Bailey v. Chattem, Inc.
| Decision Date | 03 August 1982 |
| Docket Number | No. 80-5439,80-5439 |
| Citation | 684 F.2d 386 |
| Parties | Wesley T. BAILEY, Plaintiff-Appellee, v. CHATTEM, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
W. Neil Thomas, III, Thomas, Mann & Gossett, W. Neil Thomas, Jr., Chattanooga, Tenn., for defendant-appellant; George T. Mobille, Cushman, Darby & Cushman, Washington, D. C., on brief.
Carlos C. Smith, David B. Kesler, Strang, Fletcher, Carriger, Walker, Hodge & Smith, Chattanooga, Tenn., Truman R. Adkins, Redondo Beach, Cal., Gary Lande, Poms, Smith, Lande & Rose, Los Angeles, Cal., for plaintiff-appellee.
Before ENGEL and KENNEDY, Circuit Judges, and ENSLEN, * District Judge.
In this case we are called upon to decide whether plaintiff's patent is invalid, thus defeating his causes of action based on the assignment of rights in the patent; whether California or Tennessee law properly applies on the facts of this case to plaintiff's claim of promissory fraud; whether the damages the jury awarded plaintiff, as reduced by the trial court, were excessive as a matter of law; and whether there was sufficient evidence to submit plaintiff's cause of action for failure to commercialize to the jury. We affirm the judgment of the District Court as to liability but remand for a new trial as to the amount of damages for the promissory fraud claim.
Liquid substances such as paint, which are frequently applied to a vertical surface with a high speed applicator such as a spray gun, have historically presented users with something of a dilemma. If the substance has a low enough viscosity for satisfactory high speed application it tends to drip and sag once on the vertical surface. If, on the other hand, the substance is thick enough that it will not drip or sag once applied, it is too thick for use in a high speed applicator.
During the 1960s appellee Wesley T. Bailey worked with alkyd resins (paint) to improve their properties during application. Specifically, he was exposed to the idea of premixing aluminum alkoxide in paint thinner, then adding this premix to the alkyd resins to produce a paint that maintained a low viscosity during application but had a high viscosity once applied to a vertical surface. The paint was, therefore, easy to spray but resisted dripping and sagging as well. A fluid with these characteristics is "thixotropic" or "non-Newtonian."
Unsaturated polyester resins, used in conjunction with fiberglass to form fiberglass products, present the same problem to users as did alkyd resins. Although there were ways to solve the "poor application or poor result" dilemma for polyester resins in the early 1970s, they were expensive and had undesirable side effects. In early 1970 Bailey conceived of adding aluminum alkoxides to polyester resins to render them thixotropic without the unwanted side effects. In April, 1970 Bailey recorded his idea in an invention disclosure record, witnessed by his son and wife. He did not, however, reduce his idea to practice then.
Bailey's idea apparently lay dormant for four years. In 1974 Bailey, who is a consultant in the chemical and petrochemical fields doing business as Wesley T. Bailey & Associates in Redondo Beach, California, came into contact with defendant-appellant Chattem, Inc., a Tennessee corporation that produced aluminum alkoxides and other products. Chattem was seeking new uses for its products and entered into discussions with Bailey to further this goal. The discussions culminated with Bailey and Chattem entering into an agreement effective October 1, 1974 whereby Bailey would serve as a consultant to Chattem. The agreement provided that any discovery or invention involving Chattem's operations made by Bailey during or as a direct result of his consultation would be the exclusive property of Chattem.
Bailey began work immediately to reduce his idea to practice. Soon after he began consulting for Chattem he premixed aluminum alkoxide in styrene, then added the premix to polyester resin. Styrene is the solvent for unsaturated polyester resins the way paint thinner is the solvent for paint. With some further refining the styrene premix added to the polyester resin produced the desired non-Newtonian properties.
