Shum v. Intel Corp.

• Decision Date: 22 December 2010
• Docket Number: 2010-1109
• Parties: FRANK T. SHUM, Plaintiff-Appellant, v. INTEL CORPORATION, JEAN-MARC VERDIELL, AND LIGHTLOGIC, INC., Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

FRANK T. SHUM, Plaintiff-Appellant,

v. INTEL CORPORATION, JEAN-MARC VERDIELL, AND LIGHTLOGIC, INC., Defendants-Appellees.

2010-1109

United States Court of appeals for the Federal Circuit

Decided: December 22, 2010

Appeal from the United States District Court for the Northern District of California in case no. 02-CV-3262, Senior Judge D. Lowell Jensen.

Paul F. Kirsch, of San Francisco California, argued for plaintiff-appellant. On the brief was Gregory S. Cavallo, Shopoff & Cavallo LLP, of San Francisco, California.

Mark C. Fleming, Wilmer Cutler Pickering Hale and Dorr LLP, of Boston, Massachusetts, argued for defendants-appellees. With him on the brief were Richard W. O'Neill, and William F. Lee; and Seth P.Waxman, Brian M. Boynton, of Washington, DC.

Before Newman, Lourie, and Prost, Circuit Judges.

Opinion for the court filed by Circuit Judge Prost.

Dissenting opinion filed by Circuit Judge Newman.

Prost, Circuit Judge.

This appeal reviews an award of costs in a case where no party prevailed on every claim. The underlying action was filed by an optical engineer named Frank Shum ("Shum"). Shum sought correction of inventorship for seven patents originally issued to his former business partner, Jean-Marc Verdiell ("Verdiell"), arguing that he, Shum, should be named as the sole inventor or coinventor. See 35 U.S.C. § 256. Shum also asserted numerous claims under California law, all of which allegedly stemmed from the sale of Verdiell's company, LightLogic, Inc. ("Lightlogic"), to Intel Corporation ("Intel").

The district court correctly observed that both sides won on some claims and lost on others. Shum, for instance, succeeded on some of his inventorship claims, with the jury finding him to be the co-inventor of claims in five of the seven patents-in-suit. As for defendants Verdiell, Intel, and LightLogic, before trial, the district court granted their motion to dismiss some of Shum's state law claims¹ for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). The district court also granted summary judgment in favor of the defendants on Shum's claims for breach of fiduciary duty and fraudulent concealment. Finally, after the jury was unable to reach a verdict on the remaining state law claims, ² the district court granted defendants' post-verdict motion for judgment as a matter of law ("JMOL"). The final judgment in this action entitles Shum to be named as a co-inventor for claims in five of the seven patents-in-suit, but entitles him to none of the more than $409 million he sought in monetary damages.

Based on this mixed result, the district court concluded that both parties "prevailed" within the meaning of Rule 54(d) of the Federal Rules of Civil Procedure, which governs the award of costs and fees accrued during trial. Acknowledging, however, that Rule 54 might only countenance a single "prevailing party," the district court held in the alternative that the defendants were the "prevailing party." The parties were then each awarded the costs associated with the claims they respectively won. After offsetting these amounts, the result was a net costs award of $134,368.28 to defendants, taxed against Shum. Shum timely appealed.

On appeal, Shum argues that the award of costs must be vacated and recalculated on remand because there can only be one prevailing party. Moreover, according to Shum, he is that prevailing party. Though Shum lost on all of his California law claims and failed to recover any fraction of the more than $409 million in damages he sought, Shum nevertheless argues that his limited victoryon the question of inventorship suffices to make him a prevailing party. Further, as a prevailing party, Shum contends that he is entitled to all of his costs, while defendants are entitled to none of theirs.

We agree that there can be, by definition, only one prevailing party. We nevertheless affirm the award of costs because we agree with the district court's alternative holding that defendants are the prevailing party. Though Shum's victory on his co-inventorship claims changes the names appearing on those patents, it has not materially altered the legal relationship among the parties. Because Shum and Verdiell signed a Plan of Liquidation giving each equal rights to independently exploit the intellectual property arising from their ephemeral business partnership, this action has not materially altered the defendants' behavior in a way that directly benefits Shum. On the other hand, defendants were not liable to Shum for $409 million. Accordingly, the district court did not abuse its discretion in awarding costs to each party with respect to the claims on which they each prevailed, then netting those sums to arrive at the final figure.

