Cornell, Life Technologies Corporation Ordered to Enter Arbitration After Allegations of Fraudulent Inducement into Settlement Agreement

On Friday, January 19th, a magistrate judge in the District of Delaware entered a memorandum opinion ordering Cornell University to enter into arbitration proceedings to resolve a dispute with licensee Life Technologies Corporation. The dispute arises out of a patent infringement case in which both parties are plaintiffs after Cornell felt that it was fraudulently induced into a settlement agreement with Life Technologies and Illumina, Inc., the defendant in the case.

This case stems back to a complaint filed by Cornell and Life Technologies in May 2010 in which the plaintiffs asserted a series of eight patents owned by Cornell and licensed to Life Technologies; seven patents contained claims directed at polymerase chain reaction (PCR) methods and the eighth contained claims directed at instruments. Plaintiffs Cornell and Life Technologies alleged that these patents were infringed by instruments, kits and services sold by Illumina for genetic analysis, including the detection of single nucleotide polymorphisms (SNPs). Patents asserted by the plaintiffs in this case include:

• U.S. Patent No. 6797470, titled Detection of Nucleic Acid Sequence Differences Using Coupled Ligase Detection and Polymerase Chain Reactions. It claims a method of identifying one or more different target nucleotide sequences to identify nucleotide deletions in a gene.
• U.S. Patent No. 7429453, same title as ‘470 patent. It claims a method for identifying a target nucleotide sequence by forming a ligation product on a target nucleotide sequence in a ligase detection reaction mixture, amplifying the ligation product to form an amplified ligation product in a PCR mixture, detecting the amplified ligation product and identifying the target nucleotide sequence.

The case against Illumina terminated on April 24th, 2017, after the district court entered a joint stipulation to dismiss which was agreed to by all parties after a settlement was reached in the case on April 14th. On June 21st, 2017, Cornell filed a motion to vacate the stipulation of dismissal pursuant to Federal Rule of Civil Procedure 60. Rule 60 governs situations where a party requests relief from a judgment or order for excusable neglect, newly discovered evidence that could not have been discovered in time to request a new trial, or situations involving fraud or misrepresentation.

Cornell’s motion was filed concurrently with an opening brief including the legal issues in support of its motion to vacate dismissal but most of these documents are sealed. One unsealed exhibit attached to Cornell’s brief includes a news report on a U.S. Securities and Exchange Commission (SEC) filing made by Thermo Fisher Scientific, the parent company of Life Technologies, which disclosed the settlement of a different lawsuit filed by Illumina against Life Technologies “for financial immaterial terms.” The report also discusses a settlement between Thermo and Life Technologies with Roche over allegations of infringing patents related to methods of analyzing nucleic acid sequences using emulsion amplification. The settlement terms involved Thermo making a $25 million cash payment to license the Roche technology and the grant of a license to Roche for “an unnamed technology owned by Thermo.”

In its motion to vacate the dismissal, Cornell alleged that Life Technologies had entered into an improper sublicense agreement and had exchanged consideration with Illumina outside of the the terms of the settlement agreement, along with the allegations that Cornell had been fraudulently induced into the settlement agreement. On cross-motion, Life Technologies asserted a 2010 new exclusive license agreement (NELA) requiring the disputes by Cornell to be submitted to mediation or arbitration. The 2010 NELA between Cornell and Life Technologies, which includes an arbitration clause for dispute resolution, reserved for Cornell the right to proceed with direct judicial remedies for breach of royalty payment or of sales reporting provisions of the NELA. However, Life Technologies argued that Cornell’s claims of fraud or other claims related to the settlement agreement do not qualify for the arbitration exception. The district court found that the NELA did contain a valid arbitration clause despite Cornell’s contention that the clause was too vague to enforce.

Cornell also argued that arbitration shouldn’t apply in this situation because “nothing in the [NELA] authorizes Life Tech to defraud Cornell or obligated Cornell to sign the Settlement Agreement.” Further, Cornell argued that Life Technologies’ side deals with Illumina was an attempt to circumvent its royalty payment and sales reporting obligations. However, the court granted Life Technologies’ motion to compel arbitration, finding that the fundamental dispute between Cornell and Life Technologies related to the meaning and interpretation of the NELA and staying the district court case until the resolution of arbitration. Given the potential for arbitration proceedings to reinterpret contractual agreements between parties resulting in awards which would otherwise be unconscionable in district courts, Cornell could have an uphill battle on its hands in attempting to rescind the settlement agreement even if it can prove fraud.