QUIDEL CORPORATION, Pеtitioner, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; BECKMAN COULTER, INC., Real Party in Interest.
D075217 (Super. Ct. No. 37-2017-00044865-CU-AT-CTL)
COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
Filed 11/6/20
Opinion on transfer from Supreme Court; CERTIFIED FOR PUBLICATION; ORIGINAL PROCEEDING in mandate challenging an order of the Superior Court of San Diego County, Gregory W. Pollack, Judge. Petition granted.
Horvitz & Levy, Jeremy B. Rosen, Robert H. Wright, Stanley H. Chen; Charis Lex, Sean P. Gates, Eugene Illovsky, Douglas J. Beteta; Kesselman Brantly Stockinger, Amy T. Brantly and Trevor V. Stockinger, for Petitioner.
No appearance for Respondent.
California Appellate Law Group, Anna-Rose Mathieson, Susan Horst; Behmer & Blackford, Timothy S. Blackford; Williams & Connolly, John E. Schmidtlein and Carl R. Metz, for Real Party in Interest.
The California Supreme Court granted review of our opinion and ordered briefing deferred pending its decision in Ixchel Pharma, LLC v. Biogen, Inc., S256927. On August 3, 2020, the court issued Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130 (Ixchel), which held “a rule of reason applies to determine the validity of a contractual provision by which a business is restrained from engaging in a lawful trade or business with another business.” (Id. at p. 1162.) After the court issued its opinion in Ixchel, it transferred this matter to this court with directions to vacate our previous opinion and reconsider the case in light of its opinion in Ixchel.
We have followed the court‘s directions and now issue a new opinion in which we conclude the trial court‘s decision wаs incorrect. We will direct the trial court to vacate the December 7, 2018 order granting summary adjudication on the first cause of action.
FACTUAL BACKGROUND
In 1996, Biosite Inc. (Biosite)2 licensed patent rights and know-how related to a B-type natriuretic peptide (BNP), which can be measured in a person‘s blood. The semi-exclusive licensing agreement allowed Biosite to develop an immunoassay to determine the level of BNP in a person‘s blood sample, to help diagnose congestive heart failure. After acquiring the intellectual property rights and know-how, Biosite developed and created a BNP assay for use with its point-of-care analyzеr device, and it obtained regulatory approval. BNP assays only work on the analyzer for which they are designed.
By 2003, Beckman had developed a laboratory analyzer, but it did not have a license for a BNP assay compatible with its analyzer. Around this same time, other companies were also pursuing BNP assays for use with their larger analyzers, which could run multiple, different immunoassays at higher volumes than the point-of-care analyzer Biosite had. One company was also developing an assay to detect NT-proBNP, a closely-related assay that is a potential direct substitute for the BNP assay and is also based on B-protein.
If Biosite were to correlate a new BNP assay for use with the Beckman lab analyzer to its Federal Drug Administration-approved BNP assay, it could avoid the need to establish the new assay‘s efficacy through extensive clinical trials. Collaborating would mean Biosite could expand its customer base to those who wanted to use the larger capacity laboratory analyzers and Beckman could include the BNP assay in its menu of immunoassay offerings.
Biosite and Beckman, each represented by legal counsel, negotiated the Agreement over several months, and they exchanged numerous drafts before
Section 5.2.1 of the Agreement requires Beckman to offer for sale and to sell the BNP assay exclusivеly to Biosite. Section 5.2.2 prohibits Biosite from engaging third parties other than Beckman to manufacture for Biosite a diagnostic BNP assay for use. Section 5.2.3 of the Agreement prohibits Beckman from researching or developing an assay that detects the presence or absence of the BNP or NT-proBNP proteins or markers for use in diagnosing cardiac disease until two years before the Agreement‘s expiration. It does not prohibit the research or development of assays that detect the presence or absence of other proteins or markers, including the biomarkers ST2 or Galectin 3.
Although Beckmаn did not dispute that BNP and NT-proBNP assays were seen as and have become potential substitutes for purposes of the motion for summary adjudication, the parties’ characterization of the BNP assays and NT-proBNP assays are slightly different. Quidel characterizes the two as closely-related, with the NT-proBNP assay serving as a potential direct substitute for the BNP assay because it detects a peptide that is secreted alongside the BNP. Beckman has alleged the NT-proBNP assay measures a different protein and uses different antibodies and proteins than the BNP assay, suggesting they are distinctly different.
PROCEDURAL HISTORY
On November 27, 2017, Beckman suеd Quidel for declaratory relief for violation of
In August 2018, Beckman filed a motion for partial summary adjudication on the declaratory judgment cause of action. In its papers, Beckman stated it was developing and planning to launch a new laboratory analyzer platform and wanted to develop a competing assay product for the new platform. It argued section 5.2.3 of the Agreement was a non-compete clause that was void under
The trial court ultimately granted Beckman‘s motion for summary adjudication. It noted none of the statutory exceptions to the restraint on trade outlined in
Quidel moved to stay the order pending final appеal or pending resolution of a writ petition seeking a stay and sought an extension of time to file a writ. The court granted the request.
