# MDS (Canada), Inc. v. Rad Source Technologies, Inc.

> District Court, S.D. Florida · September 30, 2011 · 822 F. Supp. 2d 1263

URL: https://www.frixlaw.com/law-library/cases/2172674

## Case

- **Full name:** MDS (CANADA), INC., Best Theratronics, Ltd., and Best Medical International, Inc., Plaintiffs, v. RAD SOURCE TECHNOLOGIES, INC., Defendant
- **Court:** District Court, S.D. Florida
- **Decided:** September 30, 2011
- **Citations:** 822 F. Supp. 2d 1263; 2011 U.S. Dist. LEXIS 113273; 2011 WL 4591186
- **Precedential status:** Published
- **Opinion:** Opinion by Gold
- **Judges:** Alan S. Gold
- **Cited by:** 11 later opinions in the Frix Law Library

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## Opinion text

FINDINGS OF FACT AND CONCLUSIONS OF LAW FOLLOWING NON-JURY TRIAL
ALAN S. GOLD, District Judge.
THIS CAUSE is before the Court in the above-captioned matter, which came on for a ten-day, non jury trial beginning April 5, 2011 and concluding April 20, 2011.
See
[ECF Nos. 320-326, 328-330]. A total of twelve witnesses were sworn and testified, and the testimony of two witnesses was introduced by deposition. Counsel presented opening statements and closing arguments with respect to the first two phases of the trial, as described more fully
infra.
Pursuant to a Pretrial Conference held on March 10, 2011, this matter was intended to be tried in three phases: Phase I — Liability, Phase II — Technical/Patent, and Phase III — Damages.
See
[ECF No. 315]. Upon the conclusion of Phases I and II,
1
I determined that Phase III was unnecessary because based on the evidence presented during Phases I and II, no party was entitled to any damages in this action. [ECF No. 330].
2
On April 20, 2011, upon the conclusion of the bench trial, I entered a Preliminary Order to provide definitive rulings on disputed matters as addressed by the parties’ operative pleadings. [ECF No. 330]. Entry of the Preliminary Order enabled the parties to proceed with the right of first negotiation pursuant to Article 3.8 of the License Agreement, with the instant detailed Findings of Fact and Conclusions of Law to follow.
Id.
On August 12, 2011, the mediator filed a report indicating that the parties reached an impasse. [ECF No. 347]. Based on the fact that the parties did not reach a resolution following the mediation — the purpose of which was for the parties to engage in the right of first negotiation — I now enter the instant Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52(a).
I.
FINDINGS OF FACT
3
A.
Introduction
1. This case is before the Court upon Plaintiffs’ Third Amended Complaint [ECF No. 286] and Rad Source’s counter
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claim for declaratory judgment, or reformation of contract in the alternative [ECF No. 290].
4
This case centers upon a written agreement (the “License Agreement”) to license patents and technology for devices that irradiate blood. [ECF No. 286-1].
2. Blood irradiation is the process of eliminating pathogens and other microbes in blood to,
inter alia,
reduce the risk of Graft Versus Host Disease (a common complication of bone marrow transplants) for the purposes of transfusion. 4/5/11 Tr.
5
at 65:6-9.
3. In the License Agreement, Defendant Rad Source Technologies, Inc. (“Defendant” or “Rad Source”) licensed rights to MDS Nordion, a division of Plaintiff MDS (Canada) Inc. (“MDS” or “Nordion”) to,
inter alia,
manufacture and sell a blood irradiator system known as the RS 3000.
6
4. Essentially, what is at stake in this case is the parties’ rights to develop, market, and sell certain blood irradiation devices including the RS 3000 and RS 3400.
5. Since the crux of this case lies in the interpretation of the parties’ License Agreement entered into on August 20, 2003 [ECF No. 286-1], a significant portion of the instant Findings of Fact and Conclusions of Law analyzes various provisions of the License Agreement referred to as “Articles” or “Sections.”
See generally infra
§§ II.F-N.
6. In particular, interpretation of the following three
Articles of the License Agreement
— and their relation to each other — is at issue:
(1) 3.1 — Grant of License
(2) 5.3 — non-compete provision
(3) 3.8 — right of first negotiation
7. To provide a useful overview of this case, I begin with key documents and relevant witnesses. The critical
written agreements
in this case are:
(1) August 20, 2003 License Agreement (“License Agreement”) between Nordion and Rad Source
(2) 2008 Sublicense Agreement (“Sublicense Agreement”) between Nordion and Best
(3) May 2008 Asset Purchase Agreement (“Asset Purchase Agreement”) between Nordion and Best
Relevant
witnesses
in this case are:
(1) Neil Gotfrit — Nordion Associate General Counsel
(2) Randol Kirk — Rad Source Chief Executive Officer
(3) Carolin Vandenberg — Nordion Former Director of Marketing
(4) Shawn Weingast — Best Medical General Counsel
(5) Phil Larabie — Nordion Vice President and Business Development Officer
(6) Paul Moses — Best Theratronics Director of Global Sales, Service and Marketing
(7) Will Hartman — Rad Source Chief Financial Officer and Executive Vice President,
(8) Gord Ashfield — Nordion Former Vice President
The following
expert witnesses
testified on behalf of the parties:
(1) Dr. Jon Roberts — Plaintiffs (patents)
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(2) Stephen Szeglin, MS — Plaintiffs (physicist)
(3) David Mullís — Defendant (FDA 510(k) process)
(4) Dr. Roberto Uribe — Defendant (patents)
8. In addition to the License Agreement, this case involves Rad Source’s development of an x-ray blood irradiator known as the RS 3400. Accordingly, a significant portion of the instant Findings of Fact and Conclusions of Law discusses whether the RS 3400 “embodies in whole or in part the Patents” in the License Agreement. Plaintiffs’ position is that because the RS 3400 embodies the Patents, Plaintiffs hold the exclusive right and license to,
inter alia,
manufacture and sell the RS 3400. Conversely, Rad Source argues that the RS 3400 does not embody the Patents and therefore Rad Source can continue to develop and market the RS 3400.
9. A third critical subject matter in this case is the effect of a Sublicense Agreement between Plaintiffs MDS (Canada), Inc., Best Theratronics, Ltd., and Best Medical International, Ine.’s (collectively “Plaintiffs”) on all parties’ rights and obligations under the License Agreement.
10. Finally, a technical/patent analysis of the RS 3400 and the Patents at issue in the License Agreement comprises the last aspect of this case.
B.
Procedural history
1.
Preliminary injunction
11. On October 15, 2009, Plaintiffs brought this action and simultaneously filed an Emergency Motion seeking a temporary restraining order and preliminary injunction (“Emergency Motion”). [ECF No. 2]. The basis for Plaintiffs’ Emergency Motion was because Rad Source intended to promote and market the RS 3400 at the American Association of Blood Banks (“AABB”) Annual Meeting on October 24, 2009 which — according to Plaintiffs — violated the non-compete provision (Article 5.3) in the License Agreement. [ECF No. 2, p. 2];
see also id.
at ¶ 7.
12. On October 21, 2009, I held an evidentiary hearing on Plaintiffs’ Emergency Motion where the parties had the opportunity to present arguments and examine witnesses.
See
[ECF No. 36]. On October 22, 2009, I issued an Interim Order, ordering Rad Source “to immediately refrain from exhibiting, distributing, promoting, marketing, selling, or leasing— whether directly or indirectly — the RS 3400 blood irradiation device or a substantial equivalent” until a subsequent evidentiary hearing and subject to the terms of a Final Order to be issued following the subsequent evidentiary hearing. [ECF No. 37].
13. On October 24, 2009, I held a subsequent hearing on Plaintiffs’ Emergency Motion.
See
[ECF No. 39]. On October 27, 2009, I issued a Preliminary Order on Plaintiffs’ Emergency Motion for Preliminary Injunction Setting Forth Findings of Fact and Conclusions of Law (“October 27, 2009 Order”). [ECF No. 40]. By this order, I granted Plaintiffs’ Emergency Motion, concluding that entry of a preliminary injunction was appropriate upon making various findings of fact and conclusions of law for the limited purpose of deciding Plaintiffs’ Emergency Motion. [ECF No. 40]. This order also preliminarily enjoined Rad Source from “directly or indirectly exhibiting, promoting, marketing, selling or leasing the RS 3400 or any other blood or blood product irradiation device or technology” pending a further order following a hearing on the injunction’s scope and bond. [ECF No. 40, p. 18].
14. On October 29, 2009, I held a hearing on the scope of the injunction and issuance of bond.
See
[ECF No. 44]. On
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November 4, 2009, I issued a Supplemental Order Setting Injunction Bond and Clarifying Scope of Preliminary Injunction (“November 4, 2009 Order”). [ECF No. 48]. By this order, I modified the scope of the preliminary injunction entered in my October 27, 2009 Order [ECF No. 40] as follows:
Defendant Rad Source and its agents, directors, employees, officers, affiliates, attorneys, and all others in active concert or participation with any of them are hereby PRELIMINARILY ENJOINED from directly or indirectly designing, developing, promoting, manufacturing, distributing, marketing, selling, leasing, providing service for, or providing maintenance for the RS 3400 blood irradiation technology, device, or any substantial equivalent and shall not carry on any other activities which compete in any way with the blood irradiation business (including the irradiation of blood and blood products) carried on by Plaintiff MDS directly or through its sublicensees, Plaintiffs Best Theratronics and Best Medical. This injunction shall remain in full force and effect until further Order of this Court or until September 26, 2010, whichever comes first.
[ECF No. 48].
15. On December 21, 2010, through an omnibus order, I denied Rad Source’s Motion for Partial Summary Judgment; Rad Source’s Second Motion for Partial Summary Judgment; and Plaintiffs Motion for Summary Judgment. [ECF No. 265].
2.
Preliminary Order following trial
16. On April 20, 2011, upon the conclusion of the trial, I entered a Preliminary Order to provide definitive rulings on disputed matters as addressed by the parties’ current pleadings and therefore, to enable the parties to proceed with the right of first negotiation pursuant to Article 3.8 of the License Agreement, pending the completion of the instant detailed Findings of Fact and Conclusions of Law. [ECF No. 330].
17. By entry of the Preliminary Order, I determined the following:
(1) Defendant’s RS 3400 is not subject to Section 3.1 of the License Agreement and Defendant may market the RS 3400 which may compete as against the RS 3000, as modified by Plaintiffs, subject to the right of first negotiation set forth in Section 3.8;
(2) the License Agreement remains in full force and effect through its termination date, and Plaintiffs have full rights and benefits as to the RS 3000 as modified (now known as the Raycell Mk2);
(3) pursuant to Section 3.8, Defendant shall provide to Plaintiffs a right of first negotiation for the RS 3400 in accordance with the provisions of that section;
(4) the parties shall participate in mediation with regard to Section 3.8, with Plaintiffs and Defendant to equally bear the costs of mediation;
(5) the non-compete provision of the License Agreement in Section 5.3 is no longer in effect having expired by its own terms on September 26, 2010;
(6) Plaintiffs shall bear the cost of preparing the transcripts in this matter, which payment shall be due ten days after the transcripts are filed of record; and
(7) neither party shall recover damages from the other. [ECF No. 330].
18. The Preliminary Order was not intended to constitute an appealable final order or judgment, as I reserved to enter the instant detailed Findings of Fact and Conclusions of Law.
See
[ECF No. 330].
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19. On August 12, 2011, the mediator filed a report indicating that the parties reached an impasse. [ECF No. 347]. On September 27, 2011, the parties filed a Joint Status Report indicating the same, as well as detailing: Rad Source’s production of documents to Plaintiffs; Plaintiffs’ visit to Rad Source’s manufacturing facility in Georgia on May 31, 2011; Best Medical’s written counter-proposal to Rad Source’s May 19, 2011 proposal; the parties’ exchange of correspondence; and the Mediator’s Report indicating that the parties reached an impasse. [ECF No. 349].
C.
Parties
20. Plaintiff MDS (Canada) Inc., now known as Nordion (Canada), Inc. (“Nordion” or “MDS”) is a corporation organized under the laws of Canada, with its principal place of business located in the province of Ontario. Joint Pretrial Statement (“J.P.S.”) [ECF No. 310] ¶ 1;
see also
4/5/11 Tr. at 65:12-21. Nordion is a niche health science company operating in the areas of detection, prevention, and diagnosis of disease. 4/5/11 Tr. at 65:23-24.
21. Plaintiff Best Theratronics, Ltd. (“Best Theratronics”) is a corporation organized under the laws of Canada, with its principal place of business located in the province of Ontario. J.P.S. ¶ 2.
22. Plaintiff Best Medical International, Inc. (“Best Medical”) is a corporation organized under the laws of the Commonwealth of Virginia and has its principal place of business located in the Commonwealth of Virginia. J.P.S. ¶ 3.
23. Defendant Rad Source Technologies, Inc. (“Rad Source”) is a corporation organized under the laws of Florida, with its principal place of business in the state of Georgia. J.P.S. ¶ 4. Rad Source specializes in research and development of irradiation technologies, and it participated in developing technology contained in the RS 3000 blood irradiation device and the device itself. J.P.S. ¶¶ 5-6. Rad Source’s President and CEO, Randol E. Kirk, has spent many years developing irradiation technology that utilizes x-rays as a replacement for radioactive isotope irradiation technology. J.P.S. ¶ 7; 4/6/11 Tr. at 6:21-5.
D.
RS3000
24. In the late 1990’s, Rad Source developed certain technology and its first product, a device for x-ray blood irradiation known as the RS 3000. J.P.S. ¶ 8; 4/6/11 Tr. at 8:19-24. The RS 3000 was unique in the United States blood irradiation market because it utilized an x-ray source of irradiation as opposed to traditional isotope-based irradiation. J.P.S. ¶ 9. In taking the RS 3000 to market, Mr. Kirk applied to the Food and Drug Administration (“FDA”) for marketing clearance through an FDA 510(k) application. Defense Exhibit (“D.E.”) DX.
