Shum v. Intel Corp.

• Decision Date: 24 August 2007
• Docket Number: No. 2006-1249.,2006-1249.
• Citation: 499 F.3d 1272
• Parties: Frank T. SHUM, Plaintiff-Appellant, v. INTEL CORPORATION, LightLogic, Inc., and Jean-Marc Verdiell, Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

499 F.3d 1272

Frank T. SHUM, Plaintiff-Appellant, v. INTEL CORPORATION, LightLogic, Inc., and Jean-Marc Verdiell, Defendants-Appellees.

No. 2006-1249.

United States Court of Appeals, Federal Circuit.

August 24, 2007.

Paul F. Kirsch, Townsend and Townsend and Crew LLP, of San Francisco, CA, argued for plaintiff-appellant. With him on the brief were George M. Schwab and Mark T. Jansen.

Stephen E. Taylor, Taylor & Company Law Offices, Inc., of San Francisco, CA, argued for defendants-appellees. With him on the brief were Stacey L. Wexler and Tyler G. Newby. Of counsel was Mark A. Lemley, Keker & Van Nest, LLP, of San Francisco, CA.

Before NEWMAN, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and LOURIE, Circuit Judge.

Opinion for the court filed by Circuit Judge LOURIE. Dissenting opinion filed by Senior Circuit Judge FRIEDMAN.

LOURIE, Circuit Judge.

Frank T. Shum appeals from the decision of the United States District Court for the Northern District of California dismissing his claims for correction of inventorship pursuant to 35 U.S.C. § 256 and various state law claims, including fraud, fraudulent concealment, breach of fiduciary duty, and unjust enrichment. Because we conclude that the district court erred in conducting a bench trial on the inventorship claim prior to a jury trial on the state law claims when there were common underlying factual issues, and erred in dismissing the unjust enrichment claim on the pleadings, we vacate, reverse, and remand.

BACKGROUND

Shum is an optical engineer who worked for many years in the field of optoelectric packaging technology.¹ Shum met Jean-Marc Verdiell, who is also an engineer experienced in the field of optoelectronics, while working at Spectra Diode Laboratories, Inc. ("SDL"). In 1996, Shum left SDL to form a company called Radiance Design ("Radiance"), which focused on the development of optoelectronic packaging. Although Verdiell was still employed with SDL, Shum continued to work with him on preparing grant proposals for various optoelectronic packaging projects. In March 1997, Verdiell resigned from SDL and joined Shum at Radiance. On April 22, 1997, Shum and Verdiell incorporated Radiance as equal shareholders. Verdiell was named President and Treasurer, and Shum, Vice President.

On the day of incorporation, Shum filed patent application 08/838,022 (the "'022 patent application"), entitled "Optoelectronic Assembly and Method of Making the Same," on behalf of Radiance. Shum was named the sole inventor. During the following months, Shum and Verdiell's relationship deteriorated. On January 5, 1998, Radiance was dissolved pursuant to a Plan of Liquidation, which granted Shum and Verdiell "equal rights to independently exploit intellectual property developed by the corporation." The following day, Verdiell filed a patent application on behalf of a company he had formed several months earlier called LightLogic, Inc. That patent application matured into U.S. Patent 5,977,567 (the "'567 patent") on November 2, 1999. After the issuance of the '567 patent, LightLogic obtained additional patents relating to similar subject matter. In 2001, Intel Corporation ("Intel") acquired LightLogic and all of its intellectual property rights in exchange for $409,000,000 in stock. On May 13, 2001, Shum became aware of Intel's purchase of LightLogic and the existence of the patents in suit.²

Shum initiated the instant lawsuit after learning of Intel's acquisition of LightLogic. In his complaint, Shum made the following allegations that are relevant to this appeal. According to Shum, Verdiell had engaged in fraudulent conduct by misappropriating the technology developed by Shum at Radiance. During the pendency of Shum's '022 patent application, Verdiell informed Marek Alboszta, the patent agent who prosecuted that patent application on behalf of Shum, that he was an inventor of the subject matter described in Shum's patent application. In response, Alboszta informed Shum that Verdiell would have to be added as an inventor on the application; otherwise the patent would be invalid. Verdiell ultimately instructed Alboszta to abandon the patent application, which he did on November 17, 1997.

