United States District Court, D. Massachusetts
MEMORANDUM & ORDER
NATHANIEL M. GORTON, District Judge.
Here we have a dispute over patent licensing fees due to plaintiff PerkinElmer Health Sciences, Inc. ("PerkinElmer") from defendant Agilent Technologies, Inc. ("Agilent"). Both parties are successors to the original parties to the license. In 1997, a predecessor-in-interest to PerkinElmer granted a non-exclusive sublicense to a predecessor of Agilent. Although the case originally involved claims for patent infringement, those claims have been stayed and the case is now limited to the parties' contractual claims under two separate license agreements.
Although the parties have filed three motions for summary judgment, including hundreds of pages of briefing and a concomitant number of exhibits, the issue before the Court is actually confined, in large part, to two relatively straightforward disputes.
First, the parties dispute whether PerkinElmer breached the so-called "Most Favored Nation" provisions in the Agilent License and a similar license with Varian, Inc. ("Varian") by failing to disclose licensing agreements with third parties.
Second, the parties disagree about whether Agilent's cessation of royalty payments in 2009, after having made such payments for more than a decade, was in breach of the Agilent License. That question turns in large part on defining the phrase "which is used for" in the Agilent License.
For the reasons that follow, the Court will deny both of Agilent's motions for summary judgment and will allow, in part, and deny, in part, PerkinElmer's motion for summary judgment.
A. The Patents and Technology
In May 1989, three researchers working at Yale University ("Yale") applied for a patent pertaining to the analysis of charged ions. The United States Patent and Trademark Office ("the PTO") issued United States Patent No. 5, 130, 538 ("the 538 Patent") to those three researchers in July, 1992. The PTO issued two related patents, United States Patent Nos. 5, 686, 726 ("the 726 Patent") and 5, 581, 080 ("the 080 Patent"), to the same researchers in December, 1996 and November, 1997 respectively.
The two patents at issue concern a method for conducting "mass spectrometry, " a technique used to determine the molecular weight of a chemical compound. Mass. spectrometry begins when the subject compound is ionized, i.e. electrically charged, and then exposed to magnetic and/or electrical fields. The different movements of ionized particles are charted and the molecular weight of a compound can then be determined.
Specifically, the two patents teach a method of mass spectrometry involving the use of electrospray ionization ("ESI") on large, biological molecules. The 080 Patent describes the method by which the ESI technology works while the 726 Patent describes the composition of the matter created during the ESI process.
B. Contractual Relationships Among the Parties
In March 1997, Yale granted an exclusive license of the 538 Patent and any subsequently issued, related patents to AoB and its successors. The license agreement granted AoB an exclusive, world-wide license for the life of the patents. The specific rights included the "sole right" to use the patents at issue for commercial purposes, to sublicense the patents and to sue, defend or settle any infringement action, bearing all the expenses and retaining all recoveries resulting from those suits.
Also in March 1997, AoB granted a non-exclusive license ("the Agilent License") to sell products based upon the patents to HP which, in turn, assigned its rights under the agreement to its subsidiary, defendant Agilent. Agilent made royalty payments to AoB for the right to manufacture several devices that made use of that technology, including mass spectrometers.
In February, 2004, PerkinElmer entered into a licensing agreement with Varian ("the Varian License"). In May, 2010, Agilent acquired Varian.
AoB merged with and into PerkinElmer in 2009. On June 28, 2011, Agilent informed PerkinElmer that it would no longer make royalty payments under the Agilent License because it had determined that the 726 and 080 Patents were invalid due to double-patenting and because it had adopted a revised, "correct" interpretation of the agreement.
Following the Agilent License in 2010, PerkinElmer granted at least three licenses to third parties without providing notice to Agilent. Unlike the Agilent License which required a significant payment for each individual instrument or software product sold, the third party licenses to Shimadzu Corp. ("Shimadzu") and JEOL Ltd. ("JEOL") required only a $50, 000 initial payment for a "paid-up license."
C. The Agilent License
The Agilent License was entered into in March, 1997 between the predecessors-in-interest of PerkinElmer and Agilent and is governed by New York law. It describes a licensing agreement between the two companies that covers Licensed Products which are defined in Article 1.4 as
any electrospray mass spectrometer apparatus sold or provided by [Agilent] to a CUSTOMER, who uses said LICENSED PRODUCT in the United States, and which is used for the production or analysis of multiply charged ions in a manner which but for this LICENSE AGREEMENT would infringe one or more VALID CLAIMS of LICENSED PATENTS.
The Agilent License contained two payment provisions. Under Article 3.1, Agilent was required to pay PerkinElmer $1, 500 for each unit of licensed product and $5, 000 for each software product sold in the United States. If Agilent sold fewer than a minimum number of software products during any three-year period, it would be required to make a minimum payment based on the product's historical sales.
In Article 9.1, the Agilent License required that
If [PerkinElmer] has granted or grants to another person any license or other rights in, to or under any of the LICENSED PATENTS, [PerkinElmer] shall promptly notify [Agilent] in writing.
Article 9.2 then provides that if the outside counsel or a retained consultant of Agilent believes that the terms of a third party license are "more favorable" than those that are applicable to Agilent, "a written statement so stating shall be provided to [Agilent] and [PerkinElmer]." That provision goes on to provide that:
[i]f both parties agree that the terms of the third party license are, in their totality, more favorable to the grantee than those that are applicable to [Agilent] under this LICENSE AGREEMENT, [Agilent] shall have the right to elect to substitute the more favorable terms for the then-existing terms applicable to [Agilent].... If the parties disagree as to whether the terms of the third party license are, in their totality, more favorable, each party reserves its rights as to any remedies or means for resolution as are available.
D. The Varian License
The Varian License was entered into in February, 2004 and is governed by Connecticut Law. Its provisions largely mirror those of the Agilent License but differ in minor respects.
Significant to the dispute at hand, the Varian License defines the Licensed Product as
any electrospray mass spectrometer apparatus sold or provided by VARIAN to a CUSTOMER, who uses said LICENSED PRODUCT in the United States, and which is used or has the capability of being utilized for the production or analysis of multiply charged ions in a manner which but for this LICENSE AGREEMENT would infringe one or more VALID CLAIMS of LICENSED PATENTS.
Article 9.1 of the Varian License states that
If [PerkinElmer] has granted or grants to another person any license or other rights in, to or under any of the LICENSED PATENTS...wherein the payment amounts as set forth in Sections 3.1 and 4.1 herein are different then [sic] those set forth in this LICENSE AGREEMENT, [PerkinElmer] shall promptly notify VARIAN in writing.
In turn, Article 9.2 provides that any opinion that the terms of a third party license are more favorable to a grantee must be provided in writing to PerkinElmer. The remainder of that article is identical (except for the name of the licensee) to Article 9.2 of the Agilent License quoted above.
II. Procedural History
PerkinElmer filed a two-count complaint in March, 2012, alleging that Agilent willfully and materially breached the Sublicense Agreement when it failed to make royalty payments in June, 2011 and continues to infringe the 726 and 080 Patents by manufacturing products that make use of those patents. PerkinElmer ...