ChemImage Corporation v. Johnson & Johnson
1:24-cv-02646
| S.D.N.Y. | May 30, 2025Background
- ChemImage (developer of multispectral/hyperspectral AI imaging) entered a 2019 R&D, license, and commercialization Agreement with Ethicon (a J&J subsidiary) under which Ethicon could pay up to $174M tied to milestones; the Agreement created a two-party Joint Steering Committee (JSC) to determine whether Milestones were met and set termination procedures (including a 30-day notice-and-cure and distinct remedies for for-cause vs without-cause termination).
- ChemImage achieved Milestone 1A and an Ethicon-integrated perfusion subcomponent of Milestone 1B; parties agreed (via the JSC) to phase Milestone 1B so ChemImage would prioritize Veins/Arteries/Bile Ducts (VAB) with a JSC-set deadline of Dec. 16, 2022.
- ChemImage submitted a final VAB report Dec. 16, 2022; Ethicon ran rounds of Q&A about data collection and use of "ignore" labels, postponed labs, and declined to convene a full JSC meeting to resolve the dispute.
- On Mar. 6, 2023 Ethicon sent a termination-for-cause letter asserting the VAB report was "not evaluable" (data errors, omnipresent ignore labels, negative-control uncertainty) and set a 30‑day cure period; Ethicon formally terminated Apr. 26, 2023. ChemImage sued; bench trial occurred Mar. 2025.
- The Court held Ethicon breached the Agreement by terminating for cause without a final JSC determination on Milestone 1B; it rejected or did not reach other procedural/substantive breach theories and dismissed ChemImage's tortious-interference claim against J&J.
- Relief awarded (in principal): $40 million termination fee as for a without‑cause termination (plus statutory interest from July 4, 2023), attorneys’ fees and costs (to be determined), a declaratory judgment restoring ChemImage’s pre‑existing IP rights, and additional IP-impairment damages to be quantified after further briefing and adjustments to the valuation model.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of notice and cure | Ethicon's Mar. 6 letter lacked sufficient detail and blocked cure; cure was impeded by Ethicon's cancellations | Letter and prior Q&A gave reasonable detail; defects were not curable within 30 days and ChemImage did not diligently cure | Notice was adequate; cure provision not breached because ChemImage failed to commence/diligently prosecute a cure |
| Termination for failing a subset of a milestone (VAB) | A failure of only a subset of Milestone 1B cannot be a material breach allowing for-cause termination | Failure to achieve a subset can constitute failure of the Milestone as a whole; deadlines were set by JSC | Court finds no merit to the subset-only protection argument; a subset failure can constitute failure of Milestone 1B |
| Whether Ethicon had to obtain a JSC determination before terminating for cause | JSC (joint body) was contractually assigned the milestone-determination function; Ethicon breached by terminating without a final JSC determination and without following deadlock/meet-and-confer procedures | JSC process would have been futile; Ethicon (or internal leadership) had authority to decide; parties' practice showed Ethicon acceptance in prior milestones | Court: Termination was invalid because the Agreement required the JSC determination (or the prescribed deadlock process) and Ethicon failed to follow it; Ethicon breached |
| Tortious interference by J&J | J&J induced breach to tie up ChemImage IP and block other partnerships (malicious intent) | J&J merely aligned with Ethicon and acted to protect its economic interest as parent; no proof of specific procurement or malice | Claim dismissed: no proof J&J intentionally procured the specific breach and the economic-interest defense protects J&J |
Key Cases Cited
- Bausch & Lomb Inc. v. Bressler, 977 F.2d 720 (2d Cir. 1992) (conditions precedent to cancellation must be complied with)
- Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918 (2d Cir. 1977) (notice provisions should be read to effect their remedial purpose; related communications may supply context)
- Olin Holdings Ltd. v. State of Libya, 73 F.4th 92 (2d Cir. 2023) (conditions precedent must be expressed plainly and enforced)
- Bank of N.Y. Mellon Trust Co. v. Morgan Stanley Mortg. Capital, Inc., 821 F.3d 297 (2d Cir. 2016) (contracts read as a whole; linguistic markers indicate conditions precedent)
- Wolff & Munier, Inc. v. Whiting-Turner Contracting Co., 946 F.2d 1003 (2d Cir. 1991) (futility exception to strict compliance with conditions precedent limited to repudiation/abandonment)
- White Plains Coat & Apron Co. v. Cintas Corp., 867 N.E.2d 381 (N.Y. 2007) (recognizing economic-interest defense to tortious interference)
- American Protein Corp. v. AB Volvo, 844 F.2d 56 (2d Cir. 1988) (parent/subsidiary economic interest can justify termination absent malice)
- Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000) (distinguishing general damages from consequential damages; market value for the promised performance is general)
- Tractebel Energy Mktg., Inc. v. AEP Power Mktg. Inc., 487 F.3d 89 (2d Cir. 2007) (certainty requirement pertains to fact of damages, not amount)
- Process Am., Inc. v. Cynergy Holdings, LLC, 839 F.3d 125 (2d Cir. 2016) (once fact of damages proven, burden of uncertainty as to amount shifts to breaching party)
- Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000) (district court discretion in fixing reasonable attorneys' fees)