Mass Eye and Ear Inf v. QLT Phototherapeutic ( 2005 )

United States Court of Appeals
For the First Circuit
Nos. 03-1682
03-1683
03-1725
MASSACHUSETTS EYE AND EAR INFIRMARY,
Plaintiff/Counterclaim Defendant, Appellant/Cross-Appellee,
v.
QLT PHOTOTHERAPEUTICS, INC.,
Defendant.
QLT, INC.,
Counterclaim Plaintiff, Appellee/Cross-Appellant,
v.
MASSACHUSETTS EYE AND EAR INFIRMARY,
EVANGELOS S. GRAGOUDAS, M.D., JOAN W. MILLER, M.D.,
Counterclaim Defendants, Appellants/Cross-Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Torruella, Circuit Judge,
Gibson,* Senior Circuit Judge,
and Lipez, Circuit Judge.
Kenneth B. Herman, with whom James F. Haley, Jr., Christopher
J. Harnett, Gerald J. Flattmann, John P. Hanish, Bindu Donovan,
*
Hon. John R. Gibson, of the Eighth Circuit, sitting by
designation.
Fish & Neave, Christine M. Roach, M. Ellen Carpenter and Roach &
Carpenter PC, were on brief, for appellants.
Donald R. Ware, with whom Barbara A. Fiacco, Jessica M.
Silbey, Mark A. Reilly and Foley Hoag LLP, were on brief, for
appellee/cross-appellant.
June 16, 2005
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TORRUELLA, Circuit Judge. The noble pursuit of curative
technologies birthed Visudyne, a drug that treats the leading cause
of vision loss in people over age fifty. That success involved the
efforts of multiple institutions, and the common drive for
financial returns now brings us a dispute over rights to the income
stream of the fastest growing ophthalmic drug in history.
The entire range of claims articulated by plaintiff-
appellant was dismissed by the district court on summary judgment.
The bulk of the opinion that follows consists of our de novo review
of these dismissals. We must also address defendant-appellee's
cross-appeal of several discovery-related rulings. Following a
review of the factual background, considered in the light most
favorable to the appellant, we will begin our analysis.
I. Factual Background
A. Age-Related Macular Degeneration
Age-related macular degeneration (AMD) is an ocular
disease that is the predominant cause of vision loss in people over
age fifty. The illness takes two forms: "wet" and "dry." The wet
form, though only accounting for ten percent of the cases of age-
related macular degeneration, leads to the debilitating condition
known as choroidal neovascularization ("CNV" or "neovasculature"),
responsible for ninety percent of cases of AMD vision loss.
Neovasculature refers to conditions characterized by the
proliferation of unwanted blood vessels.
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In 1989, several researchers at Massachusetts General
Hospital's ("MGH") Wellman Laboratories of Photomedicine began
investigating the use of photosensitive drugs to treat eye diseases
such as AMD involving neovasculature. In March 1991, the MGH
researchers met with Dr. Julia Levy of appellee QLT
Phototherapeutic ("QLT") to discuss the possibility of utilizing
benzoporphin derivatives ("BPD" or "derivatives") developed by QLT
for the treatment of AMD. Levy agreed to provide MGH the BPD
needed for research trials.
The Massachusetts Eye and Ear Infirmary ("MEEI" or "the
Infirmary"), a medical institution located next to, but distinct
from, MGH, also sought out QLT's BPD for photodynamic therapy
research. Dr. Joan Miller joined the Infirmary in the fall of 1991
and soon proposed conducting studies using BPD on monkeys. In
March 1992, Miller applied to MEEI to investigate the use of BPD to
treat neovasculature. Pursuant to Dr. Miller's application, MEEI
and QLT signed a material transfer agreement ("MTA") in which MEEI
would receive BPD at no cost in exchange for providing QLT the
results of Miller's pre-clinical studies for use in QLT's
regulatory filings and patent disclosures.
In September 1992, following their successful monkey
trials, which demonstrated the potential use of photodynamic
therapy with BPD, Dr. Miller and her MEEI colleague, Dr. Gragoudas,
presented their data confidentially to QLT representatives visiting
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Boston. Within the next two years, MEEI and QLT entered into two
more material transfer agreements of similar tenor.
B. Confidential Disclosure Agreement
QLT had interest in commercial applications of the
Infirmary's experimental monkey trials and, in May 1993, QLT and
Dr. Miller entered into a Confidential Disclosure Agreement
("CDA"). As part of this agreement, QLT promised "not to use the
Confidential Information for any purpose other than the evaluation
of Products under the terms of this Agreement" and "to maintain
Confidential Information in confidence." The parties agreed that
"misuse or improper disclosure of Confidential Information would
irreparably harm the business of the disclosing party or that
party's affiliates." Pursuant to the CDA, Miller continued to
provide MEEI's confidential research results to QLT, including
results of MEEI research not funded by QLT.
In July 1993, at Dr. Miller's request, QLT agreed to fund
further experiments by the Infirmary involving the treatment of
neovasculature in monkeys with the derivatives. The results of
these studies, as well as other studies not funded by QLT, were
shared with QLT in November 1994, in a report entitled the
Preclinical BPD-MA Pharmacology Study for Macular Degeneration
("Bolus Study").
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C. QLT Partnership with CIBA Vision
In late 1993, QLT contacted the company CIBA Vision1 to
commercialize the use of photodynamic therapies with BPD to treat
age-related macular degeneration. QLT provided CIBA Vision with
MEEI's confidential research results without first informing MEEI.
In February 1994, CIBA Vision sought full access to Dr. Miller's
research results to pursue a "high potential opportunity." QLT
agreed to share with CIBA Vision the "plans and results of our
ocular programme," which included Dr. Miller's research.
Dr. Miller learned of QLT's negotiations with CIBA Vision
in the Spring of 1994. In March, she expressed concern about the
confidentiality of MEEI's research results to Julia Levy and Edwin
Levy of QLT, who assured her that QLT had not disclosed and would
not disclose in the future any of MEEI's trade secret information.
Dr. Miller then flew to Switzerland "to get CIBA Vision excited in
the technology," but during that meeting, and subsequent meetings
with CIBA Vision representatives in July and October of 1994 she
presented only summaries of her research.
On May 31, 1994, CIBA Vision and QLT executed a Letter of
Intent to enter into a strategic partnership for commercializing
the use of photodynamic therapy to treat neovasculature arising
from age-related macular degeneration. The Letter recognized that
QLT had "significant non-clinical evidence" -- some of which came
1
CIBA Vision is today known as Novartis Ophthalmics, Inc.
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from Miller's research -- showing the success of the therapy for
this application. The Letter indicated that "[e]ach party will
manage the patent portfolio in collaboration with the other party."
