Morrill v. Becton, Dickinson and Co., s. 83-1687

• Decision Date: 14 December 1984
• Docket Number: 83-1731,Nos. 83-1687,s. 83-1687
• Citation: 747 F.2d 1217
• Parties: Vaughan MORRILL, Jr., Appellee/Cross-Appellant, v. BECTON, DICKINSON AND COMPANY, Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1217

747 F.2d 1217

Vaughan MORRILL, Jr., Appellee/Cross-Appellant, v. BECTON, DICKINSON AND COMPANY, Appellant/Cross-Appellee.

Nos. 83-1687, 83-1731.

United States Court of Appeals,

Eighth Circuit.

Submitted May 15, 1984.

Decided Nov. 8, 1984.

Rehearing and Rehearing En Banc

Denied Dec. 14, 1984.

Arthur L. Liman, New York City, for appellant/cross-appellee.

John J. Cole, St. Louis, Mo., for appellee/cross-appellant.

Before McMILLIAN, BENNETT ^* and ARNOLD, Circuit Judges.

McMILLIAN, Circuit Judge.

Becton, Dickinson & Co. (B-D), a New Jersey corporation, appeals from a final judgment entered against it in the district court ¹ in the amount of $3,000,000 actual damages and $20,000,000 punitive damages. Judgment was entered on jury verdicts in favor of Vaughan Morrill, Jr., an inventor and resident of Missouri, in his action for unpaid royalties due under patent license agreements and for actual and punitive damages for fraud. The jury awarded Morrill $2,125,000 actual damages on the breach of contract claim and $3,000,000 actual damages on the fraud claim. On Morrill's motion, the district court reduced the actual damages for fraud to $875,000 to eliminate duplication of actual damages. B-D argues that the district court's judgment should be reversed because (1) the jury adopted an unreasonable interpretation of the agreement, (2) the elements of fraud were not established, (3) the awards of actual damages were not supported by the evidence, (4) the statute of limitations bars recovery of part of the actual damages awarded, and (5) the punitive damages award is excessive. In a cross-appeal, Morrill argues that the district court erred in denying his motion for attorney's fees for B-D's bad faith conduct in filing counterclaims. For the reasons discussed below, we modify the actual damages to $2,125,000 and hold that the judgment for punitive damages should be affirmed, provided Morrill accepts a remittitur reducing punitive damages to $3,000,000. We affirm the district court's denial of Morrill's motion for attorney's fees.

B-D is a company engaged in the business of manufacturing, marketing and developing a variety of health-care instruments and apparatus comprised of uniform precision-bore glass tubing. Morrill is an inventor in the field of glass technology. On May 3, 1961, the parties entered into an Exclusive License Agreement whereby Morrill granted B-D exclusive rights to Morrill's inventions and patent rights in return for royalty payments in varying percentage amounts of the net sales of various products, payable on a quarterly basis. Morrill was to receive a 1% royalty on "Group B" products, which were products commercially developed by B-D after the effective date of the agreement. By letter agreement dated September 25, 1963, Unopette disposable pipettes, a B-D product which includes a capillary tube as a component part, was specifically added as a "Group B" product. The parties agreed to reduce the royalty on the net sales of Unopettes to 1/2% on the condition that B-D pay Morrill a minimum of $5,000 per year until such time as his royalties computed on net sales of said product would exceed this minimum.

On April 13, 1970, the parties entered into a new licensing agreement giving B-D exclusive rights to Morrill's inventions and patent rights and providing for royalty payments as follows: 1%-2% of net sales of certain named listed products or "any new Product which replaces any of the Products listed," and 5% of net sales of any other new product. The agreement provided for a five-year royalty period as to products embodying Morrill's unpatented inventions and for a royalty period co-extensive with the effective life of Morrill's patent rights (i.e., until September 1985) as to products embodying those patents. The second agreement also provided that it did not include those inventions covered by the 1961 agreement which was to remain in effect.

Use of Morrill's technology enabled B-D to capture over 90% of the world market for precision-bore glass tubing principally used in the health-care industry. Over the years, B-D's royalty statements to Morrill contained factual inaccuracies as to price, quantity of sales and classification of products resulting in underpayments to Morrill. In the late 1960's, B-D knew that Unopette sales were generating royalties in excess of $5,000 per year, yet payments to Morrill remained at that minimum amount. In 1970 B-D unilaterally adopted a new interpretation of the 1961 agreement as amended, whereby only the capillary tube portion of Unopettes was subject to royalty payments. B-D accordingly prorated the royalties owed Morrill on Unopette sales, with the result that the $5,000 yearly minimum was not exceeded for any past year. Morrill was not informed of this decision until February 1971. In October 1971, B-D granted Morrill a limited sub-license to use his inventions and patents to manufacture a certain non-health-care industry product. At this time Morrill agreed in writing to the pro-rata method of calculating Unopette royalties.

