550 F.3d 1004 (10th Cir. 2008), 07-4090, Russo v. Ballard Medical Products

Docket Nº:07-4090, 07-4102.
Citation:550 F.3d 1004
Party Name:Ronald D. RUSSO, Plaintiff-Appellee/Cross-Appellant, v. BALLARD MEDICAL PRODUCTS, Defendant-Appellant/Cross-Appellee.
Case Date:December 18, 2008
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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550 F.3d 1004 (10th Cir. 2008)

Ronald D. RUSSO, Plaintiff-Appellee/Cross-Appellant,


BALLARD MEDICAL PRODUCTS, Defendant-Appellant/Cross-Appellee.

Nos. 07-4090, 07-4102.

United States Court of Appeals, Tenth Circuit.

December 18, 2008

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[Copyrighted Material Omitted]

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Constantine L. Trela, Jr., Sidley Austin LLP, Chicago, IL (Michael B. Apfeld, Godrey & Kahn, S.C., Milwaukee, WI, and Marcy G. Glenn, Holland & Hart, LLP, Denver, CO, with him on the briefs), for Defendant-Appellant/Cross-Appellee.

Richard D. Burbidge (Jefferson W. Gross and Robert J. Shelby with him on the briefs) Burbidge Mitchell & Gross, Salt Lake City, UT, for Plaintiff-Appellee/Cross-Appellant.

Before McCONNELL, SEYMOUR, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

Medical device inventor Ronald Russo brought this lawsuit against Ballard Medical Products contending that the company misappropriated his trade secret and breached the parties' confidentiality agreement by incorporating certain of his innovations into one of its popular medical devices without his consent. After a seven-day trial, a jury found for Mr. Russo and awarded him $20 million in damages. On appeal, Ballard argues primarily that Mr. Russo's state law claims are preempted by federal patent law. Mr. Russo cross-appeals, submitting that the district court erred in declining to add post-verdict, pre-judgment interest to his award. Finding none of the parties' various arguments for reversal persuasive, we affirm.



In 1983 Ballard introduced its flagship product, the Trach Care 24 catheter, a closed-suction catheter designed to remove debris from endotracheal ventilator tubes without having to disconnect patients from the ventilators on which they depend for

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oxygen.1 Before the Trach Care 24, medical professionals relied on an open-suction process, in which they had to disconnect the patient from the ventilator, insert a catheter into the patient's airway to suction accumulated mucus, and then remove the catheter before reconnecting the ventilator-a process that not only involved temporarily removing the patient from the ventilator, but also a non-trivial risk of infection from the cleaning process.

Mr. Russo is an independent medical device designer. In 1992, Ballard retained Mr. Russo in a consulting role with the aim of improving various aspects of its Trach Care catheter. After completing this project, Mr. Russo continued working independently on tracheal suction devices, while Ballard also worked on its own to improve its product. In particular, Ballard focused on enhancing the useful life span of its catheter. As its name implies, the Trach Care 24 is approved by the United States Food and Drug Administration (“ FDA" ) for only 24 hours' continuous use. After that period, even Ballard's design is insufficient to prevent bacteria from developing to the point of unduly risking patient infection.

In 1997, after several failed attempts to extend the life span of the Trach Care 24, Ballard again sought Mr. Russo's help. Mr. Russo agreed and, building on his independent work, he devised various improvements to the Trach Care 24, all memorialized in a series of drawings and a prototype. These improvements included a vented “ duckbill" valve that isolated the patient-side of the catheter assembly from the catheter cleaning chamber-an innovation that allowed mucus to be more effectively cleaned from the catheter in the cleaning chamber while minimizing back flow to the patient. Mr. Russo's improvements also included an additional “ wiper" seal to wipe the catheter clean, which allowed the tip of the catheter to be withdrawn past the wiper seal into the cleaning chamber, leaving secretions in the cleaning chamber. In combination, Mr. Russo's modifications created a more effective method for cleaning Ballard's catheter, which he expected would improve the device's safety and, consequently, its useful life span.

In early 1998, Mr. Russo agreed to meet with Ballard to discuss his improvements, but conditioned any meeting on the parties executing a confidential disclosure agreement (“ CDA" ). Ballard assented to this condition, sending Mr. Russo a proposed CDA for his consideration. Mr. Russo signed the document and, in April 1998, the parties met in New York City to discuss Mr. Russo's research. In preparation for the meeting, but after signing the CDA, Mr. Russo forwarded a binder of materials to Ballard disclosing his innovations, and he brought additional drawings and a prototype to the meeting itself. During the course of the conference, Mr. Russo gave the drawings to Ballard engineers, showed them the prototype, explained his various improvements, and answered “ a million questions." Aplt.App. at 1211.