25. In 1998, the FDA granted Rad Source’s 510(k) application for the RS 3000 and deemed it “substantially equivalent” to a gamma-source blood irradiation device. D.E. N. Rad Source manufactured and sold the RS 3000 for approximately one year in its initial form in 1999 as a one-blood bag device, then changed the volume of blood it could accommodate to two to three bags by 2001. 4/6/11 Tr. at 11:4-20; 4/11 /II Tr. at 169:5-16.
26. Rad Source sold the RS 3000 until August 2003 at an average sales price of approximately $110,000 to $120,000. 4/11/11 Tr. at 169:17-22; J.P.S. ¶ 10. Mr. Kirk described Rad Source’ success in its marketing and sale of the RS 3000 as “moderate[J” 4/6/11 Tr. at 12:7-9. Prior to licensing the RS 3000 to MDS who marketed and sold the RS 3000 on behalf of Rad Source, Rad Source conducted all marketing and sales of the RS 3000 itself
*1276
through marketing materials and attending trade shows. 4/11 /II Tr. at 168:5-16.
E.
Patents
27. In connection with the RS 3000 device, Rad Source obtained three patents granted by the United States Patent and Trademark Office: U.S. Patent Nos. 6,212,255 (“255 Patent”); 6,489,099 (“'099 Patent”); and 6,614,876 (“'876 Patent”). Joint Exhibit (“J.E.”) 2, 36, 37; J.P.S. ¶ 46. These three patents are the patents subject to the License Agreement. J.P.S. ¶ 52; 4/6/11 Tr. at 9:17-20; 4/19/11 Tr. at 33:14-16.
7
28. Mr. Kirk was one of the inventors of the RS 3000 and the '255 Patent associated with the RS 3000 was issued in Mr. Kirk’s name. 4/6/11 Tr. at 8:25-9:5; 9:15— 16; 4/19/11 Tr. at 33:17-18; J.E. 3.
29. The file wrapper
8
for the '255 Patent indicates that it is a utility patent application transmittal which describes an invention that performs a function; in this case, the function was to irradiate blood and provide a uniform dose of x-ray beam irradiation to a bag of blood. 4/19/11 Tr. at 34:24-25; 35:12-14; 36:6-8; 36:12-15; 36:23-25.
F.
Long tube technology
30. In the late 1990s, Mr. Kirk began working on a different type of technology to generate high doses of x-ray radiation for replacing isotope devices. J.E. 38, 39. This technology, known as the long tube, consists of a cylindrical anode with an electron emitter centered through its entire length to generate a field of x-rays in three dimensions. J.E. 38, 39. The technology was a long tube capable of creating a field of irradiation. 4/11/11 Tr. at 176:19-24. Two patents were issued related to the long tube technology: U.S. Patent No. 7,346,147 and U.S. Patent No. 7,515,686 . J.E. 38, 39.
9
G.
Rad Source seeks larger platform for RS3000
31. Rad Source first became acquainted with MDS when Mr. Kirk contacted MDS in the late 1990s to discuss the RS 3000, but MDS was not interested at that time. 4/11/11 Tr. at 170:1-8. MDS was the largest company in the world for irradiation applications and products as far as Rad Source knew. 4/11/11 Tr. at 175:10-12.
32. In 2002, after sales of the RS 3000 increased, MDS approached Rad Source to see if a partnership would be possible. 4/11/11 Tr. at 170:9-171:3. At that time, Rad Source desired to launch the RS 3000 globally, but had limited funding to do so. 4/11/11 Tr. at 171:4-15. Moreover, Rad Source’s resources were tied up in pursuing further development of x-ray technologies, including the long tube technology. 4/11/11 Tr. at 171:16-172:4.
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33. Rad Source knew of MDS’ global presence in the field of irradiation equipment because MDS sold gamma-source blood irradiators and a variety of other irradiation products to a worldwide market. 4/11/11 Tr. at 171:4-25. At the same time, MDS had no knowledge or focus on x-ray technology. 4/11/11 Tr. at 175:16-18. Hence, Rad Source believed that a partnership with MDS was a good fit and mutually beneficial at the time of signing the License Agreement. 4/11/11 Tr. at 175:1-4. Moreover, this partnership would provide Rad Source with necessary funding to further develop x-ray irradiation technologies,
ie.,
long tube technology, that it could potentially license to MDS through separate license agreements. 4/11/11 Tr. at 175:19-25.
H.
Negotiations leading up to License Agreement
34. On or about August 20, 2003, Rad Source entered into the License Agreement with Nordion. J.P.S. f 11;
see also
4/5/11 Tr. at 65:16-66:1; Joint Exhibit (“J.E.”) 1; [ECF No. 286-1]. Rad Source and Nordion negotiated the License Agreement for approximately one year to 16 months prior to execution. J.P.S. ¶ 14; 4/5/11 Tr. at 66:4-5; 4/6/11 Tr. at 16:2-4; 4/11 /II Tr. at 173:23-25.
35. Craig Hunter, vice president of business development and strategic growth at MDS, and Gordon Ashfield, Nordion’s associate general counsel, handled most of these negotiations on behalf of MDS. 4/5/11 Tr. at 63:17-64:2; 68:16-21; 4/11/11 Tr. at 173:8-13;
see also
D.E. A. Mr. Kirk and Will Hartman, Rad Source’s Chief Financial Officer and Executive Vice President, negotiated on behalf of Rad Source. 4/11/11 Tr. at 172:14-19. Mr. Hartman was the lead negotiator for Rad Source. 4/11/11 Tr. at 173:18-22.
36. The parties participated in telephone conference calls and exchanged correspondence during the negotiation of the License Agreement, including executing a non-binding letter of intent. 4/5/11 Tr. at 70:6-9; D.E. Z.
37. Mr. Gotfrit participated in drafting and negotiating the License Agreement. 4/5/11 Tr. at 64:4-7. Within the last two days of the negotiations before the License Agreement was actually signed and closed, Rad Source retained counsel, Tom Luken. 4/5/11 Tr. at 68:25-69:5; 4/11/11 Tr. at 172:20-173:7. Mr. Ashfield and Mr. Kirk signed the License Agreement on behalf of MDS and Rad Source, respectively. J.E. 1; J.P.S. ¶ 54.
1.
Long tube technology not part of License Agreement
38. The License Agreement was not for purposes of MDS acquiring a license to Rad Source’s long tube technology. J.E. 1. During negotiations of the License Agreement, Rad Source advised MDS of the long tube technology and its potential. 4/11/11 Tr. at 177:13-16. MDS expressed interest in the long tube technology in the future. 4/11 /II Tr. at 177:25-178:2.
39. For these reasons, Article 3.8 regarding the right of first negotiation was included because the parties contemplated Rad Source developing the future long tube technology. 4/11/11 Tr. at 178:3-11. The purpose of Article 3.8 was to preclude Rad Source from selling the long tube technology without first offering it to MDS. 4/11/11 Tr. at 178:12-17.
40. While the parties were in negotiations for the License Agreement, Rad Source was developing the long tube technology which was a different approach that what was ultimately in the RS 3000. 4/6/11 Tr. at 53:13-19. In late 2002, Rad Source demonstrated a prototype of the long tube technology to Nordion representatives. 4/6/11 Tr. at 53:20-23. Rad Source had discussions with Nordion even
*1278
before the License Agreement was signed relative to the long tube technology such that when it was adequately developed, Rad Source would be interested in selling it to Nordion, hence the purpose of the right of first refusal. 4/6/11 Tr. at 54:19-55-2.
41. Mr. Kirk’s goal was to have a global company such as MDS sell Rad Source’s product which would then be under MDS’ exclusive license. 4/6/11 Tr. at 55:12-16. Another goal was to eventually sell the long tube technology to MDS who would be in a position to use its global context to sell the long tube technology. 4/6/11 Tr. at 55:17-23. Accordingly, before the License Agreement was signed, Rad Source was already working on the long tube technology and had showed it to Nordion. 4/6/11 Tr. at 54:4-8.
2.
Rad Source and Nordion enter into the License Agreement
42. MDS drafted the initial draft of the License Agreement. J.P.S. ¶ 12; 4/11/11 Tr. at 176-1-3. The closing date for the License Agreement, defined in Article 1.3 as the date Nordion received 510(k) clearance from the FDA to market and sell the System in the United States, was September 26, 2003. J.P.S. ¶ 13; J.E. 1. On or about September 26, 2003, Nordion began to market and sell the RS 3000, which became known as the Raycell. J.P.S. ¶ 16.
43. Mr. Hartman testified that after the parties entered into the License Agreement, the relationship between Rad Source and MDS was very good and the parties were “always very open with each other.” 4/11/11 Tr. at 177:3-10.
3.
Compensation under the License Agreement
44. Under Article VI of the License Agreement, MDS paid Rad Source approximately $1.7 million as compensation and royalties over a period of approximately four years from the date the parties signed the agreement. J.P.S. ¶ 17; 4/6/11 Tr. at 30:14-16; 4/19/11 Tr. at 48:14-16. While the term of the license granted under the License Agreement extended from the Closing Date (September 26, 2003) until the last to expire of the patents (2022), Rad Source agreed to only receive compensation for the first four years of the agreement (with the potential for compensation in Year 5). J.E. 1.
45. Article 7 of the License Agreement, titled Compensation, provided for the following payments to Rad Source:
(i) $500,000 within five (5) working days of the Closing Date;
(ii) $400,000 during the first year following the Closing Date;
(iii) $400,000 during the second year following the Closing Date;
(iv) $11,250 per System sold, up to a maximum of $225,000 during the third year following the Closing Date;
(v) $9,000 per System sold, up to a maximum of $225,000 during the fourth year following the Closing Date;
(vi) During the first five years after the Closing Date, $5,000 for each System sold in excess of 40 Systems sold.
J.E. 1.
46. Revenues derived from sales of Raycells were approximately two to three million dollars in gross revenues per year. 4/6/11 Tr. at 124:6-11.
47. Rad Source’s interest in the number of blood irradiator units sold by Nordion was as follows: Article 7.1 of the License Agreement regarding compensation required Nordion to pay $500,000 to Rad Source within five days of entering into the License Agreement and $400,000 within the first year regarding of the number of units sold. 4/5/11 Tr. at 82:8-16;
*1279
J.E. 1. However, payments for years three and four were tied to the sale of blood irradiators and Rad Source had an interest for five years from the date of closing,
ie.,
if Nordion sold an excess of 40 units in the United States in any given year, Rad Source would receive $5,000. 4/5/11 Tr. at 82:24-83:12.
48. After year five of the License Agreement, Rad Source had no interest in the number of units sold under the terms of the agreement. 4/5/11 Tr. at 83:25-84:3. The License Agreement provided for no payments to Rad Source from the end of Year 5 through the term of the license that expired in 2022. J.E. 1. In addition, after the license expired in 2022, Nordion was free to use the Licensed Technology without any further obligation or payment to Rad Source. J.E. 1.
I.
July 2007 visit to Rad Source
49. In June 2007, Rad Source employees saw MDS employees at a conference where Rad Source indicated that it would be a good time for MDS to begin reviewing the long tube technology because Rad Source had been developing, and had confidence in, the technology. 4/11/11 Tr. at 179:7-16.
50. In July 2007, at the invitation of Rad Source, former MDS employee Carolin Vandenberg
10
visited Rad Source’s new facilities outside of Atlanta with two other MDS representatives. J.P.S. ¶ 19; 4/5/11 Tr. at 121:16-19; 121:21-22; 133:24-134:4; 4/11/11 Tr. at 180:2-4. Ms. Vandenberg repeatedly insisted that the purpose of this visit was not to examine Rad Source’s long tube technology or determine whether MDS sought to license it. 4/5/11 Tr. at 134:5-8; 134:21-135:4; 139:1-6; 143:12-13.
51. Ms. Vandenberg received an e-mail from an individual in MDS’ procurement department, which is responsible for purchasing different components used to build products, which stated the following:
Good afternoon. Just a heads-up. If MDS is planning to enter into some discussions with Rad Source, given § 3.8, we should be very clear in writing of our intentions. There may be an assumption from the agreement that technical discussions are the initiation of future business from which we will have a short duration to make some important business decisions.
4/5/11 Tr. at 137:3-11; D.E. BA.
Ms. Vandenberg responded to the email, stating in relevant part: “We are clear on our contractual obligation limitations and will enter into any discussions with Rad Source in that context.” 4/5/11 Tr. at 137:14-17; D.E. BA.
52. Prior to the visit, MDS/Nordion and Rad Source signed and executed a confidentiality agreement requested on behalf of and drafted by Nordion/MDS. 4/5/11 Tr. at 122:23-25; 139:7-10; 140:2-5; 141:3-7; 141:22-142:1; 144:4-6; 4/11 /II Tr. at 180:5-9; D.E. B (confidentiality agreement dated July 26, 2007, signed by Kevin Brooks, MDS Nordion Vice President of Global Marketing, and Mr. Kirk).
53. The confidentiality agreement contains a clause that states: “Whereas each of the parties, for their mutual benefit, desire that certain information be disclosed to the other in order for the parties to discuss companies x-ray technology for the purpose of potential joint ventures or in-license of technology, (the Arrangement).” 4/5/11 Tr. at 142:7-14; D.E. B.
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54. In stark contrast to Ms. Vandenberg’s testimony, the testimony of other individuals demonstrates that Rad Source showed MDS the devices and spoke in-depth regarding the long tube technology and whether it had any application in blood irradiation. 4/11/11 Tr. at 181:8-10; 181:11-12; 181:16-18.
55. The day after Ms. Vandenberg visited Rad Source’s facility, Ms. Vandenberg sent Messrs. Kirk and Hartman a “thank you” e-mail dated August 1, 2007, carbon copying the MDS employees who accompanied Ms. Vandenberg on the visit. 4/5/11 Tr. at 146:1-4; 145:13-15; 146:10-13; 158:21-129:10; 4/6/11 Tr. at 70:14-19; 4/11/11 Tr. at 181:19-182-17; D.E. C. The e-mail states, in relevant part:
“Thank you for the opportunity to meet at your facility in Alpharetta yesterday and for your generous hospitality. Our discussions helped us understand your long-tube strategy and vision of its marketability in SIT, biologies and blood applications. We share your opinion that x-ray technology has a future in the blood irradiation market and let’s continue our open and honest dialogue in this arena.” and “Please extend our thanks to Phil for the product demonstrations[.]”