In late 1979, B-D, faced with the prospect of having to pay Morrill sizable royalties on two new products, requested its in-house counsel to review B-D's obligations to Morrill under the license agreements. Counsel advised that the five-year royalty clause in the 1970 agreement could be read to apply to these products because "patent rights," strictly construed, were not in fact being used in producing them. This position, which would mean termination of royalty payments on many products, was not adopted by B-D. Rather, in early 1980, B-D adopted the position that the 1% royalty rate of the 1961 agreement, rather than the 5% rate of the 1970 agreement, covered certain products and, without informing Morrill of this decision, began assigning the lower royalty rate to the products. At the same time B-D assigned the lower rate to products it had, by oversight, failed to pay royalties on since 1976.

Morrill initiated the present lawsuit in February 1981. Count I alleged breach of contract on the part of B-D and sought the amount of royalties actually due him under the license agreements. Count II alleged that B-D's reporting inaccuracies and misrepresentations of the amount of royalties due were willful and intentional in breach of B-D's fiduciary duty, and that Morrill justifiably relied on the misrepresentations and was damaged thereby. Morrill sought actual and punitive damages under Count II. B-D asserted three counterclaims against Morrill, all of which were dismissed on B-D's motions prior to or during trial.

At trial each side introduced evidence to support its interpretation of the license agreements and B-D's obligations thereunder. B-D's position was that (1) the five-year royalty clause in the 1970 agreement applied to many products because "patent rights" were not in fact being used in producing those products, (2) the 1961 agreement with its lower royalty rates, and not the 1970 agreement, covered many of B-D's products, based on the exclusionary clause in the 1970 agreement which provided that the term "inventions" as used in that agreement shall not include those inventions covered by the earlier agreement, and (3) under the 1970 agreement, certain products were "replacement" products subject to a 1%-2% royalty rate, and not "new" products subject to the 5% royalty rate.

Morrill presented evidence that it was the understanding and intent of both parties that (1) the royalty period co-extensive with the life of his patent rights was the applicable royalty period under the 1970 agreement on all B-D products involved in this action, (2) following the effective date of the 1970 agreement, the royalty rates in the 1961 agreement only applied to Unopettes, and (3) under the 1970 agreement, "replacement" products referred to a very narrow class of products, including none of the products involved in this case.

The jury, by special verdict forms, awarded Morrill damages for breach of contract in the amount of $2,125,000, damages for fraud in the amount of $3,000,000, and punitive damages in the amount of $20,000,000. The district court entered judgment accordingly, awarding pre-judgment interest on the contract damages. Subsequently, on Morrill's motion, the district court reduced the damages for fraud to $875,000 to eliminate duplication of actual damages. The district court also denied Morrill's request for attorney's fees in the amount of $411,190. B-D appealed from the judgment against it for actual and punitive damages, and Morrill appealed the denial of attorney's fees.

As part of the final judgment entered in favor of Morrill, the district court enjoined B-D from (1) withholding royalty payments due Morrill arising out of B-D's continuing sales, after January 1, 1982, and until September 10, 1985, of products embodying Morrill's inventions or patent rights as those terms were interpreted by the jury verdict and by the judgment and memorandum opinion of the district court, and (2) representing to the public that the process being used to manufacture its precision-bore glass tubing products is B-D's proprietary process, unless proper royalties are paid to Morrill. The district court stayed the injunction pending completion of appeals to this court. Morrill v. Becton, Dickinson & Co., No. 81-0112-C(C) (E.D.Mo. May 16, 1983). On May 29, 1984, this court issued an order lifting the stay and restoring the injunction during pendency of the appeals or until further order of the court. Morrill v. Becton, Dickinson & Co., Nos. 83-1687 and 83-1731 (8th Cir. May 29, 1984). We turn now to the appeal and cross-appeal before us.

Breach of Contract Claim

B-D first argues that the jury should not have been permitted to consider and adopt Morrill's interpretations of the replacement product/new product provision and the royalty period provision of the 1970 agreement because the clear and unambiguous language of the...