QLT announced the partnership to the public and MEEI announced
that:
Researchers at [MEEI] in Boston are
participating in a joint worldwide project
with [QLT] and CIBA . . . to develop
photodynamic therapy, a potential treatment
for certain eye diseases. Infirmary
researchers, since 1992, have performed
pre-clinical studies, in collaboration with
Wellman Laboratories, using Benzoprophin
derivative (BPD), a proprietar y
light-activated drug developed by [QLT].
Clinical trials testing the treatment on humans began in 1995, and
the Infirmary was one of several sites performing the trials under
a written agreement with QLT. MEEI was paid more than one million
dollars for participation in the trials and for the resulting
clinical data.
On February 6, 1995, QLT and CIBA Vision signed a
definitive agreement to pursue worldwide joint development and
commercialization of photo-dynamic therapy for the treatment of
choroidal neovasculature. The partnership aimed to obtain FDA
approval for its treatment, tradenamed Visudyne, in April 2000.
Sales outside the United States began in 1999, and Visudyne
received FDA approval in April 2000. As of February 2002, over two
hundred twenty million dollars' worth of Visudyne had been sold
worldwide.
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D. Patent Applications
Prior to QLT's partnering with CIBA Vision, in March
1994, Dr. Miller approached QLT about pursuing a patent application
for the treatment. QLT agreed and suggested that Kate Murashige,
its long-standing patent attorney, prepare the application.
Relying on information provided by Miller, Murashige prepared a
patent application with serial number 08/209,473 ("the '473
application") and filed it on March 14, 1994. The claimed
invention applied to methods for treating choroidal neovasculature
with photodynamic therapy using BPD; the named inventors included
only MEEI's Drs. Miller and Gragoudas and another MEEI employee,
Lucy Young.
Even though it was not claiming co-inventorship of the
'473 application, QLT confirmed that it would pay for the
preparation of the application. Murashige told MEEI that "QLT does
not see itself as a participant in the invention other than as a
supplier of the material BPD," and "the assignment would be
entirely to MEEI."
Within months of the '473 filing, however, QLT changed
its approach to the patent strategy. On behalf of QLT, Murashige
proposed to MEEI that the '473 application could be improved upon
by modifying the scope of the patent claims. Murashige argued that
it would strengthen the application to include methods of treating
CNV with photo-dynamic therapy using liposomal formulations of BPD.
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Since QLT's Dr. Levy and the MGH inventors had contributed to the
invention of this form of treatment, the addition of these claims
to the application would make them co-inventors. QLT appreciated
the legal significance of the amplification of inventorship in the
'591 application. Jennifer Kaufman-Shaw, QLT's in-house counsel,
wrote to CIBA Vision that:
at the time the invention was made, there was
no contractual agreement in place whereby QLT
would be entitled to ownership of the
invention. Therefore QLT claims ownership
only through Dr. Julia Levy . . . . If Dr.
Levy were not an inventor, QLT would have no
rights to the patent.
Thus, Murashige convened the three institutions -- QLT, MEEI, and
MGH -- and requested that MEEI and MGH retain their own patent
counsel.
Implementing the proposal entailed a "continuation-in-
part application," with serial number 08/390,591 (the '591
application). At the same time, Murashige removed from the '473
applications those claims directed to methods of treating unwanted
choroidal neovasculature with photodynamic therapy using the
benzoporhin derivatives. Those claims were joined to the '591
application.
After receiving assurances that MEEI would receive fair
compensation for its contributions, the MEEI inventors consented to
the changes, and Murashige filed the '591 application on
February 17, 1995. MEEI's Miller and Gragoudas executed a
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"Combined Declaration of Inventorship and Power of Attorney for
Continuation-in-Part Application," affirming that they were joint
inventors along with the others of those inventions claimed in the
'591 application. Drs. Miller and Gragoudas maintained that they
signed the Declaration of Inventorship and Power of Attorney with
(1) the expectation that the proper inventorship would be
determined once final claims were allowed, and (2) in consideration
for QLT's express promise that MEEI would be compensated
appropriately for Drs. Miller and Gragoudas's contributions through
a license agreement.
On August 25, 1998, the '591 application issued as U.S.
Patent 5,798,349 (the '349 patent). Drs. Miller and Gragoudas
assigned their rights as inventors to the Infirmary, and Drs. Hasan
and Schmidt-Erfurth assigned their rights to MGH. Dr. Levy
assigned her rights to QLT. Among the assignees of the
inventorship of the '349 patent, QLT is distinguished by its
ownership of the patents on the benzoporphin derivatives integral
to the invented treatment. This ownership means that QLT alone can
independently exploit the rights of the '349 patent.
E. Licensing Negotiations
In December 1995, QLT had signed a letter of intent to
negotiate exclusive licenses of MEEI's and MGH's co-ownership
rights in any patent that issued from the pending '591 application.
Such a license would prevent MGH or MEEI from licensing their
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rights under a patent issuing from the '591 application to a
competitor of QLT. According to the letter, "QLT does intend to
negotiate in good faith with MEEI/MGH and other assignees to come
to an agreement on reasonable terms and royalty rates which will be
consistent with industry standards under similar circumstances."
In the same letter, QLT indicated "its intent to negotiate with the
MEEI/MGH for an option to license the technology which is the
subject of the ['473 application]." Negotiations would commence,
according to QLT, once a patent issued and the feasibility of the
invention was proven.
MEEI responded in February 1996 that the Letter of Intent
"is insufficient in that it does not address the issue of how the
Infirmary will participate in the licensing or transferring of MEEI
technology by QLT to third parties." MEEI also accused QLT of
entering into an agreement with CIBA Vision "using, in part,
technology that was developed . . . at the Infirmary." MEEI
concluded, "If that is untrue, please advise us. If that is true,
our position is that the Infirmary should be a party to that
agreement as well as any future agreements relative to that
technology." QLT did not respond to this letter.
II. QLT's Cross-Appeal
The above narrative anticipates the disposition of the
cross-appeal, as the picture we have painted includes information
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that QLT wished never to disclose.2 Because QLT has challenged a
number of evidentiary rulings, we must explain which evidence we
find properly before us.
QLT contends that the district court erroneously ordered
the production of certain attorney-client communications with
Murashige and other attorneys of her firm. The district court
found that QLT met its burden of establishing the prima facie
applicability of the attorney-client privilege to the
communications in question. See Mass. Eye & Ear Infirmary v. QLT
Phototherapeutics, Inc., 167 F. Supp. 2d 108, 115 (D. Mass. 2001)
(accepting report and recommendation of discovery master). Such
communications are privileged unless an exception –- here, the
common-interest exception -- applies. The party challenging the
privilege carries the burden of establishing that any
communications are discoverable. FDIC v. Ogden Corp., 202 F.3d
454, 460 (1st Cir. 2000). The common-interest exception permits a
party access to his joint-client's communications with the shared
counsel. The district court held that the common-interest
exception applied, within a specified time frame and as to certain
2
We note that the existence of MEEI and QLT's common-interest
does not abrogate the attorney-client privilege vis-à-vis the
general public. However, nearly all confidential information
divulged in this opinion has long been available to the public in
the district court discovery opinion of April 13, 2001. Mass. Eye
& Ear Infirmary v. QLT Phototherapeutics, Inc., 167 F. Supp. 2d
108, 110-13. Moreover, we have taken care to recount only those
communications essential to the issues before us, issues that will
also be at the heart of the ongoing litigation.