4/5/11 Tr. at 145:16-146:4; 146:15-18; 159:11-18; 4/6/11 Tr. at 70:24-25; 70:6-8; D.E. C.
56. Rad Source had additional contact with MDS in September 2007 when Mr. Kirk e-mailed Ms. Vandenberg regarding news of the dangers of radioactive isotopes in the marketplace, which would be viewed as an opportunity for x-ray technology. 4/11/11 Tr. at 182:18-183:5.
57. On October 10, 2007, Ms. Vandenberg received an e-mail from Mr. Kirk referencing an article which highlighted the need for isotope replacements. 149:1-5; 149:9-16; J.E. 5. The e-mail from Mr. Kirk also stated, in relevant part: “we here at Rad Source feel it is time to prepare for the coming demand and for the potential competition that could gravitate to a market of that size. One question is what strategy maximizes company value process. It is time to begin some definitive discussions if you wish to work with us; otherwise, we need to prepare for the future in some other manner.” 4/5/11 Tr. at 149:24-150:5; J.E. 5.
58. Ms. Vandenberg’s response to Mr. Kirk’s e-mail states, in part, “Nordion recognizes the opportunity ahead of us and potential demand from the market. Your email is timely as it is our intent to continue our discussions and would now like to loop in our folks in business development. In preparation for the discussion, can you provide me with a company profile, with some level of financials, if possible, that I can forward to them and few key individuals on our senior management team? Can you provide your availability over the next few weeks?” 4/5/11 Tr. at 150:18-151:2; 4/11/11 Tr. at 183:13-184:8.
59. On October 25, 2007, Mr. Hartman responded by sending Ms. Vandenberg a summary profile of Rad Source, which he prepared specifically for her request. 4/5/11 Tr. at 154:3-24; 4/11/11 Tr. at 184:9-11; 185:1-9; D.E. D; J.E. 6.
60. Mr. Hartman never heard back from Ms. Vandenberg regarding the long tube technology following this correspondence and eventually discovered — upon Nordion’s request for consent to assignment — that MDS was negotiating to sell its business. 4/11/11 Tr. at 185:10-23.
J.
2007-08 Asset Purchase Agreement
61. On November 29, 2007, MDS and Best Medical executed an “Asset Purchase Agreement” for the sale of MDS’ External Beam Therapy and Self Contained Irradiator business to Best Medical for approximately $15 million (“Asset Purchase
*1281
Agreement”). J.P.S. ¶ 20; 4/5/11 Tr. at 189:8-10;
see also
D.E. BQ (Securities and Exchange Commission (“SEC”) filing). In May 2008, Nordion and Best Medical closed on the Asset Purchase Agreement. J.P.S. ¶ 26. In an SEC filing, MDS stated that on November 29, 2007, MDS had signed an agreement with Best Medical Inc. to divest MDS’ external beam therapy and self-contained irradiator product lines. J.P.S. ¶ 21.
62. As a condition to closing on the Asset Purchase Agreement, MDS executed a Non-Competition Agreement with Best Medical and agreed for “a period of 7 years” to not “directly or indirectly, develop, manufacture, market or sell ... Cesium-137 based blood irradiators, x-ray based blood irradiators, other technology based blood irradiators, and related products and services.” J.P.S. ¶ 30. When the Asset Purchase Agreement closed, 155 MDS employees transitioned to Best Theratronics, and the MDS “Theratronics building” and a parcel of land were turned over to Best Medical. D.E. E.
63. Section 2.1 of the Asset Purchase Agreement, titled “Purchase and Sale,” states that Best Medical is purchasing the “Assets” and “Business” from MDS. D.E. E. Section l.l(i) of that agreement defines “Business” to include the “Self-Contained Irradiator business currently carried on by [MDS] as more particularly described in Schedule F,” and, under Schedule F, includes the “[c]omplete ... Raycell line of products____” D.E. E. Section l.l(d)(xii) of that agreement defines “Assets” to include “the Intellectual Property;” Section l.l(gg) defines “Intellectual Property” to include “trade-marks, copyrights, patents, licenses and agreements described in Schedule D.” D.E. E. Schedule D to the Asset Purchase Agreement specifically includes the License Agreement. D.E. E.
K.
2007 Nordion request for Rad Source’s consent to assignment
64. In correspondence dated December 14, 2007, Nordion requested that Rad Source consent to an assignment of the License Agreement from Nordion to Best Medical. 4/5/11 Tr. at 173:8-15; 4/6/11 Tr. at 79:20-25; 80:7-16; J.E. 7; J.P.S. ¶ 22. At this time, Nordion had made all the payments due to Rad Source under the License Agreement. 4/5/11 Tr. at 177:2-8.
65. MDS stated in its one-page letter that it had “recently entered into an agreement with Best Medical International, Inc. (“Best”) pursuant to which MDS Nordion will sell to Best its External Beam Therapy and Self Contained Irradiator business.” 4/5/11 Tr. at 173:16-23; 174:6-8; J.E. 7. This letter marked the first time that Rad Source learned that MDS intended to exit the blood irradiation market. 4/11/11 Tr. at 186:3-6; J.E. 7. Though the Asset Purchase Agreement had already been signed, it had not yet closed, and Nordion did not seek Rad Source’s consent prior to signing the Asset Purchase Agreement. 4/5/11 Tr. at 174:9-17.
66. Rad Source described the correspondence as “shocking” because MDS had recently visited Rad Source’s facility and Rad Source had just sent Ms. Vandenberg the requested profile of Rad Source. 4/11/11 Tr. at 186:12-15. Subsequent investigation by Rad Source also revealed that Best Medical may have an x-ray product division, which concerned Rad Source. 4/11/11 Tr. at 188:17-24.
1.
January 22, 2008 correspondence from Rad Source to MDS
67. On January 22, 2008, Rad Source responded to the December 14, 2007 correspondence by stating that the assignment would not be in Rad Source’s best economic or business interest and requested all documents with respect to the Nor
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dion/Best transaction. J.P.S. ¶ 23; 4/5/11 Tr. at 177:18-175:1; 175:12; 179:3-4; 4/6/11 Tr. at 81:5-21; 93:21; 4/11 /II Tr. at 187:7-10; J.E. 8. Rad Source stated that it does “not believe that such an assignment would be in the best economic or business interest of Rad Source, so [it] decline[s] to consent to or to agree to such an assignment,” but that Rad Source did “not want to foreclose further discussions, so [it] would appreciate receipt of copies of all documents pertaining to the [MDS]-Best transaction,” and that after it “had an opportunity to review those documents, [it would] respond promptly if Rad Source ha[d] a different view of the requested assignment.” J.E. 8.
68. Rad Source did not agree to assignment and requested documents because it had no idea of the nature of the Nordion/Best transaction, how Rad Source would be affected by it, what assets were being transferred, and the identity of Best because Best was not in the same industry as Rad Source. 4/11/11 Tr. at 187:14-23; 188:3-11.
69. Nordion did not provide the documents with respect to the Nordion/Best transaction,
ie.,
the Asset Purchase Agreement, because the purchase and sale had not closed and to do so during the interim period would be a “significant detriment” because Nordion was a public company and the Asset Purchase Agreement contained matters broader than merely the License Agreement. 4/5/11 Tr. at 178:3-179:2.
2.
January 28, 2008 conference call
70. On January 28, 2008, Phil Larabie (Nordion’s Vice President of Business Development), Mr. Gotfrit, Mr. Hartman of Rad Source, and Rad Source’s counsel, Tom Steele, participated in a telephone conference to discuss Nordion’s request for Rad Source’s consent to assignment of the License Agreement from Nordion to Best. J.P.S. ¶ 24; 4/5/11 Tr. at 180:4-22; 4/6/11 Tr. at 81:22-82:11; 4/11/11 Tr. at 189:19-190:9. Prior to this conference call, Rad Source did not know Mr. Larabie’s identity. 4/11/11 Tr. at 190:10-14.
71. During the conversation, MDS informed Rad Source that it would sublicense the License Agreement to Best if Rad Source would not consent to an assignment. 4/5/11 Tr. at 180:2-3; 4/11/11 Tr. at 192:21-193:3. Rad Source objected that MDS had a right to sublicense the License Agreement to Best. 4/11/11 Tr. at 193:4-5. Upon the conclusion of the call, Rad Source maintained its refusal to consent to an assignment of the License Agreement from Nordion to Best. J.P.S. ¶ 25.
3.
Call front Best to Rad Source
72. Within a month of the January 28, 2008 conference call, the owner of Best, identified as Krish,
11
called Mr. Kirk. 4/11/11 Tr. at 196:1-7. Mr. Suthanthiran indicated that he wanted to arrange a meeting with Messrs. Hartman and Kirk. 4/11/11 Tr. at 196:25-3. Mr. Suthanthiran also told Mr. Kirk that Best was closing on the Nordion deal that week. 4/6/11 Tr. at 90:18-22; 92:11-13.
73. However, Rad Source never heard from Mr. Suthanthiran again and no meeting was ever arranged. 4/11/11 Tr. at 197:4-7. During the call, Mr. Kirk never said anything to Mr. Suthanthiran about Rad Source refusing to consent to the assignment or any objection Rad Source had to the Nordion/Best transaction. 4/6/11 Tr. at 92:17-22. Mr. Kirk never voiced his concerns regarding Best, nor did he request documents, even in spite of
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Rad Source’s concern that it did not know anything about Best. 4/6/11 Tr. at 92:23-93:4; 93:10-12.
L.
April BO, 2008 Sublicense Agreement
74. On April 30, 2008, Nordion, Best Medical, and Best Theratronics entered into an agreement titled “Sublicense Agreement” (the “Sublicense Agreement”). 4/5/11 Tr. at 184:10-13; 184:19-23; J.E. 10; J.P.S. ¶ 27. Paragraph E of the Sublicense Agreement provides that “MDS, Best Medical and Best Theratronics have agreed that MDS will grant to Best Theratronics an exclusive right and sublicense to the licensed technology for the system and for the single power supply version of the system as opposed to assigning the license agreement to Best Theratronics in accordance with and subject to the Asset Purchase Agreement.” 4/5/11 Tr. at 190:7-16; J.E. 10.
75. Article 2.1 of the Sublicense Agreement, titled “Grant of Sublicense,” represents Nordion’s sublicense of the same rights it had under its license which were the exclusive right to use the Licensed Technology and the System. 4/5/11 Tr. at 192:8-18. In Section 2.1, MDS granted Best Theratronics a worldwide license to “Use the Licensed Technology for the [RS 3000] System ... and for the single power supply version of the System,” which is identical to the license grant that MDS received from Rad Source under the License Agreement. J.E. 10. In the Sublicense Agreement, Plaintiffs acknowledged that the “Licensed Technology,” which was licensed from Rad Source to MDS under the License Agreement, “comprises part of the Assets as defined in the Asset Purchase Agreement....” J.E. 10.
76. Under Section 2.3 of the Sublicense Agreement, Best Theratronics assumed all obligations that MDS had under the License Agreement. J.E. 10. Both Best Medical and Best Theratronics acknowledged in Section 2.3 that “the obligations of MDS under the License Agreement ... constitute Assumed Obligations within the meaning of the Asset Purchase Agreement and have been assumed by Best Medical and Best Theratronics.” J.E. 10.
77. Under Sections 2.3 and 2.6 of the Sublicense Agreement, Best Theratronics agreed to fully indemnify MDS in connection with a breach of the License Agreement by Rad Source or Best Theratronics. 4/6/11 Tr. at 111:11-17; J.E. 10.
78. Under Section 2.5 of the Sublicense Agreement, Plaintiffs agreed that MDS “shall not be required to make any payments to Rad Source” under the License Agreement unless and until MDS has received the required payment from Best Theratronics. 4/6/11 Tr. at 111:4-10; J.E. 10.
M.
MDS exits blood irradiation business through Asset Purchase Agreement
79. A press release dated November 29, 2007 noted that MDS “signed an agreement with [Best Medical] to divest its ... self-contained irradiator product lines.” D.E. F. MDS’ president, Steve West, was quoted in this press release as stating: “By divesting these product lines, we can direct all of our energy and resources on becoming a leading innovator in the exciting and growing field of molecular medicine.” D.E. F.
80. Best Theratronics ' and MDS cosigned notices stating that “on April 30, 2008, MDS Canada, Inc. conveyed and transferred to Best Theratronics, Limited, all of MDS’ right, title and interest in and to the ... Self-contained irradiator business.” 4/6/11 Tr. at 118:10-16; D.E. CF; CG.
81. Mr. Gotfrit signed a confirmation of transfer of the External Beam Therapy
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and self-contained irradiator business which stated:
We hereby notify you and confirm to you that on April 30, 2008, MDS Canada, MDS conveyed and transfers to Best Theratronics all of MDS’s right, title and interest in and to the External Beam Therapy and self-contained irradiator business, being the subject matter of Best Theratronics’ application for permits or licenses with your organization. 4/6/11 Tr. at 116:19-17:4; D.E. CG.
82. MDS is not presently developing, manufacturing, marketing or selling any x-ray irradiators. J.P.S. ¶ 29.
N.
Rad Source learns that MDS/Best deal closed, but takes no action
83. In May or June 2008, Rad Source learned that the MDS/Best transaction had closed through an article, MDS press release, and public filings. 4/11/11 Tr. at 197:17-25; 200:4-15; 201:5-8; D.E. F, G.
12
Despite Rad Source’s concern that Best now had Rad Source’s technology, Rad Source did not send a default notice to MDS because Rad Source “believed it would be futile” and that legal action would be expensive and time consuming. 4/11/11 Tr. at 207:4-16.
