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Naturalock Solutions, LLC v. Baxter Healthcare Corp.

United States District Court, N.D. Illinois, Eastern Division

October 4, 2016



          Andrea R. Wood United States District Judge

         Plaintiff Naturalock Solutions, LLC (“Naturalock”) and Defendant Baxter Healthcare Corporation (“Baxter”)[1] entered into a license agreement relating to the commercialization of Naturalock's invention of s solution to replace or supplement certain prescription drug products manufactured by Baxter. Naturalock now alleges that Baxter engaged in a systematic scheme to block the development of its competing product. According to Naturalock, Baxter fraudulently procured the license agreement in an effort to prevent Naturalock from partnering with other manufacturers and then intentionally failed to fulfill its obligations under the agreement. Naturalock's amended complaint seeks a declaratory judgment regarding the parties' rights and duties under the license agreement and asserts common law claims for fraudulent inducement, breach of the license agreement, material breach of contract, negligence, and tortious interference. Before the Court is Baxter's motion to dismiss Naturalock's second (fraudulent inducement), fifth (negligence), and sixth (tortious interference) causes of action pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). (Dkt. No. 79.) For the reasons stated below, the motion is granted. Naturalock's three tort claims are dismissed without prejudice.


         According to the amended complaint, [2] Baxter develops, licenses, manufactures, and sells the prescription drug heparin, which is an anticoagulant, or blood thinner, that prevents blood clots. (Am. Compl. ¶¶ 5, 8, 14, Dkt. No. 77.) Heparin is derived from porcine (i.e., pig) intestines and used primarily to decrease the chance of blood clots in patients undergoing surgery, to prevent the formation of clots in catheters, and to treat conditions such as pulmonary embolism. (Id. ¶¶ 9, 12.) Numerous problems have been associated with the use of heparin, including catheter-related, blood-stream infections. (Id. ¶ 21.) In response to the proven need for a safer product, Naturalock invented a unique, all-natural anticoagulant with bactericidal and anti-fungal properties to guard against infection, which is meant to replace the traditional animal-derived heparin. (Id. ¶¶ 20-23.)

         In 2009, Naturalock entered into discussions with Baxter regarding the development and promotion of its invention. (Id. ¶ 24.) In 2010, the parties executed an exclusive global license agreement pursuant to which Baxter was to test, develop, and secure patent protection as well as FDA approval for Naturalock's product. (Id. ¶ 25.) Naturalock alleges that after signing the license agreement, Baxter intentionally delayed the project for approximately 30 months. (Id. ¶ 50.) First, Baxter failed to complete the technical feasibility studies on time. (Id. ¶ 26.) The studies were not completed until October 2011-four months after the original deadline. (Id.) In addition, Baxter failed to provide Naturalock with regular updates on the status of the project as promised. (Id. ¶ 27.) In November 2011, Naturalock requested an update and was promised that the final formulation of its invention would be finished by the second quarter of 2012. (Id.) Then, in February 2012, Naturalock requested a detailed update on the status of the project, including information regarding production issues, clinical trials, patent status, and funding. (Id. ¶ 28.) In response, Baxter simply stated that the project was progressing as planned without providing any additional details. (Id.)

         According to Naturalock, Baxter was also dilatory in the patent-prosecution process. (Id. ¶ 78.) Baxter assured Naturalock that the process was moving along as expected, but Naturalock later learned that, after receiving a non-final objection from the U.S. Patent and Trademark Office (“USPTO”), Baxter had simply resubmitted the applications without making any substantive modifications. (Id. ¶ 32.) Moreover, Baxter ignored Naturalock's request that certain test data and other supporting information be included in the submissions. (Id. ¶¶ 33, 39.) As a result, in September 2013, the USPTO issued a final rejection of the previous submissions and set a deadline of December 11, 2013 for the filing of a final revision request. (Id. ¶¶ 34-35.) In October 2013, Baxter informed Naturalock that a final draft of the patent submission would soon be ready for review. (Id. ¶ 34.) However, Naturalock did not receive the final draft until December 2, 2013-just over a week prior to the deadline. (Id. ¶ 35.) During a December 9, 2013 conference call to discuss the final submission, Baxter's patent counsel advised that the inclusion of certain test data, which Baxter had omitted from previous submissions, would be instrumental in supporting Naturalock's patent claims. (Id. ¶ 36.) Due to its delay, Baxter had no choice but to procure an extension of time from the USPTO. (Id.) Naturalock alleges that the prosecution of its patent application languished for many months thereafter. (Id. ¶ 38.)

