The University of Colorado Foundation, Inc., the University of Colorado, the Board of Regents of the University of Colorado, Robert H. Allen, and Paul A. Seligman v. American Cyanamid Company

Drs. Robert H. Allen and Paul A. Seligman (collectively, "the Doctors") developed an idea to reformulate a prenatal multivitamin/mineral supplement. The Doctors described their idea in a confidential manuscript to American Cyanamid Company's ("Cyanamid's") Chief of Nutritional Science, Dr. Leon Ellenbogen, who copied parts of that manuscript to obtain U.S. Patent No. 4,431,634 ("the '634 patent"). The United States District Court for the District of Colorado held, inter alia, Cyanamid liable for fraudulent nondisclosure and unjust enrichment. Univ. of Colo. Found., Inc. v. Am. Cyanamid Co., 216 F.Supp.2d 1188 (D.Colo.2002) ("Cyanamid V"). In addition to compensatory damages, the district court awarded exemplary damages of $500,000 to each of the Doctors. Because the district court did not err in its determination of unjust enrichment and calculation of damages, we affirm.

We briefly revisit the long and storied history of this litigation1 as a preface to the discussion of the issues on appeal. Our recitation of the facts is based on the findings made by the district court after trial.

Prenatal supplements containing 60-65 mg of iron are widely used to ensure that pregnant women absorb the approximately 3.5 mg of supplemental iron per day they require because iron deficiency is a serious concern for pregnant and lactating women. Cyanamid's Lederle Laboratories manufactures and markets Materna 1.60 ("Materna"), a prenatal multivitamin/mineral supplement containing 60 mg of iron.

In 1979, Stuart Pharmaceutical, the manufacturer of a competing prenatal supplement Stuartnatal 1 + 1 ("Stuartnatal"), began advertising that its product provided superior iron absorption to that of Materna. To refute these claims and protect Cyanamid's market share,2 Dr. Ellenbogen asked his friend and long-time professional colleague, Dr. Allen, a professor of medicine, professor of biochemistry, and Director of hematology at the University of Colorado Health Sciences Center, if he would be interested in performing a study to compare the iron absorption in women of Stuartnatal to that of Materna. Dr. Allen together with his colleague Dr. Seligman, a hematologist and professor of medicine at the University of Colorado Health Sciences Center, conducted the comparison study ("Study I") in the summer of 1979.

Study I, which determined that pregnant women taking Stuartnatal absorbed 2.0 mg of supplemental iron per day while women taking Materna absorbed 2.8 mg of supplemental iron per day, concluded that the amount of iron absorbed by pregnant women taking Materna was no less, and in fact, slightly better, than by those taking Stuartnatal. Study I also indicated, however, that neither product provided iron absorption in an amount approaching the 3.5 mg of supplemental iron per day recommended for pregnant women.

The Doctors conducted three follow-up studies ("Studies IA, II, and IIA") and determined that large amounts of calcium carbonate and magnesium oxide in Materna were inhibiting iron absorption and that Materna could be reformulated to reduce or eliminate this effect. Studies IA, II, and IIA, were conceived of, designed and conducted by the Doctors independently of Dr. Ellenbogen and Cyanamid. Test subjects were paid from the University of Colorado ("University") hematology division's general account.

Importantly, Study IIA, conducted in February of 1980, revealed that there was an inhibitory "threshold effect with calcium carbonate" and determined the specific levels of calcium carbonate and magnesium oxide at which the inhibitory effect occurs. As Dr. Allen explained at trial, "It wasn't [that] you got inhibition increasing at every level, but at 200 milligrams, somewhat more than that, you did not get inhibition, and that led to the second reformulation, the one I described in the March 1980 letter." Dr. Allen sent a letter to Dr. Ellenbogen in March of 1980 referencing the enclosed results of Study IIA:

The data indicate that there is no significant inhibition of iron absorption by either 350 mg of calcium in the form of calcium sulfate or 200 mg of calcium in the form of calcium carbonate. As we have discussed previously, I believe that the next step would be for Lederle to reformulate their Materna preparation such that it contains 200 mg of calcium in the form of calcium carbonate and 25 mg of magnesium in the form of magnesium sulfate or magnesium oxide. Once this is done, we will test this preparation versus iron alone and I would expect that the absorption of iron from the new Materna should be similar to that of iron alone.

