October 08, 2008

Faegre & Benson Wins Patent Case for LabCorp

Faegre & Benson client LabCorp won a major summary judgment order on the eve of a jury trial scheduled for mid-September. The ruling ended LabCorp's ten-year litigation against Metabolite Laboratories. The court ruled in LabCorp's favor on all pending motions, rejecting Metabolite's attempt to recover $20 million in damages based on a patent and know-how license that the court ruled was terminated in an earlier case. The court also granted summary judgment on Metabolite's other claims, including fraud, promissory estoppel and equitable estoppel.

Faegre & Benson was hired after LabCorp experienced a number of litigation setbacks (including losing a major trial), and its inter-office team immediately developed a long-term strategy designed to extract the client from any more damages exposure.

Collaboration was key. The summary judgment order is the result of extensive and collaborative effort over many years. The principal team members included Natalie Hanlon-Leh (partner, Denver), Nina Y. Wang (partner, Denver), Mary V. (Mindy) Sooter (associate, Boulder), and Matthew A. Stump (associate, Minneapolis).

Background. In 1991, LabCorp entered a license agreement with Metabolite Laboratories for certain patent and know-how rights for homocysteine-only assays. When LabCorp switched technologies for the homocysteine-only assays in 1998, it stopped paying royalties. Metabolite sued for breach of contract; the patent owner, Competitive Technologies, Inc. sued for patent infringement ("Metabolite I"). Both prevailed at trial under a theory that LabCorp's failure to pay royalties was a material breach of the License Agreement that constituted termination (thereby allowing the patent claims). The jury awarded Metabolite $3 million and CTI $1 million. The court doubled the patent damages, awarded attorney's fees and costs based on the jury's finding of willful infringement and entered a permanent injunction.

The Appeal. LabCorp appealed to the Federal Circuit, which affirmed the judgment of the District Court. LabCorp then appealed to the U.S. Supreme Court, which initially granted cert to consider the question of whether the patent-in-suit was patentable subject matter. In June 2006, the U.S. Supreme Court (after full briefing and oral argument) dismissed cert as improvidently granted. Three justices in a dissenting opinion held that the patent-in-suit was invalid for failing to claim patentable subject matter.

Faegre & Benson became counsel of record after the case came back from the U.S. Supreme Court.

The Second Case. During the pendency of the Federal Circuit appeal, LabCorp and Metabolite stipulated to a stay of the permanent injunction that allowed LabCorp to continue performing the homocysteine-only assay. After the Federal Circuit affirmed the judgment, LabCorp filed a declaratory judgment action seeking a declaration that its performance and offering of homocysteine-only assays after the judgment in Metabolite I did not violate the license agreement ("Metabolite II"). (LabCorp also asked for a declaration that its referral of assays to a third party laboratory didn't violate the injunction—Faegre & Benson was successful on that issue in an earlier motion). Metabolite counterclaimed for breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppel, equitable estoppel, and fraud, claiming that LabCorp owed it a 21.5 percent royalty on every homocysteine-only assay performed or offered by LabCorp from the date of the verdict in Metabolite I to the present. Metabolite claimed that it was owed this royalty either under the license agreement or under a separate obligation arising under the stipulated stay order. Metabolite's demand for damages was $ 20 million.

LabCorp and Metabolite filed post-verdict motions in Metabolite I seeking relief. The court determined that the issue would be heard and decided in Metabolite II. The parties then filed cross-motions for summary judgment, and the case was set for trial to commence on September 22, 2008. Motions in limine had been filed. 

The Ruling. On Friday, August 15, 2008—10 years and a month after Metabolite first sued LabCorp—the court granted LabCorp's motion for summary judgment in its entirety and denied Metabolite's motions for summary judgment. In doing so, the court reversed its earlier position on key aspects of the case based on the arguments Faegre & Benson presented in its summary judgment briefs and held that the License Agreement was terminated with respect to the homocysteine-only assays when LabCorp materially breached the license agreement by failing to pay royalties. The court further found that there was no independent obligation under the stipulated stay order for a royalty payment from LabCorp to Metabolite. Accordingly, the court entered judgment in favor of LabCorp and against Metabolite on the declaratory judgment claim and all of Metabolite's counterclaims. The day before, in "an attempt to streamline the case," Metabolite dismissed all claims with prejudice for royalties after September 30, 2007. As a result, our client for the first time in a decade, is not in litigation with Metabolite.

About LabCorp. As a pioneer in genomic testing and the commercialization of new diagnostic technologies, LabCorp is one of the world's largest clinical laboratories, with annual revenues of $4.1 billion in 2007. Headquartered in Burlington, North Carolina, LabCorp has approximately 26,000 employees and offers a broad range of genomic/esoteric tests. Listed under the ticker symbol LH on the New York Stock Exchange (NYSE), LabCorp tests more than 370,000 specimens daily for over 220,000 clients nationwide.

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