Metropolitan News-Enterprise


Friday, May 1, 2009


Page 3


C.A. Upholds $1 Million Award Over Royalties on DNA Technology


By SHERRI M. OKAMOTO, Staff Writer


The Fourth District Court of Appeal yesterday upheld a $1 million damage award against Irvine-based MP Biomedicals LLC for the company’s failure to pay royalties for products it sold utilizing Nobel Prize-winning DNA technology.

Affirming the decision of Orange Superior Court Judge Andrew P. Banks, Div. Three ruled that the Applera Corporation—the assignee of the patent owner—had standing to pursue its breach of contract claims against MP, the parent company of a French entity which manufactured the licensed products.

The panel also concluded Applera’s claims did not involve a substantial question of federal patent law divesting the trial court of jurisdiction, and reversed the post-judgment denial of attorney fees, holding that Applera was entitled to recover fees under Swiss law governing the licensing agreement at issue.

The agreement, entered into by F. Hoffmann-La Roche Ltd. and Roche Molecular Systems Inc. with Appligene Oncor, granted Appligene a nonexclusive license to manufacture products utilizing the Roche entities’ patents for certain “nucleic acid amplification processes.”

These processes—utilized in research, medical care and forensics—were developed by American biochemist Kary B. Mullis, and earned him the Nobel Prize in chemistry in 1993.

Under the terms of the 1997 licensing agreement—which provided it was governed by the laws of Switzerland—Appligene agreed to prepare and submit to Roche quarterly reports identifying royalty-bearing sales of licensed products and calculating the amount due. All royalty payments were to be made simultaneously with delivery of these reports.

Appligene was later acquired by Qbiogene Inc., which also had a licensing agreement with Roche. Following the consolidation of the two licensees, Qbiogene’s wholly-owned subsidiary—Qbiogene, S.A.—manufactured licensed products in France and sold the products in worldwide markets.

Qbiogene later filed for bankruptcy protection in Canada, and MP acquired Qbiogene in September 2004 through the Canadian bankruptcy process. Qbiogene Inc. became a wholly-owned subsidiary of MP, and Qbiogene, S.A. remained a wholly-owned subsidiary of Qbiogene Inc., but changed its name to MP Biomedicals, S.A. 

It continued to manufacture and sell licensed products under the agreement with Roche under its new name.

In May 2005, Roche assigned all of its rights under the 1997 licensing agreement to Applera, and Applera filed a complaint for breach of contract against MP in Orange County Superior Court.

Applera propounded written discovery requests, which included a set of requests for admission. MP did not object to the definition of “YOU” provided in the requests, which defined the terms “YOU” and “YOUR” as meaning and referring to “MP Biomedicals Inc.,” and all affiliates in which MP owned over half of the relevant controlling interest.

MP’s unqualified responses admitted that MP, and its divisions and affiliates, owed royalties to Applera which they had “purposefully withheld.”

After substituting in new counsel, MP unsuccessfully moved to amend its discovery responses and unsuccessfully moved for judgment on the pleadings, arguing that the trial court lacked subject matter jurisdiction and that it was not a proper party to the action. Applera also moved unsuccessfully for summary judgment.

Banks found that MP and Applera were parties to the 1997 licensing agreement, and found in Applera’s favor on its breach of contract claim. He awarded Applera $1,125.195 in damages.

At a post-trial hearing, Banks also declined to award attorney fees to Applera, noting that the licensing agreement did not contain an attorney fee provision. He also found that California had a greater interest in the matter than Switzerland, and that California law was applicable to the dispute.

On appeal, Justice Raymond J. Ikola wrote that the federal district courts have original jurisdiction over patent law cases, but explained the possibility that a question of patent law could arise in a contract claim to enforce a royalties provision in a patent licensing agreement was insufficient to divest state courts of subject matter jurisdiction.

Ikola also rejected MP’s argument that the right to collect royalties owed on the patent licensing agreement could not be assigned without assigning the underlying patent rights, and emphasized that MP’s admissions during discovery were binding.

As for Applera’s claim for attorney fees, the justice noted Applera’s uncontested evidence that Swiss law provides to an award of attorney fees to a prevailing party as a matter of course.

Ikola explained that the selection of Swiss law was reasonable because one of the original signatories to the contract was based in Switzerland, and that the successors in interest accepted the original contract terms as they found them.

He reasoned that the Swiss law was “qualitatively no different than the insertion of a reciprocal, prevailing-party attorney fees clause in a contract,” and concluded that it therefore did not violate California’s public policy.

Absent any evidence that MP suffered any prejudice or detriment by proceeding under trial without the invocation of Swiss law, Ikola said, there was no unfairness in holding MP to its contractual promise to accept the Swiss law on attorney fees. 

Joined by Justices Richard M. Aronson and Richard D. Fybel, Ikola remanded the matter to the trial court for a determination of Applera’s attorney fees under Swiss law.

The case is Applera Corporation v. MP Biomedicals, LLC, G038984.


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