While there is no dispute that the Doctors communicated with Dr. Ellenbogen throughout this process, and designed their studies, in part, around Cyanamid's marketing interests with respect to Stuartnatal, the idea for reformulating Materna, and the research concepts and ideas for reformulating Materna with the appropriate combinations of calcium carbonate and magnesium oxide were entirely the Doctors'.

After receiving Dr. Allen's letter in March 1980, Dr. Ellenbogen drafted a "protocol" for the already completed Study IIA, which he sent to Dr. Allen, and asked Dr. Allen, if he would be interested in performing a new study comparing the iron absorption of Stuartnatal with the various reformulations of Materna suggested by the Doctors. Dr. Allen agreed and in October of 1980, Study III was conducted using two reformulations of Materna suggested by the Doctors' work in Studies IA, II, and IIA. Reformulation A kept the 350 mg of calcium carbonate present in original Materna but reduced the amount of magnesium oxide from 100 mg to 25 mg. Reformulation B, the formulation ultimately manufactured and marketed as "reformulated Materna," reduced the amount of calcium carbonate from 350 mg to 250 mg and also reduced the amount of magnesium oxide from 100 mg to 25 mg of magnesium oxide. Study III, as predicted by the Doctors based on the results of Study IIA, concluded that the reduction in calcium carbonate in the Reformulation B improved iron absorption to 5.0 mg, which was greater than the 3.5 mg recommended for pregnant women.

Subsequently, Cyanamid asked the Doctors to perform another study ("Study IV") comparing the absorption of iron alone with the absorption of iron from reformulated Materna, Stuartnatal, and two other competing prenatal multivitamin/mineral supplements. Study IV, performed in March of 1981, confirmed that reformulated Materna provided the highest iron absorption of the four prenatal multivitamin/mineral supplements tested.

The Doctors wrote up the results of their studies in an article entitled, "Inadequate Iron Absorption from Many Prenatal Multivitamin-Mineral Supplements." The focal point of scientific interest in the article was Table I, which presented the results of the Studies I, II, III, and IV in a distinctive format with four main columns, nine subcolumns, and 12 rows. The Doctors submitted a manuscript of the article to the New England Journal of Medicine for consideration in July of 1981, and sent a confidential copy to Dr. Ellenbogen.3 In the manuscript, the Doctors claimed credit for the design and conduct of the studies, and the discovery and testing of a range of reformulations to increase iron absorption from prenatal multivitamin/mineral supplements. Dr. Ellenbogen voiced no complaint or objection to this, nor to the fact that he was never mentioned or credited in the manuscript with any of the studies' designs or results. Nevertheless, and within days of receiving the confidential manuscript, Dr. Ellenbogen filled out a Cyanamid form claiming inventorship of the reformulated Materna, and Cyanamid began the first steps toward patenting it.

Cyanamid began selling a reformulated Materna in the fall of 1981. Reformulated Materna improved iron absorption over the previous version of the product. Shortly before announcing the reformulation, and without informing the Doctors or the University, Cyanamid filed a patent application in December of 1981, claiming exclusive rights to the reformulation and naming Dr. Ellenbogen as its sole inventor. Cyanamid copied significant portions of the confidential manuscript, including Table I and its supporting Figures 1-4 in their entirety, into a patent application. The '634 patent issued from this application in 1984.

Reformulated Materna contained, inter alia, 250 mg of calcium carbonate and 25 mg of magnesium oxide per dose. The '634 patent covered a broad range of formulations, as shown by claim 1:

1. A method of enhancing the absorption of iron in multimineral, iron-supplement preparations comprising the use of limited quantities of oxides and carbonates of calcium and magnesium administered in said preparations to not more than 300 mg and 75 mg respectively per unit dosage based upon the weight of elemental calcium and magnesium in said oxide and carbonate salts.

