Regents of University of New Mexico v. Knight

• Decision Date: 28 February 2003
• Docket Number: No. 02-1019.,No. 02-1018.,02-1018.,02-1019.
• Citation: 321 F.3d 1111
• Parties: The REGENTS OF THE UNIVERSITY OF NEW MEXICO, Plaintiff-Appellee, v. Galen D. KNIGHT, Defendant-Appellant, and [PG] Terence J. Scallen, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1111

321 F.3d 1111

The REGENTS OF THE UNIVERSITY OF NEW MEXICO, Plaintiff-Appellee, v. Galen D. KNIGHT, Defendant-Appellant, and [PG] Terence J. Scallen, Defendant-Appellant.

No. 02-1018.

No. 02-1019.

United States Court of Appeals, Federal Circuit.

February 28, 2003.

Rehearing En Banc Denied April 4, 2003.

COPYRIGHT MATERIAL OMITTED

Paul Adams, Peacock, Myers & Adams, P.C., of Albuquerque, NM, for plaintiff-appellee. With him on the brief was Stephen A. Slusher.

Galen D. Knight, Ph.D., of Albuquerque, NM, pro se.

Terence J. Scallen, M.D., Ph.D., of Borrego Springs, CA, pro se.

Before NEWMAN, LOURIE, and SCHALL, Circuit Judges.

LOURIE, Circuit Judge.

Galen D. Knight and Terence J. Scallen separately appeal from the decisions and orders of the United States District Court for the District of New Mexico: granting the Regents of the University of New Mexico ("UNM") summary judgment that UNM is the owner of seven patents and patent applications relating to beta-alethine compounds, Regents of the Univ. of N.M. v. Knight, No. CIV 99-577, slip op. at 2 (D.N.M. Aug. 9, 2000) ("Count II Summary Judgment"); declaring UNM to be the owner of eleven patents and patent applications relating to vitaletheine compounds, Regents of the Univ. of N.M. v. Knight, No. CIV 99-577, slip op. at 3-4 (D.N.M. Sept. 10, 2001) ("Final Order"); granting UNM summary judgment that Scallen and Knight breached their contractual obligation to assign the beta-alethine and vitaletheine patents and applications to UNM, Regents of the Univ. of N.M. v. Knight, No. CIV 99-577, slip op. at 2-3 (D.N.M. Jan. 29, 2001) ("Count IV Summary Judgment"); dismissing Scallen and Knight's counterclaims as barred by the Eleventh Amendment, Regents of the Univ. of N.M. v. Knight, No. CIV 99-577, slip op. at 5 (D.N.M. Feb. 27, 2001) ("Dismissal of Counterclaims"); appointing a special master, Regents of the Univ. of N.M. v. Knight, No. CIV 99-577, slip op. at 1 (D.N.M. Mar. 21, 2000) ("Special Master"); and awarding costs and the special master's fee to UNM, Final Order at 5. We affirm-in-part, reverse-in-part, vacate-in-part, and remand.

BACKGROUND

Dr. Scallen was a professor of biochemistry and medicine at UNM. Dr. Knight was hired as a faculty staff member in Scallen's laboratory. From 1983 to 1985, Scallen, Knight, and Dr. Paul Mann engaged in cancer research that led to inventions relating to beta-alethine and vitaletheine. UNM filed five patent applications based on those inventions on July 6, 1990. Two of those applications were directed to methods for using beta-alethine compounds to treat cancer;¹ three were directed to vitaletheine modulators and methods for their use.² The inventors executed declarations, powers of attorney, and small business entity verifications for each of the applications. In 1991, Scallen, Knight, and Mann assigned the two beta-alethine applications to UNM, and Scallen and Knight assigned the three vitaletheine applications to UNM. On April 4, 1991, Scallen and Knight signed a UNM Co-Inventor Agreement relating to the vitaletheine inventions.³

In 1992, UNM filed five continuation-in-part ("CIP") applications,⁴ one from each of the 1990 parent applications. The inventors again executed declarations, powers of attorney, and small business entity verifications for the CIP applications. Mann eventually assigned the two beta-alethine CIP applications to UNM; Scallen and Knight never assigned any of the CIP applications to UNM.

In February 1994, the funding for Scallen's laboratory was lost and Knight's employment was terminated. Approximately six months later, UNM entered into an agreement with Dovetail Technologies, Inc., whereby UNM granted a worldwide exclusive license to Dovetail for the beta-alethine and vitaletheine inventions and warranted that UNM is the owner of the related patents and applications. Dovetail then contracted with a company referred to as Hauser to synthesize the compounds relating to the vitaletheine inventions. Dr. Christopher Murray, Hauser's Director of Chemical Processing Services, determined that the vitaletheine compounds could not be synthesized as described by Scallen and Knight and concluded that two chemical structures in the vitaletheine applications were incorrect. UNM then retained Dr. Shield Wallace of Professional Analysis, Inc. to synthesize and characterize the compounds disclosed in the vitaletheine applications. He, too, concluded that two of the structures in the applications were incorrect. Murray and Wallace determined what they considered to be the correct structures of the compounds, and UNM submitted to the U.S. Patent and Trademark Office ("PTO") amendments changing Scallen and Knight's "vitaletheine V₄" and "benzyl derivative of vitaletheine" structures in the vitaletheine applications to the structures for beta-alanyl-taurine and carbobenzoxy beta-alanyl-taurine, respectively. Scallen and Knight objected to those amendments, both to UNM and to the PTO, but they were accepted by the PTO as not being directed to new matter.

