Federal Court Decisions in the Advertising Law, Marketing Law and Commercial Speech Areas
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Misappropriation of Trade Secrets - Federal Court Decision - Full Text
SIGN-A-WAY, INC. v. MECHTRONICS CORPORATION
fn1 A federal district court must apply the choice-of-law rules of the state in which it sits for state law questions. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). Massachusetts, where the district court sat in this action, has adopted a "functional" approach to choice-of-law issues, emphasizing the "interests of the parties, the States involved, and the interstate system as a whole." Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 473 N.E.2d 662, 668 (Mass. 1985). Under the functional approach, as between two states, the forum applies the substantive law of the state which has the more significant relationship to the transaction in litigation. See 473 N.E.2d at 669-70. Here, Mechtronics is a Connecticut-based corporation while Sign-A-Way is a Massachusetts-based corporation. Some of the events at issue took place in Connecticut, while others occurred in Massachusetts. A choice of law question thus presents itself. A court need not resolve a choice of law question, however, if the outcome of the legal issue presented is the same under the substantive law of either jurisdiction involved. See Cohen v. McDonnell Douglas Corp., 389 Mass. 327, 450 N.E.2d 581, 584 (Mass. 1983). That is the case here. On the matters at issue Connecticut and Massachusetts law do not differ.
____________________ Sign-A-Way argues that if Ms. Stearns had been named as an inventor on the '274 patent's application, she could have blocked the application and demanded compensation by refusing to sign the application's accompanying Joint Declaration and Power of Attorney. The premise of this argument is flawed, however. Under 35 U.S.C. Section 116, if a joint inventor refuses to sign, or is unable to sign, an application, the application still can be filed with a factual showing of the omitted inventor's refusal or inability to sign and notice of that refusal or inability to sign. See, e.g., Pannu v. Iolab Corp., 155 F.3d 1344, 1349 n.3, 47 U.S.P.Q.2D (BNA) 1657, 1661 n.3 (Fed. Cir. 1998). Sign-A-Way failed to establish a link between Mechtronics' breach of its promise to Ms. Stearns and any damages suffered by Ms. Stearns because, regardless of Mechtronics' breach, section 116 would have prevented Ms. Stearns from blocking the application. Despite Mechtronics' actions, Ms. Stearns had no leverage to compel Mechtronics to provide her with compensation in exchange for her signature on the '274 patent's application. Sign-A-Way also proffers the theory that Mechtronics' breach of its promise to Ms. Stearns allowed Mechtronics to file its patent at an "early stage," and thus block any patent on a sign suspension device that Ms. Stearns or Sign-A-Way may have tried to obtain. Without such a patent, Sign-A-Way contends, it and Ms. Stearns could not realize the profits that sale of a sign suspension device on an exclusive basis would have generated. However, there was nothing preventing Ms. Stearns from either (i) filing for her own patent, which she did in 1996; (ii) filing a protest regarding Mechtronics' application with the PTO under 37 C.F.R. Section 1.291 alleging fraud or incorrect inventorship, see, e.g., In re Smith, 714 F.2d 1127, 1129 n.3, 218 U.S.P.Q. (BNA) 976, 978 n.3 (Fed. Cir. 1983) (noting the role of a protester under 37 C.F.R. Section 1.291); or (iii) filing suit in federal district court under 35 U.S.C. Section 256 for correction of inventorship of the '274 patent, see e.g., Ethicon, Inc. v. United States Surgical Corp., 135 F.3d 1456, 1461, 45 U.S.P.Q.2D (BNA) 1545, 1548 (Fed. Cir. 1998). In addition, Sign-A-Way has not cited any evidence in the record indicating what type or kind of patent Ms. Stearns planned to seek before Mechtronics applied for the '274 patent. Finally, Sign-A-Way points to the testimony of Michael Hoffman, its expert on damages. According to Mr. Hoffman, Sign-A-Way, if it had sold the sign suspension device from 1994 to 1997, would have realized revenues of $300,000 for 1994, $1,800,000 for 1995, $3,000,000 for 1996, and $5,250,000 for 1997, with a net profit in the range of 15% to 25% on these revenues. Sign-A-Way argues that Ms. Stearns would have patented and marketed the sign suspension device herself had she not been promised inventorship and relied on that promise. As just noted, however, there is no evidence of record that Ms. Stearns was pursuing her own patent on a motorized sign suspension device before she met Mechtronics. The very reason Ms. Stearns went to Mechtronics was for assistance in motorizing her device. Ms. Stearns even testified that she believed, at the time she starting talking with Mechtronics, that her sign suspension device was not ready for patenting. Thus, the testimony of Mr. Hoffman as to how much money Ms. Stearns would have made had she marketed a motorized sign suspension device starting in 1994 is disconnected from Ms. Stearns' reliance on Mechtronics' promise. Regardless of Mechtronics' promise, and Ms. Stearns' reliance on that promise, there is no evidence in the record that Ms. Stearns would have pursued either patenting or manufacturing a motorized sign suspension device on her own. In sum, there is no evidence in the record relating to any of the theories advanced by Sign-A-Way in the district court that supports a finding of causation and the jury's award of damages based on Mechtronics' breach of its promise to Ms. Stearns. IV. The jury found that Mechtronics, in prosecuting the '274 patent's application, breached its duty of good faith