13
84. Rad Source never contacted Nordion or Best to regarding Best’s use and possession of the Licensed Technology. 4/6/11 Tr. at 97:3-15; 102:3-7. Mr. Kirk conceded that Rad Source did nothing in response to the knowledge that Best and Nordion had closed their deal. 4/6/11 Tr. at 102:8-10. According to Mr. Kirk, Rad Source did not think it was very important that Best had the Licensed Technology based on the patents in Mr. Kirk’s name or that Best was manufacturing, marketing, and selling the Raycell because Rad Source was a small company and could not afford to “provoke[ ] a lawsuit.” 4/6/11 Tr. at 97:23-98:20.
85. Eventually, Rad Source sent a default notice and notice of termination to MDS after Rad Source received notice of the instant litigation. 4/11/11 Tr. at 217:9-11; 217:16; D.E. I; J.E. 28.
O.
RS 3400
86. In approximately August 2008, Rad Source began developing a new blood irradiation device, the RS 3400. 4/6/11 Tr. at 43:21-24; 4/11/11 Tr. at 208:11-21; D.E. H. The RS 3400 was intended to be a blood irradiation device. 4/6/11 Tr. at 69:4-6. At least by August 19, 2008, Rad Source was designing and developing the RS 3400 to reduce the risk of Graft Versus Host Disease or other blood borne pathogens. 4/6/11 Tr. at 31:2-5; 43:21:24; D.E. H.
87. On or about September 26, 2008, Rad Source submitted an FDA 510(k) application (Application K082921) seeking ap
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proval to market a blood irradiation device, assigning RS 3400 as the name for the proposed device. J.P.S. ¶ 34; 4/6/11 Tr. at 30:23-31:1. On September 29, 2008, at a Nuclear Regulatory Commission hearing, Rad Source announced that it had filed the 510(k) application for its new x-ray blood irradiator. J.P.S. ¶ 35. On February 17, 2009, the FDA issued a clearance letter in response to Rad Source’s 510(k) application. J.P.S. ¶ 36; 4/11/11 Tr. at 211:3-9.
88. Rad Source has not completed its design and development of the RS 3400. J.P.S. ¶33. Rad Source has not sold a single RS 3400. J.P.S. ¶ 41. The expected selling price for the RS 3400 is approximately $180,000. 4/11/11 Tr. at 210:4-5.
P.
Rad Source markets the RS 3400
89. In September 2009, Rad Source began to market the RS 3400. 4/11/11 Tr. at 211:13-17. On September 9, 2009, Rad Source announced the new RS 3400 on its website, stating that it was “a direct medical upgrade of the Rad Source RS 2400 research and industrial irradiator” and that the RS 3400 would be ready for delivery to purchasers in the first quarter of 2010. J.P.S. ¶ 37; J.E. 15.
90. Potential customers interested in the RS 3400 contacted Rad Source, and Rad Source discussed the RS 3400 with some of those customers. J.P.S. ¶ 38. In the fall of 2009, Rad Source submitted written quotes to two potential customers for purchase of an RS 3400, representing that the new device could be delivered by March 30, 2010. J.P.S. ¶ 39; 4/11/11 Tr. at 211:18-22.
91. Rad Source placed a statement in a commercial advertisement for the October 2009 American Association of Blood Banks (“AABB”) annual trade show, the largest and most important trade show in the blood irradiation industry, announcing that Rad Source had a new x-ray blood irradiator for sale and arranged to have a booth at the trade show. J.P.S. ¶ 40. Due to the entry of the injunction in this case, Rad Source did not attend or set up its booth at the trade show. J.P.S. ¶ 40.
92. In response to Plaintiffs’ September 30, 2009 Cease and Desist letter demanding that Rad Source cease design, marketing, and promotion of the RS 3400 by letter dated October 2, 2009, Rad Source notified Nordion under Article 12 of the License Agreement, for the first time, that Rad Source considered Nordion to be in breach of the License Agreement. P. E. 69. 1. On October 8, 2009, Nordion responded to Rad Source’s October 2, 2009 notice asserted that the notification was insufficient to constitute notice under Article 12 of the License Agreement. P.E. 69. On October 15, 2009, Plaintiffs filed the instant suit. J.P.S. ¶ 43.
Q.
Expiration of '255 Patent
93. Plaintiffs contend that Rad Source breached Articles 3.7 and 11.1(e) of the License Agreement by failing to maintain the '255 Patent in good standing and failing to pay all prosecution, processing, and maintenance fees with respect to that patent.
See
[ECF No. 286].
94. Article 3.7, titled “Maintenance Fees,” states:
Until termination or expiration of this Agreement, Rad Source shall be responsible for prosecuting and maintaining the Patents in good standing and shall be responsible for the payment of all prosecution, processing and maintenance fees with respect to the Patents. Within thirty (30) days following each due date of such maintenance fees, Rad Source shall provide to [MDS] written notice of having paid the Patent maintenance fees. In the event it is determined that any such fees are outstanding, Rad Source shall make immediate arrangements for payment failing which [MDS]
*1286
may pay such fees and, in addition to any other remedies it may have, may deduct the amount of such fees, and associated costs (including reasonable attorney’s fees) from any amounts owing by [MDS] pursuant to this Agreement. Rad Source shall provide [MDS] an update on the status of Patent prosecution as requested by [MDS] from time to time.
Section 11.1(e), titled “Rad Source Representation and Warranty,” states:
Rad Source represents and warrants to [MDS] that as at the time of entering into this Agreement and as at the Closing Date:
(e) The Licensed Technology and System do not and will not to Rad Source’s best information and belief, infringe any patents, copyright, or other industrial or intellectual property rights of third parties and the Patents are in good standing, will be maintained in good standing and all maintenance fees have and will be paid by Rad Source.
95. Article 3.7 required Rad Source to provide to Nordion written notice of having paid the patent maintenance fees within 30 days following each due date of such maintenance fees. 4/5/11 Tr. at 107:1-5; J.E. 1. Further, pursuant to Article 3.7, if any patent maintenance fees remained outstanding, “Rad Source shall make immediate arrangement for payment, failing which Nordion may pay such fees.” 4/5/11 Tr. at 107:6-8; J.E. 1.
96. In February 2010, Plaintiffs discovered that the '255 Patent had expired in May 2005 due to Rad Source’s failure to pay the required maintenance fees. J.E. 1, 18; Plaintiffs’ Exhibit (“P.E.”) 1. MDS never received any notice from Rad Source that any of the patents referred to in the License Agreement had expired for failure to make the payments. 4/5/11 Tr. at 107:19-23.
97. Rad Source first became aware that the '255 Patent expired after the instant litigation began in 2010. 4/11/11 Tr. at 224:6-8. In April 2010, Rad Source filed a petition to reinstate the '255 Patent with the United States Patent and Trademark Office, which was denied. J.P.S. ¶ 53; J.E. 1,18; P.E. 56.
R.
January 2011 termination notice
98. In January 2011, Rad Source sent a termination notice to Nordion asserting that Rad Source considered the License Agreement to be terminated. 4/5/11 Tr. at 198:14-23; J.E. 28; P.E. 63; 64. Rad Source also sent “cease and desist” letters to Best Medical and Best Theratronics demanding that they cease marketing and promoting the Raycell and Mk2. 4/6/11 Tr. at 180:20-24; P.E. 63; 64. By that time, Best Theratronics was manufacturing, marketing and selling the Rayeell for over 2.5 years since May 1, 2008. 4/6/11 Tr. at 181:14-19.
99. Nordion, Best Medical, and Best Theratronics responded to Rad Source’s correspondence by letter dated January 18, 2011, disputing Rad Source’s “Improper Notice of Termination” by pointing out,
inter alia,
Rad Source’s waiver of any right to attempt to terminate the License Agreement based on information actually known to Rad Source two years earlier. J.P.S. ¶45; P.E. 69.
S.
License Agreement
I now address specific provisions of the License Agreement at issue in this ease.
1.
Article 3.1
— Grant
of License
100. Article 3.1, titled “Grant of License,” states in full:
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As of the Closing Date, Rad Source hereby grants to [MDS], and [MDS] accepts, for the term of the license as set out in Section 12.1, subject to the second sentence of this Section 3.1, an exclusive right and license (transferable, with the right to grant sublicenses to third parties (“Sublicensees”) on such terms as are consistent with this Agreement to Use the Licensed Technology for the System (including as modified by [MDS]) and for the single power supply version of the System, in the Territory. The foregoing grant of exclusivity is made subject to Rad Source’s retention of the right to use the Licensed Technology to develop, manufacture or have manufactured, distribute, promote, market, sell, lease and service products other than the System and single power supply version of the System, in the Territory.
For the avoidance of doubt, Rad Source’s retained right to use the Licensed Technology (as set out in the preceding sentence) shall not, during the term of the license, in the Territory, include the right, directly or indirectly, to develop, manufacture or to have manufactured, distribute, promote, market, sell or lease a medical device for blood or blood product irradiation, which is used or useable to reduce the risk of Graft Versus Host Disease or other blood borne pathogen, and which embodies, in whole or in part, the Patents. J.E. 1.
14
The term “Use” is defined in Section 1.12 as:
“Use” in connection with the Licensed Technology and the System shall mean the right to enjoy, copy, commercialize and exploit as well as manufacture, have manufactured, assemble, and use, the apparatus, machinery and all devices embodied in the Licensed Technology and the System and putting it into practice and to distribute, promote, market, sell, lease and service and/or otherwise provide the services of the apparatus, machine(s) or devices forming the System.
J.E. 1.
101. Article 1.6 defines “Licensed Technology” as “the Patent(s), and Technical Information as set out in Schedule A.” 4/5/11 Tr. at 86:15-23; 4/6/11 Tr. at 63:19-22; J.E. 1.
102. Article 1.8 defines “Patents” as “U.S. Patent Nos. 6,389,099 and 6,212,255 and United States patent pending application No. 101244-209 (including divisional applications thereof), including such patents as are filed in the Territory.” J.E. 1; 4/6/11 Tr. at 138:14-22;
see also
4/6/11 Tr. at 139:13-21 (“[The Court]: Is it not correct that the definition of ‘patents’ is tied directly to the definition of system, that is, the system, which means the ... RS 3000, is that which is included in the patents as defined? A: Yes. [The Court]: That’s what was intended? A: Yes. [The Court]: Not something else? A: Right.”).
103. Article 1.9 defines “System” as “the Rad Source RS 3000 x-ray blood irradiation system, including modifications thereto, exploited and/or marketed by Rad Source as at the Closing Date.” J.E. 1.
104. Article 3.1 includes the right to grant sublicenses to third parties as such terms are consistent with the License Agreement to use the Licensed Technology for the System. 4/5/11 Tr. at 163:8-18.
105. Unlike Article 13.9 requiring consent to assignment, there is no require
*1288
ment that Rad Source consent to a sublicense. 4/5/11 Tr. at 171:10-15.
2.
Article 5.3
— non-compete
provision
106. Article 5.3 of the License Agreement is the non-compete provision which defines the prohibited competitive activities — designing, promoting, manufacturing, selling or leasing, or carrying out any other activities which compete with the blood irradiation business of Nordion. 4/5/11 Tr. at 100:21-25.
107. Article 5.3 provides:
Subject to the terms and conditions of this Agreement, for a period of seven (7) years from the Closing Date, Rad Source, its respective officers and its Affiliates shall not, directly or indirectly, within the Territory design, promote, manufacture, sell, lease or carry on any other activities, which compete in any way with the blood irradiation business (including irradiation of blood and blood products) carried on by [MDS], including with respect to the System.
Subject to section 6.2, Rad Source, its respective offices and its Affiliates, shall not, for a period of seven (7) years from the Closing Date, directly or indirectly, within the Territory, provide service or maintenance of the System (or the System as modified by [MDS]) to third parties, or provide servicing or maintenance to any product, system or components thereof to third parties, which compete with the System.
J.E. 1.
108. The non-compete period under Section 5.3 ended on September 26, 2010. J.P.S. ¶ 55; 4/6/11 Tr. at 32:7-8. Rad Source started to design, develop, and promote the RS 3400 prior to September 26, 2010. 4/6/11 Tr. at 32:24-33:4; 33:14-16; 103:5-7.
3.
Article 3.8
— right
of ftrst negotiation
109. Article 3.8 of the License Agreement regarding the right of first negotiation was included because Nordion was interested in the technologies that Rad Source was developing,
i.e.,
long tube technology, and sought a right of first negotiation to those technologies. 4/5/11 Tr. at 109:15-20; 4/6/11 Tr. at 57:23-58:8.
110. Article 3.8 states:
During the term of this Agreement, Rad Source hereby provides to [MDS] a right of first negotiation for the right to acquire from Rad Source, by license or otherwise, the right to use all other irradiation application technology developed by Rad Source. Such negotiations may be initiated by either party and shall endure for a period of one hundred and twenty (120) days. If the parties fail to reach an agreement with respect to the terms and conditions of license within the aforementioned one hundred and twenty (120) day period, Rad Source shall be free to negotiate with such third parties as it deems fit, provided that the terms and conditions offered to such third parties shall be no less favourable to Rad Source than those last offered to [MDS] pursuant to this Section 3.8.
J.E. 1.
111. Nordion had the right of first negotiation with respect to all other irradiation application technology developed by Rad Source. 4/6/11 Tr. at 105:22-106:1.
112. On October 22, 2009, Rad Source sent a letter to Nordion purporting to offer to negotiate the rights to the RS 3400. P.E. 42. Rad Source’s letter includes no reference to the meetings during the summer of 2007. P.E. 42. In response to Rad Source’s offer, Nordion asked Rad Source to provide documentation necessary to assess the RS 3400, as well as any other irradiation application technologies developed by Rad Source, and to determine
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whether Nordion wished to enter negotiations for that technology. P.E. 44.
4.
Article 8.1
— conñdentiality
113. Article 8.1 of the License Agreement, titled “Confidentiality and Exceptions,” states in pertinent part:
Rad Source and [MDS] acknowledge that the content of the transactions contemplated herein, the Technical Information, the business affairs and operations of the other, and such other information which has been marked Confidential or otherwise provided in confidence (“Confidential Information”) which it receives or otherwise learns during the term of this Agreement, is valuable property of the party providing such information. The parties acknowledge the need to preserve such confidentiality and secrecy of such Confidential Information and agree that, both during the term of this Agreement and after termination or expiration of this Agreement, it shall not disclose such Confidential Information. This obligation of confidentiality shall not apply to information:
d) confidential information which is disclosed with the written consent of the other party,
J.E. 1.
