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Jang v. Boston Scientific Scimed, Inc.

United States Court of Appeals, Third Circuit

September 5, 2013

G. DAVID JANG, M.D., an individual, Appellant
v.
BOSTON SCIENTIFIC SCIMED, INC., a corporation; BOSTON SCIENTIFIC CORPORATION, a corporation

Argued: July 10, 2013

On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-10-cv-00681) District Judge: Honorable Sue L. Robinson

Jed I. Bergman, Esq. [Argued] Henry B. Brownstein, Esq. Kasowitz, Benson, Torres & Friedman, Richard H. Cross, Jr., Esq. Tara M. DiRocco, Esq. Cross & Simon Attorneys for Appellant

Matthew M. Wolf, Esq. [Argued] Edward Han, Esq. John Nilsson, Esq. Arnold & Porter, Pilar G. Kraman, Esq. Karen L. Pascale, Esq. Young, Conaway, Stargatt & Taylor, Attorneys for Appellees

Before: GREENAWAY, JR., SLOVITER, and BARRY, Circuit Judges.

OPINION

SLOVITER, Circuit Judge.

This appeal concerns a multimillion-dollar contract dispute over the distribution of profits from medical patents. In particular, it involves U.S. Patent No. 5, 922, 021 ("the '021 patent"), awarded to appellant G. David Jang for coronary stent technology. Jang, a doctor and inventor, sued Boston Scientific Corporation ("BSC"), the company to which Jang assigned his coronary stent patents, for breach of the patent assignment agreement ("Agreement"). The Agreement requires BSC to share profits from the patents with Jang, including any damages it recovers from third-party infringers. In 2010, BSC settled a claim against the Cordis Corporation ("Cordis") for infringement of the '021 patent in combination with a claim that Cordis had against BSC. The net result was that BSC made a payment to Cordis, and the parties exchanged several patent licenses. BSC then denied that it had recovered any damages that it was obligated to share with Jang, and Jang sued.

The central question in the case is whether the Agreement provision that requires BSC to share "any recovery of damages" from third-party infringers – § 7.3(c) – extends to the benefits that BSC received in the Cordis settlement. According to Jang's allegations, BSC's infringement claim won it a significant return: a multibillion-dollar "offset" in its damages payment to Cordis, as well as valuable patent licenses. BSC contends that neither of these qualify as "damages" under the plain meaning of § 7.3(c). Jang argues that they do qualify as "damages, " or in the alternative, that BSC violated the implied covenant of good faith and fair dealing by structuring a settlement to thwart the purpose of § 7.3(c). In addition, Jang argues that BSC violated the Agreement's anti-assignment provision, § 9.4, by licensing his patents to Cordis.

The District Court granted judgment on the pleadings for BSC, and denied his post-judgment motion for reconsideration and leave to amend his complaint to add the § 9.4 claim. We must decide whether it did so in error.

I. Background

A. The Assignment Agreement

In 2002, Jang assigned a series of his coronary stent patents to BSC through its wholly owned subsidiary, Boston Scientific Scimed, Inc. ("Scimed"). BSC and Scimed develop, manufacture and market medical devices. The assignment agreement granted BSC the exclusive rights to develop and sell stents using Jang's patents, and to prosecute patent-infringement suits against third parties. In return, BSC paid Jang approximately $50 million up front. It also agreed to pay him ten percent of future profits from his patents – in the Agreement's terminology, ten percent of "Net Sales" of "Contingent Payment Products" – with the payments capped at $60 million.[1] Finally, BSC agreed that if its profits from the Jang patents reached $2.5 billion within five years, it would pay Jang an additional $50 million.

The Agreement defined "Net Sales" to include revenue from BSC's own sales as well as any damages obtained from third-party infringers. Section 7.3(c), the key provision in this case, directed that "any recovery of damages" from an infringement "suit or settlement" should first be used to pay BSC's legal expenses; "the balance" is deemed part of BSC's Net Sales, such that BSC must pay Jang ten percent, and also count the recovery toward the $2.5 billion threshold. App. at 112. Section 7.3(c) does not extend to "special or punitive damages." Id.[2]

The Agreement also included an anti-assignment provision, § 9.4, which prohibited either party from "assign[ing] its rights or obligations" under the Agreement "without the prior written consent of the other party, " and required any assignee to agree in writing "to assume all of the obligations of the assignor" under the Agreement. App. At 116.[3]

B. The Cordis Litigation and Settlement

In 2003, Cordis, another manufacturer of coronary stents, sued BSC in the District of Delaware for infringement of two Cordis-owned patents. BSC filed a counterclaim against Cordis for infringement of Jang's '021 patent. The claims were severed; in 2005, separate juries returned verdicts finding that Cordis had infringed the Jang patent, and that BSC had infringed the Cordis patents. The United States Court of Appeals for the Federal Circuit affirmed both verdicts.

BSC was therefore entitled to damages from Cordis for infringement of the Jang patent, and Cordis was entitled to damages from BSC for infringement of Cordis' patents. Jang's complaint alleges that each company owed the other several billion dollars. A damages trial was scheduled for February 2010.

On the eve of the damages trial, BSC and Cordis settled. The settlement agreement provided for only one cash payment: approximately $1.725 billion from BSC to Cordis. Jang alleges, and BSC appears to admit, that this represented the net difference between the companies' claims: Cordis' damages minus BSC's damages. As BSC wrote in its brief, the damages to which it was entitled for the Jang-patent infringement translated into a "settlement offset" against the damages it owed Cordis. Appellees' Br. at 19. Jang alleges that BSC's payment to Cordis was offset by several billion dollars.

The settlement also entailed an exchange of licenses. BSC granted Cordis non-exclusive, perpetual, irrevocable, fully paid-up and retroactive licenses on eleven Jang patents, including the '021 patent. Cordis granted BSC non- exclusive, perpetual, irrevocable, fully paid-up and retroactive licenses on ten Cordis patents. Each company released its infringement claims against the other.

C. Jang's Contract Suit against BSC

Following the settlement, BSC denied that it had recovered any damages that it was obligated under the Agreement to share with Jang. Jang filed suit. He brought the case in the Central District of California on diversity grounds; it was transferred to the District of Delaware to follow the litigation between BSC and Cordis.

Jang's complaint presented five state-law claims: (1) that BSC breached the Agreement by refusing to pay Jang his share of the infringement recovery; (2) that BSC breached the Agreement by refusing to pay Jang his share of the value from the licensing of his patents; (3) breach of the implied covenant of good faith and fair dealing; (4) breach of fiduciary duty; and (5) a demand ...


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