On January 18, 2019, Quidel filed a petition for writ of mandate and/or prohibition and sought a stay pending a determination of the writ on its merits. Beckman filed a preliminary opposition to the petition, to which Quidel replied. We issued an order to show cause why a peremptory writ should not issue and stayed the order granting Beckman‘s motion for summary adjudication pending further order. We deemed the preliminary opposition filed by Beckman to be its return to the order to show cause.
Following issuance of our original opinion, Quidel filed a petition for review with the Supreme Court, which the court granted and deferred pending consideration of Ixchel. Once the Supreme Court filed its decision in Ixchel, it transferred this matter back to this court. We invited the parties to submit supplemental letter briefs discussing the impact of Ixchel on the issues in this case, and in their letters, the parties agreed the matter should be remanded to the trial court for further proceedings. We now turn to the merits of the petition.
A
Review on Petition for Writ Appropriate
As a preliminary matter, this case is appropriately before us as a petition for writ of mandate. Although appellate courts “seldom use extraordinary writs to review interlocutory summary adjudicatiоn orders (grants or denials)” (Int‘l Ins. Co. v. Superior Court (1998) 62 Cal.App.4th 784, 788), writ review of such orders is statutorily authorized (
In the present case, the petitioner raised a significant legal question of broad public interest: Does
B
Standard of Review
A grant of summary adjudication is appropriate if there are no triable issues of material fact and the moving party is entitled to judgment as a matter of law. (
We review a motion for summary adjudication de novo. (Benson v. Superior Court (2010) 185 Cal.App.4th 1179, 1184-1185.) On appeal, we independently assess the correctness of the ruling, applying the same legal standard as the trial court to determine if there are genuine issues of material fact. (AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, 934 (AMN Healthcare); Fisherman‘s Wharf, supra, 114 Cal.App.4th at p. 320.) “In performing our review, we view thе evidence in a light favorable to the losing party . . . , liberally construing [the] evidentiary submission while strictly scrutinizing the moving party‘s own showing and resolving any evidentiary doubts or ambiguities in the losing party‘s favor.” (Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 859.)
C
Section 16600
At the heart of this dispute is the interpretation of
Quidel distinguishes the holding in Edwards in two ways. First, it argues the holding should not be extended beyond the employment context it decided. Second, it notes Edwards addressed postterm covenants not to compete, and Quidel argues in-term covenants should be treated differently.
In Edwards, the plaintiff signed an agreement with Arthur Andersen that prohibited him from wоrking for or soliciting any of Arthur Andersen‘s clients for a period of time following his termination of employment. (Edwards, supra, 44 Cal.4th at p. 942.) When Arthur Andersen was purchased by HSBC, HSBC offered to employ Edwards, but it required him to sign a termination of noncompete agreement that, among other things, indicated he was voluntarily resigning from Arthur Andersen and released Arthur Andersen from any and all claims. (Id. at p. 943.) In exchange, Arthur Andersen would release Edwards from the noncompetition agreement. (Ibid.) Edwards argued the initial noncompetition agreement was illegal under
The Supreme Court agreed with Edwards. It explained: “[S]ection 16600 evinces a settled legislative policy in favor of open competition and employee mobility“; it noted people have the right to pursue lawful employment and to engage in businesses and occupations of their choice. (Edwards, supra, 44 Cal.4th at p. 946.) Accordingly, it concluded the noncompete provision was prohibited by
However, “‘[i]t is axiomatic that language in a judicial opinion is to be understood in accordance with the facts and issues before the court. An opinion is not authority for propositions not considered.‘” (Kinsman v. Unocal Corp. (2005) 37 Cal.4th 659, 680, quoting Chevron U.S.A., Inc. v. Workers’ Comp. Appeals Bd. (1999) 19 Cal.4th 1182, 1195.) The Supreme Court defined the relevant issue as whether “Business and Professions Code section 16600 prohibit[s] employee noncompetition agreements,” (Edwards, supra, 44 Cal.4th at pp. 941-942, italics added), and it concluded “section 16600 prohibits employee noncompetition agreements unless the agreement falls within a statutory exception” (Id., at p. 942., italics added). Thus, the per se ban on noncompetition clauses outlined in Edwards is limited to employment agreements. (Ixchel, supra, 9 Cal.5th at p. 1158 [“The question of whether noncompetition agreements outside the employment context are per se invalid was not presented in Edwards.“].)