'634 patent, col. 5, ll. 42-50. From issuance of the '634 patent in February of 1984 until Cyanamid ceased enforcing the '634 patent due to this pending litigation in December of 1994, Cyanamid enforced its patent rights six times to exclude generic competitors from using the reformulations contemplated by the results and data in Table I and Figures 1-4 of the confidential manuscript. Notwithstanding the Doctors' longstanding personal and professional relationship with Dr. Ellenbogen, to secure the Doctors' continued cooperation and work, neither Dr. Ellenbogen nor Cyanamid mentioned anything about the patent application, the filing of an affidavit in support of the application crediting Dr. Ellenbogen with instigating and supervising all of the studies, the issuance of the '634 patent, or the six civil enforcement actions brought by Cyanamid to prevent generic drug companies from using the patented technology. When the Doctors finally obtained a copy of the '634 patent and saw the copied data table and the content based almost entirely on their confidential manuscript, they and the University filed an action against Cyanamid asserting claims for fraudulent nondisclosure, unjust enrichment, and equitable remedy under the federal patent laws.

In a July 7, 1997 opinion, the district court described the "egregious" conduct of Dr. Ellenbogen and Cyanamid, including the wholesale copying by Cyanamid of the confidential manuscript, which Cyanamid incorporated into its patent application and found Cyanamid liable for fraud and unjust enrichment and awarded approximately $45 million in damages. Cyanamid III, 974 F.Supp. at 1366. After Cyanamid appealed the judgment, this court remanded the case for a determination of inventorship under "federal patent law principles," stating that if the district court found that the doctors were the inventors under federal law, it should redetermine damages in accordance with this court's opinion. Cyanamid IV, 196 F.3d at 1374.

Applying federal patent law, the district court on remand concluded that the Doctors were the inventors and that Ellenbogen had no role in conceiving the invention. The court granted Cyanamid a new trial on damages and separately addressed the Doctors' alternative claims for fraudulent nondisclosure, unjust enrichment, and equitable remedy under federal patent law.

First, on the fraudulent nondisclosure claim, the district court based its compensatory damages award on the "payment that Cyanamid would have made to secure the Doctors' cooperation in filing the required documents with the PTO [Patent and Trademark Office], an assignment of ownership rights and/or an exclusive license from the University." The district court found Cyanamid liable to the plaintiffs for $22,546,000 in fraud damages (royalties at 6% from issuance of the '634 patent in 1984 until Cyanamid ceased enforcing the '634 patent due to this pending litigation in 1994).

Second, to determine the equitable remedy for unjust enrichment, the district court calculated the "incremental profits" from the sale of Materna attributable to the right to exclude generic competition that Cyanamid gained from the '634 patent. The district court found that Cyanamid was unjustly enriched by $23,243,228 at the plaintiffs' expense. Finding that the plaintiffs are not entitled to double recovery for their fraud and unjust enrichment claims, the district court only awarded an equitable remedy for unjust enrichment and struck the award of fraud damages.

Third, as to the federal equitable remedy, the district court found that the Doctors' status as equitable titleholders of the '634 patent constituted a separate and independent ground mandating that Cyanamid disgorge its incremental profits.

Last, the district court awarded $500,000 in exemplary damages to each of the Doctors because Cyanamid's conduct was attended by circumstances of fraud, malice, and willful and wanton conduct. Cyanamid timely appealed the liability judgments on the claims for fraudulent nondisclosure, unjust enrichment, equitable remedy under federal patent law, the associated monetary awards, and the district court's award of exemplary damages. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

The legal question of inventorship is reviewed without deference. Winbond Elecs. Corp. v. Int'l Trade Comm'n, 262 F.3d 1363, 1370 (Fed.Cir.2001). This court reviews the findings of fact upon which a district court's inventorship determination is based for clear error. Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1460 (Fed.Cir.1998). "Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." The Am. Original Corp. v. Jenkins Food Corp., 774 F.2d 459, 462 (Fed.Cir.1985); see First Interstate Bank v. United States, 61 F.3d 876, 882 (Fed.Cir.1995) ("Indeed, credibility determinations by the trial judge `can virtually never be clear error.'") (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 575, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)).

