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Federal Patent Laws Preempt Royalty-Like Recovery for State-Law-Based Unjust Enrichment Claim

June 15, 2005

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Last Month at the Federal Circuit - July 2005

Judges: Linn (author), Mayer, and Clevenger

In Ultra-Precision Manufacturing, Ltd. v. Ford Motor Co., No. 04-1329 (Fed. Cir. June 15, 2005), the Federal Circuit affirmed several district court findings that ultimately prevented the Plaintiff from recovering any damages from Ford Motor Company (“Ford”).

U.S. Patent No. 4,929,157 (“the ‘157 patent”) relates to a pulse damper (“PD”) tube for use in an airconditioner compressor. Although Ford patented this solution, it did not commercialize its PD tube for several technical reasons.

In 1988, employees from Ford began to work with employees from Ultra-Precision Manufacturing, Ltd. (“Ultra-Precision”) to help solve excessive noise, vibration, and harshness (“NVH”) problems in airconditioner compressors. Ross Herron and Gary Beard of Ultra-Precision disassembled a Ford compressor to study it and to conceptionalize a solution. Their proposed solution was to use a PD tube to redirect the gas, much like Ford’s earlier PD tube, but with some differences, including certain grooves to better reroute and directionalize fluid flow. By May 1989, Herron and Beard understood that their PD tube design had been approved for production by Ford. In July 1989, Herron and Beard filed a patent application on their PD tube, which matured into U.S. Patent No. 4,934,482 (“the ‘482 patent”). They also subsequently filed a CIP application, which matured into U.S. Patent No. 5,133,647 (“the ‘647 patent”). In October 1990, Herron delivered compressors to Ford with Ultra-Precision’s PD tubes installed for testing. Herron and Beard then received a letter from Ford asking them to confine their attempts to solve the merits
of the PD tube to Ford’s climate control division.

Independent of its work with Ultra-Precision, Ford continued to work on NVH problems and eventually settled on a modified muffler design. Ford filed for a patent application on one of its solutions, which matured into U.S. Patent No. 5,236,312 (“the ‘312 patent”).

In January 2001, Ultra-Precision sued Ford for (1) unjust enrichment, (2) correction of inventorship, (3) commercial misappropriation, and (4) breach of contract. After SJ, only the inventorship and unjust enrichment counts were left for trial. Certain procedural issues concerning these claims were ultimately appealed before a trial on the merits, and, after the Federal Circuit considered those issues and remanded, the district court granted SJ on the unjust enrichment count to Ford, reasoning that Plaintiff’s concept was not patented and had not been publicly disclosed. Also, 35 U.S.C. § 262 precluded Ultra-Precision from obtaining an accounting from joint inventors. In a nonjury trial, the district court then found that Herron and Beard were not joint inventors.

On appeal, Ultra-Precision argued that the district court had abused its discretion in allowing Ford to raise preemption as a defense, because Ford had not pled preemption or raised the defense earlier than the time of the pretrial motions. The Federal Circuit observed that although Ford had not raised preemption on its own accord until its motions in limine at the district court, the district court had afforded Ultra- Precision the opportunity to respond to Ford’s preemption argument through both briefing and oral argument. Accordingly, the Federal Circuit found no basis to conclude that the district court had abused its discretion in finding no waiver.

Concerning preemption, Ford argued that Ultra- Precision was seeking an award of damages for the making, using, and selling of information and ideas that were not protected by federal patent law and that federal patent law preempts such a claim. The Federal Circuit agreed that, generally, federal law preempts state laws that offer patent-like protection to discoveries that are unprotected under federal patent law. The Federal Circuit framed the preemption question in this case, however, more specifically, as whether permitting a court to entertain the specific unjust enrichment claim pled by Ultra-Precision—damages for Ford’s making, using, and selling vehicles equipped with the solution to a compressor’s NVH problems that Ultra- Precision contends it designed, engineered, and invented, but did not protect under the federal patent laws—stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress, such that it is preempted.

Ultra-Precision never alleged that it enjoyed a confidential relationship with Ford or that its technical information enjoyed trade-secret protection. Nor did it allege that the information provided to Ford conferred a benefit for services rendered or for a head start over competitors. Ultra-Precision sought only a royalty-like award premised on Ford’s savings from using Ultra- Precision’s technical information after Ultra-Precision made the discovery available to the public. According to the Federal Circuit, Ultra-Precision’s problem was that it had not pled that it provided any incremental benefit to Ford over and above the benefit that the general public received when Ultra-Precision published its information in its issued patents. Indeed, Ultra- Precision had declined the district court’s invitation to amend its complaint to add a claim for such incremental benefit.

Ultra-Precision did not contend that its inventors should be substituted for the named Ford inventors. It sought only to add Herron and Beard as joint inventors alongside the Ford inventors. Therefore, Ultra- Precision could not claim that any nonjoinder by Fordgave it the necessary incremental benefit, because Ford’s ability to use the invention claimed in the ‘312 patent is unencumbered by the existence of any coinventors. Since Ultra-Precision sought only a patent-like remedy for Ford’s conduct in making, using, and selling the products embodying information that Ultra-Precision was not successful in protecting through its own patents, and which, therefore, is free for all the world to enjoy, federal patent law preempts such theory under the rubric of state unjust enrichment law.

As to inventorship, the Federal Circuit agreed with the district court that there was no evidence of collaboration between Herron and Beard of Ultra-Precision and the Ford technical team listed as the inventors on the ‘312 patent. Accordingly, the Court affirmed the district court’s ruling that Herron and Beard were joint inventors of that patent.