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XY, LLC v. Trans Ova Genetics, L.C.

United States Court of Appeals, Federal Circuit

May 23, 2018

XY, LLC, Plaintiff-Cross-Appellant
TRANS OVA GENETICS, L.C., Defendant-Appellant

          Appeals from the United States District Court for the District of Colorado in No. 1:13-cv-00876-WJM-NYW, Judge William J. Martinez.

          Pratik A. Shah, Akin, Gump, Strauss, Hauer & Feld, LLP, Washington, DC, argued for plaintiff-cross-appellant. Also represented by Ze-wen Julius Chen; Daniel Lynn Moffett, Kirt S. O'Neill, San Antonio, TX.

          Charles Daniel Ossola, Hunton & Williams LLP, Washington, DC, argued for defendant-appellant. Also represented by David A. Kelly, Atlanta, GA; Donald Earl Lake, III, George Guy Matava, Samantha Kay Picans, Lewis Brisbois Bisgaard & Smith, Denver, CO.

          Before Newman, Dyk and Chen, Circuit Judges.



         Plaintiff-Cross-Appellant XY, LLC (XY) sued Defendant-Appellant Trans Ova Genetics, L.C. (Trans Ova) for patent infringement and breach of contract. Trans Ova counterclaimed, alleging patent invalidity, breach of contract, and antitrust violations. The district court granted summary judgment in favor of XY on Trans Ova's antitrust counterclaims. A jury found breaches of contract by both parties and awarded damages. The jury also found that (i) Trans Ova failed to prove that the asserted patent claims were invalid, (ii) Trans Ova willfully infringed the asserted claims, and (iii) XY was entitled to damages for patent infringement. The parties filed various post-trial motions. The district court denied all of Trans Ova's requested relief on the antitrust, breach of contract, invalidity, and willfulness issues and granted XY's request for an ongoing royalty. Trans Ova appeals the district court's antitrust, breach of contract, invalidity, and willfulness rulings. XY appeals the ongoing royalty rate adopted by the district court.

         We affirm in part, vacate in part, and remand. Two issues presented on appeal are moot. With respect to the remaining issues, we affirm on all issues except the district court's ongoing royalty rate, which we vacate. We remand for the district court to recalculate an ongoing royalty rate in accordance with this opinion.


         I. Technological Background

         XY's patents relate to the sorting of X- and Y-chromosome-bearing sperm cells, which can be used for selective breeding purposes. Some of the asserted patent claims require the use of "flow cytometry, " a process by which cells flow through a flow cytometer at a high rate of speed in a fluid stream and "are evaluated at several thousands of [cells] per second." J.A. 8346-47.

         Dr. Lawrence Johnson developed a technique for sorting animal semen using flow cytometry in the 1980s as part of research sponsored by the United States Department of Agriculture (USDA). Dr. Johnson's technique is patented in U.S. Patent No. 5, 135, 759 (the Johnson Patent), which issued in 1992. The Johnson Patent was initially licensed to XY under a USDA partnership program. The Johnson method involves staining DNA in sperm cells with a dye; using a laser beam to activate the fluorescence of the dye (with X-chromosome cells being brighter because they contain more DNA than Y-chromosome cells); detecting the amount of fluorescence in the cells; and sorting the cells into separate containers for X and Y cells.

         Six of XY's patents are at issue in this appeal. They can be grouped into four categories: (1) the "Fluid Patents" (U.S. Patent Nos. 6, 149, 867 and 6, 524, 860); (2) the "Freezing Patent" (U.S. Patent No. 7, 820, 425); (3) the "In-Vitro Fertilization Patent" (U.S. Patent No. 8, 569, 053); and (4) the "Reverse Sort Patents"[1] (U.S. Patent Nos. 7, 713, 687 and 7, 771, 921).

         The Fluid Patents claim flow cytometry devices and methods that use "sheath fluids" to provide optimum pre-and post-sorting fluid environments for the cells to "achieve as unaffected a sorted result as possible." '867 patent, J.A. 13485 col. 4 ll. 40-55, J.A. 13493 col. 20 ll. 1- 4; '860 patent, J.A. 13516 col. 18 ll. 47-50, J.A. 13509 col. 4 ll. 27-43. The claimed fluids are introduced in a "coordinated" fashion such that the cells' fluid environment changes at various stages of the sorting process to minimize stress on the cells and keep as many of the cells alive as possible. See, e.g., '867 patent, J.A. 13490 col. 13 ll. 1-65, J.A. 13493 col. 20 l. 1.

         The Freezing Patent claims methods for "cryopreserving sperm that have been selected for a specific characteristic." J.A. 13300 col. 2 ll. 9-10, 16-17; J.A. 13315 col. 31 l. 64 - col. 32 l. 11. The claimed methods purport to "facilitat[e] storage and/or shipment of selected sperm samples to sites distant from the collection site." J.A. 13300 col. 2 ll. 44-46. According to the patent, thawing the samples "yields viable sperm that can be used in procedures such as artificial insemination . . . and in vitro fertilization." Id. col. 2 ll. 46-48.