         In the meantime, Baxter had promised to provide Naturalock with a list of foreign countries where it intended to pursue patent protection. (Id.) The list was to be completed in sufficient time to allow Naturalock to provide input prior to the deadline for international filing. (Id. ¶ 38.) Naturalock's primary goal was to obtain patent protection in Middle Eastern countries with large Muslim populations, where an all-natural solution was likely to sell more successfully than the pig-based heparin already on the market. (Id. ¶ 42.) Despite the parties' understanding, Baxter did not provide a country list; nor did it notify Naturalock of international filing requirements or the filing deadline. (Id. ¶ 43.) When Naturalock followed up regarding the list, Baxter advised that the deadline had already passed. (Id.) Baxter had filed the applications without providing Naturalock an opportunity to review or comment and had elected not to file in the 79 countries that had been a focus of Naturalock's marketing research, including a number of Middle Eastern countries. (Id. ¶¶ 43, 46.)

         In March 2014, shortly after learning that the international filing deadline had passed, Naturalock raised concerns regarding Baxter's delays, misrepresentations, and failures in performing its obligations under the license agreement. (Id. ¶ 47.) Baxter responded by giving notice of its election to terminate the agreement. (Id. ¶¶ 47, 49.) According to Naturalock, Baxter's explanation for the termination-that the project was not commercially feasible-was inconsistent with its representations, made in February 2014, that despite the delays, the project was still on track for completion that year. (Id. ¶¶ 49-51.) Naturalock alleges that the termination was in direct retaliation for its identification of Baxter's potential breaches of the license agreement. (Id. ¶ 98.) After receiving notice of the termination, Naturalock requested that Baxter turn over all test data and materials so that it could attempt to pursue patent prosecution, FDA approval, and commercialization on its own. (Id. ¶ 53.) Despite its data transfer obligations under the license agreement, Baxter refused to provide the necessary materials. (Id. ¶¶ 53-54.)

         Naturalock claims that Baxter's intention all along was to block the development of its invention in order to maintain its nearly 50 % share of the heparin market. (Id. ¶¶ 16, 99.) Naturalock alleges that Baxter, through misrepresentation of its intent to pursue in good faith the commercialization of its invention, fraudulently induced Naturalock to enter into the license agreement in an effort to prevent it from partnering with other manufacturers. (Id. ¶¶ 68, 102.) Naturalock further alleges that Baxter intentionally delayed, and failed to exercise due diligence in connection with, the patent application process in a systematic scheme to cause its failure. (Id. ¶ 37.) According to Naturalock, as a result of Baxter's intentional delay and lack of communication with respect to the filing of foreign patent applications, it has forever lost the ability to protect its invention in the countries that were a focus of its marketing research. (Id. ¶ 46.) Finally, Naturalock alleges that Baxter's refusal to turn over the test data and other materials is just another attempt to prevent the timely commercialization of its invention. (Id. ¶ 54.) Naturalock claims that Baxter's conduct will prevent it from commercializing its product for a significant period of time, thereby ensuring that it will not interfere with Baxter's current business plans. (Id. ¶ 56.)

         Naturalock's amended complaint sets forth six causes of action. The first is a declaratory judgment action seeking a determination of the parties' rights and responsibilities under the license agreement, specifically with respect to the test data required for the continued prosecution of Naturalock's patent application before the USPTO. Second, Naturalock claims that Baxter committed fraud in the inducement in connection with the negotiation and execution of the license agreement. Naturalock's third and fourth causes of action are for breach of the license agreement and material breach of contract, respectively. In its fifth claim, Naturalock alleges that Baxter was negligent in pursuing its patent application, in obtaining patent protection in foreign countries, and in commercializing its invention. Finally, Naturalock purports to state a claim for tortious breach of agreement and intentional interference with business relations, alleging that Baxter entered into the license agreement to prevent Naturalock from partnering with other manufacturers. With the present motion, Baxter seeks to dismiss Naturalock's second, fifth, and sixth causes of action.[3]


         I. Choice of Law

         As an initial matter, the Court must determine which state's substantive law governs Naturalock's common law tort claims. The license agreement between the parties includes a choice-of-law provision, which states:

This Agreement will in all events and for all purposes be deemed to have been executed in, and shall be governed by, and construed according to, the laws of the State of Delaware, applicable to contracts made and to be performed in that State[.]

(Pl. Resp. to Mot. to Dismiss at 8, Dkt. No. 84.) In light of that provision, Naturalock's response brief cites only Delaware law. Baxter, on the other hand, relies on Illinois law but also asserts that, to the extent conflict-of-law principles dictate that Delaware law applies, Delaware law is substantially the same as Illinois law with respect to Naturalock's tort claims.[4]

         A federal court exercising its diversity jurisdiction generally must apply the choice-of-law rules of the state in which it sits. See, e.g., Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009). However, because this lawsuit was transferred to this District from the Western District of Oklahoma pursuant to 28 U.S.C. § 1404(a), Oklahoma's choice-of-law rules apply. See Van Dusen v. Barrack, 376 U.S. 612, 639 (1964) (where a defendant seeks a change of venue under § 1404(a), the transferee district court must apply the state law that would have been applied if there had been no change of venue); Ferens v. John Deere Co., 494 U.S. 516, 519 (1990) (the same rule applies when a plaintiff moves to transfer); Edwardsville Nat'l Bank & Tr. Co. ...

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