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Cardiovascular Diagnostics Inc. v. Boehringer Mannheim Corp.

U.S. Court of Appeals, Federal Circuit

February 01, 1999


Before Michel, Clevenger, and Bryson, Circuit Judges.

The opinion of the court was delivered by: Bryson, Circuit Judge.

NOTE: Pursuant to Fed. Cir. R. 47.6, this Disposition is not citable as precedent. It is a public record. The Disposition will appear in tables published periodically.

This appeal is taken from a final judgment of the United States District Court for the Eastern District of North Carolina in a declaratory judgment action brought by Cardiovascular Diagnostics, Inc., (CDI) against Boehringer Mannheim Corporation (BMC). With respect to CDI's request for a declaratory judgment of noninfringement, invalidity, and unenforceability, the court held that CDI has an implied license to practice the inventions of BMC's patents. With respect to CDI's state law claims, the court granted summary judgment to BMC. BMC has appealed from the court's judgment dismissing its infringement counterclaim on the basis of the implied license, while CDI has cross-appealed from the court's judgment on the state law claims. We affirm.


CDI is a North Carolina company that develops medical technology to aid in diagnosing cardiovascular problems. CDI has developed assays that evaluate two measures of blood coagulation time -- prothrombin time (PT) and activated partial thromboplastin time (aPTT). BMC, an Indiana company that markets medical diagnostic products, expressed interest in CDI's testing technology, and the two companies entered licensing negotiations.

In 1989, the two companies executed a ten-year licensing agreement under which BMC was to serve as the exclusive licensee of PT and aPTT assay systems falling within the scope of, or produced in accordance with, CDI's technology. In addition, the agreement gave BMC certain rights with respect to new PT or aPTT assay systems falling within the subject matter of two CDI patent applications and any improvements developed or acquired by CDI. With respect to such tests, the agreement required CDI to give BMC a 90-day exclusive right to evaluate the new tests and 30 additional days to engage in negotiations to license any such new tests. The agreement further provided that if the new test was a thrombolytic assay that BMC declined to license, CDI would be entitled, upon paying BMC a $1000 fee, to use its technology "in connection with and as part of such thrombolytic assays." The agreement also contained a confidentiality provision mandating secrecy with regard to information and materials exchanged during the relationship.

After several years, a dispute arose over the scope of CDI's rights to use certain technology that was within the scope of the agreement. Following negotiations, the parties executed an amendment to the licensing agreement in September 1995. The amendment added new paragraph 6.2.2 to the agreement. That paragraph stated:

BMC acknowledges that it did not license the thrombolytic assays submitted to it by CDI; that it received the payment of $1,000; and that CDI has the right to use CDI Technology to make, use, sell and license others to make, use and sell products in the Technical Field only in connection with and as a part of such thrombolytic assays. BMC and CDI agree that "only in connection with and as part of such thrombolytic assays" means that CDI has no limitation on the manufacture, use, sale or rights of others to manufacture, use or sell PT and aPTT tests and systems as long as such tests and systems are sold to customers using analyzers which are capable of analyzing, among other things, each of (i) a PT or an aPTT test, and (ii) a thrombolytic test.

The amendment also contained a general release under which each party released the other "from any claims, demands, actions, suits, damages, liabilities, losses or expenses of whatever sort," relating to or in connection with the license agreement for acts or omissions by either party prior to the date of the amendment.

The effect of the amendment was to give BMC a right to use its license royalty-free until the termination of the agreement. In exchange, CDI was freed of its obligation to permit BMC to evaluate new CDI technology, and CDI was given the right, with "no limitation," to manufacture, use, sell, or license PT and aPTT testing systems as long as those systems were sold to customers using analyzers that were capable of analyzing both a PT or aPTT test and a thrombolytic assay.

In 1994, prior to the execution of the amendment, BMC acquired the rights to two United States patents relating to coagulation assays, which the parties refer to as the "Biotrack patents." After the amendment was executed, BMC informed CDI that it believed CDI's systems infringed both of those patents.