We generally review nonpatent issues according to the law of the regional circuit where appeals from the district court would normally lie. Tronzo v. Biomet, Inc., 236 F.3d 1342, 1346 (Fed.Cir. 2001). The Tenth Circuit reviews a district court's determination of state law de novo. See Salve Regina Coll. v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991). The Tenth Circuit will not disturb a district court's findings of fact, however, unless those findings are clearly erroneous giving due regard to the district court's opportunity to determine the witnesses' credibility. Fed.R.Civ.P. 52(a); Rascon v. U.S. West Communications, Inc., 143 F.3d 1324, 1329 (10th Cir. 1998). A finding of fact is clearly erroneous if it is without factual support in the record or if, after reviewing all of the evidence, the court is left with the definite and firm conviction that a mistake has been made. Raydon Exploration, Inc. v. Ladd, 902 F.2d 1496, 1499 (10th Cir.1990).

A. The Unjust Enrichment Claim Is Not Preempted

The district court determined that the work, studies and ideas ultimately patented by Cyanamid were discovered by the Doctors, "[e]ntirely independent of Cyanamid." Cyanamid III, 974 F.Supp. at 1347. The district court also found that Cyanamid had no co-inventorship interest in the reformulations and had no right to patent the reformulations by copying the Doctors' confidential manuscripts. The district court's findings addressed the respective inventorship rights of the parties and not the rights of third parties not before the court. In other words, the district court applied principles of unjust enrichment to determine the parties' rights with respect to each other and declined to assess the parties' rights to exclude as against the rest of the world pursuant to federal patent principles.

Cyanamid, citing Waner v. Ford Motor Co., 331 F.3d 851 (Fed.Cir.2003), argues that federal patent law precludes any state law unjust enrichment award, because the Doctors did not protect their ideas either as trade secrets or patents. Further, Cyanamid alleges the district court's findings regarding unjust enrichment essentially create state patent rights — a result the Supreme Court prohibited in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989). We rejected a similar argument in Cyanamid IV.

Federal preemption takes three basic forms: First, Congress may explicitly preempt state law; second, a federal scheme may occupy a given field and thus preempt state law in that field; and third, when compliance with both state and federal law is impossible, the conflicting state law is preempted. English v. Gen. Elec. Co., 496 U.S. 72, 78-79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990). Whatever the form, the key is whether the operation of state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 479, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974) (internal quotation marks and citation omitted).

Here, although federal patent law plainly does not provide for explicit preemption, 35 U.S.C. §§ 1-376 (2000), a state may not offer patent-like protection to intellectual creations that would otherwise remain unprotected as a matter of federal law, Bonito Boats, 489 U.S. at 156, 109 S.Ct. 971; Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1363 (Fed.Cir.1999). Through the federal patent laws, Congress has balanced innovation incentives against promoting free competition, and state laws upsetting that balance are preempted. See Bonito Boats, 489 U.S. at 152, 109 S.Ct. 971. Thus, a tangible invention or intangible process that does not satisfy the requirements of federal patent law — novelty, nonobviousness, and the like — cannot be protected under either federal or state law.

