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District Court’s Grant of Postverdict JMOL Affirmed Where Plaintiff Failed to Present Sufficient Evidence for His State Law and Inventorship Claims

December 22, 2010

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Last Month at the Federal Circuit - January 2011

Judges: Newman (dissenting), Lourie, Prost (author)

[Appealed from: N.D. Cal., Senior Judge Jensen]

In Shum v. Intel Corp., Nos. 09-1385, -1419 (Fed. Cir. Dec. 22, 2010), the Federal Circuit affirmed the district court’s grant of SJ as to the plaintiff Frank T. Shum’s breach of fiduciary duty and fraudulent concealment claims, and affirmed the district court’s grant of postverdict JMOL on Shum’s claims for unjust enrichment, breach of contract, intentional misrepresentation, and correction of inventorship for two patents.   

Shum and Jean-Marc Verdiell formed Radiance Design, Inc. (“Radiance”) and began developing technologies they invented while Verdiell was employed at another company.  Shum and Verdiell filed a patent application to their invention naming Shum as sole inventor to avoid assignment issues with Verdiell’s former employer, but then withdrew it because they were concerned that the application was invalid for improper inventorship.  Shum and Verdiell dissolved Radiance pursuant to a Plan of Liquidation (“POL”), wherein each had the right to exploit Radiance’s technology without accounting to the other or Radiance and pursue business opportunities, even if they competed with each other.  Verdiell formed LightLogic, Inc. (“LightLogic”) and refiled the Radiance application, removing the portions Verdiell viewed as Shum’s contribution and naming himself as the sole inventor.  Verdiell also filed six other applications naming himself as an inventor, but not Shum.  Verdiell later sold LightLogic and the patents that matured from the applications to Intel Corporation (“Intel”).

Shum brought suit against Verdiell, LightLogic, and Intel (collectively “defendants”) for state law claims of breach of fiduciary duty, fraudulent concealment, unjust enrichment, breach of contract, and intentional misrepresentation in state court.  Upon removal to federal court, Shum added a claim for inventorship on the seven LightLogic patents.  The district court granted the defendants’ motion for SJ on Shum’s breach of fiduciary duty and fraudulent concealment claims.  Following trial, a jury found that Shum was a coinventor on five of the patents, but deadlocked on inventorship of certain claims of two patents and Shum’s remaining state law claims.  The judge declared a mistrial for the claims on which the jury failed to reach a verdict, but entertained the defendants’ motion for JMOL.  The district court entered judgment for Shum on his inventorship claims for the five patents on which the jury reached a verdict, and entered judgment for defendants on the remaining claims.  Shum appealed.

Regarding Shum’s breach of fiduciary duty claim, the Court found that even if Verdiell did breach his fiduciary duty to Radiance, Shum still could not maintain his claim.  The Court found that Shum lacked standing to bring suit in his personal capacity or capacity as a shareholder for breach of duties owed to the corporation.  And the Court held that Shum could not establish that Verdiell owed him a fiduciary duty based on either a legal relationship or the factual circumstances of their joint collaboration while with Radiance.

Shum’s fraudulent concealment claim was based on Verdiell’s failure to disclose that Verdiell was forming LightLogic.  The Federal Circuit agreed with the district court that Shum had not made out an actionable claim.  Because Verdiell owed no fiduciary duty to Shum, he had no duty to disclose his plans to form LightLogic or compete with Radiance.  Moreover, the Court found that Shum had equal access to information that Verdiell had and therefore failed to meet his burden of showing what material facts were actively suppressed or exclusively known to Verdiell.

Regarding the unjust enrichment claims, Shum asserted that Verdiell and LightLogic engaged in wrongful conduct by falsely claiming exclusive ownership of Radiance technology that induced Intel to buy LightLogic, thereby conferring a benefit on Verdiell and LightLogic at the expense of Shum and his rights in the Radiance technology.  The Court affirmed the district court’s entry of JMOL.  Assuming, without deciding, that Verdiell and LightLogic engaged in wrongful conduct by making false statements claiming exclusive rights in the patents, the Court agreed that no reasonable jury could find that these acts caused the defendants to receive a benefit at Shum’s expense.  Particularly, the Court noted that the record did not support Shum’s contention that the acts caused Intel to purchase LightLogic or that the purchase was contingent upon LightLogic’s exclusive rights in the patents.  The evidence showed that Intel knew it was purchasing LightLogic and LightLogic’s intellectual property subject to any rights of Shum.  Furthermore, there was no evidence that the defendants received a benefit directly from Shum or at the expense of Shum; Shum was still free to exploit his rights in the technology as per the terms of the POL.  Finally, Shum failed to show that he suffered a tangible loss as a result of the alleged wrongful acts.  In this respect, the Court noted that any loss of bargaining power due to Shum’s later-established inventorship and inability to participate in the LightLogic sale was “speculative.”

Regarding breach of contract, Shum asserted that Verdiell and LightLogic breached the express terms of the POL and the attendant implied duty of good faith and fair dealing by applying for and obtaining the LightLogic patents without listing Shum as an inventor.  The Court held that JMOL was proper because Shum offered no evidence that the alleged breach caused him any harm.  The record showed that Shum abandoned efforts to exploit the Radiance technology in 1998 before the LightLogic patents issued.  Moreover, the Court found there was no evidence that Shum suffered financial harm by being omitted from the patents as a coinventor.

As for his intentional misrepresentation claim, Shum argued that Verdiell intentionally misrepresented to Shum that the Radiance patent application was invalid and had to be withdrawn.  The Court affirmed the district court’s postverdict JMOL in favor of the defendants because Shum failed to show that he suffered any monetary loss as a result of the alleged misrepresentation, as required by California law.

As for inventorship, the Court affirmed the district court’s entry of JMOL, agreeing that Shum failed to show that he contributed in some significant manner to the conception of the claimed invention.    

Finally, the Court considered Shum’s claim that various district court rulings were erroneous and prejudicial.  The Court found that the record did not show that the district court abused its wide discretion regarding the various evidentiary and procedural issues.

In a separate opinion, Judge Newman dissented.  Judge Newman stated that SJ of breach of fiduciary duty and fraudulent concealment were improperly granted, given that the jury found Shum was a joint inventor, which was a finding material to those claims.  And Judge Newman stated that a reasonable jury could have found that the defendants were unjustly enriched and that the filing of the patents by Verdiell was a breach of the POL.  Thus, Judge Newman stated that it was improper for the district court and the Federal Circuit to decide the factual issues that deadlocked the jury “as a matter of law,” and would have found that Shum is entitled to a retrial.  Newman Dissent at 8.


Summary authored by Marc D. Evans, Esq.