ROCHE DIAGNOSTICS CORP. v. MEDICAL AUTOMATION SYSTEMS (May 24, 2011)

Medical Automation Systems contracted with Roche Diagnostics to provide software for its glucose monitors and other products. The initial term of the contract was 2006-2010. Under the contract, Roche had the right to use the software for two years after the contract's expiration and had a right of first refusal to purchase MAS if MAS agreed to sell its stock to one of Roche's competitors "during the term of this Agreement." MAS notified Roche that it would not extend the agreement beyond 2010. Roche also discovered that MAS was in negotiations to sell its stock to a Roche competitor. Roche attempted to exercise its right of first refusal but MAS declined, relying on the fact that the transaction would not close until 2011, beyond the term of the Agreement. Although the contract required the parties to arbitrate any dispute regarding the right of first refusal, it allowed either party to seek an injunction pending arbitration. Roche did exactly that. Judge Barker (S.D. Ind.) found that allowing the sale would cause Roche irreparable harm by threatening both its ability to use the software for two additional years and its actual right of first refusal because of the difficulty in unwinding the transaction. She also found, however, that enjoining the sale would cause irreparable injury to MAS. She therefore issued an injunction allowing the sale’s completion but protecting Roche's ability to use the software for two more years. Roche appeals.

In their opinion, Chief Judge Easterbrook and Judges Wood and Williams affirmed, as modified. On Roche's request for an injunction pending appeal, the Court issued an order allowing the completion of the sale and protecting Roche's two-year use but added several conditions to ensure that MAS was maintained separately after the sale. Although appellate review of an order of this type is deferential, the Court identified an error in the district court. In balancing the harm, the court included on MAS's side of the ledger the injury caused by the delay in resolving the merits -- whether Roche has a valid right of first refusal. But the Court noted that the delay and resulting uncertainty is a function of the party's arbitration agreement. Allowing the sale would not avoid any uncertainty. Without that uncertainty on the MAS side of the ledger, the balance of harm favors Roche. The Court therefore affirmed the district court's injunction by including the hold-separate conditions, which will protect Roche in the event it prevails on the merits.