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matters, thereby granting, in part, MEEI's motion for production of
certain documents. Mass. Eye & Ear Infirmary, 167 F. Supp. 2d at
127-28.
We disturb a district court's discovery management "only
upon a clear showing of manifest injustice, that is, where the
lower court's discovery order was plainly wrong and resulted in
substantial prejudice to the aggrieved party." Mack v. Great Atl.
& Pac. Tea Co., 871 F.2d 179, 186 (1st Cir. 1989). QLT invites us
to conduct a plenary review of the relevant orders, arguing that
whether an exception to the attorney-client privilege applies is a
question of law that deserves de novo review, citing Cavallaro v.
United States, 284 F.3d 236, 245 (1st Cir. 2002). The authority
QLT cites, however, specifies only that the "formulation of . . .
the . . . common-interest doctrine" should be reviewed de novo. Id.(emphasis added). The application of properly formulated doctrine
to the facts remains a matter of discretion for the district court.
Id.The discovery master spelled out MEEI's burden as
follows:
MEEI must first establish that MEEI shared an
attorney-client relationship with Morrison &
Foerster [Murashige's law firm] on the
following matters: (1) the preparation and
prosecution of the '473 application (which
issued as the '986 patent); (2) the
preparation and prosecution of the '591
application (which issued as the '349 patent);
(3) the licensing of the '986 patent; and (4)
the licensing of the '349 patent.
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Mass. Eye & Ear Infirmary, 167 F. Supp. 2d at 116-17. QLT asserts
that the discovery master's inquiry was inadequate as a matter of
law because MEEI not only had to show that MEEI and QLT were joint
clients of Morrison & Foerster, but that, in addition, they shared
"an identical (or nearly identical) legal interest as opposed to a
merely similar interest." Ogden, 202 F.3d at 461. QLT argues that
Murashige's legal work for MEEI and QLT regarding the matters was
not directed toward a nearly identical legal interest. Absent
converging interests, parties who shared an attorney ought not have
access to their counsel's communications with the other party.
It is peculiar to address this question first as it
inevitably requires reaching into the merits we have yet to
discuss. But the district court had to do so, as must we. The
irony that the ensuing discovery shows just how polarized the two
parties' interests may already have been is not material to the
inquiry. "A joint attorney-client relationship remains intact
until it is expressly terminated or until circumstances arise that
readily imply to all the joint clients that the relationship is
over." Ogden, 202 F.3d at 463. The rules of discovery therefore
do not insulate from discovery the communications of a duplicitous
party who feigns common interest while scheming otherwise with a
shared, trusted advisor.
We agree, for the reasons elaborated in the master's
recommendation, 167 F. Supp. 2d at 118-23, that QLT and MEEI were
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joint clients of Morrison & Foerster during at least part of
Murashige's representation of the parties for two of the four
matters advanced by MEEI: prosecution of the '473 and '591
applications. Federal patent law shapes and limits the scope of
joint inventors' interest in the successful prosecution of a
patent. Until an event affirmatively terminates the joint-client
relationship of parties relying on the same attorney for that
prosecution, or otherwise "readily impl[ies]" that the relationship
is over, as a matter of law, the joint relationship endures.
Behind the scenes machinations adverse to the joint client are not
necessarily determinative. Id. at 126.
The district court found an endpoint to joint-client
status as of October 1, 1998:
There is no evidence in the record that MEEI's
and QLT's joint attorney-client relationship
with Morrison & Foerster for the preparation
and prosecution of the '473 application, or
for the preparation and prosecution of the
'591 application, was expressly terminated.
However, in a letter dated October 1, 1998,
MEEI informed QLT that MEEI had filed in the
PTO a continuation patent application of the
'591 application. From the record, it is
clear that neither QLT nor Morrison & Foerster
was involved in the preparation or prosecution
of the continuation patent application. Thus,
. . . at least as of October 1, 1998, both
MEEI and QLT understood that their respective
legal interests in the '349 patent were no
longer the same, or nearly the same, legal
interest.
. . .
It is less clear when MEEI's and QLT's
respective legal interests in the '986 patent
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were no longer the same, or nearly the same,
legal interest . . . . [However], at least as
of October 1, 1998, both MEEI and QLT
understood that their respective legal
interests in the '986 patent were no longer
the same, or nearly the same, legal interest.
Mass. Eye & Ear Infirmary, 167 F. Supp. 2d at 126.
QLT does not disagree, but instead raises as an
alternative argument in its appeal that, if it shared a common
interest with MEEI, the common interest would have terminated more
than a year earlier, at the latest on July 31, 1997. On that date,
MEEI contested, by letter, QLT and MGH's role in the '591
invention. The letter from MEEI's patent attorney, Edmund Pitcher,
to Murashige, expressed MEEI's view that "the entirety of the
subject matter of the allowed claims is the invention of MEEI
personnel only, and that neither Dr. Levy [of QLT], nor Drs. Hasan
or Schmidt [of MGH] made any inventive contribution." Pitcher
noted that "Dr. Levy's presence on the application places MEEI in
the uncomfortable position of being dependent on the fairness of
QLT, despite its directly adverse economic interest, in the
negotiation of a license agreement." The letter included the
demand that QLT:
make a concrete license proposal immediately
and/or file a continuation application to
permit correction of the named inventors. If
the Infirmary and QLT cannot come to an
agreement on a reasonable royalty rate and
other financial terms, we are instructed to
assume responsibility for prosecution of
patent applications covering subject matter
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invented without the involvement of Dr. Levy
so as to try to preserve MEEI's rights.
QLT responded to the district court's order with a "Motion to Amend
Order as to Date of Termination of 'Common Interest,'" in which
QLT, for further support, drew on letters and memoranda written by
Murashige and employees from QLT and CIBA Vision subsequent to
MEEI's July 31 letter. In QLT's motion, QLT argued that MEEI's
letter implied to QLT that it no longer shared the same interest in
the successful prosecution of the '591 application, as MEEI was
threatening to pursue an alternative and conflicting avenue for
realizing federal protection for its invention. Thus, QLT
contended that "as a matter of fact, as a result of MEEI's July 31,
1997 letter, QLT appreciated that QLT and MEEI no longer shared a
common interest in successfully prosecuting the claimed inventions
in" the '591 application.