5.
Article 13.9
— Assignment
114. Article 13.9 of the License Agreement, titled “Assignment,” requires that either party seeking assignment to request express written consent from the other party. 4/5/11 Tr. at 161:14-23; 4/6/11 Tr. at 79:17-19; 108:6-9; J.E. 1. Article 13.9 states:
This Agreement shall inure to the benefit of and shall be binding upon the heirs, successors and permitted assigns of the parties. Neither [MDS] nor Rad Source may assign any of its rights or delegate any of its obligations under this Agreement without the express written consent of the other party, such consent not to be unreasonably withheld; provided that (i) either party may assign any of its rights or delegate any of its obligations under this Agreement, in whole or in part, to any of its Affiliates, without consent of the other party, but without relieving the delegating party from the responsibility for performance of any of such obligations and (ii) either party may assign its rights and delegate its duties and obligations (in whole and not in part) under this Agreement to an entity which acquires all, or substantially all, of its assets or business, without the consent of the other party, provided that such assignee duly and effectively assumes all of the obligations of the assigning party hereby by instrument satisfactory to the other party. Any assignment in violation of the provisions of this section shall be void.
J.E. 1.
T.
Claim 6 of the '255
Patent
15
115. I now address facts regarding the patent/technical analysis in Phase II. The preamble of Claim 6 of the '255 Patent characterizes the “transfusion blood bag” as “said bag being in the form of a rectangular box-like container.” J.E. 2; D.E. K. The term “transfusion blood bag” is referred to in the body of the claim in clause b), where it states “said bag.” J.E. 2. There is no other transfusion blood bag referred to in the claim, other than the transfusion blood bag, being in the form of the rectangular box-like container. J.E. 2; D.E. K.
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116. The '255 Patent provides a number of places where the position of the blood bag relative to the X-ray tubes is discussed. J.E. 2. These sections disclose a canister as the “means for positioning” the blood bag. J.E. 2; D.E. K. The structures of a “means for positioning” disclosed in the '255 Patent are a canister, a container, a cylinder, and those structures limiting the blood bag to the form of a rectangular box-like container. J.E. 2; D.E. K.
117. Figure 4 of the '255 Patent shows a “blood plasma bag (20) is positioned to be irradiated by a single X-ray tube (15A). In this embodiment, the plasma bag (20) is mounted in a vertical orientation, that is its longest length is vertical and its 4 cm thickness is positioned vertically as contrasted to the horizontal orientation of the bag 20 shown in Figs. 1-3.” J.E. 2; D.E. K
118. Figure 2 of the '255 Patent shows an embodiment of the canister where the canister is a cylinder. J.E. 2; D.E. K. The depiction of the blood bag (20) in Figure 4 is in the shape of a rectangular box-like container. J.E. 2; D.E. K. Figures 1 and 3 of the '255 Patent show a “chamber (19) which is adapted to receive a canister or container (18) for the blood plasma bag.” J. E. 2; D.E. K.
119. The '255 Patent specification states, “the X-ray beam output port of tube 15 is designed to provide a relatively wide X-ray beam of 40-50 degrees in order to provide a beam with a sufficiently large diameter to fully cover the can[n]ister 18 and the included bag 20, as will be discussed.” J.E. 2; D.E. K. This use of beam describes a “cone of irradiation” which is capable of “covering a vertical area” as described in the '255 Patent. J.E. 2; D.E. K.
120. Figures 1, 3, and 4 reveal that the blood bag is vertical (figure 4) or horizontal (figure 1 and 3) relative to central axis of the X-ray beam. J.E. 2; D.E. K. The only place the word “vertical” is used in the specification other than in Claim 6 is in the section of the specification discussing Figure 4, which represents an embodiment of Claim 6. J.E. 2; D.E. K. This section states “the plasma bag 20 is mounted in a vertical orientation, that is its longest length is vertical and its 4 cm thickness is positioned vertically as contrasted to the horizontal orientation of the bag 20 shown in FIGS 1-3.” J.E. 2; D.E. K
121. Figure 4 shows a depiction of a rectangular box. J.E. 2; D.E. K. When describing Figure 4, the support is labeled as “rotatable support 28” and is shown holding up the blood bag and rectangular box-like container. J.E. 2; D.E. K.
122. Claim 6 of the '255 Patent describes an embodiment where one x-ray tube is used instead of two. 4/19/11 Tr. at 38:23-25.
123. Dr. Uribe interpreted the directional x-ray tube as part of Claim 6 of the '255 Patent, noting that it is a different kind of tube than the long tube in the RS 3400 because the directional x-ray tube emits a cone of x-rays. 4/19/11 Tr. at 7:7-16; 8:5-11.
124. The cone of x-rays is defined by the window in the jacket placed over the tube, as well as the size of the dot where electrons hit the target material, making the physics related to the x-rays different than that of a long tube. 4/19/11 Tr. at 8:15-23; 9:8-12; 15:5-6; 17:11-13.
125. The directional x-ray tube defined in this '255 Patent emits x-ray beams. 4/19/11 Tr. at 12:9-11. The x-rays that are emitted by the long tube form a field of x-rays; the long tube does not emit x-ray beams. 4/19/11 Tr. at 12:20-21; 13:5-9.
126. A difference between the directional x-ray tube and the long tube is
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the fact that the x-rays generated in a single spot of the cathode, are generated in all directions, which move backward toward the cathode of the x-ray tube and are not absorbed by any piece of material. 4/19/11 Tr. at 12:23-13:4.
127. Though both the RS 3000 and RS 3400 have a vacuum and a water jacket, the water jacket in the RS 3000 is different from the long tube technology because it involves flow of water past the copper anode and removal of heat through that water. 4/19/11 Tr. at 15:7-24. Though the water jacket in the directional tube, the RS 3000 tube, and the water jacket in the long tube perform the same purpose to remove heat through that water, they do it through different ways. 4/19/11 Tr. at 16:5-8. In the case of the long tube, the water is in contact with all of the anode; in the RS 3000 x-ray tube, the water is only in contact with the back of the anode. 4/19/11 Tr. at 16:11-25. Accordingly, in the RS 3400, the x-ray generated by the anode will go through the water, but in the RS 3000, the x-rays will not. 4/19/11 Tr. at 17:3-5.
128. In the directional x-ray tube, the anode consists of tungsten surrounded by copper, which produces x-rays differently from the production of x-rays from gold, which is the material in the anode of the long x-ray tube and a more efficient producer of x-rays compared to tungsten. 4/19/11 Tr. at 19:10-19. Therefore, the use of different materials, gold versus tungsten, in the anode makes these tubes different because the efficiency of producing x-rays is different. 4/19/11 Tr. at 19:20-25; 20:3-6.
II.
CONCLUSIONS OF LAW
A. Overview
In this case, MDS and Rad Source each claim that the other party breached the License Agreement (with respect to the non-compete, right of first negotiation, and sublicense articles); challenge the validity of the License Agreement itself; and seek declaratory judgments with respect to,
inter alia,
whether the RS 3400 embodies the Patents. During Phase I of the trial, the parties presented evidence regarding the formation of the License Agreement, MDS and Rad Source’s performance thereunder, and the opposing claims of breach of the License Agreement.
For the reasons stated
infra,
I DENY Plaintiffs’ claims against Rad Source for injunctive relief, breach of contract, unjust enrichment (alternatively pled), and declaratory relief that the RS 3400 embodies the Patents; GRANT Plaintiffs’ request for declaratory relief that the License Agreement remains in full force;
16
and
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GRANT IN PART AND DENY IN PART Rad Source’s counterclaim for declaratory relief.
17
Even if I determined that the RS 3400 did embody in whole or in part the Patents, this conclusion would result in an illegal restrictive covenant under Florida law due to the length (until the year 2022) and scope (“Territory” defined as worldwide) of the non-compete provision in Article 5.3.
The most efficient manner of resolving the parties’ claims is to first look to the
License Agreement
to determine the parties’ rights and obligations. In order to resolve whether MDS or Rad Source breached the License Agreement, I must first determine the parties’ respective duties under the agreement. Similarly, to determine whether the parties are entitled to declaratory relief, which is intertwined with the claims of breach, I must also review and interpret the terms of the License Agreement.
Because of the License Agreement’s
latent ambiguity
as to the last sentence of Article 3.1, extrinsic evidence of the parties’ formation of the agreement is admissible. Based on the written agreement and parol evidence, I determine that MDS granted to Rad Source in Article 3.1 the right to use the Patents as they related to the System (defined as the RS 3000 and not the RS 3400) because no party foresaw or considered the advent of the RS 3400 allegedly encompassing Claim 6 of the '255 Patent when negotiating and executing the License Agreement.
With the backdrop of the parties’ negotiations and intent, this first portion of the Conclusions of Law analyzes the following three key Articles of the License Agreement, their interrelation, and the parties’ obligations thereto: (i) 3.1 (Grant of License); (ii) 5.3 (non-competition provision); and (iii) 3.8 (Right of First Negotiation). Because contract interpretation under Florida law requires examination of the License Agreement’s three
key provisions in pari materia,
I determine that the non-compete provision of Article 5.3 is valid, but expired by its own terms on September 26, 2010. Further, looking to Article 3.8, I conclude that Rad Source did not formally offer this right of first negotiation to MDS for the RS 3400 during a July 2007 visit by Nordion representatives to Rad Source’s facilities in Georgia.
18
However, pursuant to my Preliminary Order, Rad Source complied with Article 3.8 by offering the right of first negotiation for the long tube technology to Plaintiffs, which was rejected.
Subsequent to analyzing these three provisions of the License Agreement, I address the issue of Nordion’s
sublicense
to Best. I determine that Rad Source reasonably withheld consent to Nordion’s
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request to assign its rights in the License Agreement to Best. At a minimum, Rad Source had no knowledge of Best’s ability to market and sell the RS 3000. However, I find that Rad Source waived and is es-topped from any claim that Nordion’s sub-license to Best was a material breach of the License Agreement which rendered the agreement ineffective. Rad Source was fully aware of the sublicense and MDS and Best’s reliance on it, yet failed to take any timely action to contest it.
Finally, even though I determine that the RS 3400 is not subject to Article 3.1 based on the language of the License Agreement and parol evidence of the parties’ negotiations, I nonetheless perform a
technical analysis
of the RS 3400 and its relation to Claim 6 of the '255 Patent in order to resolve this disputed issue. Since the final sentence in Article 3.1 precludes Rad Source from developing a blood irradiator that embodied in whole or in part the Patents, the issue is whether the RS 3400 embodies in whole or in part Claim 6 of the '255 Patent.
19
Based on this portion of the Conclusions of Law, I find that the RS 3400 does not infringe any claims of any Patents subject to the License Agreement, under either a literal infringement or a doctrine of equivalents analysis. Therefore, the RS 3400 cannot “embody in whole or in part, the Patents” even if I had determined (which I do not) that the “embody” language referred to the long tube technology.
B. Requested relief
In order to provide a roadmap for my analysis, I outline the parties’ requested relief as discussed
supra
§ II.A. The parties seek declaratory judgment as follows: in Count I of the Third Amended Complaint, Plaintiffs seek a declaratory judgment that the RS 3400 embodies in whole or in part the Patents; in Count VII, Plaintiffs seek a declaration that the License Agreement remains in full force and effect (Count VII).
20
For the reasons discussed
infra,
I determine that Plaintiffs are not entitled to declaratory judgment on Count I, but are entitled to declaratory judgment with respect to Count VII.
Rad Source’s counterclaim seeks declaratory judgment that: (1) MDS breached the License Agreement, excusing Rad Source from further performance under the agreement; (2) Rad Source offered MDS the right of first negotiation for the long tube technology, which MDS rejected; (3) the RS 3400 does not embody in whole
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or in part the Patents; (4) the License Agreement does not preclude Rad Source from developing or selling the long tube technology and devices using that technology; and (5) Article 5.3 (non-compete provision) and the last sentence of Article 3.1 of the License Agreement are void and unenforceable restrictive covenants. As discussed
infra,
I determine that Rad Source is not entitled to declaratory judgment with respect to parts 1, 2, and 5, but is entitled to declaratory judgment with respect to parts 3 and 4.
In addition to declaratory relief, Plaintiff seeks a permanent injunction (Count IV) enjoining Rad Source from,
inter alia:
(1) developing, manufacturing, and selling a device for blood irradiation that embodies in whole or in part the patents subject to the License Agreement and (2) competing with Plaintiffs’ blood irradiation business. Plaintiffs breach of contract claim in Count V alleges that Rad Source breached the License Agreement by developing the RS 3400 and failing to maintain the '255 Patent in good standing. Finally, Plaintiffs’ unjust enrichment claim, pled in the alternative in Count VI, alleges that Rad Source gained an unfair market advantage by designing and manufacturing the RS 3400 prior to the expiration of the non-compete provision. Based on my determinations
infra,
I conclude that Plaintiffs are not entitled to a permanent injunction and their claims for breach of contract and unjust enrichment fail.
C. Jurisdiction
I exercise jurisdiction over Plaintiffs’ claims pursuant to 28 U.S.C. § 1332 because the parties are diverse and the monetary value of the object of the litigation exceeds $75,000, exclusive of interests and costs. I exercise subject matter jurisdiction over Defendant Rad Source’s counterclaim pursuant to 28 U.S.C. § 1367 because the counterclaim for declaratory relief is so related to the claims in this action within the original jurisdiction of the Court that it forms part of the same case or controversy under Article III of the Constitution.
D. Declaratory relief
The Declaratory Judgment Act provides that “[i]n a case of actual controversy within its jurisdiction ..., any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201 (a);
see also
Fed.R.Civ.P. 57 (governing procedure for obtaining a declaratory judgment under 28 U.S.C. § 2201 ). The “continuing controversy may not be conjectural, hypothetical, or contingent; it must be real and immediate, and create a definite, rather than speculative threat of future injury.”
