Court Opinion

ID: 7800469
Source: CourtListenerOpinion
Date Created: 2022-08-15 00:19:42.277542+00
Date Added: 2024-06-11T16:29:05.914949
License: Public Domain

Reversed and Remanded and Memorandum Opinion filed August 11, 2022.

                                    In The

                   Fourteenth Court of Appeals

                             NO. 14-20-00699-CV

                 IDEXX LABORATORIES, INC., Appellant

                                      V.
THE BOARD OF REGENTS OF THE UNIVERSITY OF TEXAS SYSTEM,
                        Appellee

                   On Appeal from the 189th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2018-08064

                         MEMORANDUM OPINION

      In this dispute over royalties contractually owed for veterinary-testing
products, appellant IDEXX Laboratories, Inc. appeals the trial court’s final
judgment in favor of appellee The Board of Regents of The University of Texas
System. In three issues, IDEXX argues the trial court erred by determining, as a
matter of law, that (1) the parties’ patent-license agreement unambiguously
required IDEXX to pay the Board a 2.5% royalty on the products in question,
(2) the license agreement required IDEXX to pay 18% interest, and (3) IDEXX
was barred from asserting its equitable defenses. We sustain issue 1 and, without
reaching issues 2 and 3, reverse the trial court’s judgment and remand the case to
the trial court for further proceedings.

                                    I.   BACKGROUND

       IDEXX and the Board signed a patent-license agreement providing for
royalties to be paid by IDEXX to the Board on certain veterinary-testing products.
Section 5.1(b) of the agreement requires IDEXX to pay the Board (i) 4% of net
sales on products testing only for Lyme disease, (ii) .5% to 1%1 of net sales on
products that test for Lyme disease in addition to “one other” disease, with
heartworm given as an example, and (iii) 2.5% of net sales on products that test for
Lyme disease in addition to one or more tick-borne diseases.

       The three products at issue in this lawsuit are referred to by the parties as the
“SNAP” products. The parties agree that the SNAP products each test for (1) Lyme
disease, (2) heartworm, which the parties do not dispute is borne by mosquitoes
and not ticks, and (3) one or more additional tick-borne diseases.

       IDEXX paid the Board a .5% royalty on the SNAP products, as provided by
subsection ii of the agreement. The Board sued, claiming it was entitled to a 2.5%
royalty on the SNAP products as provided by subsection iii of the agreement. The
trial court rendered partial summary judgment that the agreement unambiguously
required IDEXX to pay a 2.5% royalty on the SNAP products under subsection iii.
After additional interlocutory summary-judgment orders on interest and IDEXX’s
defenses, as well as stipulations by the parties as to attorney’s fees and costs, the
trial court signed an omnibus final judgment in the Board’s favor without a

       1
         Subsection ii of the agreement provides for a 1% royalty but allows for deductions of up
to .5% if royalty payments are also due to a third party for the product in question.
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conventional trial on the merits.2

                                      II.    ANALYSIS

       In issue 1, IDEXX argues that the trial court erred by rendering partial
summary judgment that the license agreement unambiguously provided for a 2.5%
royalty for the SNAP products. If a contract can be given a certain or definite legal
meaning or interpretation, then it is not ambiguous, and the court will construe it as
a matter of law. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). If, however, a
contract is susceptible to more than one reasonable interpretation, it is ambiguous.
American Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). When
a contract is ambiguous, summary judgment is improper because the interpretation
of the contract becomes a fact issue. Coker, 650 S.W.2d at 394.