         The Reverse Sort Patents claim methods of first freezing, then thawing, and finally sorting sperm cells. See, e.g., '687 patent, J.A. 13434 col. 30 ll. 9-42. The parties agree that a principal difference between the claimed methods in the Reverse Sort Patents and prior art methods is the use of a relatively high concentration of dye for staining the sperm cells in the Reverse Sort Patents- greater than 40 micromolar. See, e.g., id. col. 30 ll. 15-17.

         The In-Vitro Fertilization Patent claims methods of in-vitro fertilization using sorted and reverse sorted sperm. See generally J.A. 14930-31 col. 10 l. 14 - col. 12 l. 26.

         II. Factual Background

         Trans Ova provides services related to embryo transfer and in-vitro fertilization for cattle. Before the events giving rise to this lawsuit, Trans Ova purchased sorted semen from Inguran, LLC (Inguran), which was a licensee of XY's patents. Trans Ova became dissatisfied with the quality of Inguran's product, however, and sought to license XY's technology to produce its own sorted semen.

         XY and Trans Ova entered into a five-year licensing agreement (the Agreement) in April 2004 under which Trans Ova was authorized to use XY's technology in animal breeding. The Agreement was subject to automatic renewal in April 2009, unless, inter alia, Trans Ova was in material breach of the Agreement. XY retained the right to terminate the Agreement in the event of certain breaches by Trans Ova, upon written notice to Trans Ova.

         In November 2007, Inguran acquired XY and, in the same month, XY sent a letter purporting to terminate the Agreement (Termination Letter) because of alleged breaches by Trans Ova. Trans Ova disagreed with XY's allegations of breach and argued that the Agreement had not been terminated. Over the course of several years, the parties negotiated but failed to resolve their disputes. Trans Ova continued to make royalty payments to XY pursuant to the Agreement, in accordance with its position that the Agreement had not been terminated, but XY declined all payments except one (which XY alleges it accepted in error). During the period of negotiations, XY alleges that it became aware of further breaches by Trans Ova (in addition to those alleged in the Termination Letter), including underpayment of royalties and development of improvements to XY's technology without disclosure of such improvements to XY.

         III. Procedural History

         In March 2012, XY sued Trans Ova for patent infringement in the United States District Court for the Western District of Texas. Trans Ova moved to dismiss or transfer for improper venue. On March 28, 2013, the district judge granted Trans Ova's motion and transferred the case to the District of Colorado. XY filed an amended complaint, adding claims for breach of contract and unjust enrichment. Trans Ova, in turn, asserted (1) patent invalidity, (2) monopolization and attempted monopolization under the Sherman Act, and (3) breach of contract by XY and Inguran.[2]

         A. Summary Judgment

         XY moved for summary judgment that Trans Ova's antitrust claims were barred by the applicable four-year statute of limitations. Trans Ova argued in response that the "continuing conspiracy" exception, per Tenth Circuit case law, effectively restarted the limitations period with each "new and independent act" that inflicted "new and accumulating injury" on Trans Ova after XY sent the Termination Letter. J.A. 41 (quoting Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1088 (10th Cir. 2006)). The district court determined that Trans Ova had not identified any new injury resulting from XY's post-termination actions in its brief in opposition to XY's motion. Therefore, the district court held that the continuing conspiracy exception did not apply and Trans Ova's antitrust claims were barred by the statute of limitations. Id. at 43-44.

         Trans Ova filed a motion for reconsideration, which the district court denied. The district court reaffirmed its ruling that Trans Ova had failed to show a triable issue of new and accumulating injury resulting from any of XY's post-termination actions. The district court clarified that, in granting summary judgment, it had assumed that the Termination Letter was not a "final act" that permanently excluded Trans Ova from the market, but "nevertheless found that Trans Ova did not meet the threshold requirement to show that any subsequent acts caused new injuries." J.A. 50. "It was Trans Ova's burden, in opposing summary judgment, to present evidence that the continuing conspiracy exception applied" and "Trans Ova's failure to address the new injury prong of the analysis fell short of meeting that burden." Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317 (1986)). Trans Ova's identification of two allegedly new categories of injuries in its briefing on the motion for reconsideration "should have been included in its prior briefing" and thus came too late. J.A. 51.

         B. Jury Trial

         The case proceeded to a jury trial. The jury found that both parties had breached the Agreement. Specifically, the jury found that Trans Ova materially breached and failed to cure prior to the April 2009 renewal date set out in the Agreement. As a result, under the jury's finding, the Agreement terminated in April 2009, and Trans Ova's post-termination use of XY's patented technology was unlicensed and infringing. The jury also found, however, that XY violated the Agreement and its duty of good faith and fair dealing by attempting to terminate the license in November 2007. As compensation for the respective breaches, the jury awarded XY $1, 481, 000 and Trans Ova $528, 000 in damages.

