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Court Reverses Jury Verdict Based on Biased Juror

October 28, 2004

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Last Month at the Federal Circuit - November/December 2004

Judges: Prost (author), Newman, and Dyk

In Caterpillar, Inc. v. Sturman Industries, Inc., No. 03-1444 (Fed. Cir. Oct. 28, 2004), the Federal Circuit reviewed issues between the parties concerning a finding relating to trade-secret misappropriation in favor of Caterpillar, Inc. (“Caterpillar”) and concerning inventorship issues on several patents.

Oded Sturman had worked with Caterpillar employees for several years to develop a fuel injector valve using residual magnetic latching. The parties signed a Joint Development Agreement (“JDA”). During a “brain-storming” session between Mr. Sturman and Caterpillar engineers, Mr. Sturman sketched an idea for a specific integrated spool valve using a particular grade of steel for residual magnetic latching. Although Caterpillar rejected the idea, Caterpillar engineers recognized that the design had potential and began exploring ideas of using an integrated spool valve for a hydraulically actuated, electronically controlled unit injector (“HEUI”). Caterpillar never informed Mr. Sturman about its work using an integrated spool valve for a HEUI. Later, Caterpillar offered Mr. Sturman a lump sum and, in exchange, sought a release of any claims involving the JDA. The parties exchanged correspondence concerning the scope of what was being released and what intellectual property arose under the JDA. Thereafter, Mr. Sturman began working on other projects as a consultant and focused on an integrated spool valve design for other clients. He then filed two patent applications claiming this technology. The first issued as U.S. Patent No. 5,640,987 (“the ‘987 patent”) and the second as U.S. Patent No. 5,460,329 (“the ‘329 patent”).

Meanwhile, Caterpillar continued with its own designs for use in an HEUI and filed its own patent application covering this technology, naming Mr. Sturman as a coinventor. Mr. Sturman refused, however, to assign the application or assign his rights to Caterpillar. Accordingly, that application was abandoned. However, Caterpillar filed a separate application that did not name Mr. Sturman as an inventor and that ultimately issued as U.S. Patent No. 5,479,901 (“the ‘901 patent”).

At trial, Mr. Sturman had generally thought to strike for cause any potential jurors with close ties to Caterpillar. However, one particular juror, juror no. 3, the spouse of a current Caterpillar employee, ultimately sat on the jury. The Federal Circuit ruled that Mr. Sturman had properly objected to juror no. 3 and, therefore, the district court had erred in sitting her. The Court concluded that this juror was impliedly biased and had a financial interest in the case because her husband worked for Caterpillar at the time of trial. Accordingly, the Court vacated the jury’s verdict in favor of Caterpillar on its claims of trade-secret misappropriation, breach of contract, and conversion, and ordered a new trial on those issues.

The district court also granted SJ to Caterpillar, ruling that Caterpillar had not fraudulently induced Mr. Sturman into signing an amendment to the JDA. The Federal Circuit concluded, however, that a genuine issue still existed as to whether, during the negotiations of the terms of the amendment, Caterpillar knowingly and falsely created the impression that it considered only two inventions to have been developed under the JDA, and that the integrated spool valve design was not one of them. Thus, this issue was remanded for trial.

As to the inventorship issues, the Federal Circuit agreed with the district court’s finding that Caterpillar’s engineers were not coinventors of the ‘329 and ‘987 patents. Although Caterpillar engineers may have identified a specific type of steel for the claimed integrated spool valve, the Court found that this particular type of steel was an insignificant contribution whose magnetic properties were publicized and known.

As to Caterpillar’s ‘901 patent, the district court had concluded that Mr. Sturman was the sole inventor of the ‘901 patent. The Federal Circuit, however, concluded that although Mr. Sturman had conceived of the two-way integrated spool valve, the ‘901 patent was directed to a three-way integrated spool valve that was admittedly more complex than the two-way valve. Moreover, Mr. Sturman did not present clear and convincing evidence that he had also conceived of a three-way version of the valve. Accordingly, he had failed to prove that he was the sole inventor of the ‘901 patent. The Court declined to address whether or not Mr. Sturman was a joint inventor of the ‘901 patent.