The discovery master denied the motion to move the date
of termination of interest forward, finding, in essence, that
MEEI's conflicting interest was only conditional. That is to say,
MEEI shared QLT's interest in the successful prosecution of the
'591 application so long as a reasonable royalty rate was in the
cards. MEEI argues that it "was merely exploring other
possibilities of protecting its rights in the event that QLT did
not live up to its promises once the '349 patent issued," when it
filed the 1997 application. The discovery master discussed how the
letters and memoranda QLT offered supported this interpretation.
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A memorandum drafted by Jennifer Kauffman-Shaw, of QLT, to the QLT-
CIBA Vision Joint Coordinating Committee, dated October 27, 1997,
stated that "the Director of Intellectual Property for MEEI, Carl
Finn, has indicated that if QLT were willing to negotiate a
satisfactory license agreement for the patent, that MEEI would not
pursue the inventorship issue." The master read
the memorandum [to] show[] that QLT understood
that MEEI remained interested in the
successful prosecution of the '591
application. Thus, contrary to QLT's
assertions, the Kaufmann-Shaw Memorandum does
not show that QLT implied, from the Pitcher
Letter and the Finn Letter, that MEEI was no
longer interested in the successful
prosecution of the '591 application.
May 29, 2002, slip op. at 3.3
We believe that whether the common-interest exception
expires upon the implication that a party has a conditionally
adverse interest of the sort at issue here is a question of law
over which we should exercise de novo review. The question is
3
In its original objections to MEEI's motion for production, QLT
argued that an October 21, 1997 letter by MEEI's Carl Finn to QLT's
Dolphin terminated any common interest that might have existed.
Its later motion to terminate the interest as of July 31, 1997
relied upon materials released pursuant to the district court's
order to produce privileged documents. Without entering into a
complicated area of patent law that would require us to ascertain
what QLT would infer from Finn's reference to a "patent application
recently filed on behalf of MEEI," we note that the master's
ultimate conclusion that "the October 21, 1997 letter did not
readily imply that MEEI's and QLT's respective legal interest in
the '591 application was no longer the same or nearly the same,
legal interest," 167 F. Supp. 2d at 131, relies on the same
conditional analysis we deem worthy of de novo review.
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whether a party has "an identical (or nearly identical) legal
interest" with another when (1) they share a nearly identical
interest with regard to one outcome -- here successful prosecution
of the '591 application -- which (2) depends on a condition that
pits the parties against each other –- here, negotiation of a
license on agreeable terms. We believe that it does. Our view is
that the district court correctly focused on the continuing joint
representation of the parties by Murashige as to the '591
application. Insomuch as MEEI hoped to license its rights to the
'591 application to QLT, its objective depended upon that
application's successful prosecution. The fact that one potential
outcome, announced by MEEI in the July 31, 1997 letter, would
render its interests in the '591 application contrary to QLT's did
not of its own force terminate their joint representation as to the
prosecution of that application. Rather, it begs the factual
question of whether Murashige ceased to represent MEEI's interests
as to that prosecution. The discovery master noted that in a
November 25, 1997 letter from Kaufman-Shaw of QLT to MEEI, QLT
indicated that it "was willing to put aside the argument over
inventorship in favor of settling upon an arrangement whereby the
participants in the AMD/ocular neovasculature project would derive
a benefit from their contributions." This letter also proposed a
meeting date between Murashige and MGH employees, CIBA Vision
employees, QLT employees, and MEEI employees. The discovery master
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concluded that this letter "continues to show that QLT did not
readily [infer], from MEEI's letter by Pitcher and Finn, (1) that
MEEI was no longer interested in the successful prosecution of the
'591 application and, (2) as a result, that MEEI and QLT no longer
shared the same, or nearly the same, legal interest, in the '591
application." Accordingly, QLT's motion to amend the date of the
termination of the joint interest was denied. The district court
correctly framed the common-interest exception, and we find that it
was within its discretion in requiring disclosure of communications
between QLT and Murashige of Morrison & Foerster relating to the
prosecution of the '349 and '591 applications up until October 1,
1998.
III. MEEI's Appeal
The pivotal moment that shapes nearly all of MEEI's
claims involves the filing of the continuation-in-part '591
application, which added Dr. Julia Levy of QLT and Drs. Schmidt-
Erforth and Hasan of MGH as inventors on the patent. In the course
of that switch in patent strategy, QLT made numerous assurances to
MEEI that it would license MEEI's patent rights on reasonable
terms. This case is before us because no licensing agreement was
ever reached. MEEI claims that it was injured by this failure, and
further harmed by QLT's unlawful disclosure of MEEI's trade
secrets.
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A. Contract Claims
1. Breach of Contract
The parties' disagreement regarding the existence of an
enforceable contract is a legal one, and so this court reviews the
question of contract formation de novo. Coady v. Ashcroft & Gerel,
223 F.3d 1, 10 (1st Cir. 2000). The district court determined that
the parties failed to reach an agreement whose terms were
sufficiently determinate to constitute a binding contract. MEEI
counters that the district court erred in failing to recognize that
a valid contract could include terms defined by industry standards.
While there are surely some contracts in which a crucial term could
be sufficiently defined by pegging it to industry standards, we
agree with the district court's conclusion that there is
insufficient evidence in the record to find that the parties had
reached a meeting of the minds. See, e.g., Lucey v. Hero Intern.
Corp., 281 N.E.2d 266, 269 (Mass. 1972) (finding that "'[a]n
agreement to enter into a contract which leaves the terms of that
contract for future negotiation is too indefinite to be enforced'")
(quoting Cygan v. Megathlin, 96 N.E.2d 702, 703 (Mass. 1951)).
MEEI has also claimed breach of contract with regard to
the May 1993 Confidential Disclosure Agreement signed by QLT and
Dr. Miller. We agree with the district court that MEEI was not a
party to this agreement and that there is no evidence that Miller
was acting as an agent of MEEI. Furthermore, MEEI does not fall
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within the limited class of third party beneficiaries who can
enforce a contract to which they are not a party. Under
Massachusetts law, in order for a third party to enforce a
contract, "[i]t must appear from 'the language and circumstances of
the contract' that the parties to the contract 'clear[ly] and
definite[ly]' intended the beneficiaries to benefit from the
promised performance." Miller v. Mooney, 725 N.E.2d 545, 550
(Mass. 2000) (quoting Anderson v. Fox Hill Vill. Homeowners Corp.,
676 N.E.2d 821, 822 (Mass. 1997)). Nothing in the language of the
Confidential Disclosure Agreement indicates that MEEI was meant to
be either a party or a third party beneficiary. QLT was listed as
a party, and a vice president of the company signed for QLT. In
contrast, Dr. Miller signed only in her personal capacity without
reference to MEEI. Furthermore, the mere fact that MEEI would
likely benefit from such an agreement does not, by itself, show
that MEEI was an intended rather than an incidental beneficiary.
