Equitable inventorship correction claim must be resolved after factually-overlapping fraud claimAugust 27, 2007

The Federal Circuit issued a ruling Friday addressing the right to a jury trial in a case involving combined equitable (in the form of a correction of inventorship claim under 35 U.S.C. § 256 ) and legal (in the form of various tort claims) issues. The court held that the jury trial on the legal issues must precede the bench trial on inventorship when the legal issues have a common issue of fact with the inventorship claim.

More detail of Shum v. Intel Corp. after the jump.

The case involved technology used in fiber optic communications in the context of an ill-fated business partnership between Shum and Verdiell. Both partners formed a company for the purposes of developing technology in the field of optoelectric packaging. During the prosecution of a patent regarding this technology, the relationship between the partners deteriorated. Less than a year after incorporation of the company, the company was dissolved with both partners retaining the right to develop the technology independently. After the dissolution of the company, issues arose regarding the failure to name Verdiell on the invention. At the behest of Verdiell, Shum decided to abandon the patent rather than correcting the inventorship issues.

Unbeknownst to Shum, Verdiell then formed his own corporation and applied for a patent covering the same invention, as well as additional patents allegedly based on Shum's technology. Verdiell, after obtaining several patents on the technology, was able to sell his company to Intel for approximately $409 million in stock. Shum brought suit seeking correction of inventorship under 35 U.S.C. § 256 and damages under a number of state tort theories including fraud, unjust enrichment, and breach of contract. The district court dismissed the unjust enrichment claim and bifurcated the trial between the inventorship claim and the tort claims. The court first held a bench trial on the inventorship issue, found for Intel and Verdiell, and then dismissed the remaining tort claims based on the resolution of the inventorship issue.

Shum appealed, claiming he was denied the right to a jury trial regarding factual issues that were common to the inventorship and tort claims. The Federal Circuit considered the tort claims, particularly the fraud claim, and the inventorship issue, and concluded that both the fraud and inventorship claims depended on Shum's role in the conception of the invention. The Supreme Court considered a similar issue in Beacon Theaters v. Westover. There, the Court held that "only under the most imperative circumstances . . . can the right to a jury trial of legal issues be lost through prior determination of equitable claims." Similarly, in Dairy Queen, Inc. v. Wood, the Court held that when equitable and legal claims share common factual issues, "the legal claims involved in the action must be determined prior to any final court determination of [the] equitable claims."

Based on Beacon Theaters and Dairy Queen, the Federal Circuit held that if a case involves both legal and equitable claims, and those claims share common factual issues, a court must conduct a jury trial on the legal claims before resolving the equitable claims. Here, the court found that "the facts relating to the fraud claim, namely, Shum's alleged contribution to the claimed invention, are common, if not identical, to the facts underlying the inventorship claim." Because of this, the court determined that Shum was denied his right to a jury trial when the district court resolved the equitable claim first, and remanded the case to the district court.

Senior Judge Friedman dissented. He believed the case was distinguishable from both Beacon Theaters and Dairy Queen, as this case involved an equitable action that was sufficiently different from the legal actions such that there was no right to a jury trial on the facts related to the inventorship claim. Citing to the Supreme Court's decision in Markman, particularly its description of the law-equity distinction, he argued that the right to a jury trial was not violated in this case and that the district court's decision should have been upheld.

In summary, this case gives spurned would-be inventors a greater likelihood for a jury trial for the factual issues underlying a correction of inventorship claim. In order to have the jury decide the issue, the plaintiff should bring a fraud or similar claim, with the fraud alleged being based, at least in part, on the false claim of inventorship. As many correction of inventorship cases follow this pattern, this decision may have the effect of making a claim for change of inventorship a de facto jury question, even though it is equitable in nature.

To read the full decision in Shum v. Intel Corp., click here.

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