       Here, the parties dispute whether the SNAP products fall under subsection ii
or iii of section 5.1(b) of the license agreement, which provides:

       b. Beginning upon University’s receipt of a notice of allowance from
       either the US Patent and Trademark Office or a foreign patent office
       for a patent application containing a Valid Claim covering a Licensed
       Product, a running royalty as follows:
               i. Four percent (4.0%) of Net Sales for all Licensed Products
               Sold to detect Lyme disease alone.
               ii. One percent (1.0%) of Net Sales for all Licensed Products
               Sold to detect Lyme disease in combination with one other
               veterinary diagnostic test or service (for example, but not
               limited to, a canine heartworm diagnostic test or service). Such
               royalty rate shall be reduced by a percentage rate equal to the
               percentage rate paid to a third party, other than sublicensees and
               Affiliates, for products or components used by IDEXX
               exclusively in the production or Sale of the Licensed Product.
               However, the total reduction of the royalty rate shall not exceed
               one-half percent (0.5%).
       2
          The trial court’s final judgment states, “This judgment finally disposes of all claims and
parties and is appealable.” See Lehmann v. Har-Con Corp., 39 S.W.3d 191, 206 (Tex. 2001).
                                                 3
             iii. Two and one-half percent (2.5%) of Net Sales for all
             Licensed Products Sold as a product or service to detect Lyme
             disease in combination with one or more veterinary diagnostic
             products or services to detect tick-borne disease(s).

Neither subsection ii nor subsection iii specifically addresses a product like the
SNAP products, which each contain tests for, in addition to Lyme disease,
(1) heartworm, which is specified as falling under subsection ii, and (2) one or
more tick-borne diseases, which are specified in subsection iii.

      The Board argues that the SNAP products cannot fall under subsection ii,
because subsection ii covers only products that contain, in addition to Lyme
disease, “one other” test, while each SNAP product contains at least two other tests
in addition to Lyme disease. Instead, the Board argues that the SNAP products
must fall under subsection iii, because each SNAP product contains at least one
test for a tick-borne disease, which are only referenced in subsection iii.

      This argument, however, ignores the fact that subsection iii says nothing
about heartworm, a test that is specified as falling under subsection ii. While such a
test could potentially fall under subsection iii, the plain language of the agreement
does not unambiguously mandate that such a product must fall under subsection iii,
particularly when the SNAP products include a test listed as falling under
subsection ii.

      Moreover, the Board’s own logic potentially leads to a different, equally
reasonable reading and result. The Board argues that, under the canon that “a
specific contract provision controls over a general one,” a product that tests for
Lyme disease in addition to one other tick-borne disease would fall under
subsection iii, which specifies it covers tick-borne diseases, and not subsection ii,
which merely states it covers “one other” test. Pathfinder Oil & Gas, Inc. v. Great
W. Drilling, Ltd., 574 S.W.3d 882, 889 (Tex. 2019). Following that argument to its

                                           4
logical conclusion, and reading subsections ii and iii in conjunction with one
another, subsection ii must cover products that test for Lyme disease in addition to
one non-tick-borne disease, while subsection iii covers products that test for Lyme
disease in addition to one or more tick-borne diseases. Under that scenario, the
SNAP products fall under the plain language of both subsection ii and subsection
iii, because they each test for, in addition to Lyme disease, one non-tick-borne
disease (heartworm, per subsection ii) and one or more tick-borne diseases (per
subsection iii). The agreement does not state what royalty applies when products
satisfy both the criteria of subsection ii and subsection iii, yet also contain services
specified in the other subsection, as the SNAP products do.

      Because the agreement is susceptible to more than one reasonable
interpretation, it is ambiguous as to what royalty rate applies to the SNAP
products. See American Mfrs., 124 S.W.3d at 157. Accordingly, the trial court
reversibly erred by rendering partial summary judgment that the agreement
unambiguously mandated a 2.5% royalty as to the SNAP products. See Coker, 650
S.W.2d at 394.

      We sustain issue 1. We do not reach issues 2 and 3 because they are not
necessary for the final disposition of the appeal. See Tex. R. App. P. 47.1.

                               III.   CONCLUSION

      Having sustained issue 1, we reverse the trial court’s judgment and remand
the case to the trial court for further proceedings. Tex. R. App. P. 43.2(d).

                                        /s/       Charles A. Spain
                                                  Justice

Panel consists of Justices Wise, Spain, and Hassan.
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