Cardiovascular Systems, Inc. v. Cardio Flow, Inc.

Background

Cardiovascular Systems, Inc. (CSI) and Cardio Flow, Inc. are competing medical-device companies targeting the market for orbital atherectomy devices. In 2012, CSI and Lela Nadirashvili resolved patent-ownership litigation through a settlement agreement. The agreement divided patent rights between a CSI portfolio and a Nadirashvili portfolio and gave each side certain exclusive licenses.

Under Section 3(A), Nadirashvili granted CSI a worldwide, royalty-free, paid-up, irrevocable exclusive license under the Nadirashvili Patent Portfolio to make, use, sell, offer to sell, import, or have made rotational atherectomy devices or methods using solid counterweights. Later in 2012, Nadirashvili assigned her interests in that portfolio to Cardio Flow. The record contained no evidence that Cardio Flow agreed in writing to be bound by the settlement agreement.

CSI sued Cardio Flow for breach of contract, declaratory relief, and an injunction. CSI argued that Cardio Flow became bound by the settlement agreement through the patent assignment, equitable estoppel, or agency principles. Cardio Flow moved for summary judgment. CSI moved for partial summary judgment. Cardio Flow also filed two motions to strike and for sanctions.

Contract and patent-license interpretation

The court held that Section 3(A) granted CSI an exclusive patent license, not a separate and broader “exclusive right” to practice solid counterweights generally. The phrase “under the Nadirashvili Patent Portfolio” limited the license to specified patent rights in that portfolio. The court also concluded that the agreement did not create a general restriction on the marketplace for atherectomy devices. Because of this interpretation, the court did not address Cardio Flow’s antitrust arguments.

The court did not interpret Section 10 of the settlement agreement. It explained that even under CSI’s interpretation, a violation of that section could potentially make Nadirashvili liable for breaching the agreement, but it would not automatically make Cardio Flow liable for that breach.

Whether the agreement bound Cardio Flow

The court ruled that CSI’s exclusive license was a legal encumbrance involving the right to use the patents and therefore “ran with the patents.” Cardio Flow acquired the patent interests subject to CSI’s prior exclusive license. As a result, CSI could enforce that patent license against Cardio Flow through a patent-infringement action if CSI determined in good faith that infringement occurred.

The court distinguished the license from the settlement agreement itself. The license affected the patent rights transferred to Cardio Flow, but the contractual obligations in the settlement agreement remained between CSI and Nadirashvili unless another party agreed to be bound. Because Cardio Flow did not agree to be bound, it was not a party to the agreement and could not breach it. The court therefore held that federal patent law did not provide a basis for CSI’s breach-of-contract claim.

The court also rejected CSI’s equitable-estoppel theory. CSI had not pleaded that theory in its amended complaint, and, even if it had, CSI identified no sufficient evidence of a promise or inducement, reasonable reliance, or harm. The court likewise rejected CSI’s agency theory because CSI identified no evidence that Nadirashvili had actual or apparent authority to bind Cardio Flow when she signed the settlement agreement. The court also found that the record did not support CSI’s claim that Nadirashvili and Gary Petrucci were in a partnership at that time.

Other claims

The court dismissed CSI’s claim for injunctive relief because that claim depended on CSI having a general exclusive right to practice solid counterweights. Section 3(A) provided only an exclusive license to specified patent rights and did not restrict patent prosecution or address the assignment of patent applications.

The court also dismissed CSI’s claim for declaratory relief. It held that the settlement agreement did not establish CSI’s ownership of the patents at issue, CSI had not identified evidence that patents were mistakenly omitted from the agreement, and CSI had not pleaded such a mistake with the required detail. The court further held that Cardio Flow could not be compelled to assign patents based on earlier agreements and an arbitration award to which Cardio Flow was not a party.

Disposition

The court DENIED CSI’s Motion for Partial Summary Judgment and GRANTED Cardio Flow’s Motion for Summary Judgment. It dismissed CSI’s breach-of-contract, injunctive-relief, and declaratory-relief claims.

The court DENIED as moot in part and DENIED in part Cardio Flow’s first Motion to Strike and for Sanctions, and did the same for Cardio Flow’s second Motion to Strike and for Sanctions. The motions to strike were moot because CSI had no viable breach-of-contract claim; the court denied the requests for sanctions.