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Caldera Pharmaceuticals, Inc v. Regents of the University of California et al

April 24, 2012


Trial Court: Superior Court of the City & County of San Francisco Trial Judge: Honorable Charlotte Woolard (San Francisco City & County Super. Ct. No. CGC 07-470554)

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


Federal courts have exclusive jurisdiction to try suits that are based on patents, which are themselves a creature of the federal Constitution. The appearance of a patent in state court is more than likely to unsettle lawyers and judges because, as one academic commentator observed: "Patents scare many lawyers. Mental charts of the law are apt to designate this unexplored territory as a federal enclave, peopled by dragons and serpents of purely federal origin." (Cooper, State Law of Patent Exploitation (1972) 56 Minn. L.Rev. 313.) Even federal judges can be uneasy. One of the most eminent wrote that the federal courts "deal . . . with a great number of patents in the higher reaches of electronics, chemistry, biochemistry, pharmacology, optics, harmonics and nuclear physics, which are quite beyond the ability of the usual judge to understand without the expenditure of an inordinate amount of educational effort by counsel and of attempted self-education by the judge, and in many instances, even with it." (Friendly, Federal Jurisdiction: A General View (1973) pp. 156-157.)

But the academic commentator cautioned that this trepidation is unreasonably exaggerated: "Even a timid glance into the unknown land, however, reveals the friendly wagging tail of state contract law . . . . At least a living ghost of state tort law lingers in these lands too. For, surprising at it may seem, it is well established that most aspects of contractual transactions are governed by state law. State law has likewise afforded tort remedies for a variety of wrongs by and against patent owners . . . ." (Cooper, State Law of Patent Exploitation, supra, 56 Minn. L.Rev. 313.) Another commentator, now the author of a leading treatise on patents, characterized the interface between state and federal law as "one of the darkest corridors of . . . jurisdiction." (Chisum, The Allocation of Jurisdiction Between State and Federal Courts in Patent Litigation (1971) 46 Wash. L.Rev. 633, 639.)

Here we must go down that corridor, to decide whether the trial court correctly granted judgment on the pleadings against a patent licensee which sued the licensor for fraud and breach of a license agreement. Applying the standards of Christianson v. Colt Industries Operating Corp. (1988) 486 U.S. 800, 809 (Christianson), we conclude from a careful reading of the licensee's complaint that, at most, only a fraction of the licensor's allegedly wrongful acts implicate the patent law jurisdiction of the federal courts, with the vast majority of those acts involving a claim for relief solely under California law. Because they do, we conclude that the trial court erred in assigning jurisdiction to the federal courts, and we reverse.


On the last day of 2007 Caldera Pharmaceuticals, Inc. (Caldera) commenced this action with a complaint for fraud and breach of the "Exclusive Patent Licensing Agreement" (license agreement) Caldera executed with the Regents of the University of California (Regents or University) in September 2005.*fn1 Because the Regents had assigned their rights under the agreement to Los Alamos National Security, LLC (LANS) in April 2006, Caldera made LANS a co-defendant.*fn2 The relevant pleading for present purposes is Caldera's second amended complaint, which was filed in July 2008. Its pertinent allegations may be summarized as follows:

The Regents possessed four patents "related to a Method for Detecting Binding Constants Using Micro X-Ray Fluorescence."*fn3 Section 11 of the license agreement was titled "PATENT PROSECUTION, MAINTENANCE AND DISCLAIMER." Under section 11.1, the Regents agreed that it "will prosecute U.S. patent applications identified in Appendix A . . . and will maintain U.S. patents identified in Appendix A." Section 11.5 provided that "The University agrees to provide written notification to the Licensee if the University intends to terminate prosecution of any of the U.S. patent applications identified in Appendix A. . . . [A]bandonment of any of the U.S. patent applications will be at the sole discretion of the University. If the University elects to terminate prosecution of a U.S. patent application . . . , the Licensee may elect in writing to assume responsibility for such prosecution at its own expense." Section 11.6 provided that "The costs associated with U.S. and Patent Cooperation Treaty (PCT) cases will be borne by the University." And section 11.7 specified that in order "to obtain and maintain international rights," Caldera "must diligently pursue, at the Licensee's expense, in the name of the University and assigned to the University, the filing, prosecution, and maintenance of all international patent applications and patents listed in Appendix A."

To develop this technology, the Regents granted Caldera the "exclusive license to make, have made, use, import, sell and offer to sell, and have sold, LICENSED INVENTIONS and LICENSED SERVICES under the PATENT RIGHTS." Caldera agreed to "use its best efforts" to develop the technology, and to make available to the Regents "any improvements or developments" Caldera might make to the patents.*fn4

Caldera alleged that "On or about August 8, 2005, the defendants abandoned the patent application known as DOE S-99,911 and filed DOE S-104,901 as a continuing patent application. On or about May 31, 2006, the defendants abandoned the patent application known as DOE S-104,901. The abandonment of patent application DOE S-104,901 was done without providing the contractually required notice to plaintiff . . . [and] constitutes a material breach of Section 11.5 of the License Agreement."

"The subject matter of patent applications DOE S-99,911 and DOE S-104,901 was resubmitted by the defendants to the U.S. Patent & Trademark Office as a 'continuation-in-part' ('CIP')*fn5 application styled S-109,085 on or about May 31, 2006. Such conduct had the effect of removing the invention claimed by this particular patent application from the scope of the License Agreement and has deprived Caldera of one of the primary benefits granted by the License Agreement.*fn6 Defendants have refused plaintiff's request for transfer of the rights created by this CIP patent application."

