March 8, 2021
LES Insights
By John C. Paul; D. Brian Kacedon; Anthony D. Del Monaco; Amanda E. Stephenson
A Delaware court considered testimony on the actual intent of the parties to a license agreement with ambiguous provisions and concluded, based on the intent of the parties, that the accused conduct was not licensed. However, while the patents were found to be infringed, the infringer reasonably interpreted the license agreement in concluding they were licensed under the agreement. As a result, they did not have the required intent to willfully infringe.
This case concerns a licensing dispute relating to IGEN’s patents for ECL, a kind of luminescence in which light is produced during electrochemical reactions in a solution.
In 1992, IGEN granted Boehringer a license to develop, use, manufacture, and sell ECL assays and instruments for a specific field of use (“the 1992 License”). Six years later, Roche purchased Boehringer and became a licensee under the 1992 License.
Meanwhile, in 1995, IGEN signed a Joint Venture Agreement (“JVA”) with Meso Scale Technologies and formed Meso Scale Diagnostics, LLC (“Meso”), a party to the current case. Attached to the JVA was a 1995 license agreement between IGEN and Meso granting Meso an exclusive license to practice the IGEN Technology to make, use, and sell products or processes (A) developed in the course of a joint research project between IGEN and Meso, or (B) utilizing or related to the Research Technologies (“the 1995 License”). The 1995 License defined “IGEN Technology” as all inventions now or hereafter owned by IGEN, which includes the patents Meso asserts against Roche in the current case.
In 2003, IGEN and Roche executed a new license agreement (“the 2003 License”) granting Roche a non-exclusive license to IGEN’s ECL technology for a specific field of use. Meso consented to the 2003 License. As part of that transaction, IGEN’s patents and its ownership interests in the Meso JVA were transferred to a new company, BioVeris. In 2007, a Roche affiliate acquired BioVeris.
As a result of the above transactions, both Meso and Roche held certain licensing rights to BioVeris’ technology (which previously belonged to IGEN). These licensing rights were defined by the respective licenses, which were in dispute in this case.
In 2017, Roche filed the current case, seeking a declaration that it did not infringe any of Meso’s rights granted by the 1995 License. Meso filed counterclaims for patent infringement and breach of the 1995 License between IGEN and Meso.
Different from normal patent infringement cases where infringement depends on a comparison of the patent claims to the accused products, this case turned on the scope of rights Meso received under the 1995 License. Meso argued it had an exclusive right to practice the IGEN patent claims under the 1995 License, whereas Roche contended Meso only had an exclusive right to practice the IGEN Technology (including the asserted patents) for certain categories of products defined in the 1995 License. That issue went before the court on summary judgment and the court found the parties articulated more than one reasonable interpretation of the contract. Thus, the court ordered the issue be tried.
The jury agreed with Meso’s interpretation and found Meso had an exclusive license to the patents and Roche and BioVeris willfully infringed and/or induced infringement of the ECL patents. Both parties filed post-trial motions, including Roche’s motion on liability and willful infringement, which this article focuses on.
With respect to liability, the court had to consider how the jury interpreted the 1995 License. Because the language of the 1995 License was ambiguous, the jury could consider evidence outside the four corners of the agreement. Specifically, the jury (and therefore the court) considered, the testimony of witnesses involved in the negotiation and drafting of the 1995 License. First, Meso’s founder and president, Jacob Wohlstadter, testified the parties intended “IGEN Technology” to have a broad meaning encompassing the IGEN ECL patent claims, and that he would not have entered into a joint venture with IGEN unless Meso was granted those broad rights. Meso’s founder also testified that because IGEN maintained control and veto power over Meso, it was not uncomfortable granting such broad rights to Meso. The second witness, IGEN’s president and COO, testified that he did not remember any discussions or negotiations regarding the 1995 License and admitted he was not in a position to give any opinions as to the scope of Meso’s rights. The court held the jury was free to credit Meso’s testimony and find it unrebutted by IGEN’s testimony. According to the court, Meso’s testimony was more than a subjective belief but related to objective business dynamics and IGEN’s apparent intent with respect to the agreement. The court ultimately denied Roche’s motion.
As to willfulness, the court found in Roche’s favor because, even drawing all the inferences in Meso’s favor, a verdict of willful infringement could not be upheld. The Patent Act states that a district court may “increase the damages up to three times the amount found or assessed” if the infringer is found to be willful. The definition of willfulness has changed over the years, but most recently, courts have determined an infringer as willful if its infringing action is “malicious, deliberate, consciously wrongful, or done in bad faith.”
Willfulness turns on intent. Here, Roche’s intent depended entirely on its interpretation of the 1995 License and JVA. During summary judgement, the court had already found that Roche’s interpretation was reasonable, and while the jury sided with Meso, it could have reasonably sided with Roche. The court also explained that (1) Section 2.1 of the 1995 License does not expressly reference patent rights, and it was reasonable for Roche to believe that it did not convey patent rights to Meso; (2) IGEN’s CEO informed Roche that Meso’s license did not cover Roche’s products; and (3) Roche relied on statements in IGEN’s and BioVeris’ SEC filings, which never disclosed that Meso had patent rights. Because Roche reasonably believed that it was not infringing, it could not have had the intent willfulness requires, and the court granted Roche’s motion of judgment as a matter of law of no willful infringement.
When language in a contract is ambiguous and subject to multiple reasonable interpretations, a jury may rely on outside evidence, such as testimony from the parties who negotiated the contract, when determining the correct interpretation.
Additionally, willfulness may turn on the reasonableness of contract interpretation. If the evidence shows the infringing party had a reasonable belief it was not infringing under a contract, a court can determine that party’s reliance was, in fact, reasonable. If this finding is made, a court can likewise conclude that the infringing party lacked the intent required for willful infringement. Therefore, an objectively reasonable contract interpretation may be relevant to infringement determinations that turn on contract interpretation.
The Roche decision can be found here.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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