CDI subsequently filed this action seeking, in count 1, a declaration that CDI did not infringe the two Biotrack patents or, in the alternative, that those patents were invalid or unenforceable. In counts 2 through 6, CDI brought claims alleging a series of state law violations: breach of contract, breach of fiduciary duty, constructive fraud, misappropriation of trade secrets, and unfair and deceptive trade practices. CDI's state law claims were based on BMC's alleged misappropriation and disclosure of CDI's technology in violation of a prior secrecy agreement between the parties. BMC counterclaimed, charging CDI and its licensee, Dade International, Inc., with infringement of the two Biotrack patents.

BMC moved for judgment on the pleadings as to CDI's state law claims. The trial court converted BMC's motion into a motion for summary judgment and granted it. The court concluded that because the conduct that gave rise to CDI's state law claims occurred before the parties executed the 1995 amendment to their 1989 agreement, the release contained in the amendment absolved BMC from any liability for the violations alleged in those claims.

With respect to count 1 and BMC's counterclaim, both parties asked the trial court to determine whether the 1995 amendment had the effect of granting CDI an implied license to practice the subject matter of the two patents that BMC had previously acquired from Biotrack. The court held that CDI had an implied license, during the pendency of the agreement between CDI and BMC, to use the subject matter described and claimed in the two Biotrack patents and any improvements developed or acquired by CDI. Because the implied license foreclosed any claim of infringement by BMC against CDI and Dade International, Inc., the court dismissed BMC's counterclaim and dismissed as moot CDI's claims that the Biotrack patents were invalid and unenforceable, while upholding CDI's noninfringement claim because of the implied license.


In holding that CDI was entitled to practice and license others to practice BMC's patents as they related to the subject matter of the agreement, the court focused on the language of paragraph 6.2.2 of the amendment, which stated that CDI would be allowed to use its technology with "no limitation." The court found that the amendment represented a bargained-for contract, with consideration being given by both parties. BMC no longer had to pay royalties to CDI for the exclusive license for the duration of the agreement, whereas CDI was released from its obligation to allow BMC to evaluate any new technology, and could manufacture, use, or sell PT or aPTT tests in connection with and as part of certain thrombolytic assays, without limitation. The representation that CDI could practice that technology with "no limitation," the court held, barred BMC from using any of its patents to restrict CDI's right to make, use, and sell the tests and systems referred to in the amendment.

We agree with the district court's analysis. The effect of paragraph 6.2.2 of the amendment is to give CDI the right to manufacture, use, or sell and the right to license others to manufacture, use, or sell, PT and aPTT tests and systems without interference from BMC, as long as the limitations prescribed in the amendment are met. Thus, if the tests and systems covered by paragraph 6.2.2 of the amendment fall within the scope of the claims of the Biotrack patents, the amendment authorizes CDI to practice and license those tests and systems without interference from BMC, whether in the form of an infringement action or otherwise.

BMC argues on appeal that the parties intended the amendment to settle a dispute over the interpretation of language in the original agreement that defined when CDI had a right to use its technology. The consideration exchanged by the parties, BMC contends, was to resolve that dispute. According to BMC, the amendment did not contemplate the grant of any rights with respect to BMC's patents.

The language of the amendment, however, is not so narrow. It provides that, for certain tests and systems defined by the amendment, "CDI has no limitation on the manufacture, use, sale or rights of others to manufacture, use or sell" those tests and systems. As the district court pointed out, to read the "no limitation" language narrowly, so that it does not include freedom from infringement actions by BMC under the Biotrack patents, would deprive CDI of the benefit of the bargain it struck when it entered into the 1995 amendment. The effect of the "no limitation" clause was to ensure that CDI could use certain technology without interference from BMC.

Contrary to BMC's contention, this construction of the "no limitation" clause does not conflict with paragraph 3 of the amendment, which states that the amendment "is limited to the items specified herein." The "items specified herein" include the technology specifically defined in paragraph 6.2.2 of the amendment. By the use of the term "no limitation," BMC has given CDI the right to make, use, and sell and to license others to make, use, and sell that technology without interference from BMC. Thus, the rights granted are limited to the items specified within the amendment, and paragraph 3 does not conflict with the district court's construction of the amendment.