Before the meeting concluded, Ballard asked Mr. Russo how much it would cost to license his innovations. Mr. Russo replied with a request for $50,000, plus a 5% annual royalty with a guaranteed annual minimum payment of $50,000, but the parties concluded the meeting without reaching any agreement on terms. Over the next few months, the parties continued to negotiate, during which time Mr. Russo dropped his request to a 3% annual royalty

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with a $50,000 guaranteed annual minimum. Eventually, Ballard agreed to a 3% royalty rate, but still would not acquiesce to an annual minimum payment and, in August 1998, negotiations ended without a meeting of the minds.

Shortly after the parties broke off negotiations, Mr. Russo asked Ballard's General Counsel, Paul Hess, to return the confidential materials he had shared with Ballard pursuant to the CDA. Mr. Hess promised that he would secure the return of Mr. Russo's materials, but Mr. Russo received nothing. When Mr. Russo brought this to Mr. Hess's attention and renewed his request in September 1998, Mr. Hess represented that Ballard was unable to locate Mr. Russo's materials.

Unknown to Mr. Russo at the time, Ballard made use of his work to secure two patents and introduce a new product to market. In September 1998, Ballard submitted a patent application embodying the innovations Mr. Russo disclosed at the parties' New York meeting; though that application was denied, the Patent and Trademark Office subsequently issued Ballard two patents based on its 1998 application, patent nos. 6,227,200 (the '200 patent) and 6,543,451 (the ' 451 patent). Both contained the essential innovations embodied in Mr. Russo's prototype and drawings. The only difference between Mr. Russo's work and Ballard's patents was the substitution of a flap valve for a duckbill valve-although the patent allowed for either kind of valve to be used. Otherwise, the designs were “ exactly the same" as the ones Mr. Russo proposed. Id. at 1230-32. Ballard's patents allowed it to introduce a new device, the Trach Care 72, which the company began selling in 2001. As its name suggests, Trach Care 72 is approved by the FDA for 72 hours' continuous use. At the heart of the product are Mr. Russo's designs ensuring a superior cleaning process, delaying the build up of potentially infectious bacteria, and thus allowing Ballard's product to be safely employed for an extended period.


Believing that Ballard misappropriated his trade secret and violated the parties' CDA, Mr. Russo filed suit in Rhode Island Superior Court. Ballard removed the action to federal court based on diversity jurisdiction and, pursuant to a forum selection clause in the CDA, the case was transferred to the District of Utah. At the trial that followed, the district court submitted two claims to the jury: (1) misappropriation of Mr. Russo's trade secret, and (2) breach of contract ( viz., the CDA). Both claims turned on Mr. Russo's allegation that, in derogation of the CDA, Ballard misappropriated his drawings and prototype by using them in its Trach Care 72 product. For his trade secret claim, Mr. Russo sought unjust enrichment damages, and asserted that those damages were properly measured by the net profit the company expected to secure from its Trach Care 72 product over the life of the '200 and '451 patents. Without his innovations, Mr. Russo claimed, Ballard simply could not have created its new product and would have been forced to continue offering only its 24-hour product. Mr. Russo's expert estimated the present value of Ballard's expected net profits from the Trach Care 72 product over the 17-year life of its patents to be $32.3 million. Mr. Russo also sought compensatory damages for his actual loss under the breach of contract claim. Mr. Russo argued that, but for Ballard's breach, the parties would have agreed on at least a 3% royalty rate and a $50,000 minimum annual payment. Using several “ conservative" assumptions, Mr. Russo's expert testified that this would have amounted to royalty payments over

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the life of Ballard's patents with a net present value of at least $2.751 million.

For its part, Ballard contended that Mr. Russo never, at the New York City meeting or otherwise, disclosed any design containing the innovations found in Ballard's Trach Care 72 product. Instead, Ballard submitted, its engineers independently developed all of the innovations embodied in its product. Additionally, Ballard argued that Mr. Russo's state tort claims were preempted by federal patent law. Ballard further challenged Mr. Russo's damages evidence and presented its own damages expert who opined that, even if Ballard did misappropriate Mr. Russo's innovations, his losses were much smaller than he claimed.

Ultimately, the jury found in favor of Mr. Russo, awarding him $17 million in unjust enrichment damages for his trade secret misappropriation claim and $3 million in damages for his breach of contract claim. The district court entered judgment for Mr. Russo in the amount of $20 million and denied all of the parties' various post-trial motions. Ballard now appeals, asking us...

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