Addressing the issue of whether collateral estoppel will bar a patentee from collecting post-judgment royalties under a license agreement where the license was found to be terminated in a prior case, the U.S. Court of Appeals for the Tenth Circuit affirmed the district court’s holding that LabCorp was not liable to Metabolite for post-judgment royalties. Laboratory Corp. of America Holdings, d/b/a LabCorp, v. Metabolite Laboratories Inc., Case No. 10-1194 (10th Cir. Feb. 2, 2011) (Lucero, J.).

Metabolite and LabCorp are parties to a licensing agreement allowing LabCorp to sublicense patents directed to assays for detecting vitamin deficiencies. When LabCorp stopped paying royalties on its use of a particular assay (the homocysteine assay), Metabolite sued for patent infringement. Metabolite argued that LabCorp’s actions resulted in termination of the licensing agreement such that Metabolite was entitled to breach of contract damages as well as patent infringement damages. LabCorp argued in response that the license agreement was merely breached, not terminated. At trial, the jury was presented with a special verdict form and found that the license agreement was terminated as to the homocysteine assay. The jury awarded damages to Metabolite for breach of contract and patent infringement, and the judge doubled the patent infringement damages pursuant to 35 U.S.C. § 284. On appeal, the Federal Circuit affirmed the jury’s finding that the license agreement was terminated as to the homocysteine assay. The Supreme Court initially granted certiorari, but later dismissed the writ as improvidently granted. (See IP Update, Vol. 13, No. 4)

The district court had issued a preliminary injunction barring LabCorp from using the homocysteine assay, but LabCorp continued to conduct the assay pursuant to a stipulated stay order. After the Federal Circuit affirmed the jury’s finding of termination, LabCorp filed a declaratory judgment action alleging that it did not owe Metabolite post-judgment royalties because the license agreement had been terminated with respect to the homocysteine assay. In this action, LabCorp argued that based on the prior jury finding, the license agreement was terminated. In contrast, Metabolite now switched its position and argued that the license agreement was merely breached. The district court, finding that the jury’s verdict in the first trial established that the license agreement had been terminated as to the homocysteine assay, granted summary judgment in favor of LabCorp., concluding that termination of the license agreement relieved LabCorp of any obligation to pay post-judgment royalties on the use of the assay. Metabolite appealed.

The 10th Circuit affirmed, citing the doctrine of collateral estoppel and concluding that Metabolite was estopped from arguing that the license was not terminated. The court explained that estoppel was “particularly appropriate” in this case given the “striking similarity of the arguments advanced by Metabolite in this case and those advance by LabCorp in the prior action.” Because “Metabolite convinced the jury and the Federal Circuit that the License Agreement was terminated with respect to the [homocysteine] assay the first time around … [Metabolite] cannot be heard to argue the opposite proposition.” The court further stated that “Metabolite cannot have its cake and eat it too.”