One loose end remains. BMC argues that the district court should not have dismissed count 1 of the complaint and BMC's counterclaim, because CDI's implied license with respect to the Biotrack patents was limited to the specific technology covered by the 1995 amendment and did not cover other technology. Before the district court, however, BMC did not suggest that CDI makes or sells products that fall outside the scope of the implied license found by the district court but still infringe the Biotrack patents. In fact, after the district court held that CDI enjoyed an implied license as a result of the "no limitation" language in the 1995 amendment, BMC acknowledged that, based on the court's ruling, there was "no longer any case or controversy between BMC and [CDI] concerning infringement." The district court was therefore correct to grant judgment against BMC on count 1 of the complaint and on BMC's counterclaim. At the same time, BMC has no reason for concern that the judgment will be read to grant CDI or Dade International unduly broad protection for a subsequent infringement suit by BMC, since nothing in the court's judgment would prevent BMC from suing CDI or Dade International if either of them should make or sell products that infringe the Biotrack patents but fall outside the scope of paragraph 6.2.2 of the 1995 amendment.


In its cross-appeal, CDI contends that the district court erred in converting BMC's motion to dismiss the state law claims on the pleadings to a motion for summary judgment without providing notice of its intention to do so and a "reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed. R. Civ. P. 12(c).

On procedural issues such as this one, we follow the precedent from the circuit in which the case arose, in this case the Fourth Circuit. See National Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1188 n.2 (Fed. Cir. 1996). In Laughlin v. Metropolitan-Washington Airports Authority, 149 F.3d 253 (4th Cir. 1998), the Metropolitan-Washington Airports Authority (MWAA) moved the trial court to dismiss, or in the alternative, to grant summary judgment. Both MWAA and Laughlin, the non-moving party, submitted affidavits accompanying their briefs on the motion. The trial court converted MWAA's motion to dismiss into a motion for summary judgment. Laughlin contended that the trial Judge had an obligation to notify her formally before converting the motion, arguing that she needed further discovery before addressing the request for summary judgment. Apart from the fact that the motion was captioned one to dismiss or, in the alternative, for summary judgment, the Fourth Circuit rejected her argument, stating:

"A cursory glance at the Federal Rules of Civil Procedure, as well as Laughlin's own filings, make clear that the motion before the court could be treated as a motion for summary judgment. The district court, while it clearly has an obligation to notify parties regarding any court-instituted changes in the pending proceedings, does not have an obligation to notify parties of the obvious." 149 F.3d at 261.

In this case, CDI attached affidavits to its brief. Moreover, in its brief opposing BMC's motion for dismissal, CDI acknowledged that when matters outside the pleadings are considered, the motion is to be treated as one for summary judgment. Thus, the trial Judge in this case did "not have an obligation to notify [CDI] of the obvious," and did not err by converting BMC's motion to dismiss into a motion for summary judgment without prior notice to CDI that he intended to do so.


CDI further argues on cross-appeal that the district court improperly dismissed its state law claims on summary judgment. CDI argues that BMC owed it a fiduciary duty and that, as a result, the general release in the 1995 amendment could not be invoked to dismiss CDI's state law claims. The district court, however, rejected CDI's fiduciary duty argument, and we agree.

Under North Carolina law, which the parties agree applies to CDI's state law claims, a relationship between mutually interdependent businesses with equal bargaining positions who dealt at arms length does not normally give rise to a fiduciary relationship. See Frizzell Const. Co. v. First Citizens Bank & Trust Co., 759 F. Supp. 286, 291 (E.D.N.C. 1991), aff'd mem., 972 F.2d 339 (4th Cir. 1992). See also Tin Originals, Inc. v. Colonial Tin Works, 391 S.E.2d 831, 833 (N.C. App. 1990) ("Our review of reported North Carolina cases has failed to reveal any case where mutually interdependent businesses . . . were found to be in a fiduciary relationship with one another."). CDI has not presented any evidence to cast doubt on the premise of the district court's ruling: that CDI and BMC were sophisticated parties, represented by counsel, and bargaining at arms length when they entered into the agreement and the amendment. The court therefore properly found that there was no fiduciary relationship between the two parties. Because CDI's claims for breach of fiduciary duty and constructive fraud both rested on its assertion that there was a fiduciary relationship between BMC and CDI, those claims cannot survive the ruling that CDI failed to establish that there was any such fiduciary relationship between the parties in the circumstances of this case. Moreover, the court's ruling on the fiduciary duty issue disposes of CDI's argument that the general release in the 1995 amendment does not bar CDI's other state law claims.


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