Tyco Healthcare v. Ethicon Endo-Surgery (CAFC 2008-1269) precedential

U.S. Surgical Corporation ("USSC") had the rights to enforce the three patents in suit as of March 1999. Patents that went "to medical instruments that employ ultrasonic energy to cut and coagulate vessels in surgery."

On April Fools Day 1999, in what is referred to as the "Contribution Agreement," USSC assigned the patent rights to Kendall, which later changed its name to Tyco Healthcare. That same day, "USSC and Ethicon executed the Settlement Agreement, which purported to resolve "five pending patent litigations" and several interference proceedings between the two companies."

Presently, both Ethicon and Tyco Healthcare concur that the type of products accused of infringement in the current suit are the same type of products immunized by the Settlement Agreement. Both parties also agree that the current products accused of infringement are not immunized because they were made or sold after April 1, 1999, the effective date of the Settlement Agreement.

In October 2004 Tyco sued Ethicon for infringement. Ethicon got the case dismissed by the district court without prejudice for lack of standing.

On appeal, in a 2-1 decision -

A plaintiff generally has the burden of proving standing to sue. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). "[T]o assert standing for patent infringement, the plaintiff must demonstrate that it held enforceable title at the inception of the lawsuit." Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1309 (Fed. Cir. 2003).

The contractual phrase in dispute is "related to pending litigation." If the patents-in-suit are "related to" any litigation involving USSC pending at the time the Contribution Agreement became effective, then the patents were not transferred to Kendall (and thus Tyco Healthcare) but stayed with USSC. If the patents were not related to the pending litigation, they are beyond the scope of the "Excluded Assets" provision and therefore Kendall received ownership of the patents.

Nothing renders a contract vacuous like lack of definition of critical terms. In this case, what "related" means caused the consternation. The CAFC majority fished that around a bit.

The contract gives no explicit definition of the phrase "related to pending litigation." Tyco Healthcare argues that the phrase includes only patents asserted in a pending litigation or patent applications in the same family as an asserted patent. But that view is too narrow based on the language of the Contribution Agreement. In general, "related to" means one thing has some relationship or connection to another thing. See Random House Webster's Unabridged Dictionary 1626 (1998) (defining "related" to mean "associated, connected" and "allied by nature, origin, kinship, marriage, etc."); see also Lorillard, 903 A.2d at 740 ("When a term's definition is not altered or has no gloss in the [relevant] industry it should be construed in accordance with its ordinary dictionary meaning.") (quotation marks omitted). In legal parlance, "related" takes meanings with similar breadth. See Black's Law Dictionary 1288 (6th ed. 1991) (defining "related" as "[s]tanding in relation; connected; allied; akin"); see also 28 U.S.C. § 1367(a) (granting supplemental jurisdiction over claims "so related to" a claim based on original jurisdiction); Times Mirror Magazines, Inc. v. Field & Stream Licenses Co., 294 F.3d 383, 390 (2d Cir. 2002) ("Possession of a famous or strong mark entitles the possessor to broad protection for related goods."). In many patent contexts, the term "related" adopts a similarly encompassing meaning. See, e.g., In re Fallaux, 564 F.3d 1313, 1315 (Fed. Cir. 2009) (discussing related patent applications in the obviousness-type double patenting context); Teva Pharms. USA, Inc. v. Novartis Pharms. Corp., 482 F.3d 1330, 1344 (Fed. Cir. 2007) (explaining that "related litigation involving the same technology and the same parties is relevant in determining whether a justiciable declaratory judgment controversy exists on other related patents").

Of course, "related to" can be used by contracting parties in a narrower sense. Here, however, Tyco Healthcare directs us to nothing in the Contribution Agreement that suggests the contracting parties intended anything other than the ordinarily broad understanding of the phrase "related to pending litigation." Additionally, the other subsections of the Excluded Assets provision employ the term "related" in a seemingly broad manner. The Excluded Assets provision, therefore, covers any patents or patent applications in the same family or so related in subject matter that they were or could have been reasonably asserted in or affected by a litigation pending at the time the Contribution Agreement was executed.

A "schedule," 4.21, critical to identifying where the litigation ammunition was stowed, so the majority opined, was MIA.

Thus, Schedule 4.21 was to list any USSC litigations then pending or threatened, but Schedule 4.21 is missing. Or it simply never existed, as Tyco Healthcare contends on appeal. If the latter, that seems to be a significant oversight since Tyco Healthcare concedes that USSC litigation was pending on April 1, 1999. J.A. 2027. Either way, Tyco Healthcare is in the unenviable position of having to prove the patents-in-suit are not related to particular USSC litigation without having the identity of that litigation available in the record.

"The district court seemingly viewed the Settlement Agreement as dispositive of whether the patents-in-suit were "related to" pending litigation." But the CAFC majority found the contractual water muddier than that. Nonetheless, able to find neither hide nor hair of enlightening material to latch onto for its own decision, the appeal majority punted and agreed with the district court.

In sum, Tyco Healthcare bore the burden of proving that the patents-in-suit are not "related to" any litigation pending at the time the Contribution Agreement was executed. Tyco Healthcare failed to do this. Therefore, the district court correctly dismissed the suit.

Then the court turned to Eithicon's beef that it was not let forever off the hook.