Scallen retired in September 1995 and worked part-time through June 1996. In 1999, Dovetail notified UNM that it was in breach of the warranty of ownership provision of their license agreement. UNM considered that alleged breach to be based on Scallen and Knight's refusal to assign to UNM their rights in the CIP applications. On May 21, 1999, UNM accordingly filed suit against Scallen and Knight, seeking declaratory, injunctive, and monetary relief on various patent and state law claims. Count I of UNM's complaint sought a declaration of ownership of the vitaletheine patents and applications. Count II sought a declaration of ownership of the beta-alethine patents and applications. Count III sought a declaration and, if necessary, correction of the inventorship of U.S. Patents 5,370,868 and 5,578,313, both directed to methods for using vitaletheine modulators. Count IV alleged breaches of the UNM Intellectual Property Policy and the Co-Inventor Agreement. Count V alleged intentional interference with the Dovetail license agreement. Count VI alleged conversion or, in the alternative replevin. Count VII alleged slander of title.

Scallen and Knight, acting pro se, each filed counterclaims against UNM. Scallen sought money damages for UNM's breach of its duties of care, good faith, and fair dealing. Scallen also sought a declaration determining his rights in the beta-alethine and vitaletheine inventions and patents. Knight filed counterclaims for various contract and tort actions, including breach of contract, intentional interference with prospective economic advantage, abuse of process, slander, and breach of fiduciary duty. Knight sought a declaration of ownership of the beta-alethine and vitaletheine patents and applications as well as monetary relief for withheld royalties and lost wages.

Because of the "technical nature" of the case, the district court sua sponte appointed as special master Ray Regan, a patent attorney, to evaluate all pending and future motions. Special Master at 1. The court instructed UNM to pay Regan's compensation initially, but indicated that the losing party would ultimately be responsible for Regan's compensation. Id.

On May 31, 2000, the special master issued his first report, which included findings of fact, conclusions of law, and recommendations pertaining to ownership of the beta-alethine patents and applications (i.e., Count II). Regents of the Univ. of N.M. v. Knight, No. CIV 99-0577 (D.N.M. May 31, 2000) ("First Special Master's Report"). The special master found, inter alia, that Scallen and Knight had assigned the beta-alethine parent applications to UNM and that they had refused to sign subsequent assignments because they disagreed with UNM's prosecution of the vitaletheine applications. Id. at 20-21. Based on a review of the 1991 Joint Assignments, the 1983 UNM Patent Policy, the powers of attorney, and the inventors' declarations claiming small entity status, the special master concluded that there were no genuine issues of material fact and that Scallen and Knight were obligated to assign the beta-alethine patents and applications to UNM. Id. at 20-23. Upon conducting a de novo review of the special master's report, the court adopted the special master's recommendations in their entirety and granted summary judgment to UNM on Count II. Count II Summary Judgment at 2-3. The court directed Scallen and Knight to execute an assignment of the beta-alethine patents and applications to UNM. Id. at 2.

On September 20, 2000, the special master issued a second report, which addressed the breach of contract claim (i.e., Count IV). Regents of the Univ. of N.M. v. Knight, No. CIV 99-0577 (D.N.M. Sept. 20, 2000) ("Second Special Master's Report"). The special master found that neither defendant had shown the existence of a genuine issue of material fact and that Scallen and Knight had breached their agreements with UNM by not executing assignments of the beta-alethine patents and applications. Id. at 28. Again, the court adopted the report in its entirety and entered summary judgment in favor of UNM on Count IV. Count IV Summary Judgment at 2-3.

The court then granted UNM's motion to amend its complaint, allowing UNM to withdraw any request for money damages. Dismissal of Counterclaims at 2-3. The court observed that UNM, as an arm of the state, was entitled to Eleventh Amendment immunity, but noted that by filing suit UNM had waived its immunity from claims in recoupment arising out of the same transaction or occurrence as its claims. Id. at 3. Because UNM's amended complaint now sought only declaratory and injunctive relief, the court found that Scallen and Knight's counterclaims for money damages were no longer claims in recoupment. Id. at 4. The court therefore dismissed Scallen and Knight's counterclaims as barred by the Eleventh Amendment. Id. The court later granted UNM's motion to dismiss Counts V, VI, and...