Emory v. Peeler,
756 F.2d 1547, 1551-52 (11th Cir.1985) (citations omitted). “The granting of relief by declaratory judgment is a matter within the sound discretion of the court.”
Emp’r’s Liab. Assurance Corp. v. Mitchell,
211 F.2d 441, 443 (5th Cir.1954)
21
“However, even where declaratory relief is not requested, the courts may grant such relief where the pleading and proof show it to be appropriate.”
Serv. Trades Council v. Walt Disney World Co.,
2008 WL 686916 , 2008 U.S. Dist. LEXIS 19122 (M.D.Fla. Mar. 11, 2008) (citing
Turner v. Liverpool Cent. Sch.,
186 F.Supp.2d 187 , 190 n. 5 (N.D.N.Y.2002)).
Plaintiffs and Defendant request declaratory judgments seeking opposite conclusions,
i.e.,
Plaintiffs seek a declaration that
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the RS 3400 embodies in whole or in part the Patents (Count I) and Defendant seeks a declaration that the RS 3400 does not embody in whole or in part the Patents; Plaintiffs seek a declaratory judgment that the License Agreement remains in full force and effect (Count VII) and Defendant seeks a declaration that it is excused from further performance under the License Agreement. To the extent the parties’ respective requests for declaratory relief seek conflicting results, I GRANT and DENY them accordingly as set forth
infra.
Where I deny declaratory relief,
22
1 set forth my reasoning as it applies to each form of requested relief.
E. Applicable law
Before analyzing specific portions of the License Agreement, I discuss general principles of contract interpretation that guide my analysis. In particular, I note that I am bound by Florida law in interpreting the License Agreement. Florida law dictates that I review provisions of a written contract in relation to each other
in pari materia.
This principle is important for my analysis of how 'Articles 3.1, 3.8, and 5.3 operate in concert with one another to set forth the parties’ rights under the License Agreement. Finally, I cite Florida law with respect to ambiguities within a written agreement — latent, patent, or intermediate — to discuss why I must consider parol and extrinsic evidence in interpreting the License Agreement.
1. General contract interpretation under Florida law
“Matters that bear upon the execution, validity, interpretation and obligations of a contract are determined, in Florida, by the law of the place where the contract was made, while matters connected with performance are regulated by the law of the place where the contract by its terms may have been provided.”
Hammett v. Am. Bankers Ins. Co. of FI.,
203 F.R.D. 690, 700 (S.D.Fla.2001). A federal court exercising diversity jurisdiction must apply the choice-of-law rules of the forum state to determine the substantive law to be applied in the case.
Am. Family Life Assur. Co. v. U.S. Fire Co.,
885 F.2d 826, 830 (11th Cir.1989) (citing
Klaxon Co. v. Stentor Elec. Mfg. Co., Inc.,
313 U.S. 487 , 61 S.Ct. 1020 , 85 L.Ed. 1477 (1941)). Under Florida’s choice-of-law rules, courts should respect a choice-of-law provision within a contract, unless the chosen law contravenes Florida public policy.
Fla. Evergreen Foliage v. E.I. Du Pont De Nemours & Co.,
135 F.Supp.2d 1271, 1277 (S.D.Fla.2001).
Here, I construe the License Agreement pursuant to Florida law, as provided for in the express language of Article 13.13 of that agreement.
See
[ECF No. 286-1] (“This Agreement shall be governed and construed in accordance with the laws of the State of Florida USA, without reference to its principles on conflicts of laws. Place of closing shall be in the State of Florida....”). I do not find that there is any contravention to Florida public policy by enforcing the agreement’s choice of law provision, especially when the parties met in Florida for the purpose of executing the License Agreement and because Rad Source is a corporation organized under the laws of Florida. 4/20/11 Tr. at 69:6-18; 4/23/11 Tr. at 99:9-10; J.P.S. ¶4.
Generally, Florida law precludes admission of prior or contemporaneous oral statements which vary or contradict
*1296
the terms of a written contract which is clear, unambiguous, and fully integrated.
Hazara Enters., Inc. v. Motiva Enters., LLC,
126 F.Supp.2d 1365, 1373 (S.D.Fla.2000). However, where provisions of a contract are ambiguous and unclear on the face of the agreement, courts may consider evidence outside of the plain language in order to determine the intent of the parties at the time of formation of the contract at issue.
Gulf Cities Gas Corp. v. Tangelo Park Serv. Co.,
253 So.2d 744, 748 (Fla. 4th DCA 1971). Negotiations prior to or contemporaneous with the execution of a contract are admissible as an aid in contract construction, interpretation and determination of the meaning of the contract so long as that evidence does not vary or contradict the terms of the written contract. Restatement (2d) of Contracts § 214;
see also Nevel v. Monteleone,
514 So.2d 383, 384 (Fla. 4th DCA 1987).
Words and phrases in a contract should be given their common and ordinary meanings absent specific contractual definitions or if the fact finder decides that the parties intended the words to have a special meaning.
Murley v. Wiedamann,
25 So.3d 27, 29 (Fla. 2d DCA 2009). If the language of a contract is susceptible of two constructions, the contract should not be interpreted in a manner that would make it inequitable, unnatural, or leave one party at the mercy of the other.
Huntington on the Green Condo. v. Lemon Tree I-Condo.,
874 So.2d 1, 5 (Fla. 5th DCA 2004). A reasonable interpretation of a contract is preferred to an unreasonable one.
James v. Gulf Life Ins. Co.,
66 So.2d 62, 63-64 (Fla.1953);
Travelers Indem. Co. v. Milgen Dev., Inc.,
297 So.2d 845 (Fla. 3d DCA 1974). Any ambiguity in a written agreement must be resolved by interpreting the language against the party who drafted the ambiguous language.
City of Homestead v. Johnson,
760 So.2d 80, 84 (Fla.2000);
Syverson v. Jones,
10 So.3d 1123, 1125 (Fla. 1st DCA 2009).
2.
In pari materia
In reviewing a contract to determine its true meaning, the entire contract must be reviewed as a whole without fragmenting any segment or portion.
Jones v. Warmack,
967 So.2d 400, 402 (Fla. 1st DCA 2007). All of the various provisions of a contract must be construed, if it can be reasonably done, as to give effect to each.
Paddock v. Bay Concrete Indus.,
154 So.2d 313, 315 (Fla. 2d DCA 1963). If clauses in a contract appear to be repugnant to each other, they must be given such an interpretation and construction as will reconcile them if possible.
Huntington v. Lemon Tree,
874 So.2d at 5 (Fla. 5th DCA 2004). I must read the three sections
in pari materia
to effectuate the intent of the parties, and not to rewrite the contract.
See, e.g., A.I.G. Uruguay Compania de Seguros, S.A. v. AAA Cooper Transp.,
334 F.3d 997, 1010 (11th Cir.2003) (purpose of courts is not to protect sophisticated business actors from each other and, in the absence of fraud or other sufficient cause for doing so, courts will not reform the contract between such parties).
3. Parol evidence
The parol evidence rule is not a rule of evidence, but rather is a substantive rule of law.
See Knabb v. Reconstruction Fin. Corp.,
144 Fla. 110 , 197 So. 707, 715 (1940). Where a written agreement is unambiguous, the parol evidence rule bars the introduction of extrinsic evidence that would contradict or affect the construction of the document.
See Olive v. Tampa Educ. Cable Consortium,
723 So.2d 883, 884 (Fla. 2d DCA 1998);
Polk v. Crittenden,
537 So.2d 156, 159-60 (Fla. 5th DCA 1989). However, parol evidence is admissible to prove the elements of an agreement where a writing is ambiguous on its face.
Newbern v. Am. Plasticraft, Inc.,
*1297
721 So.2d 351, 352 (Fla. 2d DCA 1998);
Hood v. Hood,
100 So.2d 422, 426 (Fla. 2d DCA 1958) (permitting parol evidence to explain or clarify terms that are not clear and unambiguous). Parol evidence is not admissible to explain a patent ambiguity; it is admissible to explain only a latent ambiguity.
See Metro Dev. Group, LLC. v. 3D-C & C, Inc.,
941 So.2d 11, 13 (Fla. 2d DCA 2006). Parol evidence may not be used to vary or contradict the terms of an agreement, but it may be admitted to clarify the terms used and show the parties’ true intent.
Bd. of Trustees of the Internal Improvement Trust Fund v. Lost Tree Village Corp.,
805 So.2d 22, 26 (Fla. 4th DCA 2001).
4. Latent, patent, or intermediate ambiguity
An ambiguity in a written agreement can be latent, patent, or fall into a third category known as an intermediate ambiguity.
See Ace Elec. Supply Co. v. Terra Nova Elec., Inc.,
288 So.2d 544, 547 (Fla. 1st DCA 1973). A patent ambiguity appears on the face of the instrument, arising from defective, obscure, or insensible language.
Id.
A latent ambiguity arises “where language employed is clear and intelligible and suggests a single meaning, but some extrinsic fact or extraneous evidence creates a necessity for interpretation or a choice among two or more meanings.”
Id., see also Saenz v. Campos,
967 So.2d 1114, 1117 (Fla. 4th DCA 2007). Florida courts have recognized that if the writing in the contract in question is susceptible of either of the divergent meanings contended for by the parties it presents a latent ambiguity.
Ocean Reef Club, Inc. v. UOP, Inc.,
554 F.Supp. 123, 128 (S.D.Fla.1982) (citing
Atl. & Gulf Props., Inc. v. Palmer,
109 So.2d 768 (Fla. 3d DCA 1959)).
A patent ambiguity appears on the face of the instrument and arises from defective, obscure, or insensible language.
Crown Mgm’t Corp. v. Goodman,
452 So.2d 49, 52 (Fla. 2d DCA 1984). Extrinsic evidence is inadmissible if the ambiguity is patent, because such evidence would, in effect, allow combs to rewrite the contract for the parties by supplying information the parties themselves did not choose to include.
Emergency Assocs. of Tampa, P.A. v. Sassano,
664 So.2d 1000, 1002 (Fla. 2d DCA 1995) (citing
Hunt v. First Nat’l Bank,
381 So.2d 1194 , 1196 n. 1 (Fla. 2d DCA 1980)). A latent ambiguity exists where a contract fails to specify the parties’ rights or duties in certain situations and extrinsic evidence is necessary to interpret possible meanings.
Forest Hills Utils., Inc. v. Pasco Cnty.,
536 So.2d 1117, 1119 (Fla. 2d DCA 1988). Where there is a latent ambiguity, extrinsic evidence is required because the instrument itself does not provide sufficient insight into the parties’ intent.
Id.
(citing
Crown Mgm’t Corp. v. Goodman,
452 So.2d at 49 ;
Morton v. Morton,
307 So.2d 835 (Fla. 3d DCA 1975)).
In
Ace Elec. Supply Co.,
the First District Court of Appeals determined that a written contract contained a third “intermediate ambiguity” category because the ambiguity was arguably both patent and latent.
Ace Elec. Supply Co.,
288 So.2d at 547 . The court treated the intermediate ambiguity as latent, allowing extrinsic evidence.
Id.
(“... the third category known as an intermediate ambiguity, which it is recommended in law should be treated as a latent ambiguity, permitting admission of extrinsic evidence for its resolution.”). The court further noted that where “the words all are sensible and have a settled meaning, but at the same time consistently admit of two interpretations according to the subject matter in the contemplation of the parties, constitute an intermediate class partaking of the nature both of pat
*1298
ent and latent ambiguities, ... in such case evidence ought to be admitted showing the circumstances under which the contract was made and the subject matter to which the parties refer.”
Id.
(citing 22 C.J., Evidence § 1596).
Some Florida state courts have even suggested that characterization of an ambiguity as latent or patent may not have much influence in whether parol evidence is permitted.
See Bajrangi v. Magnethel Enters., Inc.,
589 So.2d 416 , 419 n. 5 (Fla. 5th DCA 1991) (“The distinction between latent and patent ambiguities in relation -to parol evidence appears to be disappearing.”);
Crown Mgm’t Corp. v. Goodman,
452 So.2d at 49, 51-52 (“the growing and better reasoned trend of authority indicates that the introduction of parol evidence to probe the true intent of the parties is proper, irrespective of any technical classification of the type of ambiguity present”). As discussed in § II.G
infra,
I find that the last sentence of Article 8.1 contains a latent ambiguity or, at a minimum, an intermediate ambiguity, allowing for parol evidence.
5. Breach of contract
Both Plaintiffs and Rad Source contend that the other party has materially breached the License Agreement. See [ECF Nos. 286, 290]. To prevail on a breach of contract claim, a claimant must prove: (1) the existence of an enforceable contract; (2) a material breach of that contract; and (3) damages resulting directly from the material breach.
Knowles v. C.I.T. Corp.,
346 So.2d 1042, 1043 (Fla. 1st DCA 1977);
Rollins, Inc. v. Butland,
951 So.2d 860, 876 (Fla. 2d DCA 2006). To constitute a material breach, a party’s “nonperformance of a contract must be such as to go to the essence of the contract; it must be the type of breach that would discharge the injured party from further contractual duty on his part but a [party’s] failure to perform some minor part of his contractual duty cannot be classified as a material or vital breach.”
Atlanta Jet v. Liberty Aircraft Servs., LLC,
866 So.2d 148, 150 (Fla. 4th DCA 2004) (citing
Beefy Trail, Inc. v. Beefy King Int'l., Inc.,
267 So.2d 853, 857 (Fla. 4th DCA 1972)).
“Florida contract law recognizes the implied covenant of good faith and fair dealing in every contract.”
Ins. Concepts and Design, Inc. v. Healthplan Servs., Inc.,
785 So.2d 1232, 1234 (Fla. 4th DCA 2001). “This covenant is intended to protect the ‘reasonable expectations of the contracting parties in light of their express agreement.’ ”
Id.
(citations omitted). The implied covenant of good faith, however, shall “not be invoked to override the express terms of the agreement between the parties.”
Id.
(citations omitted).