See Miller, 725 N.E.2d at 550 (citing Restatement (2d) of Contracts
§ 302 (1981)). Thus, MEEI cannot pursue a claim for breach of
contract as a third party beneficiary based on the Confidential
Disclosure Agreement.
2. Breach of Implied Contract
We construe MEEI's breach of implied contract claim to be
a claim of contract implied-in-fact rather than contract implied-
in-law. Although both causes of action exist in Massachusetts,
-22-
MEEI has argued principally that it reached an actual, enforceable
agreement with QLT that was implied by the dealings of the two
parties. MEEI's implied-in-law oriented arguments will be
addressed in this court's analysis of the unjust enrichment claim.
See 1 Richard A. Lord, Williston on Contracts § 1:6 (4th ed. 2004).
"A contract implied in fact requires the same elements as
an express contract and differs only in the method of expressing
mutual assent." 6 William Meade Fletcher et al., Fletcher
Cyclopedia of the Law of Private Corporations § 2580 (perm. ed.
rev. vol. 2004). Thus, MEEI's implied contract claim fails for the
same reason we have rejected its express contract claim -- failure
to reach agreement on the basic terms of the contract. In the
prototypical implied contract case, the terms are already
sufficiently clear, and the court looks to the actions of the
parties only to determine whether their actions indicate that they,
in fact, agreed on those terms. However, in this case, where the
terms proposed by each side remain at odds, searching the actions
of the parties for indicia of consent becomes a fruitless exercise.
Without agreement on the essential terms of the agreement, MEEI's
implied contract claim gets no further than does its express
contract claim.
3. Breach of Covenant of Good Faith and Fair Dealing
Having concluded that no contract exists, there can be no
derivative implied covenant of good faith and fair dealing
-23-
applicable to these parties. Under Massachusetts law, "[t]he
covenant of good faith and fair dealing is implied in every
contract." UNO Rests., Inc. v. Boston Kenmore Realty Corp., 805
N.E.2d 957, 964 (Mass. 2004). "The covenant may not, however,
create rights and duties not otherwise provided for in the existing
contractual relationship, as the purpose of the covenant is to
guarantee that the parties remain faithful to the intended and
agreed expectations of the parties in their performance." Id. In
other words, the implied covenant of good faith and fair dealing
governs conduct of parties after they have entered into a contract;
without a contract, there is no covenant to be breached. Where, as
here, the parties have not yet reached a binding agreement, there
is no duty to negotiate in good faith. See Levenson v. L.M.I.
Realty Corp., 575 N.E.2d 370, 372 (Mass. App. Ct. 1991) (rejecting
the argument that where defendant stopped short of binding himself
to a contract he nevertheless had a duty to negotiate the terms in
good faith).
B. Conversion and Misrepresentation Claims
1. Conversion
MEEI claims that QLT converted MEEI's intellectual
property rights in the invention of the photodynamic therapy "by
causing MEEI to file a joint patent application with MGH and QLT so
that a patent issued would name employees of all these institutions
as inventors." "Conversion requires the exercise of dominion or
-24-
control over the personal property of another." Third Nat'l Bank
of Hampden Cty. v. Cont'l Ins. Co., 446 N.E.2d 380, 383 (Mass.
1983). However, MEEI agreed to the filing of the joint patent
application. From the moment QLT became a co-inventor of the '349
patent, it too had full and equal rights to exploit the patented
intellectual property. Under a more refined statement of
Massachusetts law, only a defendant that "wrongfully exercises acts
of ownership" has committed conversion. In re Halmar Distribs.,
Inc., 968 F.2d 121, 129 (1st Cir. 1992) (emphasis added) (internal
citation omitted). Since QLT jointly owned the property at issue
and since it did nothing to prevent MEEI from exercising its own
rights in the property, QLT did not "wrongfully exercise acts of
ownership," id., and thus, no conversion occurred. Hence, it is
unnecessary for us to address the district court's analysis of
whether intangible property, such as patent rights, can be the
subject of a conversion claim.
2. Misrepresentation
MEEI claims that QLT falsely represented to MEEI that
MEEI would be adequately compensated for its role in the inventions
included in the '349 patent. In order to succeed on its
misrepresentation claims, MEEI must show that QLT did not intend to
comply with these representations at the time they were made. See
Doyle & H.P. Leasing, Inc. v. Hasbro, Inc., 103 F.3d 186, 194 (1st
Cir. 1996) ("plaintiffs must allege (1) that the statement was
-25-
knowingly false; (2) that [defendants] made the false statement
with the intent to deceive; (3) that the statement was material to
the plaintiffs' decision . . . ; (4) that the plaintiffs reasonably
relied on the statement; and (5) that the plaintiffs were injured
as a result of their reliance") (citations omitted). Since MEEI
does not provide sufficient evidence for a reasonable jury to draw
this conclusion, we affirm the district court's grant of summary
judgment.
C. MEEI's Motion to Amend
"We review the denial of a motion to amend under Rule
15(a) for an abuse of discretion, and we defer to the district
court if any adequate reason for the denial is apparent on the
record." Steir v. Girl Scouts of the USA, 383 F.3d 7, 12 (1st Cir.
2004) (internal quotations omitted). In the instant case, we
cannot say that the district court abused its discretion in denying
MEEI's motion to amend its complaint concerning its unjust
enrichment claim and to include a claim of promissory estoppel.
MEEI made its motion to amend more than two years after
filing the complaint, after the court had entered summary judgment
for QLT on Counts I-IV of MEEI's complaint and the parties had
fully briefed summary judgment arguments on the remaining four
counts. "Where the motion to amend is filed after the opposing
party has timely moved for summary judgment, a plaintiff is
required to show 'substantial and convincing evidence' to justify
-26-
a belated attempt to amend a complaint." Id. (quoting Resolution
Trust Corp. v. Gold, 30 F.3d 251, 253 (1st Cir. 1994)). The
district court did not abuse its discretion in determining that
MEEI has failed to meet its burden of showing "some valid reason
for [its] neglect and delay."4 Acosta-Mestre v. Hilton Int'l of
Puerto Rico, Inc., 156 F.3d 49, 52-53 (1st Cir. 1998) (internal
quotations omitted). Although the summary judgment motions already
filed necessarily did not apply to MEEI's newly proposed promissory
estoppel theory, given the undue delay in raising this theory, the
district court acted within its discretion in denying MEEI's motion
to amend.
