By Kevin E. Noonan —

U.S. patent law grants patent owners the right to grant licenses to their patents in analogy to landlords granting rents to real property as a license to use without obtaining ownership.  35 U.S.C. §§ 261-262.  But the complexities that can ensue, both in what is licensed and when it is licensed (and when those licenses expire) can be daunting to the extent that the parties don't always agree.  Such a case was decided by the Federal Circuit in Roche Diagnostics Corp. v. Meso Scale Diagnostics, LLC.

The technology relates to immunoassays that use in electrochemiluminescence (ECL) and certain patents to that technology.  As stated at the beginning of the Federal Circuit's majority opinion, "Meso doesn't own these patents."  Nevertheless, Roche filed a declaratory judgment action to have the court confirm its right to practice the claimed invention in the face of Meso's assertions that it held an exclusive license to them from a prior owner, IGEN International, Inc.  These rights stem from Meso's origins in a joint venture between IGEN and Mesoscale Technologies.  Meso was to perform a Research Program in ECL technology and was granted a license for the intellectual property arising therefrom (although as the opinion explains the scope of that license is at issue in this case).  Roche is also an IGEN licensee, having obtained licenses originally obtained by Boehringer Mannheim GmbH upon its acquisition of that company by Roche (those licenses being limited to certain clinical fields of use relevant to the issues here).  IGEN and Roche terminated those licenses and entered into new ones in 2003, granting Roche a non-exclusive license to ECL technology that contained field-of-use restrictions to "human patient diagnostics" but also permitted "incidental" out-of-field use subject to a 65% royalty rate.  Roche paid IGEN $1.4 billion for the new license.  Coincident with this new license IGEN transferred its ECL technology to a new venture, BioVeris.  Then, in 2007, a Roche subsidiary acquired BioVeris for about $600 million and, Roche contended, with this acquisition all field-of-use restrictions ceased.

Not so fast, said Meso, who filed suit alleging that Roche breached the terms of the 2003 license by abrogating the field-of use restrictions.  This lawsuit, in Delaware Chancery Court, was unsuccessful, because that court held Meso was not a party to that license and that only BioVeris (now owned by a Roche subsidiary) could enforce the field-of-use restrictions.  Nevertheless, Meso was sufficiently persistent that Roche filed this DJ action to have determined once and for all the status of the license and any attendant field-of-use restrictions on its ability to sells ECL-reliant equipment without incurring patent infringement liability.

At trial, a jury found Meso had an exclusive license to the asserted patent claims, and that Roche directly infringed claim 33 of U.S. Patent No. 6,808,939 and induced infringement of claim 1 of U.S. Patent No. 5,935,779 and claims 38 and 44 of U.S. Patent No. 6,165,729.  Adding insult to injury (short term, as it turned out), the jury also found that Roche's infringement was willful; the jury awarded $137,500,000 in infringement damages.  The trial court granted Roche's JMOL on the jury's willfulness determination and denied Meso's motion for enhanced damages, as well as rendering judgment of non-infringement on three other patents for which Meso did not assert compulsory counterclaims.  This appeal followed.

The Federal Circuit affirmed-in-part, reversed-in-part, vacated-in-part, and remanded, in an opinion by Judge Prost joined by Judge Taranto; Judge Newman dissented but only with regard to the jury's verdict of direct infringement of claim 33 of the '939 patent.  The opinion sets forth relevant provisions of the licenses; with regard to the license between IGEN and Meso the panel recognized two "prongs" of licensed technology arising from this provision:

2.1.  IGEN Technology.  IGEN hereby grants to [Meso] an exclusive, worldwide, royalty-free license to practice the IGEN Technology to make, use and sell products or processes (A) developed in the course of the Research Program, or (B) utilizing or related to the Research Technologies; provided that IGEN shall not be required to grant [Meso] a license to any technology that is subject to exclusive licenses to third parties granted prior to the date hereof. In the event any such exclusive license terminates, or IGEN is otherwise no longer restricted by such license from licensing such technology to [Meso], such technology shall be, and hereby is, licensed to [Meso] pursuant thereto [emphasis in license term].

Meso asserted that its rights to the asserted patents stem from "prong (A)" of this license term, wherein the claimed technology "was developed in the course of the Research Program."  The parties disagreed over the meaning of the word "developed" in this phrase, Roche contending it limited the licensed patents to those claiming newly invented technology while Meso's interpretation was without that limitation.  The jury ultimately agreed with Meso and the District Court held that choice was one "between two reasonable views" in denying Roche's JMOL on this issue.  (The jury also found Roche liable for inducement of infringement for technology falling under "prong B" but the Federal Circuit did not address this verdict because it reversed on other grounds discussed below.)