The parties’ breach of contract claims are as follows: Plaintiffs contend that Rad Source breached the following Articles of the License Agreement by taking the following actions: (1) Article 3.1: developing, promoting, marketing, and selling the RS 3400, which allegedly embodies, in whole or in part, the '255 Patent; (2) Article 3.8: failing to engage in negotiations with MDS for the right to acquire from Rad Source, by license or otherwise, the right to use the long tube technology developed by Rad Source; (3) Article 5.3: developing, designing, manufacturing, promoting, marketing and offering to sell or lease the forthcoming RS 3400 device during a 7-year non-compete period that was to end on September 26, 2010;
23
(4) Article 3.7:
*1299
failing to maintain the '255 Patent in good standing.
On the other hand, Rad Source argues that Plaintiffs breached the following Articles of the License Agreement by taking the following actions: (1) Article 8.1: providing Rad Source’s Confidential Information, as defined in Article 8.1 of the License Agreement, to Best Medical and Best Theratronics without informing Rad Source or obtaining its consent; and (2) Article 13.9: assigning the License Agreement to Best Medical and Best Theratronics by way of the Asset Purchase Agreement and Sublicense Agreement, without obtaining Rad Source’s express written consent.
Prior to discussing whether the parties can prevail on their respective claims regarding breaches of the License Agreement, I first interpret the written agreement to determine whether the parties have breached certain provisions. In doing so, I also note that only material breaches of the License Agreement are significant insofar as proving damages and acting upon the parties’ claims for termination of the License Agreement based on alleged breaches.
In analyzing the parties’ rights and obligations under the License Agreement, I must give every provision in the License Agreement meaning and effect and reconcile any apparent inconsistencies, if possible.
See Royal Am. Rlty., Inc. v. Bank of Palm Beach & Trust Co.,
215 So.2d 336, 338 (Fla. 4th DCA 1968);
Transp. Rental Sys., Inc. v. Hertz Corp.,
129 So.2d 454, 456 (Fla. 3d DCA 1961). I have looked to other provisions of the License Agreement and its general scope because where one interpretation would lead to an absurd conclusion, such interpretation must be abandoned and an interpretation should be adopted which will be more consistent with reason and probability.
See Jacobs v. Parodi,
50 Fla. 541 , 39 So. 833 , 837 (1905). Finally, where the language of the License Agreement is ambiguous or unclear as to Article 3.1, I have considered extrinsic evidence for the purpose of determining the intent of MDS and Rad Source at the time of the formation of the License Agreement.
See Gulf Cities Gas Corp. v. Tangelo Park Serv. Co.,
253 So.2d at 748 . Where such extrinsic evidence involved Articles 3.8 and 5.3, I have considered it only in relation to Article 3.1.
F. Relationship between grant of license (Article 3.1), non-compete (Article 5.3), and right of first negotiation (Article 3.8)
Before I begin my analysis of each key provision of the License Agreement, it is helpful to set forth a brief overview of how Articles 3.1, 5.3, and 3.8 interrelate. Reading the Articles of the License Agreement
in pari materia,
as I must pursuant to Florida law
(see supra
§ II.E.2), the following interpretations of the License Agreement apply. Under the non-compete provision (Article 5.3), Rad Source agreed to not design, promote, manufacture, or sell any device that would compete with the blood irradiation business of Nordion in any way for a period of seven years. After seven years, Rad Source could compete in the blood irradiation business but — -under the Grant of License (Article 3.1) — Rad Source did not have the right to develop, manufacture, distribute, promote, market, or sell any blood irradiator that embodied, in whole or in part, the Patents. Rad Source had granted the exclusive license to those Patents to Nordion until the year 2022 when the last patent expired. After seven years, Rad Source could develop, manufacture, distribute, promote, market and sell a blood irradiator that did not embody, in whole or in part, the Patents. However, where the Patents were not implicated, Rad Source had an obligation (under Article 3.8) to
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provide Nordion with the right of first negotiation to acquire that irradiation application technology. I now turn to the meaning of “embodies in whole or in part the Patents” by reviewing Article 3.1.
G. Latent ambiguity in License Agreement
I ruled and concluded that the phrase “embodies in whole or in part the Patents” constitutes a latent ambiguity that requires resolution through extrinsic parol evidence. Alternatively, even if it is not a latent ambiguity, the phrase falls within the third “intermediate ambiguity” category which is treated as a latent ambiguity. I discuss how “embodies in whole or in part the Patents” is alternatively an intermediate ambiguity
infra
§ II. H.
In Article 3.1, the phrase “embodies in whole or in part, the Patents” presents a latent ambiguity which requires introduction of extrinsic evidence of the parties’ negotiations. First, the single meaning suggested by the language is that “Patents” refers to the “Patents” defined in Article 1.8 of the License Agreement as “U.S. Patent Nos. 6,389,099 and 6,212,255 and United States patent pending application No. 101244-209 (including divisional applications thereof), including such patents as are filed in the Territory.”
However, the parties’ dealings with respect to the long tube technology constitute extrinsic evidence raising a need for interpretation among additional meanings — the second prong of a latent ambiguity analysis. Due to the extrinsic evidence of the potential and forthcoming long tube technology, an issue is raised as to whether the phrase “embodies in whole or in part the Patents” encompasses the RS 3400 in addition to the RS 3000. When the parties entered into the License Agreement, the long tube technology had not been fully developed by Rad Source and was intended to be a point of return for future negotiations. The extraneous evidence demonstrates that the parties discussed the long tube technology independent of the Patents and System relating to the RS 3000. Though the parties had discussed the Patents as they related to the System, they also knew that the long tube technology was in development so the parties reserved — through Article 5.3 — a right to negotiate later once the long tube technology was ready for the market.
Article 3.1 of the License Agreement, titled the “Grant of License,” contains three sentences. The first sentence on its face gives the Licensee (MDS) the Exclusive Right to use the Licensed Technology for the System and modifications made by MDS. The License Agreement defines Licensed Technology as “the Patent(s), and Technical Information as set out in Schedule A. The Patents are defined as United States Patent Nos. 6,212,255 (the '255 Patent), 6,614,876 (the '876 Patent), 6,389,099 (the '099 patent) obtained by Randol Kirk, as the inventor, and Rad Source, as the assignee.
24
The License Agreement specifically defines the System as “the Rad Source RS 3000 x-ray blood irradiation system, including modifications thereto, exploited and/or marketed by Rad Source as [of] the closing date.”
The second sentence of Article 3.1 refers to Rad Source’s retention of all rights other than those necessary for making, using, and selling the System. Article 3.1 goes on to define allegedly “for the avoidance of doubt” Rad Source’s “retained right to use
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the Licensed Technology” as something which “shall not include ... a medical device for blood or blood product irradiation, which is used or useable to reduce the risk of Graft Versus Host Disease or other blood borne pathogen, and which
embodies, in whole or in part, the Patents.”
(emphasis added)
If the final sentence of Article 3.1 ended with at “... Rad Source’s retained right to use the Licensed Technology ... shall not, ... include the right, directly or indirectly, to develop, manufacture or to have manufactured, distribute, promote, market, sell or lease a medical device for blood or blood product irradiation, which is used or useable to reduce the risk of Graft Versus Host Disease or other blood borne pathogen,” there would be no ambiguity.
For the avoidance of doubt, Rad Source’s retained right to use the Licensed Technology (as set out in the preceding sentence) shall not, during the term of the license, in the Territory, include the right, directly or indirectly, to develop, manufacture or to have manufactured, distribute, promote, market, sell or lease a medical device for blood or blood product irradiation, which is used or useable to reduce the risk of Graft Versus Host Disease or other blood borne pathogen, and which embodieSi in whole or in part, the Patents.
However, because the License Agreement contains the phrase “and which embodies, in whole or in part, the Patents,” this portion of Article 3.1 contains a latent ambiguity for the reasons described
supra,
and it is necessary to consider the parol evidence surrounding the formation of the License Agreement in order to determine the parties’ respective rights and obligations pursuant to the agreement. Instead of limiting doubt, the third sentence of Article 3.1 actually functioned to create additional doubt in the form of a latent ambiguity regarding the conveyance to MDS and what specifically Rad Source had granted to MDS.
H. Intermediate ambiguity in License Agreement
Even if Article 3.1 does not present a latent ambiguity in the License Agreement, it would fall into the third intermediate category requiring that I treat the intermediate ambiguity as a latent ambiguity and admit parol evidence. As explained
supra
§ II.E.4, the court in
Ace Elec. Supply Co.
determined that an ambiguity in a written contract was an intermediate ambiguity where it was arguably both patent and latent, therefore requiring admission of parol evidence. 288 So.2d at 547 .
The two interpretations in this instance are whether the phrase “embodies in whole or in part the Patents” includes both the RS 3000 and the RS 3400 (as Plaintiffs claim), or whether the phrase is limited to solely the RS 3000 (as Rad Source argues). Pursuant to the description of intermediate ambiguity set forth in
Ace Elec. Supply Co.,
Article 3.1 has “sensible words with a settled meaning,”
ie.,
“embodies in whole or in part the Patents.” However, the interpretations of such language can either mean the Patents subject to the System as set forth in Schedule A to the License Agreement, or alternatively — as Plaintiffs suggest — Patents as manifested in both the System (RS 3000)
in addition to the RS 3400.
Thus, even if Article 3.1 does not contain a latent ambiguity, at a minimum, there is an intermediate ambiguity with two possible interpretations which requires consideration of parol evidence.
I. Integration or merger clause
Article 13.7 of the License Agreement states: “[t]his Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and
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undertakings, both written and oral, with respect to the subject matter hereof.” This is known as an integration or merger clause. Notwithstanding this clause in Article 13.7, it is still permissible to admit parol evidence where there is a latent ambiguity.
See Johnson Enters, of Jacksonville v. FPL Group,
162 F.3d 1290, 1309 (11th Cir.1998) (“There are, however, several exceptions to the parol evidence rule that permit the introduction of evidence of prior oral agreements even though the final written contract was intended to be integrated.”). In
Johnson Enters.,
the Eleventh Circuit noted two exceptions where parol evidence could be admitted notwithstanding the fact that the written agreement contained an integration or merger clause purporting to represent the parties’ entire agreement.
Id.
Specifically, the Eleventh Circuit, in reviewing Florida law, stated that
even where an agreement contains an integration clause,
“parol evidence may be admitted (1) to show that the oral agreement induced the signing of the written contract, or (2) to
explain a latent ambiguity in the written contact.” Id.
(emphasis added).
Accordingly, because I determine that there is a latent ambiguity in Article 3.1, I am not precluded from considering parol evidence due to the merger clause in Article 13.7.
See also Taminco NV v. Gulf Power Co.,
2008 WL 4661520 , 2008 U.S. Dist. LEXIS 88469 (N.D.Fla. Oct. 21, 2008) (“The Agreement contains a merger and integration clause. In addition, the language of the Agreement is clearly written and unambiguous. Under Florida law, when contract terms are clear and unambiguous, court must give effect to plain meaning of such terms.”) (citing
Nat’l R.R. Passenger Corp. (Amtrak) v. Rountree Transp. and Rigging, Inc.,
422 F.3d 1275, 1284 (11th Cir.2005) and interpreting Florida law). Thus, I make clear that notwithstanding the merger clause in Article 13.7, I can — and must — consider extrinsic parol evidence in order to clarify the latent ambiguity arising in Article 3.1.
J. Article 3.1 — Grant of License
I first analyze the key provision in the License Agreement, Article 3.1, to determine whether the parties are entitled to declaratory relief with respect to whether the RS 3400 embodies in whole or in part the Patents. Article 3.1, and specifically the language “embodies in whole or in part, the Patents” in the final sentence of Article 3.1, is the critical language in this case. Through Article 3.1, Rad Source granted an exclusive, worldwide right and license to “Use” the “Licensed Technology” for the RS 3000 System. According to Article 1.6 of the License Agreement, the “Licensed Technology” was defined to include “the Patent(s), and Technical Information as set out in Schedule A.” Schedule A of the License Agreement is titled “Licensed Technology” and includes not only the Patents, but also the drawings, specifications, manuals, and procedures for the RS 3000. Pursuant to Article 1.12 of the License Agreement, Nordion’s exclusive right to “Use” the Licensed Technology included “the right to enjoy, copy, commercialize and exploit as well as manufacture ... all devices embodied in the Licensed Technology and the System[.]” Thus, the “Patents” referred to in “embodies in whole or in part, the Patents” pertains to the Patents at issue in the System.
Although Plaintiffs argue that the grant of license is clear, I agree with Rad Source that the third sentence is ambiguous as to what the phrase “embodies in whole or in part the Patents” actually includes. As described
supra,
because of this latent ambiguity, it is not only permissible, but necessary, to admit and consider parol evidence of the parties’ intent in negotiating the License Agreement. This extrinsic evidence may include the circumstances sur
*1303
rounding the parties of the objective of the agreement, any declarations of intent by the parties prior to or contemporaneous with the execution of the agreement, and evidence regarding the parties’ interpretation of their actions and dealings.
See
288 So.2d at 547 . In Phase I of the trial, the parties presented significant evidence regarding Nordion and Rad Source’s course of negotiations leading up to the executed License Agreement, which I now consider in interpreting Article 3.1.
1. Parol evidence of parties’ intent as to Article 3.1
During Phase I of the trial, the parties presented evidence and testimony regarding their formation of the License Agreement to demonstrate the parties’ intent in negotiating and executing the agreement. As discussed in greater detail
infra,
I determine that based on the greater weight of the more credible evidence at trial, a reading of Article 3.1 as Rad Source suggests,
ie.,
that “embodies in whole or in part the Patents” in Article 3.1 does not refer to the RS 3400, is aligned with the parties’ true intentions.
The parties negotiated the License Agreement over the course of approximately 16 months. Though Mr. Gotfrit was the primary
drafter
of the License Agreement on behalf of Nordion, he was not significantly involved as a
negotiator
of the terms of the agreement. It is clear that Mr. Gotfrit was not a patent attorney and did not even have an understanding of the phrase “embodies in whole or in part the Patents” when he drafted and used such language in Article 3.1. I determine that although Mr. Gotfrit acted as counsel for Nordion, it is obvious that he was not sufficiently well-versed in patent or technical matters such that he could draft the License Agreement so that it would stand for what Plaintiffs now claim the License Agreement represents. Though he claimed to be one of the principals who dealt with the business-side matters of the negotiations, Mr. Gotfrit’s statement is not supported by the record.