D. Unjust Enrichment
The district court believed that MEEI's unjust enrichment
claim "distill[ed] into a disagreement over the inventorship in the
'349 patent." Based on that premise, the district court reasoned
that MEEI could not use a Massachusetts unjust enrichment claim to
circumvent federal patent law, and accordingly, granted summary
judgment to QLT. We find, however, that the district court
4
MEEI points to Corey v. Look as an instance where this court
allowed the plaintiff to amend a complaint despite the fact that
the "motion to amend came 15 months after the Authority's motion to
dismiss." 641 F.2d 32, 38 (1st Cir. 1981). In that case, however,
the plaintiff sought only to incorporate facts in the complaint
that had been discovered from interrogatories. Id. Here, plaintiff
seeks to add an entirely new legal theory. Furthermore, in Carey,
we decided only that it would have been within the district court's
discretion to allow amendment, not, as MEEI's urges here, that the
district court abused its discretion by denying the amendment. Id.-27-
misinterpreted MEEI's unjust enrichment claim, and in light of our
interpretation of the claim, we find summary judgment
inappropriate.
While the proper inventorship of either the '473
application or the '591 application is indeed a non-negotiable
question of federal law, the question of which application to
prosecute was a choice available to the parties. Under the U.S.
patent scheme, inventors have discretion to articulate the scope of
their patent claims. Donald S. Chisum, 3-8 Chisum on Patents,
§ 8.06[4], at 8-247 (2003) ("An applicant may present more than one
claim and is afforded reasonable latitude in varying the scope and
terminology with which he defines his invention."). MEEI's
original '473 application's primary claim involved three main green
porphyrin-based methods: a "method to treat conditions of the eye
characterized by unwanted neovasculature" (claim 1); a "method to
treat pigmented tumors in the eye" (claim 10); and a "method to
observe the condition of blood vessels in the eye" (claim 19). The
three methods had much in common: each claim involved administering
green porphyrin, which would then localize in the blood vessels in
the eye; the diagnostic method simply involved observing the
vessels, and the two treatment methods involved irradiating the
neovasculature or tumor with light. Furthermore, each method had
an associated but separate claim that specified that "said green
porphyrin is contained in a liposomal preparation" (claims 7, 16,
-28-
and 24). Based on these claims, Murashige explained in March 1994
that "QLT does not see itself as a participant in the invention
other than as a supplier of the material BPD."
In December 1994, Murashige suggested substantially
changing the scope and inventorship of the '473 application.
First, she recommended spinning off the diagnostic method as a
separate patent which would be "properly assignable solely to
MEEI." Second, she recommended combining the separately stated
methods for treatment of neovasculature (claim 1) and treatment of
pigmented tumors (claim 10) into a single method. The goal was to
"be able to claim treating conditions of the eye more broadly,"
i.e., expand the scope of the patent. In order to do this,
however, it was necessary to "introduce the limitation of using the
green porphyrin in a liposomal composition." To this end,
Murashige proposed a modified claim 1 that claimed "administering
. . . green porphyrin in a liposomal composition." As Murashige
acknowledged, that "is substantially the same as claim 1 in the
original case except that the limitation of using a liposomal
composition has been included."
Murashige explained the significance of this proposal.
On the one hand, by broadening claim 1 "to claim treating
conditions of the eye more broadly," the patent, if granted, would
have "potentially broader coverage than contemplated [earlier]."
But the only way to justify these broad claims was to "introduce
-29-
the limitation of using the green porphyrin in a liposomal
composition," which, Murashige explained, was "a liberating device,
allowing us to claim more broadly."
However, this change to claim 1 broadened not just
coverage of potential eye treatments, but also the list of
inventors. Murashige explained that "if we include conditions of
the eye generally using liposomal compositions, . . . a larger
circle of inventors would be included both because of this greater
breadth and by virtue of the necessity to supply the green
porphyrin in liposomes. It then appears that the inventorship
would properly include . . . Julia Levy . . . ." In other words,
the very aspect of the application that was "a liberating device,
allowing [the inventors] to claim more broadly" also happened to be
the aspect of the revised application that would require adding Dr.
Levy as an inventor. (Conversely, had liposomal preparations not
been claimed at all, arguably the patent would be less valuable,
but Dr. Levy might not be an inventor.) Adding Dr. Levy, of
course, would give QLT full co-ownership rights to exploit the
patent. Thus, QLT presented MEEI with a second viable formulation
of its patent application: it asked MEEI to change the scope of its
patent application to QLT's benefit in exchange for fair
compensation.5
5
At times, both parties have disputed the inventor status of the
other party. QLT has questioned MEEI's exclusive role in the
claims listed in the '473 application, and MEEI has challenged
-30-
MEEI already possessed a valid, and seemingly defensible,
patent application, when QLT sought MEEI's assent to replace the
'473 application with the '591 application.6 QLT acknowledged that
the patent as MEEI envisioned it (without Levy and her claims)
would be difficult to challenge on grounds of either obviousness or
noninventorship. Nevertheless, QLT argued that the patent could be
made stronger -- in some ways both broader and more defensible --
by changing the scope of the patent and adding the additional
inventors who participated in the new claims. The addition of QLT
inventor Dr. Levy, however, would drastically reduce MEEI's
potential profits from the patent. If MEEI agreed to the '591
application with the additional inventors, QLT would no longer need
a license in order to commercialize the photo-dynamic therapy that
became known as Visudyne. Since QLT already owned the other
QLT's participation in the claims added in the '591 application.
However, we find that at this summary judgment stage, the record
does not contradict the listed inventors on either application, and
we assume that both applications were valid.
6
The '591 application (later approved as the '349 patent) also
added Drs. Schmidt-Erfurth and Hasan of MGH. It is appropriate to
note here that, in addition to their primary arguments about
federal preemption, the district court and QLT rely on the fact
that QLT also purchased a license to MGH's co-ownership rights in
the '349 patent. Given this license, QLT points out that it would
still have full rights to exploit the patent even if QLT, itself,
had not played any role in the inventorship. This argument, though,
misses the mark entirely, as it ignores the fact that MGH, like
QLT, only has rights to the core inventions covered by the original
'473 patent because MEEI agreed to the later '591 application.
QLT's redundant licensing scheme with MGH in no way undermines
MEEI's argument that it consented to proceed with the '591
application on based on QLT's assurances of fair compensation.
-31-
required patent for the necessary BPD, QLT's inclusion in the new
'591 application enabled it to commercially exploit Visudyne
without MEEI. We note that QLT was, of course, well aware that
securing co-inventorship would put it in this uniquely lucrative
position, and it was QLT's attorney, Murashige, who, acting also as
patent counsel to MEEI, spearheaded the effort to convince MEEI to
go along with the '591 application.
