Cases & Deals

LabCorp obtains favorable Federal Circuit ruling in jurisdictional dispute

Client(s) Laboratory Corporation of America Holdings

On March 11, 2010, the U.S. Court of Appeals for the Federal Circuit agreed with the arguments of Jones Day’s client Laboratory Corporation of American Holdings (doing business as LabCorp), and held that it did not have jurisdiction over the appeal of a state law contract dispute over know-how royalties brought pursuant to the district court’s diversity jurisdiction.

LabCorp is a provider of leading-edge medical laboratory tests and services. It was granted a license by Metabolite Laboratories, Inc. (Metabolite) to certain know-how and patent rights related to a patent that claims a method for detecting deficiencies of vitamin B12 and folate by assaying total homocysteine levels and correlating an elevated level of total homocysteine with a deficiency in either cobalamin or folate. After LabCorp outsourced the assay to a third-party, it filed a declaratory-judgment action seeking a ruling that the license agreement had been terminated. The district court held on summary judgment that LabCorp owed no further royalties under the license agreement. Metabolite appealed to the Federal Circuit arguing that its hypothetical claim necessarily raised a patent-law issue, thus falling under the Federal Circuit’s limited appellate jurisdiction. LabCorp argued that Metabolite’s appeal should be dismissed for lack of jurisdiction, or, in the alternative, transferred to the Tenth Circuit.

The Federal Circuit agreed with LabCorp and held that Metabolite did not meet its burden of demonstrating that its hypothetical claim depended on resolution of a substantial question of federal patent law. Metabolite’s hypothetical claim would have been a breach-of-contract claim premised on LabCorp’s continued referral of homocysteine-only assays to a third-party without paying know-how royalties. The Federal Circuit held that this was not a case in which the contract claim requires resolution of a related question of patent law. Also, the Federal Circuit held that the mere presence of a patent as relevant evidence to a claim does not by itself present a substantial issue of patent law. As such, the Federal Circuit did not have jurisdiction to resolve the case on the merits and transferred the appeal to the Tenth Circuit.

The LabCorp appeal team was led by Greg Castanias of Jones Day’s Washington office, who argued the appeal, and Lee DeJulius and John Miller of the Firm’s Pittsburgh office.

Laboratory Corporation of America Holdings (doing business as LabCorp) v. Metabolite Laboratories, Inc., Appeal No. 2008-1597 (Fed. Cir. March 11, 2010)