Caldera continued: "Patent application DOE S-102,376 was filed by the Regents with the United States Patent & Trademark Office [Patent Office] prior to execution of the License Agreement for the purpose of obtaining foreign patent protection for certain key elements of the technology being licensed to Caldera." In order for Caldera to act to protect its international rights to the patents under section 11.7, "it was necessary for the Regents to make timely PCT filings with patent applications DOE S-99,911, DOE S-100,585, and DOE S-102,376."

"On or about October 5, 2006, plaintiff Caldera discovered that the defendants had failed to make the necessary filing for patent application DOE S-102,376. The fact that the defendants had failed to file this PCT patent application was not disclosed to plaintiff Caldera prior to execution of the License Agreement." "The defendants' failure to file the PCT for patent application DOE S-102,376 that would have enabled plaintiff to proceed with patent filings in Japan and with the European Patent Office constitutes a material breach of the License Agreement."

Then Caldera alleged this same failure also amounted to fraud: "At the time that it entered into the License Agreement, Caldera reasonably believed that a PCT filing for patent application DOE S-102,376 had been or would be timely made by the Regents such that Caldera would be able to proceed with its written election in Appendix A of the License Agreement to seek patent protection in Japan and in the European Union countries and at all times relevant hereto relied to its detriment on such belief and the ability to proceed with such Japanese and European filing as authorized by Appendix A by entering into the License Agreement and proceeding to operate its business thereunder." LANS assumed that responsibility when it became the Regents' assignee in April 2006, whereupon "LANS and its legal staff became responsible for the prosecution and handling of the pertinent U.S. and foreign patent applications."

Because Caldera had "a relationship of trust and confidence" with them, "LANS and its lawyers have acted as legal counsel for Caldera with respect to efforts related to the securing and protection of the licensed inventions and patent rights, and . . . had a duty to Caldera to ensure that the appropriate and necessary actions were taken to protect Caldera's domestic and international patent rights." "The fact that the PCT application for patent application DOE S-102,376 had not been timely filed was intentionally concealed from and not disclosed to Caldera prior to execution of the License Agreement, notwithstanding that the Regents were fully aware that obtaining foreign protection in Japan and the European Union was of great importance to Caldera." LANS "also intentionally concealed from Caldera the loss of the rights to the invention covered by patent application DOE S-104,901." LANS was aware that, in "expectation . . . that the international patent rights for patent application DOE S-102,376 would be secured, Caldera proceeded to raise substantial amounts of money, hire staff, market its intellectual property rights for use in business partnerships, and purchase specialized scientific equipment," and Caldera did the same "in reliance on its belief that the rights to the invention covered by patent application DOE S-104,901." Meanwhile, LANS "intentionally took steps . . . to wrongfully divert ownership of the covered invention to LANS."

Caldera further alleged that "the defendants have failed to honor the exclusivity provisions of the option agreement [see fn. 1, ante] and License Agreement by disclosing technology and know-how covered by the licensee to competitors of Caldera . . . and by advertising and promoting a willingness to compete with Caldera." In addition, "the defendants have breached the option agreement and . . . License Agreement by utilizing the technology and know-how covered by the license to competitors of Caldera" and by "utilizing the technology and know-how for development work done on behalf of or in conjunction with third parties . . . during the period from 2004 through 2007."

Based on these allegations, Caldera stated causes of action for (1) breach of contract against the Regents and LANS; (2) fraud against LANS; and (3) breach of the covenant of good faith and fair dealing against the Regents and LANS. Caldera sought compensatory damages of $400 million, punitive damages, prejudgment interest, and costs.

Twenty-two months later, Regents and LANS (when referred to collectively, defendants) jointly moved for judgment on the pleadings, on the sole ground that exclusive jurisdiction resided in the federal courts because Caldera's action was, ultimately, about the patent solicitations. After hearing argument and considering voluminous papers, the trial court granted the motion, concluding that "the court has no jurisdiction, as to the entire complaint" in that Caldera's "complaint and theory of recovery are based upon substantial rules of patent law."*fn7

Caldera then perfected this appeal.*fn8 *fn9


"A motion for judgment on the pleadings, made after the time for a demurrer has expired, in all other respects is the equivalent of a general demurrer. Like a demurrer, grounds for the motion must appear on the face of the complaint or be based on facts capable of judicial notice. We review the complaint de novo to determine whether the complaint states a cause of action, as a matter of law." (Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, 1202.) In conducting this review, we accept, and liberally construe, the truth of the complaint's properly pleaded factual allegations, but not contentions, deductions, or conclusions of fact or law. (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515-516; Sprague v. County of San Diego (2003) 106 Cal.App.4th 119, 127.) We are not concerned with Caldera's ability to prove its allegations, only whether its second amended complaint shows that it makes out a claim for some relief, even if an amount less than alleged. (Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 496, fn. 2; Matteson v. Wagner (1905) 147 Cal. 739, 742; Grain v. Aldrich (1869) 38 Cal. 514, 520.)

The issue before us can be framed simply and without difficulty: must Caldera's monetary claims against defendants be resolved in federal court? Answering ...

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