Not surprisingly, MEEI did not initially agree with this
new approach proposed by QLT. Attorney Murashige nevertheless
prepared the '591 continuation-in-part application, and MEEI
eventually assented after being promised fair compensation for its
contribution. Of course, MEEI and QLT never came to an agreement
on the critical compensation figures, and it is for that reason
that we have affirmed summary judgment for QLT on MEEI's contract
claims. This inadequate meeting of the minds does not, however,
call for summary judgment in the context of unjust enrichment. A
claim of unjust enrichment is appropriate "where an agreement is
too indefinite to be enforced . . . [or] where no contract is made
because each of the parties had a materially different
understanding of the terms." 1-1 Corbin on Contracts, § 1.20(b)
(2004). Unjust enrichment provides an equitable stopgap for
occasional inadequacies in contractual remedies at law by mandating
that "[a] person who has been unjustly enriched at the expense of
another is required to make restitution to the other." Fox v. F &
-32-
J Gattozzi Corp., 672 N.E.2d 547, 552 (Mass. App. Ct. 1996)
(quoting Restatement of Restitution § 1 (1937)). Although QLT's
continued reassurances that it would pay MEEI royalty rates
"consistent with industry standards" were not specific enough to
support MEEI's contract claims, they form a key component of MEEI's
unjust enrichment claim and present a triable issue of fact.7
Furthermore, this analysis of MEEI's unjust enrichment
claim illustrates why it was not preempted by federal patent law.
MEEI's claim is not that Dr. Levy was not a proper inventor of the
'349 patent, but rather that QLT induced MEEI to agree to the
change in scope of the claims, and then unjustly profited from that
change by denying fair compensation. In these circumstances,
conflict preemption, not the broader field preemption, is
appropriate. See Hunter Douglas, Inc. v. Harmonic Design, 153 F.3d
7QLT argues that MEEI did not give up anything by agreeing to the
'591 application. It contends that MEEI retained the right to file
a continuation application in its own behalf under 35 U.S.C. § 120,
and in fact did exactly that by "secretly" filing continuation
applications that claimed the full range of treatment methods as
MEEI's sole invention. We need not address this issue because a
claim seeking restitution for unjust enrichment does not require
consideration. In Massachusetts, the elements of such a claim are
"'unjust enrichment of one party and unjust detriment to the other
party.'" Bushkin Assocs., Inc. v. Raytheon Co., 906 F.2d 11, 15
(1st Cir. 1990) (quoting Salamon v. Terra, 477 N.E.2d 1029, 1031
(Mass. 1985)). Thus, MEEI need only establish that QLT was
unjustly enriched, and that MEEI suffered an unjust detriment.
MEEI argues that, as a result of QLT's unjust conduct during
negotiations and/or patent prosecution, MEEI has received no
royalties at all, and, by not having to pay those royalties, QLT
has retained large sums that it would have had to forego if it had
not committed that allegedly unjust conduct. If so, the elements
of a quasi-contract claim might be established.
-33-
1318, 1334-35 (Fed. Cir. 1998). Under the conflict preemption
standard, if the tort action is based on conduct that is not
"protected or governed by federal patent law," then "the remedy is
not preempted." Id. at 1335; compare Univ. of Colo. Found., Inc.
v. Am. Cyanamid Co., 196 F.3d 1366, 1372 (Fed. Cir. 1999)
(independent state law inventorship standards frustrate basic
objectives of patent law and thus entire field of inventorship is
preempted) with id. at 1373-74 (unjust enrichment claim preempted
only because it "hinge[d]" on a determination of inventorship).
QLT argues that MEEI's claims are preempted by 35 U.S.C.
§ 262, which reads: "In the absence of any agreement to the
contrary, each of the joint owners of a patent may make, use, offer
to sell, or sell the patented invention within the United States,
or import the patented invention into the United States, without
the consent of and without accounting to the other owners."
(Emphasis added). QLT contends that § 262 creates a federal right
to practice an invention without fear of suit by co-inventors,
preempts state law claims between co-owners on the basis of
anything other than a written contract, and/or effectively
represents a Congressional determination that any asserted wrong by
one co-inventor against another is not "unjust" unless it violates
such a contract.
We recognize that the preemption issue here is close. It
is true that allowing MEEI's claim to proceed would, to some
-34-
extent, impinge upon QLT's rights as a co-inventor. However, the
statute itself admits of an exception to those rights when there is
"any agreement to the contrary." QLT suggests that this exception
only applies where there is a written, legally enforceable
contract. But § 262 says no such thing. Congress knew how to
insist upon a contract, and even how to specify that it must be
reduced to writing. Cf. 35 U.S.C. § 261 (holding that patent
rights are "assignable in law by an instrument in writing")
(emphasis added). However, § 262 simply speaks of "any
agreement." MEEI has provided evidence of an agreement with QLT
in which QLT promised to "negotiate in good faith with MEEI . . .
to come to an agreement on reasonable terms and royalty rates which
will be consistent with industry standards under similar
circumstances." We have held, supra Part III.A.1, that this
agreement was not enforceable as a contract, because the terms are
too indefinite. However, if the fact-finder determines that there
was such an agreement, it might still qualify as an "agreement"
under § 262, and therefore form the basis for equitable relief on
a theory of unjust enrichment without presenting any conflict with
the allegedly preempting statute.
We also note that, while there is no direct precedent
concerning preemption under § 262, we may draw analogies from other
situations where patent law preemption has been alleged.
-35-
First, there is precedent suggesting that a state law
action alleging that the defendant secretly filed and received a
patent for the plaintiff' invention, and requesting monetary or
equitable relief but not a change to the patent itself, is not
preempted. See Becher v. Contoure Labs., 279 U.S. 388 (1929)
(Holmes, J.);8 Burns v. Mass. Inst. of Tech., 394 F.2d 416 (1st
Cir. 1968) (Aldrich, C.J.);9 Laning v. Nat'l Ribbon & Carbon Paper
8
In Becher, an inventor employed Becher as a machinist to help
work on his invention, under a confidentiality agreement. Becher
secretly applied for and received a patent for the invention. The
inventor sued in state court for breach of contract and other state
theories, and the state court ordered a constructive trust on the
patent rights, i.e., ordered Becher to assign the rights to the
inventor. Becher sued in federal court to enjoin the inventor from
further state court proceedings on the grounds of patent
preemption. Justice Holmes held that the inventor's claims were
not preempted:
[The inventor]'s right was independent of and prior to
any arising out of the patent law, and it seems a strange
suggestion that the assertion of that right can be
removed from the cognizance of the tribunals established
to protect it by its opponent going into the patent
office for a later title. It is said that to establish
[the inventor]'s claim is to invalidate Becher's patent.
But, even if mistakenly, the attempt was not to
invalidate that patent but to get an assignment of it,
and an assignment was decreed. Suits against one who has
received a patent of land to make him a trustee for the
plaintiff on the ground of some paramount equity are well
known.