The next steps were to produce a commercially feasible product and to procure a patent. At the same time Bailey and Chattem entered into discussions concerning both the assignment of Bailey's rights in the patent and, in the interim, renewal of the original consulting agreement. The parties agreed to extend the consulting agreement for a series of two-year terms, renewable automatically every two years but cancellable on 90 days' notice by either party. In exchange for his rights in the invention Bailey was promised a one percent royalty on any sales of products made under the patent. Bailey alleged that he was also promised a consulting agreement for the life of the patent which would be cancellable on 90 days' notice on his part but would not be cancellable by Chattem, and would replace the renewable two-year consulting agreement. Bailey assigned his rights in his invention to Chattem before the patent issued. He and Chattem subsequently, but still before the patent issued, signed a renewable two-year consulting agreement.
After several applications and two rejections the Patent Office approved U. S. Patent No. 4,049,748 covering Bailey's invention on September 20, 1977. Meanwhile, Chattem and Bailey were encountering technical difficulties in producing a marketable product. The difficulties persisted until shortly before trial of the case in 1980 according to Bailey, and even at the time of trial according to Chattem. After the patent issued Bailey inquired about the promised long-term consulting agreement, but was told that he had received all he was entitled to in the one percent royalty and renewable two-year consulting agreement. When Chattem persisted in its refusal to enter into a consulting agreement for the life of the patent Bailey filed this lawsuit.
By stipulation of the parties the case was tried to a jury before a United States magistrate. Bailey argued that Chattem had breached a contract to give him a long-term consulting agreement in exchange for his rights in the patent. In the alternative he argued that Chattem was guilty of promissory fraud, in that when it made the promise to enter into a long-term consulting agreement it had no intent to perform. Bailey also sought to recover for Chattem's failure to commercialize the potential product and bring the premix to market earlier than it did. Chattem defended, inter alia, on the ground that Patent No. 4,049,748 was invalid, having been procured through a fraud on the Patent Office. Chattem also claimed that because Bailey did not perfect the invention until after he began working for Chattem, the invention was the property of Chattem under the terms of the consulting agreement. For both of these reasons Chattem contended there was a want of consideration for any promise it might have made to Bailey.
The jury rejected Chattem's defenses. It found the patent valid and found the invention complete prior to October 1, 1974. The jury also rejected Bailey's contract claim, but found in his favor on both the promissory fraud and failure to commercialize claims. It awarded damages totalling $650,000, including $548,000 compensatory and $75,000 punitive for the fraud and $27,000 for the failure to commercialize. The trial court denied Chattem's motion for a judgment NOV or new trial, conditioned on Bailey's accepting a remittitur of $148,000 of the compensatory damages for fraud. Bailey accepted and this appeal followed.
Chattem maintains that Bailey's testimony in support of his ownership of the invention is inconsistent with his disclosures to the Patent Office. It urges that because of the inconsistency we must either find that Bailey did not own the invention, or rule that the patent is invalid ab initio.
To prevail at trial Bailey had to persuade the jury that adding aluminum alkoxide in a styrene premix to polyester resins to give the resins non-Newtonian properties was "invented" by him (as the word "invention" was used in the original consulting agreement) prior to the start of his consulting for Chattem on October 1, 1974. If the "invention" did not take place until after the start of consultation then by the terms of the consulting agreement it belonged to Chattem. To prove that the invention preceded October 1, 1974 and was his, Bailey introduced his invention disclosure record. The record contained an entry dated April 16, 1970 which described the addition of aluminum alkoxide to polyester resins to achieve a non-Newtonian fluid. However, the invention disclosure record did not describe the use of a styrene premix to introduce the aluminum alkoxide to the resin. For most aluminum alkoxide compounds such a premix is apparently necessary to produce a non-Newtonian fluid and to avoid a mixture with the undesirable consistency of applesauce.
Chattem argued at trial that Bailey's invention was not complete until he actually reduced the idea to practice by adding aluminum alkoxide to the resin in a styrene premix, and that he did not do this until after he began consulting for Chattem. Chattem supported its argument in part with the claim that Bailey had not even thought of the admittedly critical premix step prior to working for Chattem, as if he had he would surely have included this step in his description of the invention either in the invention disclosure record or in some other writing. Bailey responded that although he had not described the premix step in writing prior to his consulting with Chattem, he never contemplated adding the aluminum alkoxide without a premix because all of his prior work with alkyd resins indicated that a premix was necessary. Bailey...
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