Roche reiterated its arguments before the Federal Circuit with insufficient avail to persuade a majority of the panel members.  In addition to arguing the plain meaning of the word, Roche also asserted a "course of conduct" interpretation, to the extent that all the other parties to these agreements (Roche, IGEN, and BioVeris) had sold products that would have fallen within Meso's license throughout the period between 2003 and 2007 without Meso objecting.  While agreeing that Roche's arguments "have considerable heft," the technology involved was claimed in the '779 and '729 patents (which predated the Research Program), for which the jury had found Roche liable for inducing infringement under 35 U.S.C. § 271(b) and which the panel unanimously agreed was erroneous.  With regard to the jury's direct infringement verdict on the asserted '939 patent claim, this technology did not predate the Research Program.  Moreover, the panel majority held that Roche had not preserved its argument that the evidence adduced in support of infringement was inadequate because it was relegated to a footnote.  Accordingly, the majority affirmed the jury verdict that Roche directly infringed the '939 patent under 35 U.S.C. § 271(a).

Turning to Roche's liability for induced infringement, the Federal Circuit reversed because it found an absence of intent as well as an absence of an "inducing act" that would support liability.  Citing the standards the Supreme Court enunciated in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 765–66 (2011), the panel agreed with Roche that the District Court erred in applying a negligence standard ("known or should have known") rather than requiring a showing of specific intent (or "willful blindness") for finding inducement.  And under this proper standard, the Federal Circuit held the jury's finding of infringement liability for inducement was "unsupportable."

A part of the panel's rationale was that the inducement finding (and the specific intent required to support it) was inconsistent with the District Court's grant of JMOL on willfulness, which is also assessed by a specific intent standard.  In that JMOL grant the District Court stated that "at no time did Roche have a subjective intent to infringe (or induce infringement of) Meso's patent rights."  (In a footnote, the Court noted that Meso had not cross-appealed the District Court's JMOL on willfulness.  But somewhat curiously there was no mention in the opinion of the difference in the standard of proof between inducement, a preponderance, and willful infringement, clear and convincing evidence, and whether this difference should make a difference in the Court's conclusion.)  The basis for the District Court's finding on willfulness was "Roche's reasonable interpretation of the contract provisions, [under which] Roche had no liability to Meso for patent infringement."  A similar rationale underpinned the District Court's denial of Meso's motion for enhanced damages, wherein "[t]he evidence demonstrates that Roche had a good faith belief in its reasonable interpretation of the relevant contract provisions [and it also relied on Roche's] good faith, reasonable belief that the [BioVeris] acquisition meant the elimination of field-of-use restrictions—and, hence, no possibility of patent liability."

In a related issue, the Federal Circuit agreed with Roche that it had not committed any "inducing acts" within the "patent damages limitation period" under 35 U.S.C. § 286.  The Court rejected Meso's argument that Roche's acts of inducement that arose during that period were continuing during the period where inducing acts would be subject to liability.  But as the panel notes "[t]he district court did not cite any points of authority for this 'continuing-impact' standard, and neither does Meso," and contrary authority, specifically Standard Oil Co. v. Nippon Shokubai Kagaku Kogyo Co., 754 F.2d 345 (Fed. Cir. 1985), was both persuasive and controlling.

Finally, with regard to damages the Federal Circuit vacated and remanded on the principle that damages at trial had been imposed for direct infringement of the '939 patent and inducement of infringement on the '779 and '729 patents.  In view of the Federal Circuit's decision that Roche was not liable for inducing infringement, Roche was entitled to a new damages trial under Omega Pats., LLC v. CalAmp Corp., 920 F.3d 1337, 1350 (Fed. Cir. 2019).  In addition, the panel explicated the errors by the District Court in its apportionment calculus (or lack of it) regarding the extent to which the jury erred in arriving at the $137,500,000 damages award under Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc., 446 F.2d 295 (2d Cir. 1971).

On Meso's cross-appeal regarding the three patents recited in Roche's DJ motion that the District Court held were not infringed because Meso did not state a compulsory counterclaim, the Federal Circuit agreed with Meso that while such an outcome might be appropriate for a future action involving these same patents the compulsory counterclaim doctrine does not bar assertion of these patents in the same proceeding.  Thus, the Federal Circuit vacated and remanded for trial on these patents.

Judge Newman's dissent was based on her determination that Roche owned the '939 patent by virtue of their acquisition in the 2007 purchase from IGEN through BioVeris and thus Roche could not infringe its own patents.  In her view, Meso has no rights to control the use of these patents outside the Research Program and she would reverse the District Court's denial of JMOL on the jury's verdict of direct infringement against Roche.

Roche Diagnostics Corp. v. Meso Scale Diagnostics, LLC (Fed. Cir. 2022)
Panel: Circuit Judges Newman, Prost, and Taranto
Opinion by Circuit Judge Prost; dissenting opinion by Circuit Judge Newman