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Orthopaedic Hospital v. Depuy Orthopaedics, Inc.

United States District Court, Ninth Circuit

April 30, 2013

ORTHOPAEDIC HOSPITAL, Plaintiff,
v.
DEPUY ORTHOPAEDICS, INC., Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO TRANSFER CASE [11]

OTIS D. WRIGHT, II, District Judge.

I. INTRODUCTION

Six months ago, Defendant Depuy Orthopaedics, Inc. filed an action in the Northern District of Indiana, seeking a declaratory judgment establishing whether a particular agreement was still in effect. In December 2012, Plaintiff Orthopaedic Hospital filed this case in the Central District of California, alleging claims broader- though substantially related-to those in DePuy's action. DePuy then moved to dismiss, transfer, or stay Orthopaedic Hospital's later-filed case. After considering the first-to-file rule and principles of judicial economy, the Court GRANTS DePuy's Motion and TRANSFERS this case to the Northern District of Indiana.[1]

II. FACTUAL BACKGROUND

Orthopaedic Hospital is a nonprofit public benefit corporation organized under California law and has its principal place of business in Los Angeles, California. (Compl. § 11.) Depuy Orthopaedics, Inc. is incorporated and has its principal place of business in Indiana. ( Id. § 12)

On March 1, 1999, Orthopaedic Hospital and DePuy entered into a Research Agreement and a Patent Rights and License Agreement. ( Id. §§ 16-17.) The parties renewed the Research Agreement on February 1, 2002. ( Id. § 16.) On June 24, 1999, the parties amended the License Agreement. ( Id. § 17.)

Under the Research Agreement, the parties agreed to work together to identify new polyethylene materials and processes for fabricating polyethylene components that could improve the durability of orthopaedic implants. ( Id. § 20.) Orthopaedic Hospital licensed the intellectual property developed by its employees to DePuy in exchange for royalties. ( Id. § 29.) The License Agreement obligated DePuy to pay the royalties on net sales "for the longer of seven years or the life [of an issued patent that is subject to the Research Agreement]." ( Id. § 35.)

One invention that allegedly falls under the scope of the Research Agreement is antioxidant polyethylene technology ("AOX"). ( Id. § 50.) The parties allegedly developed AOX together. ( Id. ) In the fall of 2011, Orthopaedic Hospital asserts that DePuy began incorporating parts made of AOX into its products. ( Id. § 67.) But to date, Orthopaedic Hopsital contends that DePuy has not paid Orthopaedic Hospital any royalties based on its AOX sales. ( Id. § 70.)

On February 16, 2012, DePuy told Orthopaedic Hospital that DePuy believed the License Agreement was no longer in force. ( Id. § 64.) The next month, Orthopaedic Hospital's Vice President for Research, Dr. Harry McKellop, responded to DePuy, contending that the License Agreement was still valid. (McKellop Decl. Ex. 2.) Dr. McKellop also said that it "would be the height of folly to turn this matter over to the lawyers." ( Id. ) DePuy's Vice President for Medical Affairs Tony Cutshall told Dr. McKellop that DePuy needed more time to review the Hospital's arguments. ( Id. Exs. 3, 5.)

On June 11, 2012, DePuy filed an action in the Northern District of Indiana for a declaratory judgment establishing that DePuy has not breached the License Agreement. (Mot. 1.) Six months later on December 28, 2012, Orthopaedic Hospital initiated this action, alleging claims for breach of the Research Agreement; breach of the License Agreement; breach of an implied-in-fact contract; promissory estoppel; quantum meruit; unfair, misleading, and deceptive business practices; and fraud. On February 19, 2013, DePuy filed this Motion to Dismiss, Transfer or Stay. (ECF No. 11.) Orthopaedic Hopsital timely opposed. (ECF No. 13.) That Motion is now before the Court for decision.

III. LEGAL STANDARD

Under the "first-to-file rule, " a federal court may decline to exercise jurisdiction over a later filed case involving substantially the same parties and issues as another case previously filed in another federal court. Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982). The rule vests the second court with discretion to dismiss, transfer, or stay the later-filed case. Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 623 (9th Cir. 1991).

In its determination whether to apply the first-to-file rule, a court looks to three factors: (1) the chronology of the two actions; (2) the similarity of the parties; and (3) the similarity of the issues. Ward v. Follett Corp., 158 F.R.D. 645, 648 (N.D. Cal. 1994). But the issues involved in each case need not be identical; rather, the first-to-file rule only requires "substantial overlap." ...


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