Furthermore, during negotiations, Mr. Gotfrit was primarily dealing and going back and forth in correspondence with Mr. Hartman of Rad Source, a non-lawyer. Mr. Hartman clearly did not understand the full legal implications of the language of the License Agreement and Rad Source only retained counsel — who was unfamiliar with the background negotiations — at the last minute before the parties signed the License Agreement and close the deal. Mr. Hartman was clearly inexperienced to the extent that he did not understand the legal aspects of what he was dealing with, putting Mr. Hartman at a clear disadvantage against Mr. Gotfrit. Mr. Hartman relied on personal relationships with the two key Nordion representatives, Mr. Ash-field and Craig Hunter, to negotiate the terms of the License Agreement. To some extent, Nordion took advantage of Rad Source’s situation, but I expressly find that there was no bad faith on the part of Nordion in doing so. In any event, the evidence at trial demonstrated that on behalf of Nordion, Mr. Gotfrit drafted the agreement, but did not fully participate in negotiations and on behalf of Rad Source, Mr. Hartman — a non-lawyer — negotiated based on personal relationships without a full understanding of the legal implications of the language in Article 3.1.
“The credibility of a witness is in the province of the factfinder[.]”
United States v. Copeland,
20 F.3d 412, 413 (11th Cir.1994) (citing
United States v. Billue,
994 F.2d 1562, 1563 (11th Cir.1993));
see also McCormick v. City of Fort Lauderdale,
333 F.3d 1234, 1240, n. 7 (11th Cir.2003) (“Issues of credibility and the weight afforded to certain evidence are determinations appropriately made by a finder of fact”). Regarding Mr. Gotfrit’s testimony,
*1304
I do not accord his testimony much weight because of the fact that he remains employed by Nordion. I do not find Mr. Gotfrit’s testimony entirely forthcoming and it is clear that Mr. Gotfrit has a need to protect his own self-interests since he is still Nordion’s in-house counsel. Despite his testimony to the contrary, Mr. Gotfrit’s primary role was that of an in-house attorney, not a principal. I accord limited credibility to Mr. Gotfrit’s testimony because of MDS’ interests in protecting itself in a potential suit by the Best Plaintiffs in the event the sublicense transfer would be considered void pursuant to the License Agreement,
ie.,
Best would file suit against Nordion because the Best Plaintiffs did not receive what they bargained for and spent $15 million to achieve. Mr. Gotfrit had significant incentive to protect MDS and seek full protection for the Best Plaintiffs against future long tube technology competition under criticism for not properly drafting the License Agreement to effectuate the intent of Nordion — and eventually Best, through the sublicense.
The primary negotiator for Nordion was Mr. Ashfield, who worked for MDS for approximately 26 years and executed and negotiated the License Agreement on behalf of Nordion with Mr. Hunter. 4/23/11 Tr. at 95:24^ — 96:2; 96:19-21; 98:21-23; 98:24-99:7. Indeed, Mr. Ashfield testified that he himself “was definitely the front person” with respect to negotiating the License Agreement. 4/23/11 Tr. at 99:16-17. According to Mr. Ashfield, the purpose of the License Agreement was “[t]o license the RS 3000.” 4/23/11 Tr. at 100:6-7. In a draft license agreement dated June 9, 2003, the term in the third sentence of Article 3.1 was changed from “embodies in whole or in part the licensed technology” to “embodies in whole or in part the patents” in the final version of the License Agreement. 4/5/11 Tr. at 90:18 21; P.E. 106.
In sum, the greater weight of the more credible evidence supports the conclusion that the parties envisioned a long-term relationship, as the last of the Patents was to expire in 2022. Further, it was apparent at the time of negotiating the License Agreement that the long tube technology was not yet ready for licensing, but Rad Source could develop the technology and when ready, the parties would later revisit this issue to determine whether Nordion would acquire the long tube technology from Rad Source. As just one example, Mr. Hunter sent correspondence to Rad Source noting that “While we [Nordion] believe that there is a good potential for this product [referring to the long tube technology], it will take some time for us to properly evaluate this and for you to move the product further towards commercialization.” 4/11/11 Tr. at 221:8-23; D.E. A. This correspondence further stated:
We believe that it is important to try to reach agreement on a final deal as soon as possible and to not to add what could be several months to our discussions by including the new unit in our negotiations. In addition to new applications, we can certainly see a future situation where we would want to incorporate the new tube into a redesigned blood irradiator under some agreement that is financially attractive to both parties. 4/11/11 Tr. at 222:1-10; D.E. A.
Mr. Hartman also testified that it was his understanding that MDS did not want to license the long tube at that time in 2003. 4/11/11 Tr. at 222:11-14. I find Messrs. Ashfield, Hartman, and Hunter’s testimony and correspondence to be compelling and credible on this key point.
Given that the license grant in Article 3.1 was limited to the RS 3000 System, and that the compensation and other substantive provisions in the License Agreement
*1305
were limited and in context to that RS 3000 System, I conclude that the parties intended through the third sentence of Article 3.1 only to clarify that Rad Source was prohibited from developing and marketing a blood irradiation device that infringed upon the license granted to MDS,
ie.,
a blood irradiation device that was a knock-off of the RS 3000. Testimony from representatives of both Rad Source and MDS confirms that this was the parties’ intent behind the third sentence of Article 3.1. This conclusion is also consistent with the fact that the third sentence was meant only to clarify Rad Source’s retained rights under the second sentence, which allowed Rad Source to use the Licensed Technology (including the Patents) for all purposes other than the RS 3000. Hence, the third sentence of Article 3.1 could not have and was not intended to create any additional obligation upon Rad Source separate and distinct from that set forth in the first two sentences of that provision. Under this interpretation of the third sentence of Article 3.1, I determine that Plaintiffs have failed to prove that Rad Source breached Article 3.1 of the License Agreement because the proposed RS 3400 device is not the System, nor is it a knock-off of the System.
The parties’ negotiations regarding the Patents meant the embodiments of the Patents which included the System that could later be modified pursuant to the terms of the License Agreement. Based on this background, it is clear that the parol evidence has shown that the parties intended the license to include the RS 3000 System and modifications made by MDS, as well as Rad Source’s agreement to not make “knock offs” of the RS 3000. As discussed further
infra
§ II.J.2, the RS 3400 is not a “knock off’ of the RS 3000 and consequently, cannot be considered to be part of the License Agreement subject to Article 3.1. Even assuming
arguendo
that the phrase “embodies, in whole or in part, the Patents” was intended to mean that Rad Source was prohibited from developing a blood irradiation device that infringed on at least one claim of one patent subject to the License Agreement, the evidence and expert testimony in this case demonstrates, as discussed
infra
§ II.P, that Rad Source’s proposed RS 3400 does not infringe any claim of any of the patents subject to the License Agreement. Hence, Plaintiffs have not demonstrated that Rad Source breached Article 3.1 of the License Agreement under this argument either.
2. “Knock-off’ of licensed System
A portion of the extrinsic parol evidence that arose during trial dealt with the concept of precluding Rad Source from developing a “knock-off’ of the RS 3000 System that would compete with the RS 3000. This was a critical part of the negotiations as it was one of the key issues that the parties discussed. Testimony from the individuals that negotiated and signed the License Agreement from both MDS and Rad Source confirms that the third sentence was intended to prohibit Rad Source from developing a knock-off of the licensed system. The parties agreed that one purpose of the third sentence of Article 3.1 was to preclude Rad Source from using the intellectual property to create a “knockoff’ of the System which would compete with the RS 3000.
See e.g.,
4/7/11 Tr. at 53:16-22; 4/21 /II Tr. at 21:7-11; 4/11 /II Tr. at 218:3-8; 220:8-10; 4/12/11 Tr. at 76:7-16; 79:19-23; 180:25-181:2. The “knock off’ term came from Nordion during negotiations and discussions and first originated in discussions regarding Article 3.1 from Nordion’s representative, Craig Hunter. 4/11/11 Tr. at 218:5-8; 223:11-19. Rad Source shared the same understanding of the third sentence of Article 3.1 in that it was designed to prevent Rad Source from creating a knock-off of
*1306
the RS 3000. 4/11/11 Tr. at 223:20-24; 4/12/11 Tr. at 91:13-21.
Based upon drafts of the License Agreement, the language referring to the System or “substantially similar to the System” referred to a “knock-off,” which was incorporated into the final version of Article 3.1. 4/12/11 Tr. at 92:17-22. I find this especially significant in light of established Florida law that any ambiguity in a contract must be construed against the drafting party.
See Johnson,
760 So.2d at 84 ;
Syverson,
10 So.3d at 1125 . “[A] provision in a contract is construed most strongly against its drafter.”
Sol Walker & Co. v. Seaboard Coast Line R. Co.,
362 So.2d 45, 49 (Fla. 2d DCA 1978). In correspondence dated March 24, 2003 from Craig Hunter to Mr. Kirk, there were discussions regarding the third sentence in Article 3.1, wherein Mr. Hunter stated: “The purpose of this section was to prevent Rad Source from selling a knock-off of the RS 3000 no matter what the target market. It still recognizes that your research irradiator and new tube will be excluded by the definition of the System in Section 1.9.” D.E. 1;
see also
4/23/11 Tr. at 222:20-223:1. This correspondence from Nordion indicated that the purpose of this section was to prevent Rad Source from selling a knock-off of the RS 3000. 4/12/11 Tr. at 95:12-16. The section referred to in the correspondence was a non-compete provision in a draft of the parties’ agreement. 4/12/11 Tr. at 95:17-20. In response to this correspondence, Mr. Hartman sent an e-mail to Mr. Hunter on March 27, 2003 noting that “[o]f course, our intention is not to sell directly or indirectly any equipment which competes for blood irradiation or is a knock-off.” P.E. 104; 4/12/11 Tr. at 99:8-11.
3. Article 3.1 remains valid as to the RS 3000
Article 3.1, and specifically the third sentence, concerns whether Rad Source’s RS 3400 embodied in whole or in part the patents. Because I determine that the License Agreement remains in effect as to the RS 3000, with the exception of the non-compete provision in Article 5.3 which expired by its own terms on September 26, 2010, it is axiomatic that Plaintiffs have the full rights to the RS 3000. However, as I discuss in the next section, the RS 3400 is not subject to the License Agreement and Rad Source has the rights to design, develop, market, and sell the RS 3400 given that it already provided Plaintiffs with the right of first negotiation pursuant to my Preliminary Order.
Based on the evidence presented at trial, one thing is clear — no one from Nordion or Rad Source truly understood the meaning of the phrase “embodied in whole or in part the patents.” No party envisioned Claim 6 of the '255 Patent in their discussions and negotiations leading up to the executed License Agreement. The parties did not present any testimony or exhibits throughout negotiations of the License Agreement that detailed the Patents, particularly the '255 Patent or Claim 6.
See
4/13/11 Tr. at 33:5-12. Even Mr. Gotfrit, the drafter of Article 3.1 and in-house counsel for Nordion at the time, did not even know the meaning of the phrase. Because of the latent ambiguity of this phrase and considering evidence of the parties’ intent and negotiations presented at trial, I determine that the intent “embodied in whole or in part” signified that the parties were referring to the patents for the System. In other words, the meaning of the final sentence of Article 3.1 was that the patents were incorporated as to define the System as it existed on the closing date of the License Agreement.
See O.N. Jonas Co. v. Badische Corp.,
706 F.2d 1161, 1165 (11th Cir.1983) (per curiam) (“an unforeseen and unrealized future contingency at the time of contracting can be resolved by reasonable contracting
*1307
parties when the contingency occurs without nullifying the contract.”).
4. The RS 3400 is not subject to Article 3.1
MDS contends that Rad Source breached Article 3.1 by developing, promoting, marketing, and selling the RS 3400, which MDS argues embodies, in whole or in part, Claim 6 of the '255 Patent, one of the patents subject to the License Agreement. The grant of license in Article 3.1 stated that Rad Source retained a right to use the Licensed Technology to develop, manufacture, promote, market, and sell products other than the System. While the third sentence of Article 3.1 is clear that Rad Source’s retained right did not include the right to develop a blood irradiator which embodies in whole or in part the Patents, I determine that the allegedly infringing device, RS 3400, does not embody in whole or in part the Patents.
See infra
§ II.P.
Applying Article 3.1 to the RS 3400 as Plaintiffs urge would constitute a
restrictive covenant which would be void and unenforceable under Fla. Stat. §§ 542.335 and 542.18.
In essence, Plaintiffs claim that Rad Source would be precluded from developing, manufacturing, marketing, and selling the RS 3400 for the duration of the License Agreement, or until 2022. This plainly contradicts the parties’ intent to revisit the long tube technology subsequent to entering into the License Agreement in 2003. Furthermore, the 19 year duration (from entry of the License Agreement in 2003 until expiration of the License Agreement in 2022) of this restrictive covenant is, on its face, presumptively unenforceable.
See
Fla. Stat. § 542.335 ;
see also Wilkinson v.
Manpower,
Inc.,
531 F.2d 712, 716 (5th Cir.1976) (construing a restrictive covenant of 20 years duration as unreasonable and repugnant to Florida’s public policy).
To read into the License Agreement a requirement that Rad Source refrain from developing and selling the RS 3400 for a period of 19 years (from entry of the License Agreement in 2003 until expiration of the License Agreement in 2022), coupled with the fact that the “Territory” was defined as worldwide, would result in an unenforceable restrictive covenant. A contract cannot be construed to create an illegal result.
See e.g., Sugar Cane Growers Coop., Inc. v. Pinnock,
735 So.2d 530, 538 (Fla. 4th DCA 1999) (declining to interpret a clause in a written contract as one which “would permit the illegal employment of foreign workers beyond the

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2172674. Public record. Not legal advice.