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MEDLINE INDUSTRIES, INC. v. MAERSK MEDICAL LIMITED

February 24, 2004.

MEDLINE INDUSTRIES, INC., Plaintiff,
v.
MAERSK MEDICAL LIMITED, GILTECH LIMITED, and TYCO HEATHCARE GROUP, L.P



The opinion of the court was delivered by: BLANCHE MANNING, District Judge

MEMORANDUM OPINION AND ORDER

After the court granted in part and denied in part defendant Maersk Medical Limited's motion to dismiss the Complaint, the plaintiff, Medline Industries, Inc. filed an eight-count, Second Amended Complaint with this court. Presently before the court are: (1)Medline's motion for summary judgment on Count I; (2) Maersk's motion for summary judgment on Counts I, II, III, and V; (3) defendant Giltech Limited's motion for summary judgment on Counts I, IV, VI, and VII; and (4) defendant Tyco Healthcare Group, L.P.'s motion for summary judgment on Counts I and VIII. For the following reasons, the court grants: (1) Maersk's motion for summary judgment on Counts I, II, III, and V; (2) Giltech's motion for summary judgment as to Counts I, IV, VI, and VII; and (3) Tyco's motion for summary judgment on Counts I and VIII. Accordingly, the court denies Medline's motion for summary judgment as to Count I and dismisses this action in its entirety. Page 2

I. BACKGROUND*fn1

  A. The Parties

  Plaintiff Medline Industries, Inc., a privately-held Illinois corporation, is a manufacturer and distributor of Healthcare supplies and services. Defendant Maersk Medical Limited is a corporation organized under the laws of the United Kingdom with its principal place of business in England. Maersk participates in the manufacture and international sale of single-use medical devices. Defendant Giltech Limited is a Scottish corporation engaged in the design, development, and manufacture of technologies incorporated into other companies' medical devices, which are sold by Giltech's licences*fn2 throughout global markets, including the United States. Defendant Tyco Healthcare Group, L.P. is a Delaware limited partnership that sells medical products throughout the world. At issue are the parties' respective rights to woundcare products sold under the trademark "Arglaes".

  B. Giltech-Maersk Relationship

  Giltech invented, patented, and trademarked the "Arglaes" products which utilize controlled-release silver technology. Giltech and Maersk entered into a series of agreements regarding the "Arglaes" products, including a Patent Licence Agreement, a Trademark Licence Agreement, and two supply agreements. Specifically, on July 28, 1994, Giltech and Maersk Page 3 entered into the Patent Licence Agreement granting Maersk "an exclusive licence under the Patent Rights in the Field to make, have made, use, import, sell and otherwise dispose of Licenced Products" and "an exclusive licence to use and employ the Know-How in the Field for the manufacture, use, sale and other disposal of Licenced Products." The "Field" was defined as "wound management of, but not limited to wounds of the following origins, surgical intervention, intravenous puncture, catheterisation, chronic deterioration, acute onset, burns, ostomy and accident or emergency". "Licenced Products" was defined as "any products for use in the Field which . . . fall within the scope of any claim of any of the Patent Rights." The Trademark Licence Agreement grants Maersk the exclusive licence to use the trademark "Arglaes" as to the "Products" within the Field of wound management and provides for the granting of trademark sublicences. Giltech and Maersk also entered into two supply agreements in which Giltech agreed to exclusively supply to Maersk topical powder and polyurethane film dressing containing Arglaes silver release polymer.

  C. Maersk-Medline Distribution Agreement

  On December 1, 1997, Maersk and Medline entered into an agreement giving Medline exclusive distribution rights and a trademark sublicence ("Distribution Agreement"). Article 3(a) of the Distribution Agreement states in pertinent part: "[Maersk] represents that it holds an exclusive Supply Agreement for the supply to [Maersk] of the raw material necessary for the manufacturer [sic] by [Maersk] of Products and that said Supply Agreement is for the total duration of this Agreement and shall be maintained in full validity." In Article 3(b), "[Maersk] hereby represents that it has authority to grant and grants to Medline and Medline accepts an exclusive licence with a right to sub-licence to any Affiliate to use [Maersk's] rights under the Page 4 trade mark agreement held by [Maersk] from Giltech Limited for the Products in the Territory."

  "Products" is defined in Article 2 of the Distribution Agreement as "any and all Products listed in Annex A, together with any new wound management product sold under the trademark Arglaes." Listed in Annex A are five product formats, including Arglaes Film Dressing, Arglaes Island Dressing, Arglaes Powder Dressing, Arglaes/Alginate Powder Dressing, Arglaes/Alginate Mixed Fibre Dressing. Annex A also states: "The Product is a controlled release silver bearing woundcare dressing in film, powder or fibre form, or, any of the foregoing in any combination, or in combination with alginate fibre or alginate powder,"

  If, in the future, Maersk were to manufacture new Arglaes products, Article 6(a) of the Distribution Agreement grants Medline a right of first refusal — "If [Maersk] manufactures any extension to the range of wound management Products Trademarked Arglaes, as detailed in Annex A, such product may be added in Annex A in accordance with Article 6(b) at no cost to Medline."