Background

This appeal is only about costs, not the merits. The merits were appealed separately and are the subject of a companion opinion, Shum v. Intel Corp., No. 2009-1385,-1419. For the purposes of reviewing costs, the following facts matter.

This appeal is the second to this court and but the latest episode in a protracted legal battle, all traceable to a brief and stormy business partnership. Shum and Verdiell are both engineers who work in the optoelectronicsfield. In 1997, Verdiell and Shum became equal shareholders in a company called Radiance Design ("Radiance"). A brief nine months later, Radiance was formally dissolved pursuant to a plan of liquidation ("Liquidation Plan" or "POL").

The Liquidation Plan gave both parties equal rights to independently exploit the intellectual property developed by Radiance. After Radiance dissolved, Verdiell filed for, and was issued, the patents that are the subject of this suit. These patents were subsequently assigned to Verdiell's company, LightLogic. In 2001, Intel purchased LightLogic, including all of its intellectual property rights, for $409 million.

Upon learning of the sale, Shum filed this action. In his amended complaint, Shum asserted that he should be named as the co-, if not sole, inventor of claims in the seven patents-in-suit.³ In addition to these federal inventorship claims, Shum alleged numerous violations of California law: conversion, rescission, negligent misrepresentation, intentional interference with contractual relations, successor liability, breach of fiduciary duty, fraudulent concealment, unjust enrichment, breach of contract, and intentional misrepresentation.

The first appeal to this court occurred after the district court dismissed Shum's claim for unjust enrichment and granted defendants' motion to bifurcate the inventorship and state law claims. Pursuant to the district court's order, the inventorship claims were tried first in a bench trial, after which the state law claims were to be tried byjury. Shum v. Intel Corp., 499 F.3d 1272, 1275 (Fed. Cir. 2007).

Following the bench trial, the district court found that Shum had not shown by clear and convincing evidence that he was an inventor of any claims in the asserted patents. Defendants then renewed their motions for summary judgment on Shum's state law claims. The district court granted the motions and entered judgment for the defendants. Shum appealed to this court ("first appeal"). We vacated the judgment, reversed the dismissal of Shum's unjust enrichment claim, and remanded. Id. at 1276-77. In doing so, we agreed that under Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959), the district court abused its discretion in holding a bench trial on Shum's inventorship claim before trying his state law claims to a jury. Shum, 499 F.3d at 1276-79. Because Shum's claims had common factual issues, we concluded that Shum was entitled to a jury trial on his state law claims prior to any court determination of his inventorship claim. Id. at 1279. We also reinstated Shum's unjust enrichment claim, since it was neither "duplicative" nor "dependent" on Shum's fraudulent concealment claims. Id. at 1279-80.

The case returns to us after further proceedings below. Shum has had his jury trial on the inventorship and state law claims. Before trial, Shum withdrew his inventorship claims with respect to the '2726 patent. For the remaining six patents, ⁴ Shum limited his claims at trial to co-inventorship, thus abandoning his prior, alternativeclaims for sole inventorship. The inventorship claims and state law claims for intentional misrepresentation, breach of contract, and unjust enrichment were submitted to the jury.

The jury found that Shum was the co-inventor of some claims in five of six patents at issue during trial.⁵ The jury was unable to reach a verdict on Shum's inventorship claims for the '427 patent and for one additional claim in the '724 patent.⁶ It also hung on all of Shum's remaining state law claims. After declaring a mistrial, the district court entertained defendants' motion for judgment as a matter of law. Consistent with the jury verdict, the court then entered judgment for Shum on his co-inventorship claims for the five patents on which the jury reached a verdict. It then entered judgment for defendants on the remaining claims, finding that Shum failed to introduce sufficient evidence to prove liability or damages for the state law claims, or to permit a reasonable jury to find Shum the co-inventor of the '427 patent or the additional claim of the '724 patent.

Following entry of judgment, both parties submitted bills of costs pursuant to Federal Rule of Civil Procedure 54. The Clerk of Court taxed costs of $507,644.82 in defendants' favor and costs of $195,523.27 in Shum's favor. Offset against each other, Shum thus owed $313,121.55 in costs to defendants. Before the district court, Shum moved to deny defendants costs on twogrounds. First, Shum argued that defendants were not entitled to costs because they were not the "prevailing party" within the meaning of Rule 54. Second, Shum argued that certain items in defendants' bill of costs should be disallowed.

With modifications to certain cost items submitted by defendants, the...