Turning to the nature of the dismissal, Ethicon feels aggrieved because it had asked the district court to dismiss the case with prejudice. "A dismissal with prejudice bars a subsequent action between the same parties or their privies on the same claim, but a dismissal without prejudice, although it constitutes a final termination of the first action, does not bar a second suit." H.R. Techs., Inc. v. Astechnologies, Inc., 275 F.3d 1378, 1384 (Fed. Cir. 2002). We have explained that "[o]rdinarily, dismissal for lack of standing is without prejudice." Fieldturf, Inc. v. Sw. Recreational Indus., Inc., 357 F.3d 1266, 1269 (Fed. Cir. 2004). "On occasion, however, a dismissal with prejudice is appropriate, especially where it is plainly unlikely that the plaintiff will be able to cure the standing problem." Id. Within the sound discretion of the district court is the decision of whether dismissal is with or without prejudice. Wynder v. McMahon, 360 F.3d 73, 76 (2d Cir. 2004) (reviewing "Rule 41(b) dismissals for abuse of discretion").

With the ownership issue seemingly unresolved, the majority affirmed the district court in toto, albeit by walking down a different avenue.

Minority Queen Newman sang her usual sharp tones of dissent, finding barbs for both her brethren and downstream district court. As usual, her cogency and eye for detail leave one breathless to wonder why no one else on the bench seemed to pay attention, as Newman saw it.

[M]y colleagues have adopted a new theory, whereby this court now excludes the patents here in suit from transfer under the Contribution Agreement.

It is indeed obscure as to how "a court could reasonably conclude" that nonexistent unasserted claims entrained these later-granted patents on unrelated subject matter. This theory was not mentioned by the district court and not pressed by any party. Tyco has had no opportunity to respond.

My colleagues deem it irrelevant that the patents here in suit do not relate to any Immune Product or any other subject of the Settlement Agreement. My colleagues do not mention the uncontradicted testimony of Tyco's Rule 30(b)(6) witness. Instead, the court now requires Tyco to have established that there was no pending litigation of any sort on April 1, 1999, to avoid the result whereby the absent Schedule 4.21 negates the transfer of every USSC patent and application under the Contribution Agreement. Ethicon did not identify any litigation beyond that listed in the Settlement Agreement, despite every opportunity to discover and produce such evidence. Nonetheless, my colleagues hold that the absence of Schedule 4.21, without more, removes these later-granted patents from transfer under the Contribution Agreement.

For the majority's punt of affirmation, Newman ends with her petite boot firmly planted in the ass of her colleagues, metaphorically speaking.

"The cardinal principle of contract interpretation is that the intention of the parties must prevail unless it is inconsistent with some established rule of law." 11 Williston on Contracts §32:2 (4th ed. 2009); see also King v. Dep't of Navy, 130 F.3d 1031, 1033 (Fed. Cir. 1997) ("The paramount focus is the intention of the parties at the time of contracting; that intention controls in any subsequent dispute."); Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006) ("When interpreting a contract, the role of a court is to effectuate the parties' intent."). As a corollary, when the contracting parties' intent is collaterally attacked by a stranger to that contract, the attacker bears the burden of coming forward with some evidence of its contrary position. Ethicon provided neither documentary evidence nor opinion testimony in support of its notion that Tyco and USSC intended to exclude the patents here in suit from the Contribution Agreement. And even if the burden of proof as to contract interpretation were deemed to lie with Tyco, as my colleagues suggest, this burden was met, for Tyco's witness testified, without contradiction, that there was no pending litigation on April 1, 1999 relating to the three patents here in suit.

The court's contrary reading produces the absurd result whereby no USSC patent, indeed none of the assets transferred by the Contribution Agreement, can be deemed to have been transferred, merely because Schedule 4.21, listing public information, was missing. That is not a tolerable reading of the contract, for it renders the contract ineffective for its purpose and defeats the plain intent of the contracting parties. Tyco explains that the contracting parties never would have agreed to transfer USSC's business assets without also transferring the patents and other intellectual property rights that protected the transferee's use of those assets. The contract text and intent, undisputed by the contracting parties and not seriously challenged by Ethicon, cannot support the conclusion reached by my colleagues. See NVT Techs., Inc. v. United States, 370 F.3d 1153, 1159 (Fed. Cir. 2004) ("An interpretation that gives meaning to all parts of the contract is to be preferred over one that leaves a portion of the contract useless, inexplicable, void, or superfluous."); NAMA Holdings, LLC v. World Market Center Venture, LLC, 948 A.2d 411, 419 (Del. Ch. 2007) ("Contractual interpretation operates under the assumption that the parties never include superfluous verbiage in their agreement, and that each word should be given meaning and effect by the court.").

In sum, Tyco established, and Ethicon does not dispute, that the patents here in suit were not related to any litigation pending on April 1, 1999, whether or not the settled USSC/Ethicon litigation is deemed to have remained pending on the settlement contract's date. It is not disputed that the subject matter here in suit is not related to any subject matter then in litigation, and that the now-asserted patents are not related to any of the products for which immunity was granted in the Settlement Agreement. Thus it is concluded that these patents were transferred by USSC to Tyco in accordance with the transfer in the Contribution Agreement. On this conclusion, the court's denial of standing is without support in law and fact.

Her colleagues rationale secured as positively absurd, the message sent that their thinking is bent, with a glorious hoot, Newman toots: "I respectfully dissent."