Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, C.A. No. 5589-VCP (Del. Ch. June 25, 2014) (Parsons, V.C.)

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In this post-trial memorandum opinion, the Delaware Court of Chancery dismissed plaintiffs’ breach of contract claim with prejudice, finding that plaintiffs failed to establish they were parties to the License Agreement at issue (the “2003 Agreement”) or that they had standing to enforce the license agreement’s field-of-use restrictions. 

Plaintiffs Meso Scale Diagnostics, LLC (“MSD”) and Meso Scale Technologies, LLC (“MST”) (collectively, “Meso”) are Delaware limited liability companies.  MST and IGEN International, Inc. (“IGEN”) formed MSD as a joint venture to research and develop technologies in diagnostic procedures.  Defendants—Roche Holding Ltd. (“Roche”), IGEN, and BioVeris Corp. (“BioVeris”)—are affiliates or subsidiaries of the F. Hoffman–La Roche, Ltd. family of pharmaceutical and diagnostic companies.

This dispute arose from the parties’ different interpretations of “join in” in the following sentence from the 2003 Agreement: “[Meso] constent[ed] to and join[ed] in the licenses granted to [Roche] in the License Agreement.”  The 2003 Agreement identified two “Parties”: IGEN and Roche.  It also defined the term “Affiliates,” contained therein, to specifically exclude Meso.  Nonetheless, Meso argued that the 2003 Agreement’s “join in” language made them party to the Agreement.  Roche argued that it did not.  In determining that Roche’s interpretation was correct, the Court analyzed: (1) the 2003 Agreement; (2) its drafting history, (3) events that occurred before the 2003 Agreement was executed; (4) other agreements executed by Meso in connection with the 2003 Agreement; (5) Meso’s conduct after the 2003 Agreement was executed; and (6) the facts of the case.

First, the Court analyzed the 2003 Agreement.  Meso argued that it was party to the entire 2013 Agreement because of its “join in” language.  But the Court determined that the “join in” language was only used to describe Meso’s relationship to the licenses granted in the 2003 Agreement.  The Court stated that an arbitration panel already determined Meso was not party to Section 6.2(b) of the 2003 Agreement—a finding that the Court gave issue-preclusive effect in Roche’s prior motion for summary judgment.  The Court, therefore, adopted a more tailored analysis: whether Meso was party to some or all of Article 2 of the 2003 Agreement.  After considering the evidence provided and arguments made by both parties at trial, the Court determined that it is ambiguous whether Meso is a party to Article 2 of the 2003 Agreement.

To resolve this ambiguity, the Court analyzed the 2003 Agreement’s drafting history and determined that Meso was not a party to the Agreement because of its “join in” language.  In asserting its interpretation, Meso relied primarily on two documents: (1) a 2003 mark-up of a draft license agreement; and (2) a document summarizing the differences in various draft license agreements between IGEN and Roche.  The Court determined that neither document supported Meso’s interpretation of the 2003 Agreement’s “join in” language.

The Court also highlighted three aspects of the 2003 Agreement’s drafting history in rejecting Meso’s interpretation.  First, the definition of an IGEN “Affiliate” in subsequent drafts of the 2003 Agreement explicitly excluded Meso.  Second, Meso did not actively negotiate key provisions of the 2003 Agreement that it later tried to enforce in this case.  The Court found this to be inconsistent with Meso’s purported role as a party to or licensor under the 2003 Agreement.  Third, Roche sought additional representations and warranties from its licensor, IGEN, but not from Meso.  The Court stated that Meso failed to provide an explanation regarding why it did not provide similar representations and warranties to Roche if it was also a party to, or licensor under, the 2003 Agreement.

Next, the Court analyzed events that occurred before the 2003 Agreement was executed, including a memo sent by Meso’s President and Chief Executive Officer to MSD’s Joint Venture Operating Committee.  The memo repeatedly mentioned IGEN granting Roche a license, but never mentioned Meso granting Roche a license.  The Court stated that there was no evidence that Meso requested compensation from Roche or that Roche offered compensation to Meso.  Meso also executed four other documents in connection with the 2003 Agreement.  After analyzing each of these documents, the Court determined that Meso was not intended to be a party to the 2003 Agreement through its “join in” language.

The Court also analyzed Meso’s conduct after the 2003 Agreement was executed, finding that Meso did not make any effort to monitor Roche’s compliance with the 2003 Agreement.  Despite asserting that it was a party to the 2003 Agreement, Meso remained a passive bystander when it learned of potential issues involving Roche selling outside of the 2003 Agreement’s specified “Field.”  Meso also failed to assert the rights it claimed in this case when Roche acquired BioVeris in 2007.  The Court stated that a party to the 2003 Agreement would have done more to assert its rights when facing the possibility that those rights might be adversely affected.

Lastly, the Court considered the facts of the case in interpreting the 2003 Agreement’s “join in” language.  In light of the testimony and evidence presented by both parties at trial, the Court determined that Roche’s interpretation of the 2003 Agreement’s “join in” language was correct, thereby dismissing Meso’s breach of contract claim with prejudice.

The full opinion is available here.

Topics:  Breach of Contract, Joint Venture, License Agreements, Pharmaceutical, Pharmaceutical Manufacturers, Restrictive Covenants

Published In: Civil Procedure Updates, General Business Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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