and candor before the PTO, as described in 37 C.F.R. Section 1.56, and that this breach "also violated . . . Mechtronics' duty of due respect for interests of Sign-A-Way and Donna Stearns." Sign-A-Way, 12 F. Supp. 2d at 140. The jury concluded that Sign-A-Way should be compensated for Mechtronics' violation of its duty to Sign-A-Way and Ms. Stearns, through its lack of candor and good faith in dealing with the PTO. See id. at 142. The district court denied Mechtronics' motion for JMOL on this issue, finding that nothing in the jury's findings presented "any decisive question of law." Id. at 152-53. Mechtronics argues that Sign-A-Way's state law claim based solely on Mechtronics' duty of candor and good faith before the PTO is preempted by federal patent law. Sign-A-Way responds that its state law tort claim is not preempted because the state law claim contains extra elements beyond a mere finding of inequitable conduct. Sign-A-Way's state law claim based on Mechtronics' duty of candor and good faith before the PTO is preempted by federal patent law. The breach of Mechtronics' duty to Sign-A-Way turns exclusively on Mechtronics' breach of its duty of candor and good faith described in 37 C.F.R. Section 1.56. The special verdict form hinged the violation of "Mechtronics' duty of due respect for interests of Sign-A-Way and Donna Stearns" on a finding of a violation of Mechtronics' "duty of candor and good faith in dealing with the Patent Office." Sign-A-Way, 12 F. Supp. 2d at 140. Allowing a claim such as this, whose liability component is based solely on a violation of the standard defined in 37 C.F.R. Section 1.56, would defeat federal patent law policy by providing a duplicate remedy for inequitable conduct at the state level. Federal patent law already provides an avenue of relief for Mechtronics' alleged misconduct, unenforceability of the patent, see 35 U.S.C. Section 282, and attorney fees in an exceptional case, see 35 U.S.C. Section 285. The case before us is similar to Abbott Laboratories v. Brennan, 952 F.2d 1346, 1355-57, 21 U.S.P.Q.2D (BNA) 1192, 1199-1201 (Fed. Cir. 1991), in which we held that a state law abuse of process claim, based solely on allegations that the patentee engaged in inequitable conduct, was preempted by federal patent law. Here, as in Abbott Laboratories, 952 F.2d at 1356-57, 21 U.S.P.Q.2D (BNA) at 1199-200, Sign-A-Way is attempting to collaterally attack Mechtronics' action before the PTO, which, as noted in Abbott Laboratories, is judicially disfavored. See, e.g., Semiconductor Energy Lab. Co. v. Samsung Elecs. Co., F.3d , 2000 U.S. App. LEXIS 3164, Nos. 98-1377, 99-1103, 2000 WL 233253, *13-14 (Fed. Cir. Mar. 2, 2000) (holding that New Jersey RICO claims based on inequitable conduct are preempted by federal patent law because the state law RICO claims "occupy a field identical in scope with the inequitable conduct defense"). V. Finally, Mechtronics argues that the district court erred in granting JMOL in favor of Sign-A-Way on Mechtronics' claim of unjust enrichment based upon Ms. Stearns having provided Selectronics with the Mechtronics signage device taken from the Pet Supply Depot. The district court concluded that, although Mechtronics was harmed by Ms. Stearns' actions, there was no evidence of a benefit received by Sign-A-Way from these actions. Mechtronics asserts that equity forces compensation for the benefit Sign-A-Way received through Selectronics' development of prototypes based on copies of the Pet Supply Depot device Ms. Stearns took from Mechtronics. A finding of unjust enrichment requires a finding of "unjust enrichment of one party and unjust detriment to the other party." Salamon v. Terra, 394 Mass. 857, 477 N.E.2d 1029, 1031 (Mass. 1985); National CSS, Inc. v. Stamford, 195 Conn. 587, 489 A.2d 1034, 1041 (Conn. 1985). The jury determined only that Mechtronics suffered a loss or detriment "by Donna Stearns' making the arrangement she made with Selectronics for developing and making a model." Sign-A-Way, 12 F. Supp. 2d at 143. In ruling on Sign-A-Way's JMOL motion, the district court correctly pointed out that there was no specific jury finding of a benefit to Sign-A-Way due to Ms. Stearns' conduct in making arrangements for Selectronics to develop and make a sign suspension model. Thus, the district court made a fact finding of no benefit to Sign-A-Way, a finding that it was empowered to make because the question was not submitted to the jury in the special verdict form, and Mechtronics did not object to the question not being presented to the jury. See Fed. R. Civ. P. 49(a); Payton v. Abbott Labs., 780 F.2d 147, 151 (1st Cir. 1985). fn2 Fact findings by a trial judge are reviewed under a clearly erroneous standard, reversible only if a court, on the entire evidence of record, is left with the firm conviction that a mistake has been committed. See United States v. Freeman, 176 F.3d 575, 578 (1st Cir. 1999). Here, we are not left with such a conviction. ____________________
fn2 With regard to purely procedural issues, such as this one, this court applies the law of the regional circuit in which the district court sits. See Midwest Indus., 175 F.3d at 1359, 50 U.S.P.Q.2D (BNA) at 1675.
____________________ For the foregoing reasons, the district court's judgment in favor of Sign-A-Way on its claims against Mechtronics is reversed and the award of damages to Sign-A-Way is vacated. The district court's limited judgment in favor of Mechtronics on its counter-claim against Sign-A-Way is affirmed. The case is remanded to the court for entry of final judgment in favor of Mechtronics in accordance with this opinion. Each party shall bear its own costs.
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