         The jury also found that none of the asserted patent claims were invalid and that Trans Ova willfully infringed. The jury awarded XY $4, 585, 000 for Trans Ova's patent infringement. In addition, the jury found that XY had unclean hands from its purported termination of the Agreement in November 2007.

         C. Post-Trial

         After trial, Trans Ova filed motions on the breach of contract, willfulness, and invalidity issues. XY filed motions seeking an award of an ongoing royalty and enhanced damages.

         Regarding the breach of contract issues, Trans Ova moved for judgment as a matter of law under Rule 50(b) or, in the alternative, a new trial under Rule 59(a) or an amended judgment under Rule 59(e). Trans Ova argued that XY's attempt to terminate the Agreement was a material breach that excused Trans Ova's obligations under the Agreement and that the jury's findings that both parties breached and were entitled to damages were irreconcilable. Trans Ova also argued that the jury verdict form was structured in such a way that the jury was not able to determine whether Trans Ova's obligations under the Agreement had been suspended due to XY's breach. At trial, the district court overruled an objection by Trans Ova to the verdict form that was based on similar arguments. The district court denied Trans Ova's motion, inferring that the jury found a material breach by Trans Ova before XY sent the Termination Letter. The district court also determined that a reasonable jury could have reached the conclusions reflected in the verdict form based on the evidence presented at trial.

         With respect to willfulness, Trans Ova moved under Rule 59(e) for a ruling of no willful infringement. XY opposed the motion, arguing, inter alia, that Trans Ova could not seek its requested relief because Trans Ova had not challenged the sufficiency of XY's evidence on willful- ness by moving under Rule 50(a) at trial. The district court rejected this argument, stating that "Trans Ova's argument is not a challenge to the sufficiency of XY's evidence at trial, but rather an argument that the jury's willful infringement finding was clearly erroneous as a matter of law." J.A. 11. More particularly, the district court understood Trans Ova to be arguing that certain of its invalidity defenses were objectively reasonable under the test for willfulness set out in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc). The district court determined that the invalidity defenses were objectively reasonable and granted Trans Ova's motion, finding no willful infringement as a matter of law. However, as explained, infra, the district court later revisited this decision after the Supreme Court issued its opinion in Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923 (2016).

         On invalidity, Trans Ova moved under Rule 59(a) for a new trial. The district court denied the motion, holding that Trans Ova's arguments in support of the motion were merely a critique of XY's expert's opinions and amounted to nothing more than a rehash of arguments presented to the jury at trial. Trans Ova had stipulated to the qualification of XY's expert to testify regarding "the subject matter of the asserted patents" under Federal Rule of Evidence 702. The district court held that Trans Ova was not entitled to a new trial because "Trans Ova's arguments point to a classic battle of the experts . . . rather than an indication that the overwhelming weight of the evidence leans but one way." J.A. 16-17.

         XY filed a motion requesting that the district court set an ongoing royalty as an equitable remedy for Trans Ova's future infringement. The district court noted Trans Ova's admission that it intended to continue to practice XY's patents and determined that an ongoing royalty would be appropriate. The district court then observed that the jury effectively adopted the 15% royalty rate on gross sales and the 4% royalty rate for reverse sorting services proposed by XY's damages expert at trial. The district court also noted that "every one of XY's prior licenses include[d] a 10% royalty rate, which tend[ed] to prove that 10% [was] XY's established royalty." J.A. 28. After considering the relevant evidence and the parties' various arguments under certain of the factors set out in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970), the district court calculated an ongoing royalty rate for gross sales by averaging the jury's 15% rate with the 10% rate in XY's prior licenses to arrive at a rate of 12.5%. For reverse sorting services, the district court awarded an ongoing royalty rate of 2%, half of the jury's rate for those services.

         XY also moved for an award of enhanced damages, which the district court denied.

         Based on the jury's unclean hands finding, the district court denied XY's unjust enrichment claim and XY's request for injunctive relief.

         D. Post-Judgment

         After the Supreme Court issued its decision in Halo, XY moved under Rule 59(e) to alter or amend the judgment with respect to the ongoing royalty rate and under Rule 60(b)(6) to reconsider the district court's finding of no willful infringement and denial of enhanced damages. The district court denied XY's motion with respect to the ongoing royalty rate. Regarding willfulness, the district court granted XY's motion in part by reinstating the jury's finding of willfulness-in view of Halo's abrogation of the objective prong of Seagate's test for willfulness, under which the district court had granted judgment as a matter of law of no willful infringement-but denied XY's motion for reconsideration of the district court's denial of enhanced damages.

         Trans Ova appeals the district court's rulings on the antitrust, breach of contract, invalidity, and willfulness issues. XY appeals the district court's calculation of the ongoing royalty rate. ...

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