Under the Supremacy Clause, "it has been settled that state law that conflicts with federal law is `without effect.'" Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992) (quoting Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981); citing McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 427, 4 L.Ed. 579 (1819)). However, the Supremacy Clause does not require full consonance between federal and state intellectual property protections. See Goldstein v. California, 412 U.S. 546, 93 S.Ct. 2303, 37 L.Ed.2d 163 (1973) (holding that federal copyright law does not preempt state copyright law providing greater protection); Kewanee Oil, 416 U.S. at 485, 94 S.Ct. 1879 (holding that federal patent law does not preempt state trade secret law protecting unpatentable processes). The Supreme Court has summarized its preemption approach as follows: "States may not offer patent-like protection to intellectual creations which would otherwise remain unprotected as a matter of federal law." Bonito Boats, 489 U.S. at 156, 109 S.Ct. 971 (emphasis added); see also Dow Chem. Co. v. Exxon Corp., 139 F.3d 1470, 1475 (Fed.Cir.1998) (construing Supreme Court precedent to preempt state laws that "seek to offer patent-like protection to intellectual property inconsistent with the federal scheme"). In that case, the Supreme Court struck down a state statute that prohibited copying boat hull designs, because "[t]he Florida statute allows petitioner to []assert a substantial property right in the idea, thereby constricting the spectrum of useful public knowledge." Bonito Boats, 489 U.S. at 159, 109 S.Ct. 971 (emphasis added).

The right involved here and compensated for under a theory of unjust enrichment, however, is not "patent-like" at all. As we explained in Cyanamid IV, "the unjust enrichment claim springs not from an attempt to enforce intellectual property rights, but instead from Cyanamid's alleged wrongful use of the Doctors' research results." Cyanamid IV, 196 F.3d at 1371-72. As Cyanamid IV recognizes, then, a claim for unjust enrichment is "not simply an attempt to enforce property rights," id.; rather, under Colorado law, as discussed below, Part III.C, infra, the Doctors' claim of unjust enrichment is a legal claim to remedy the breach of a contract implied in law for disclosure of their confidential manuscript in exchange for a promise not to disseminate the idea without the Doctors' consent. See DCB Constr. Co. v. Cent. City Dev. Co., 965 P.2d 115, 119 (Colo.1998) (characterizing an unjust enrichment claim as a contract implied in law). The fact that Cyanamid improperly secured the '634 patent and used this patent to obtain incremental profits only pertains to restitution for the unjust enrichment claim.

In Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979), the Supreme Court held that a state contract law enforcing a royalty agreement for an unpatentable invention was not preempted. In reaching that result, the Supreme Court reviewed three purposes of the patent system: (1) to foster and reward invention, (2) to stimulate further innovation, and (3) to ensure free use of ideas in the public domain. Because the contract involved did not conflict with any of these goals, its enforcement was not preempted by federal patent law. Applying these principles to the present case, we conclude that the Doctors' claim of unjust enrichment does not undermine the purposes of the federal patent scheme: the Doctors can collect the fruits of their research, which fosters both specific and general incentives to innovate, while their reformulations stimulate further innovation; at the same time, no information in the public domain is denied free circulation. The unjust enrichment claim does not prevent the public from using these ideas. Instead, it simply affects Cyanamid's use of confidential information it improperly copied to secure the '634 patent. Lastly, the claim of unjust enrichment does not withdraw ideas from the public domain as the reformulations were not in the public domain before Cyanamid filed the '634 patent application by copying the Doctors' confidential manuscript.

Allowing the doctors to recover damages for improper use of their confidential manuscript, which was also submitted to a journal for publication, provides another incentive separate and apart from the patent laws. As the Supreme Court has said, "certainly the patent policy of encouraging invention is not disturbed by the existence of another form of incentive to invention." Kewanee Oil, 416 U.S. at 484, 94 S.Ct. 1879. There is no patent law preemption in the instant case.

Accordingly, contrary to Cyanamid's argument, we find no conflict with the Supreme Court's decision in Bonito Boats. Unlike the state law at issue in Bonito Boats, enforcement of the quasi-contract in this case does not substantially impede public use of an unpatentable intellectual creation. See Bonito Boats, 489 U.S. at 156-57, 109 S.Ct. 971. Importantly, the application of an unjust enrichment claim does not impermissibly interfere with the federal patent scheme, see id. at 165, 109 S.Ct. 971, but rather benefits society by requiring "[a] person who has been unjustly enriched at the expense of another ... to make restitution to the other," Restatement of Restitution § 1 (1937).

