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Interlocutory Injunction Granted for XY Technology Trade Secret
The definition of “technology” in a licensing agreement determined the outcome of an interlocutory injunction application in XY, Inc. v. IND LifeTech, Inc.
XY developed technology adapting a cytometer (“cytometer SX”) to separate X and Y chromosomes for use in artificial insemination to produce offspring of a desired sex. XY licensed its “technology“ to Lifetech for the commercial use of certain licensed products. This entitled Lifetech to produce and sell sex-selected inseminates. During the term of the license, majority control of XY changed hands, and a competitor of Lifetech took over control of XY.
A dispute then arose between XY and Lifetech over whether Lifetech was entitled, under the agreement, to purchase bull semen from a third party which was not a licensed user of XY’s technology. Lifetech had bought a third cytometer SX in order to process that bull semen, and in the wake of the disagreement found that it could not support three active cytometers. Accordingly, Lifetech negotiated an agreement with a buyer in China to sell him two of its three cytometer SXs. XY objected to the sale, and sought an injunction to stop the sale.
XY claimed that the cytometer SX model contained confidential trade secrets which were not protected by registered patents or patent applications. XY argued that it kept this information secret through the use of confidentiality agreements with their licensees, and that the purchaser in China was not a licensee. As a result, XY claimed, the sale would allow the purchaser to produce competing equipment, which would irreparably harm XY’s business model and diminish the value of the licenses it had granted in China. Lifetech argued that cytometers from the manufacturer, Dako, were readily available on the open market and that no confidential information would be disclosed by the sale.
The trial judge found there was a “serious issue to be tried” and granted the injunction. Although the cytometers could be purchased freely from Dako, Dako’s evidence was that it would not sell a cytometer SX to a non-licensee of XY. The confidentiality clauses of the license raised the issue as to whether the sale would allow a third party to take “any action, which Licensor reasonably believes might impair or diminish the Technology or the Proprietary Rights”.
The balance of convenience strongly favoured XY’s position. If the injunction was not granted, then XY’s entire business undertaking might have been undermined; on the other hand, once the injunction was granted Lifetech could be adequately compensated for any losses through damages.
Additionally, the judge also noted that the dispute between the parties arose from the actions of XY, by entering into competition with Lifetech in the international inseminates field and then in refusing to permit Lifetech to use bull semen from a third party supplier. The agreement between the parties had an arbitration clause which could be used to try to settle the dispute; however, arbitration had not been initiated. Accordingly, the judge also ordered that if XY does not proceed diligently with arbitration, then Lifetech may apply to vary or vacate the injunction.
For a copy of the decision, visit: