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Court Affirms Determination of Unjust Enrichment and Damages

September 03, 2003

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Last Month at the Federal Circuit - October 2003

Judges: Gajarsa (author), Rader, and Bryson

In University of Colorado Foundation, Inc. v. American Cyanamid Company, No. 02-1587 (Fed. Cir. Sept. 3, 2003), the Federal Circuit affirmed the district court’s determination of inventorship, unjust enrichment, and damages calculation against American Cyanamid Company (“Cyanamid”).

Cyanamid is the assignee of U.S. Patent No. 4,431,634 (“the ‘634 patent”) entitled “Prenatal Iron Supplements,” which issued February 14, 1984, listing Leon Ellenbogen as the sole inventor. In 1994, the University of Colorado Foundation, Inc., the University Board of Regents, and two of its doctors (collectively “the Doctors”) filed suit in the U.S. District Court for the District of Colorado, alleging that the Doctors had disclosed the invention of the ‘634 patent to Dr. Ellenbogen, that they were the true inventors of the ‘634 patent, that they were intentionally omitted from the ‘634 patent, and that the ‘634 patent was subsequently hidden from them.

In 1997, the district court ruled that the Doctors were the true inventors of the ‘634 patent and found Cyanamid liable for fraud and unjust enrichment, with damages equaling approximately $45 million. The Federal Circuit reviewed that decision and remanded the case for a determination of inventorship under federal patent-law principles.

On remand, the district court determined that the Doctors were the true inventors, in accordance with federal patent law, and granted Cyanamid a new trial on damages, separately addressing the Doctors’ alternative claims for fraudulent nondisclosure, unjust enrichment, and equitable remedy under federal patent law. The district court then found fraudulent nondisclosure and unjustenrichment damages against Cyanamid, but noted that the Doctors could not recover for both the fraud and unjust-enrichment claims, and, thus, awarded only the damages for unjust enrichment totaling about $23 million. The district court also awarded $500,000 in exemplary damages to each of the Doctors due to Cyanamid’s conduct.

The Federal Circuit first addressed Cyanamid’s argument that federal patent law preempts and, thus, precludes any state-law unjust-enrichment award. The Court determined that the underlying principles of the federal patent system would not be undermined by the district court’s award of unjustenrichment damages, reasoning that the unjustenrichment claim does not prevent the public from using the Doctors’ ideas. The Court further noted that this decision was consistent with its previous decisions, because the Doctors did not seek to prevent the use of information they placed in the public domain. Rather, the Doctors wanted to prevent Cyanamid from using the ‘634 patent and the subsequent incremental profits obtained, which came from copying the Doctors’ confidential manuscript describing the invention. Thus, the Court ruled that the district court was correct in determining that an unjust-enrichment award under Colorado law is not precluded by federal patent law.

The Court also rejected Cyanamid’s argument that the Doctors failed to prove an element of the unjust-enrichment claim required under Colorado law, specifically, that the ‘634 patent was obtained at the Doctors’ expense. In the context of the confidential manuscript that the Doctors had sent to Cyanamid, and which Dr. Ellenbogen had allegedly copied portions from in drafting the application for the ‘634 patent, the Court reviewed the application of the general test for recovery under unjust enrichment. Under Colorado case law, a promise or privity between the parties is not needed for a claim for unjust enrichment in the context of a contract implied in law. Thus, according to the Court, there was no question that any benefit Cyanamid received came at the Doctors’ expense.

Finally, the Federal Circuit upheld the district court’s calculation and award of damages to the Doctors, concluding that the district court did not abuse its discretion under Colorado law in ordering the disgorgement of incremental profits from Cyanamid and finding ample evidence in the record to support the district court’s determination. The Federal Circuit further found that the district court’s award of exemplary damages was consistent with the Colorado Revised Statutes, which permits such awards not in excess of the amount of actual damages if the court determines that the defendant’s conduct “is attended by circumstances of fraud, malice or willful and wanton conduct.” The Federal Circuit concluded that since it had already determined the damages for unjust enrichment to be properly awarded, there was no need to review the alternative ground for damages based on fraudulent nondisclosure and equitable remedy under federal patent laws.