Rejecting the argument that state trade secret and breach of contract claims were pre-empted by federal patent law, the U.S. Court of Appeals for the Tenth Circuit upheld the district court’s jury verdict for the plaintiff and $20 million award of damages for unjust enrichment and breach of contract. Russo v. Ballard Med. Prods., Case Nos. 07-4090, -4102 (10th Cir., Dec. 18, 2008) (Gorsuch, J.).

Ballard Medical Products sought the help of Ronald Russo, an independent medical device inventor, to assist in designing improvements to its TrachCare 24 catheter, a closed-suction catheter designed to remove debris from ventilator tubes without having to disconnect patients from the ventilators that provide them with oxygen. After executing a confidential disclosure agreement (CDA), Russo presented design drawings and a prototype for several improvements, but negotiations over licensing the improvements failed. Ballard subsequently used Russo’s designs to secure two patents and bring its new product, TrachCare 72, to market.

Russo brought two claims against Ballard: misappropriation of trade secrets and breach of contract, i.e., the CDA. The jury returned a verdict for Russo and awarded him $17 million in unjust enrichment damages for the trade secret misappropriation and $3 million in damages for breach of contract. Ballard appealed the verdict partly on the grounds that, although Russo’s claims did not arise from or directly implicate federal patent law, the case was “irreconcilable” with federal patent law and so was preempted by it. Ballard claimed that Russo presented himself as the “true inventor” of the two Ballard patents and the TrachCare 72 product and any question of inventorship must be established according to the standards of federal patent law.

The Tenth Circuit reviewed the doctrine of federal patent law preemption as enunciated in Kewanee Oil v. Bicron, and Bonito Boats v. Thunder Craft Boats. The Court observed that inventors are presented with a critical choice—to disclose their inventions to the public or to keep their inventions secret and hope no one else reaches the same result. Inventors who disclose their discoveries deserve a limited monopoly under federal patent law because they are “promot[ing] the Progress of Science and useful Arts.” Inventors who choose to keep their discoveries secret may still rely on state trade secret laws to protect their rights, so long as those state laws do not impede the scientific and technological progress of other inventors and thereby conflict with the essential goal of federal patent law. 

In this case, the Court found that Russo did not seek to be proclaimed the inventor of the TrachCare 72, nor did he assert any of the rights associated with patent protection, e.g., the right to exclude others from practicing his invention. Rather, Russo simply followed the traditional trade secret course by proving that he had disclosed a valid trade secret under an agreement that precluded Ballard from using it without his consent, that Ballard had violated that agreement and that Ballard’s conduct had caused him harm. Russo pointed to Ballard’s patents, not in an attempt to be declared the true inventor, but only as evidence of Ballard’s misappropriation. Because Russo did not claim patent-like rights, the Tenth Circuit concluded that federal patent law was not implicated and there was no preemption.