The Board of Regents of the University of Texas System v. Idexx Laboratories, Inc.
691 S.W.3d 438
Tex.2024Background
- The University of Texas (UT) licensed IDEXX Laboratories (“Labs”) to use its patent for a Lyme disease diagnostic test, with specific royalty provisions depending on test combinations.
- The licensing agreement, signed in 2000, outlined royalties: 4% for Lyme tests alone, 1% for Lyme plus one other test (e.g., heartworm), and 2.5% for Lyme plus one or more tick-borne disease tests.
- Labs' SNAP products combined Lyme disease, heartworm, and various tickborne disease tests; none matched the scenario of a Lyme-plus-only-one-other product.
- For over a decade, Labs paid a reduced 0.5% royalty (per the 1% provision) on all SNAP products, with detailed quarterly reports.
- At patent expiry, UT audited Labs, claimed wrong rates were applied, and sought unpaid royalties plus interest; trial court awarded UT about $45M, but the court of appeals found ambiguity in the royalty provisions.
- The Texas Supreme Court reviewed whether the contract was actually ambiguous or whether only one reasonable reading emerged from the agreement.
Issues
| Issue | Plaintiff’s Argument (UT) | Defendant’s Argument (Labs) | Held |
|---|---|---|---|
| Are the royalty provisions ambiguous? | Provisions are clear; "one other" restrictively means only one, so (b)(ii) doesn't apply to SNAP products with multiple additional tests. | Both (b)(ii) and (b)(iii) could apply; contract is ambiguous; ambiguity should go to jury. | Not ambiguous; context and contract interpretation make only one reading reasonable. |
| What is the proper interpretation of "one other" in (b)(ii)? | "One other" means exactly one additional test alongside Lyme (e.g., just heartworm). | "One other" could mean one or more tests; could cover all SNAP products. | "One other" is restrictive; only applies to products with Lyme plus one additional test. |
| Should different royalties apply to the same product sales? | No; parties must have intended that the different rates apply to mutually exclusive products. | Yes, if both provisions can apply, the lower rate should prevail. | Different provisions intended for different products; contract should not be read to create surplusage. |
| Does UT’s acceptance of payment at lower rate estop its claim for higher royalties? | No, UT didn’t discover issue until audit; rights not waived. | Yes, UT accepted reduced payments for years, reported in detail. | Labs’ defenses must be addressed on remand; acceptance did not bar UT’s claim as a matter of law. |
Key Cases Cited
- Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587 (Tex. 1996) (requires contracts to be construed as a whole in light of circumstances at execution)
- URI, Inc. v. Kleberg County, 543 S.W.3d 755 (Tex. 2018) (primary objective is to give effect to parties’ intent as expressed in the contract)
- Universal C. I. T. Credit Corp. v. Daniel, 243 S.W.2d 154 (Tex. 1951) (ambiguity exists only if reasonable doubt remains after applying interpretive rules)
- U.S. Polyco, Inc. v. Tex. Cent. Bus. Lines Corp., 681 S.W.3d 383 (Tex. 2023) (parties’ disagreement doesn’t establish ambiguity)