  Article 21(d)(i) of the Distribution Agreement required Maersk to provide Medline with a written legal opinion from Giltech that the representations made by Maersk in Articles 3(a) and 3(b) of the Distribution Agreement were correct. Giltech's legal representatives provided a letter stating "Giltech have granted to [Maersk] an exclusive supply agreement whereby Giltech have agreed to supply only to [Maersk] Arglaes calcium phosphate glass and silver ("the Products") for use in wound management being management of wounds, including but not limited to wounds of the following origins; surgical intervention, intravenous puncture, catheterisation, chronic deterioration, acute onset, burns, ostomy and accident or emergency ("the Field")." In addition, the letter verified "[Maersk] are authorised to grant sub-licences in respect of the Page 5 trademark Arglaes under the Trademark Licence granted by Giltech to [Maersk]." The letter also stated: `The rights granted to [Maersk] by Giltech in respect of Giltech's rights in the trademark Arglaes and in respect of Giltech's patents and know-how relative to the Products in the Field are granted on a world-wide basis." Finally, the letter provided that: "All the Agreements between Giltech and [Maersk] are enforceable according to their terms." Giltech gave the letter to Maersk which, in turn, gave the letter to Medline.

  D. Amendments to Giltech-Maersk Agreements

  Due to dissatisfaction with the royalties from Maersk, Giltech approached Maersk in 1999 for the return of certain patent rights. Giltech and Maersk amended the Patent Licence Agreement, and thus created a "ring fence" or the outer boundaries of the "Products" by deleting the words "any products" from Clause l and substituting specifications for the five listed products. These specifications included film dressings, UK topical powder, US topical powder, island dressing, and fibre/fibre dressings. Maersk and Giltech intended these five products to coincide with the five products listed in Annex A of the Distribution Agreement between Maersk and Medline. In 2000, Giltech and Maersk renegotiated the specifications of the five products listed in the 1999 Amendment as they applied to the patent licence Giltech granted to Maersk.

  E. Giltech-Tyco Relationship

  On October 15, 2001, Giltech entered into a licence and supply agreement with Tyco that granted Tyco a licence in certain patent rights owned by Giltech. The licence was exclusive for the field of wound dressings, except to the extent that the "ring fence" rights were carved out to respect those rights remaining with Maersk after the 1999 and 2000 Amendments to the Patent Licence Agreement. On November 20, 2002, Giltech and Tyco executed a purchase agreement Page 6 which superseded the licence and supply agreement granting Tyco intellectual property relating to soluble biocompatible and biodegradable glass and polymer. The assigned intellectual property is free from any encumbrances of any kind except for the licences identified in Appendix F. Appendix F lists the Giltech-Maersk Patent Licence Agreement and the 1999 and 2000 Amendments. In the purchase agreement, "Giltech represents and warrants that the terms of this Agreement are not inconsistent with other contractual obligations Giltech may have, and that no assignment, sale, agreement or encumbrance has been, or will be made or entered into, which would conflict with this Agreement."

  Because approval from the Food and Drug Administration ("FDA") is generally required before an anti-microbial woundcare product can be sold commercially, Tyco intends to seek FDA approval for a hydrocolloid-type product incorporating the Giltech silver-release technology. A hydrocolloid-type product is different from the product formats listed in Annex A of Medline and Maersk's Distribution Agreement. Tyco represents that it has no intention to develop any products that would fall within the "ring fence" specifications set forth in the Amendments to the Giltech-Maersk Patent Licence Agreement. To date, Tyco has not offered for sale any commercial products incorporating the Giltech silver-release technology.

  F. The Current Lawsuit

  On February 13, 2002, Medline filed a six-count Complaint against Maersk, Giltech, and Tyco in the Circuit Court of Cook County. On April 18, 2002, Giltech and Maersk removed the action to this court based on diversity jurisdiction. Because there is complete diversity of citizenship and the requisite amount in controversy, the court has subject matter jurisdiction under 28 U.S.C. § 1332(a). Page 7

  On November 14, 2002, the court granted in part and denied in part Maersk's motion to dismiss. See Medline Indus. Inc. v. Maersk Med. Ltd., 230 F. Supp.2d 857 (N.D.Ill. 2002). On February 25, 2003, Medline filed an eight-count Second Amended Complaint. Count I seeks a declaratory judgment against all defendants. Count n alleges a breach of the Distribution Agreement against Maersk. Counts III and IV allege a breach of Medline's third-party rights against Maersk and Giltech, respectively. Next, Count V alleges fraudulent inducement to enter into the Distribution Agreement against Maersk. The next count, Count VI, alleges fraudulent misrepresentation against Giltech. Finally, Counts VII and VIII allege tortious interference with contract against Giltech and Tyco, respectively.

 II. CHOICE-OF-LAW

  Before evaluating the merits, the court must determine what substantive law applies to each claim in this diversity jurisdiction lawsuit. Under the Erie doctrine, a federal court exercising diversity jurisdiction must apply the choice-of-law rules of the state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); FDIC v. Wabick, 335 F.3d 620, 625 (7th Cir. 2003). Thus, this court, sitting in Illinois, will apply Illinois choice-of-law rules. This court has previously determined English law to be the substantive law governing the breach of contract claim under Count n and the fraudulent inducement claim under Count V. See Medline Indus. Inc., 230 F. Supp.2d at 862-63. Therefore, the court will apply English law to those claims and will conduct a choice-of-law analysis for the remaining substantive claims.

  A. Count III & IV — Third-Party Rights under Patent Licence Agreement

  Counts III and IV allege violations of Medline's third-party rights under the Patent Licence Agreement. The Patent Licence Agreement contains a choice-of-law clause which Page 8 provides that the agreement is to be "construed and interpreted in accordance with, and governed by, the Law of Scotland." Under Illinois law, a court will apply a contract's choice-of-law clause to disputes that arise from that contract, if the contract is valid. See Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1184-85 (7th Cir. 1996). The parties do not contest the validity of the Patent Licence Agreement and rely on Scottish law in their arguments. Therefore, the court will apply Scottish law to Medline's breach of third-party rights ...


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