENSE, since the date YOU assumed or otherwise acquired the rights which arise out of the LICENSE. [¶]... [¶] 9. Admit that YOU are required to pay APPLERA royalties for the sales of certain technologies under the LICENSE. [¶]... [¶] 13. Admit that since the date YOU assumed or otherwise acquired the rights which arise out of the LICENSE, YOU purposefully withheld royalty payments from APPLERA." Defendant explained its purposeful withholding of payments with the following coda to its response: "Defendant withheld ...


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