Beckman contends a panel of this court, in AMN Healthcare, concluded the rule outlined in Edwards applies “notwithstanding the different factual context or the existencе of prior inconsistent authority.” We disagree. AMN Healthcare addressed solicitation of individual employees by a competitor. (AMN Healthcare, supra, 28 Cal.App.5th at pp. 928-931.) The conclusion that the noncompete and nonsolicitation clause was invalid focused on the interests of the employees in the context of their employment agreements, and the challenged portion of the employment contract “restrained individual defendants from practicing . . . their chosen profession—recruiting travel nurses . . . .” (Id. at p. 936.)
Unlike noncompete clauses that attempt to dilute or eliminate employee mobility, an interest California courts have found to be a cherished commercial right (Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514), which is paramount to a business‘s competitive interest (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1151), the clause at issue in the matter before us presents a different context, challenging a provision in an exclusive dealing agreement between two sophisticated biotechnology companies. Here, no individual person‘s ability to seek employment is impacted by the challenged portion of the Agreement. Simply put, this matter falls outside the confines of Edwards because it does not address an individual‘s ability to engage in a profession, trade, or business.
2. Covenants Not to Compete Outside the Employment Context
Noncompetition clauses have been deemed valid outside the employment аrena. In Great Western Distillery Products, Inc. v. John A. Wathen Distillery Co. (1937) 10 Cal.2d 442 (Great Western), the parties entered a requirements contract in which one party would purchase all the whiskey it required for sale in California from the other, and in exchange the other party would not sell
The Supreme Court determined the purpose of the contract in Great Western was to promote business, and it concluded any incidental or indirect restrictions did not bring the contract within the statute. (Great Western, supra, 10 Cal.2d at p. 446.) It explained the contract was “an attempt by the parties to create a market, within a small designated territory, for the warehouse receipts of bourbon whiskey of one firm to investors in that type of security. Such a limited restriction does not appear to affect the public interests and is obviously designed only to protect the respective parties in dealing with each other. Furthermore, it does not appear that it was the intent of the parties to control by monopoly the market price of the securities or in any manner to interfere with the normal fluctuations resulting from the law of supply and demand.” (Id. at pp. 449-450.)
Following Great Western, courts applied a test of reasonability, contemplating whether the arrangement promoted competition. For example, in Keating v. Preston (1940) 42 Cal.App.2d 110 (Keating), the Court of Appeal upheld a provision that barred a lessor from leasing space to competing businesses, commenting the then-modern trend was to evaluate “contracts between individuals intended to promote rather than to restrict a particular business, ‘[i]n the light of reason and common sense’ so as to uphold reasonable limited restrictions.” (Id. at p. 123, quoting Great Western, supra, 10 Cal.2d at p. 446.) Similarly, in Centeno v. Roseville Community Hospital (1979) 107 Cal.App.3d 62, the Court of Appeal concluded a hospital‘s exclusive arrangement with a radiology medical group to run the radiology department at the hospital was valid under
While California courts have followed a rule of reasоn outside the employment context, they have also concluded, without discussion, that agreements to develop monopolies are unlawful. (See Ixchel, supra, 9 Cal.5th at p. 1154 [citing cases invalidating contractual restraints in the business context that did not expressly apply a reasonableness standard].) For example, in Vulcan Powder Co. v. Hercules Powder Co. (1892) 96 Cal. 510 (Vulcan Powder), the court concluded the agreement at issue violated former Civil Code section 1673‘s prohibition of restraint on trade. (Vulcan Powder, at p. 515.) There, four dynamite powder companies agreed to sell their products at a price fixed by a committee of their representatives, limit the territories where the companies could sell their product, and pay to the other companies any profit they earned in excess of the sales over a fixed portion of the total sales. (Id. at pp. 513-514.) The agreement developed a monopoly designed to control the price of a commodity, based on a patent held by some of the parties. (See Standard Oil Co. v. United States (1931) 283 U.S. 163, 174-175 [describing relationship as a monopoly]; see also Meyers v. Merillion (1897) 118 Cal. 352, 355-356 [same].) The court did not need to discuss the reasonableness of the restraint on trade because the “tendency to create a monopoly . . . was the objectionable feature of the agreement[] declаred invalid.” (Grogan v. Chaffee (1909) 156 Cal. 611, 614.)
Thus, as long as a noncompetition provision does not negatively affect the public interests, is designed to protect the parties in their dealings, and does not attempt to establish a monopoly, it may be reasonable and valid. (See Great Western, supra, 10 Cal.2d at pp. 449-450; see also Vulcan Powder, supra, 96 Cal. at p. 516; see also Associated Oil Co. v. Myers (1933) 217 Cal. 297, 304 (Associated Oil).)
