In a lengthy legal battle between two former business partners, the U.S. Court of Appeals for the Federal Circuit delivered a likely fatal blow to plaintiff Frank Shum’s hopes of realizing part of the proceeds from the $409 million sale of a company to Intel, despite that the Federal Circuit affirmed a jury decision finding Shum to be a co-inventor in several of the patents in issue. Shum v. Intel Corp., Case Nos. 09-1385, -1419 (Fed. Cir., Dec. 22, 2010) (Prost, J.) (Newman, J., dissenting). Ultimately, damages were precluded because the Court affirmed the district court’s judgment denying Shum’s California state law claims of breach of fiduciary duty, fraudulent concealment, unjust enrichment, breach of contract, and intentional misrepresentation.
The case stems from a defunct business partnership between optical engineers Shum and Jean-Marc Verdiell. In 1997, the two men founded Radiance Design and almost immediately filed a patent application on an optoelectronics invention. Only Shum was named as an inventor on the application because some of the subject matter was conceived by Verdiell while he was still working for his former employer, with whom he sought to avoid an ownership dispute. At the suggestion of their patent agent, they withdrew that patent application.
Afterwards, Shum and Verdiell dissolved Radiance using a detailed Plan of Liquidation (POL), which gave both Shum and Verdiell rights to exploit Radiance’s technology. Shortly thereafter, Verdiell started a new company, LightLogic, and filed a new patent application on the same Radiance technology, but did not name Shum as a co-inventor. LightLogic successfully developed optoelectronic products, filing new patents along the way. Still later, LightLogic was acquired by Intel for $409 million. Shum then sued Verdiell seeking a portion of the proceeds of that sale.
Before trial, the district court dismissed, on summary judgment, Shum’s breach of fiduciary duty and fraudulent concealment claims. At trial, the jury found that Shum was a co-inventor on some claims of in five of the six patents in dispute. The jury deadlocked on the issues of unjust enrichment, breach of contract and intentional misrepresentation. Instead of a retrial, the court awarded the defendants judgment as a matter of law (JMOL) on those remaining claims. Shum appealed.
On appeal, the Federal Circuit affirmed the summary judgment decisions. Verdiell did not owe Shum a fiduciary duty as a co-officer or co-shareholder of Radiance, and similarly Shum did not have standing to bring such a claim against Verdiell on behalf of Radiance. Moreover, the Radiance POL provided that both parties were entitled to exploit the technology. Likewise, the Court found that the fraudulent concealment claim failed because Verdiell owed no fiduciary duty to Shum and thus had no duty to disclose to Shum plans to form a new company or compete with Radiance.
The Federal Circuit also affirmed the court’s granting of post-verdict JMOLs. The unjust enrichment claim lacked causation because the record did not substantiate Shum’s assertion that Intel purchased LightLogic due to a promise of sole or exclusive rights in the Radiance technology. Rather, “the Intel acquisition documents themselves acknowledge that the Radiance POL gave Verdiell and Shum ‘equal rights to independently exploit the intellectual property developed by [Radiance]’.” As for the breach of contract claim, the Federal Circuit agreed that Shum offered no evidence that Verdiell’s alleged breach of the POL caused any harm. “[T]here is no evidence that Shum suffered financial harm by being omitted from the patents as a coinventor. Shum’s inclusion would not have entitled him to proceeds from the Intel-LightLogic deal, since Verdiell was allowed to sell his rights without any duty to account to Shum.” The Court also noted that Shum’s intentional misrepresentation claim also failed because he was unable to show monetary loss.
In a pointed dissent, Judge Newman disagreed with the post-verdict JMOLs on those claims that the jury did not reach a verdict. “It is relevant that the jury had already found unanimously in favor of Shum as to joint inventorship, which was the foundation of the issues related to damages. In these circumstances, it was improper for the district court, and now this court, to make their own findings of disputed material fact on traditional jury questions.”