We also find no conflict with our decision in Waner. In Waner, the plaintiff designed and manufactured a novel fender liner for dual rear wheel trucks, sold the same to a Ford dealer, and contacted Ford Motor Company to see if it was interested in additional purchases. Waner, 331 F.3d at 853. Ford declined to negotiate with Waner, choosing instead to utilize Waner's idea commercially, without payment or permission. Id. Waner sued for unjust enrichment, seeking compensation for Ford's unauthorized use of his fender liner idea during the period before issuance of the patent. Id. We held that "absent secrecy, state law cannot create a collateral set of rights available as an adjunct or expansion to patent rights," id. at 856 (citing Bonito Boats, 489 U.S. at 149, 109 S.Ct. 971), and affirmed the district court's grant of summary judgment dismissing Waner's unjust enrichment claim.

Unlike the inventor in Waner, the Doctors here did not seek to prevent the use of information they placed in the public domain; rather, they seek to prevent Cyanamid from unjustly securing the '634 patent and obtaining the incremental profits by copying significant portions of the Doctors' confidential manuscript describing the invention. The district court's unjust enrichment remedy was specifically limited to the incremental profits Cyanamid wrongfully made by obtaining the '634 patent and did not encompass total profits Cyanamid made by selling a product incorporating the Doctors' invention. Moreover, the Doctors are not attempting to enforce patent-like rights before issuance of a patent as in Waner. Instead, consistent with a separate theory of unjust enrichment, the remedy here was calculated based on the period after issuance of the patent, not on the date of public disclosure. We therefore conclude that the district court properly determined that federal patent law does not preclude an unjust enrichment award under Colorado law.

Cyanamid argues that the district court erred in not construing the claims, but nevertheless concluding that "the scope of the patent claims is precisely that of the Doctors' Article" — even though the patent claims contain limitations that are never mentioned in the Article and the Doctors did not even allege that they conceived of such limitations. Cyanamid also asserts that the Doctors' "inventorship" evidence consists solely of uncorroborated oral testimony.

The University responds that it overcame the presumption that Dr. Ellenbogen was the inventor of the '634 technology, corroborated the Doctors' testimony, and proved by facts supported by clear and convincing evidence that they are the sole inventors. The University asserts that Cyanamid's only response to this evidence was to point to the testimony of Dr. Ellenbogen, which the district court found not credible. The University argues that the district court considered each claim in the '634 patent and found that the Doctors conceived the entire numerical range of calcium as calcium carbonate and magnesium as magnesium oxide in the claims.

We reject Cyanamid's arguments. "Conception is the touchstone to determining inventorship." Fina Oil & Chem. Co. v. Ewen, 123 F.3d 1466, 1473 (Fed.Cir.1997). "[Conception] is `the formation in the mind of the inventor of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice.'" Burroughs Wellcome Co. v. Barr Labs. Inc., 40 F.3d 1223, 1228 (Fed.Cir.1994) (quoting Hybritech Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1376 (Fed.Cir.1986)). There is a presumption that the inventors named on an issued patent are correct, so nonjoinder of inventors must be proven by facts supported by clear and convincing evidence. See Fina Oil, 123 F.3d at 1472; see also Hess v. Advanced Cardiovascular Sys., Inc., 106 F.3d 976, 980 (Fed.Cir.1997) ("[T]he burden of showing misjoinder or nonjoinder of inventors is a heavy one."); Price v. Symsek, 988 F.2d 1187, 1191 (Fed. Cir.1993). What is required is "corroborating evidence of a contemporaneous disclosure that would enable one skilled in the art to make the invention." Burroughs Wellcome, 40 F.3d at 1228. "The determination of whether a person is a joint inventor is fact specific, and no bright-line standard will suffice in every case." Fina Oil, 123 F.3d at 1473.

Here, the district court carefully followed the remand instructions from this court and applied federal patent law principles to determine that the Doctors were the inventors of the technology of the '634 patent based on, inter alia