3. In-Term Covenants Not to Compete
Quidel separately contends Edwards is distinguishable from the case at hand because it evaluated a postterm covenant not to compete, while in-term noncompetition clauses have been held valid. To support its position, Quidel cites Dayton Time Lock Service, Inc. v. Silent Watchman Corp. (1975) 52 Cal.App.3d 1 (Dayton Time Lock). The agreement there contained a noncompete provision that prohibited the franchisee from competing with the franchisor for the duratiоn of the contract and for ten years thereafter. (Id. at p. 5.) The court held anticompetition limitations in
Beckman contends Dayton Time Lock is inapplicable, and it cites Kelton v. Stravinski (2006) 138 Cal.App.4th 941, 947-948 (Kelton) to support its contention that in-term covenants not to compete are invalid. In Kelton, the parties entered a partnership to develop warehouses, but it required the parties to identify the specific projects that fell within the partnership and permitted the parties to participate in other warehouse development activities outside their arrangement. (Id. at p. 944.) They separately executed a covenant not to compete, one party agreeing to abstain from operating a warehouse and the other abstaining from designing or building any warehouses. (Id. at p. 945.) Kelton eventually sued Stravinski claiming an interest in a variety of projects under the terms of the covenant not to compete. (Id. at p. 945.) The court concluded the covenant not to compete contravened the public policy of open competition in violation of
Although Kelton distinguished its facts from those in Dayton Time Lock because Dayton Time Lock regarded a franchise agreement instead of an equal partnership, the Ninth Circuit noted that ”Dayton Time Lock and Kelton make evident that under [section] 16600 an in-term covenant not to compete in a franchise-like agreement will be void if it ‘foreclose[s] competition in a substantial share’ of business trade or market.”4 (Comedy Club, Inc. v. Improv West Associates (9th Cir. 2009) 553 F.3d 1277, 1292, quoting Dayton Time Lock, supra, 52 Cal.App.3d at p. 6.) Thus, in-term covenants not to compete in exclusive dealing agreements are not per se invalid.
Finally, Beckman argues
As the Supreme Court recently explained, the Cartwright Act and
Further, the statutes can apply to different courses of action. While
D
Application of Section 16600 to the Agreement
To prevail on its motion for summary adjudication, Beckman must demonstrate there are no triable issues of material fact thаt challenge the reasonability of section 5.2.3 of the Agreement. That is, Beckman must show there is no dispute that section 5.2.3 (1) tends to restrain trade more than promote it (Great Western, supra, 10 Cal.2d at p. 446; Ixchel, supra, 9 Cal.5th at pp. 1160-1161; Martikian v. Hong (1985) 164 Cal.App.3d 1130, 1133; Keating, supra, 42 Cal.App.2d at p. 123); (2) is not necessary “to protect the respective parties in dealing with each other” (Great Western, at pp. 449-450; Associated Oil, supra, 217 Cal. at p. 306; Martikian, at p. 1133); or (3) forecloses a substantial share of the line of commerce. (Kelton, supra, 138 Cal.App.4th at pp. 947-948.)
There is no dispute that section 5.2.3 of the Agreement limits Beckman‘s ability to develop a competing assay to diagnose cardiac disease. Section 5.2.3 prohibits Beckman from researching or developing an assay that detects the presence or absence of the BNP or NT-proBNP proteins or markers. Quidel maintains that the BNP and NT-proBNP assays are interchangeable and that Beckman can research and develop the presence or absence of other biomarkers, like ST2 or Galectin 3, suggesting the restraint is reasonably narrow. However, whether these limitations tend to restrain trade more than promote it remains unclear and requires a factual analysis.
Additionally, whether section 5.2.3 of the Agreement is necessary to protect the parties in their dealings similarly requires a factual analysis, and the record on this issue is incomplete. Quidel argues that because the NT-proBNP аssay is a direct substitute for the BNP assay, the prohibition on researching and developing an NT-proBNP assay until two years before the
In the November 7, 2018 hearing, Beckman‘s attorneys repeatedly conceded that the purpose of their motion for summary adjudication was to avoid engaging in detailed discovery on anti-trust issues, stating that if “full-blown anti-trust analysis” was required, the motion should be denied. Because the rule announced in Edwards does not extend beyond the employment context and a rule of reason applies to determine the validity of the contractual provision (Ixchel, supra, 9 Cal.5th at p. 1162), we conclude such factual development is relevant and necessary here.
DISPOSITION
The рetition for writ of mandate and/or prohibition is granted. Let a writ issue directing the trial court to vacate its December 7, 2018 order granting the motion for summary adjudication, and to enter a new order denying the motion. The stay issued by this court on March 14, 2019, is vacated.
Petitioner to recover costs.
HUFFMAN, Acting P. J.
WE CONCUR:
IRION, J.
GUERRERO, J.