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The General Hospital Corp. v. Esoterix Genetic Laboratories, LLC

United States District Court, D. Massachusetts

September 4, 2019

THE GENERAL HOSPITAL CORPORATION and DANA-FARBER CANCER INSTITUTE, INC., Plaintiffs,
v.
ESOTERIX GENETIC LABORATORIES, LLC, and LABORATORY CORPORATION OF AMERICA HOLDINGS, Defendants.

          MEMORANDUM AND ORDER

          Indira Talwani United States District Judge.

         Plaintiffs, The General Hospital Corporation and Dana-Farber Cancer Institute, Inc., sued Defendants, Esoterix Genetic Laboratories, LLC (“Esoterix”), and Laboratory Corporation of America Holdings (“LabCorp”), for breach of contract (Count I) and related claims (Counts II through VII). Amended Complaint [#81]. Defendants moved to dismiss all claims, and Plaintiffs moved for partial summary judgment on the breach of contract claim. Turning first to the motion for partial summary judgment, the court ALLOWS Plaintiffs' Motion for Partial Summary Judgment [#95] as to Esoterix and DENIES WITHOUT PREJUDICE the motion as to LabCorp. Turning next to the motion to dismiss, the court ALLOWS the motion as to reformation of contract (Count V), and otherwise DENIES Defendants' Motion to Dismiss [#88].

         I. Plaintiffs' Motion for Partial Judgment - Breach of Contract Claim (Count I)

         a. Standard of Review

         Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).

         b. Facts

         i. License Agreement

         Plaintiffs own patents for a method of testing for a mutation relevant to cancer treatment. Statement of Facts ¶ 1 [#96]; Counterstatement of Facts ¶ 1 [#99]. Plaintiffs and Esoterix are parties to a License Agreement which grants Esoterix the right to use Plaintiffs' testing “processes” and technological “products” in exchange for financial compensation.[1] Joint Submission of the Parties (“License Agreement “) [#119-1]. The License Agreement also permits Esoterix to license the use of Plaintiffs' processes to third-party sublicensees for a further cost. Id.

         The License Agreement establishes two “reporting periods” each year, one six-month period ending June 30 and the other ending December 31. License Agreement [#119-1] at 7. Forty-five days after the end of each reporting period, Esoterix owes Plaintiffs royalty payments for Esoterix and its affiliates' sale of processes. Id. § 4.5(e) at 20. Under the License Agreement, royalty payments are calculated by multiplying the “royalty rate” and the “contract net sales” sold by Esoterix and its affiliates' during the reporting period. Id. §4.5(a) at 51. The “royalty rate” is a percentage of the average reimbursement for the prior reporting period. Id. The “contract net sales” are calculated by multiplying “the average reimbursement from the prior reporting period” and “the number of processes invoiced to third parties during the current reporting period.” Id. The “average reimbursement” equals “(i) the total net sales for processes conducted during such reporting period, divided by (ii) the total number of processes conducted during the same reporting period.” Id. § 1.34 at 8. “Net sales” occur when Esoterix receives the amount payable by a purchaser of a process or product. Id. § 1.22(c) at 6. “Net sales” are the actual amount received by Esoterix and its affiliates, minus amounts incurred effecting the sale, such as credits for return or rejection, rebates, discounts, amounts for transportation, insurance, shipping, and taxes. Id. § 1.22(a) at 5-6.

         Under the License Agreement, Esoterix also owes Plaintiffs a percentage of any and all fees Esoterix receives in exchange for sublicensing patent rights, processes, or products. Id. § 4.6(b) at 53.

         Esoterix also owes Plaintiffs an annual license fee on or before August 15 every year. “The annual license fee is nonrefundable; provided, however, the annual license fee shall be credited against royalties subsequently due under Section 4.5 and 4.6(b), if any, from [Esoterix] during the same calendar year, but shall not be credited against royalties due from [Esoterix] under Section 4.5 in any other year.” License Agreement § 4.3 at 16 [#119-1].

         All payments due under the License Agreement must be paid in United States currency and any payments involving the conversion of foreign currency to U.S. dollars must use The Wall Street Journal's conversion rate “on the last working day of the applicable reporting period.” Id. § 4.7 at 21. Section 5.3(d) of the License Agreement requires Esoterix to submit semi-annual reports within 45 days of the end of each reporting period including the total number of products sold by Esoterix and sublicensees, the net sales for the reporting period, the total royalties payable on those net sales in U.S. dollars, including any exchange rates used in those calculations, and all fees and royalty payments received by Esoterix. License Agreement § 5.3(d) at 23 [#119-1].

         ii. Settlement Agreement

         A conflict arose between Esoterix and a sublicensee, QIAGEN, and litigation ensued. Statement of Facts [#96] ¶ 8; Counterstatement of Facts [#99] ¶ 8. Defendants[2] settled all claims in that case and the sublicensee agreed to pay Defendants as a term of the settlement. Statement of Facts [#96] ¶ 9; Counterstatement of Facts [#99] ¶ 9. In connection with that settlement, Plaintiffs and Defendants agreed that Plaintiffs would receive a portion of the amount paid by the sublicensee. Statement of Facts [#96] ¶ 14; ...


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