Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH
2013 Del. Ch. LEXIS 51, 62 A.3d 62, 2013 WL 911118 (2013)
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Rule of Law:
Under Delaware law, a reverse triangular merger does not constitute an assignment by operation of law of the surviving target company's assets or contractual rights. Therefore, such a merger does not trigger a standard anti-assignment clause that prohibits assignment 'by operation of law or otherwise' without consent.
Facts:
- In 1995, IGEN International, Inc. ('IGEN') and Meso Scale Technologies, LLC ('MST') formed a joint venture, Meso Scale Diagnostics, LLC ('MSD'), to commercialize electrochemiluminescent ('ECL') technology.
- IGEN granted MSD an exclusive license to the ECL technology, which included a 'springing right' that would grant MSD any rights from IGEN's third-party licenses if those licenses were terminated.
- In July 2003, a court ruling allowed IGEN to terminate a 1992 license it had with Roche Diagnostics GmbH ('Roche'), which MSD contended triggered its springing rights and gave it exclusive control over the technology Roche had been using.
- To resolve the dispute, Roche, IGEN, and MSD entered into a complex series of agreements in 2003. As part of the transaction, IGEN's intellectual property was spun off into a new, publicly-traded company named BioVeris Corp. ('BioVeris').
- MSD and MST signed a 'Global Consent' agreement as part of the 2003 transaction, which contained a clause (Section 5.08) prohibiting any party from assigning its rights or interests 'by operation of law or otherwise' without the prior written consent of the other parties.
- A dispute later arose between BioVeris and Roche concerning Roche allegedly selling products outside its licensed field of use.
- In 2007, to resolve the new dispute and gain full control over the ECL intellectual property, Roche acquired BioVeris for approximately $600 million without seeking or obtaining consent from MSD or MST.
- The acquisition was structured as a reverse triangular merger, where a newly-formed Roche subsidiary merged into BioVeris, leaving BioVeris as the surviving corporate entity, but now wholly owned by Roche.
Procedural Posture:
- Meso Scale Diagnostics, LLC and Meso Scale Technologies, LLC ('Meso') filed a two-count complaint against Roche Diagnostics GMBH and its affiliates ('Roche') in the Delaware Court of Chancery.
- Roche filed a motion to dismiss the complaint for failure to state a claim.
- The Court of Chancery denied Roche's motion to dismiss and referred the question of arbitrability for Count II to a New York arbitration panel, staying proceedings on that count.
- The arbitration panel concluded that Meso's claim in Count II was not arbitrable.
- Following the arbitration panel's decision, Roche moved for summary judgment in the Court of Chancery on both counts of the complaint.
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Issue:
Does a reverse triangular merger, in which the target corporation survives as a wholly-owned subsidiary of the acquirer, constitute an assignment 'by operation of law or otherwise' that triggers a contractual anti-assignment clause requiring prior written consent?
Opinions:
Majority - Parsons, Vice Chancellor
No. A reverse triangular merger is not an assignment by operation of law or otherwise of the surviving corporation's rights and obligations. The Delaware General Corporation Law (DGCL) § 259(a) provides that in a merger, the rights and properties of the constituent corporations vest in the surviving corporation. This provision implies that while the non-surviving corporation's assets are transferred, the surviving corporation's assets are not assigned; they simply remain with the surviving entity. The court reasoned that the common understanding among corporate law practitioners is that reverse triangular mergers are structured specifically to ensure the target company's continued existence, thereby avoiding the need for consents to assign contracts, licenses, or other assets. This interpretation is consistent with the doctrine of independent legal significance, which allows parties to structure transactions under one section of the DGCL to avoid consequences that would arise under another. The court distinguished this case from those involving forward mergers, where the target company ceases to exist and its assets are clearly transferred. The court also declined to adopt a contrary view from a California federal case, noting it would conflict with Delaware's well-settled law that a mere stock acquisition does not constitute an assignment. Because Meso failed to negotiate for a 'change of control' provision, the more general 'anti-assignment' clause was not triggered by the merger.
Analysis:
This decision provides critical clarity and certainty for M&A practitioners by formally holding that a reverse triangular merger does not trigger a standard anti-assignment clause under Delaware law. It reinforces the importance of this specific merger structure as a tool to acquire a company while preserving its existing contracts and licenses without needing third-party consents. The ruling strongly affirms the doctrine of independent legal significance and underscores the necessity for precise contractual drafting; parties wishing to restrict acquisitions or changes in ownership must explicitly negotiate for 'change of control' provisions rather than relying on general anti-assignment language. This precedent solidifies Delaware's position as a predictable legal environment for complex corporate transactions.