Although Shum and Verdiell were business partners, Verdiell did not inform Shum that he had incorporated LightLogic three days prior to the abandonment of the '022 patent application. Shum further alleged that Verdiell formed LightLogic as a vehicle for filing patent applications based on technology developed at Radiance. Shum asserts that that included the patent application that Verdiell filed one day after the dissolution of Radiance, which, according to Shum, is virtually identical to Shum's abandoned '022 patent application. In other words, Shum claims that Verdiell filed an application solely in Verdiell's name that is virtually identical to that Shum had filed in his name, but that Verdiell had instructed be abandoned. Additionally, Shum alleged that Verdiell engaged in other questionable activity, including transferring bank accounts so that Radiance's funds were under Verdiell's sole control, excluding Shum from meetings with Radiance investors, removing Shum's name as "principal investigator" from government contracts with Radiance, and withholding critical information from Shum.

On May 13, 2002, Shum filed a complaint against numerous defendants, including Verdiell, LightLogic, and Intel ("appellees") in state court alleging fraud, unjust enrichment, and other state law tort claims. On July 9, 2002, the case was removed to federal court. Appellees moved to dismiss the complaint, which the court granted. On December 19, 2002, Shum filed a second amended complaint. The amended complaint added a cause of action for correction of inventorship under 35 U.S.C. § 256, in addition to the state law claims. Appellees moved to dismiss the second amended complaint, which the court granted in part and denied in part on March 25, 2003. The court dismissed Shum's unjust enrichment claim on the pleadings, but allowed Shum to proceed with his inventorship, fraud, fraudulent concealment, breach of fiduciary duty, and breach of contract claims. On February 13, 2004, appellees moved for summary judgment and to bifurcate the trial. On April 27, 2004, the district court denied the summary judgment motions, but granted the motion to bifurcate the inventorship and state law claims. The court ordered that the inventorship cause of action be tried to the court before the state law claims were tried to a jury.

The bench trial on the correction of inventorship issue commenced on January 10, 2005. On June 21, 2005, the court issued an order stating that Shum had not met his burden of proving by clear and convincing evidence that he was an inventor on any of the patents at issue. Appellees then filed renewed motions for summary judgment on the remaining state law claims. The court granted summary judgment and entered judgment in their favor on January 12, 2006.

Shum timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

On appeal, Shum argues that under Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959), the district court's decision to bifurcate the claims and to conduct a bench trial on the inventorship issue prior to a jury trial on the state law claims violated his constitutional right to a jury. According to Shum, his inventorship claim and state law claims share common factual issues that are "inextricably intertwined," and thus a jury trial should have preceded a bench trial. Shum further argues that the court committed numerous errors in reaching its conclusions with regard to the inventorship determination. Additionally, Shum asserts that summary judgment should not have been granted on the state law claims because the court's erroneous inventorship decision had a dispositive impact on those claims, and also because the district court committed numerous errors in reaching its decision.

Appellees respond that the court did not err in holding a bench trial on the inventorship issue first because the inventorship claim and the state law claims do not share common underlying factual issues. As such, appellees assert that the rule set forth in Beacon Theatres is not implicated. Defendants further assert that the court did not err in concluding that Shum was not an inventor on any of the patents in suit. Lastly, defendants contend that the court properly granted summary judgment on the state law claims.

A. Seventh Amendment Right to a Jury Trial

We first address Shum's arguments concerning his right to a jury trial. A trial court's decision to bifurcate a trial is reviewed for an abuse of discretion. Danjaq v. Sony, 263 F.3d 942, 961-62 (9th Cir.2001). A court has broad discretion with regard to trial management. Federal Rule of Civil Procedure 42(b) provides:

The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any claim, cross-claim, counterclaim . . . always preserving inviolate the right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States.

Fed.R.Civ.P. 42(b) (emphasis added). As the rule acknowledges, the court's discretion is not without limits. When deciding whether issues should be separately tried, trial courts must ensure that a litigant's constitutional right to a jury is preserved. "Maintenance of the jury as a fact-finding body is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care." Dimick v. Schiedt, 293 U.S. 474, 486, 55 S.Ct. 296, 79 L.Ed. 603 (1935).

In Beacon Theatres, the Supreme Court addressed the importance of the order in which legal and equitable claims are to be tried in one suit. While recognizing...