279 U.S. at 391.
9
In Burns, the plaintiff had been negotiating with a federal
agency regarding some unpatented inventions. The government asked
MIT to evaluate his ideas, and Burns turned over secrets to MIT
pursuant to a confidentiality agreement. MIT gave the government
an unfavorable report on his ideas, but then secretly developed and
patented them. Burns sued for state law breach of trust. The
-36-
Mfg. Co., 125 F.2d 565, 566-67 (7th Cir. 1942) (action to determine
title to assigned patent rights under state law is not preempted);
Kleinerman v. Snitzer, 754 F. Supp. 1 (D. Mass. 1990);10 Zemba v.
Rodgers, 210 A.2d 95, 98 (N.J. Super. Ch. 1965);11 see also Corpus
court applied the Massachusetts statute of limitations, and held
that his claim was untimely. The court never even hinted that his
claim was preempted.
10
In Kleinerman, the inventor sued in state court alleging that
defendant Snitzer "breached the trust implied in plaintiff's
disclosure to him of plaintiff's technology and knowingly
misappropriated plaintiff's technology, to plaintiff's detriment,"
and that another defendant, the patent attorney, helped Snitzer to
do so. Id. at 1-2. The complaint sought damages, not correction
of inventorship or invalidation of the patent. Defendants argued
that the complaint was preempted by patent law and sought to remove
to federal court on the basis of federal question jurisdiction.
The court held that, since the plaintiff never obtained a patent
for the technology he claims that he invented, he therefore was not
seeking to enjoin a defendant from infringing on his patent, but
rather seeking damages for common law torts. It remanded the case
for want of federal jurisdiction. Id. at 2.
11
In Zemba, plaintiff and Rodgers separately invented the same
product, then decided to jointly apply for a patent. A patent
attorney was consulted. Rodgers and the attorney then allegedly
conspired to process the patent application without plaintiff, and
to represent Rodgers as the sole inventor. See id. at 96.
"Rodgers falsely and fraudulently told plaintiff that the invention
was unpatentable, that an application would be rejected, and that
he had doubt as to whether the patent application would be
pursued." Id. With the help of the patent attorney, Rodgers filed
and received the patent. Plaintiff sued in state court for fraud
and various other state law theories. Defendants argued that the
claims were preempted by patent law and subject to exclusive
federal jurisdiction. See id. at 97-98. The court rejected the
claim of preemption, explaining:
[The complaint] depends on principles of common law and
equity governing fraud and disparagement, and plaintiff's
rights are dependent upon such principles. Plaintiff has
not sought a declaratory judgment to void the patent on
the federal grounds of non-invention. Nor has he based
-37-
Juris 2d Patents § 315 ("[I]n the absence of any agreement to the
contrary, each of the joint owners of a patent may make, use, offer
to sell, or sell the patented invention . . . unless such profits
accrue after a joint owner has procured an assignment of his
coowner's interest to himself by fraud.") (emphasis added)
(footnotes omitted) (citing Zemba).
Here, the allegation is that the defendant manipulated
the plaintiff into agreeing to change the scope of the patent so as
to include contributions made by the defendant. MEEI has not
provided evidence that QLT's alleged conduct was actually
fraudulent. However, arguably, the case for preemption here is
weaker than in the cited cases. In the cited cases, the plaintiff
struck at the heart of inventorship by arguing (essentially) that
the patent was applied for fraudulently and never should have
issued. Here, the plaintiff argues that the defendant induced
plaintiff to agree to a certain scope of invention in exchange for
compensation, and then provided none.
his claim for disparagement on the invalidity of the
patent. Instead, plaintiff claims ownership of an
interest in the patent, and demands an assignment of that
interest and damages resulting from slander of his
ownership.
210 A.2d at 98 (internal citations omitted).
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We also draw an analogy from the doctrine of inequitable
conduct before the Patent and Trademarks Office (PTO).12 Courts
have distinguished state claims alleging bad faith misconduct by
the applicant against the PTO -- which are preempted -- from state
claims alleging bad faith misconduct occurring subsequently in the
marketplace -- which are not. See, e.g., Methode Elecs. Inc. v.
Hewlett-Packard Co., 55 U.S.P.Q.2d 1602, 1604-05 (N.D. Cal. 2000)
(finding that an unjust enrichment claim alleging bad faith
misconduct by the applicant against the PTO was preempted because
its "fundamental premise" was incorrect inventorship, but making
the distinction described above, and emphasizing that "the focal
point of the [instant case] is Methode's conduct before the PTO and
not . . . conduct subsequent to the PTO proceedings."). The reason
for this distinction is instructive: claims of inequitable conduct
before the PTO are preempted because "PTO procedures themselves
provided a remedy for [an applicant]'s malfeasance. An additional
state action would be an inappropriate collateral intrusion on the
regulatory procedures of the PTO, 'under the guise of a complaint
sounding in tort' . . . and is contrary to Congress' preemptive
regulation in the area of patent law." Abbott Labs. v. Brennan,
12
"Applicants for patents are required to prosecute patent
applications in the PTO with candor, good faith, and honesty."
Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995).
"A breach of this duty constitutes inequitable conduct." Id. If
the conduct was sufficiently culpable, a court may declare the
patent to be unenforceable. Id.-39-
952 F.2d 1346, 1357 (Fed. Cir. 1991) (internal citations omitted).
In other words, state claims alleging misconduct before the PTO are
preempted because federal law contains a specific remedy for just
such misconduct. Even then, not all state claims that implicate
the issue of inequitable conduct before the PTO are preempted. See
Dow Chem. Co. v. Exxon Corp., 139 F.3d 1470, 1471 (Fed. Cir. 1998)
(state law tort claim for intentional interference with contractual
relations that implicates patent law issue of inequitable conduct
before PTO is not preempted by federal patent law, even if it
requires state court to adjudicate question of federal patent law,
provided state law cause of action includes additional elements not
found in federal patent law cause of action and is not
impermissible attempt to offer patent-like protection to subject
matter addressed by federal law).
Again, this precedent is not directly on point. The
distinction cited above is between state claims alleging misconduct
by an applicant against the PTO (which are usually, if not always,
preempted), and claims alleging misconduct between parties after
the patent has issued. Here, the claim is misconduct by an
applicant against a co-applicant before the application is
completed. But misconduct between parties before the patent
issues is more analogous to misconduct between parties after the
patent issues than it is to misconduct by a party against the PTO.
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Finally, we note that QLT's position, while it has the
advantage of creating an easily manageable bright-line rule, could
lead to injustices that Congress did not intend. Purely as a
hypothetical, imagine a case where the evidence clearly showed that
the defendant deceived and manipulated a naive inventor into
modifying the scope of the inventor's application (within the range
of properly patentable applications) so as to force the inclusion
of the defendant as a co-inventor. Further suppose that the
defendant deflected all requests for a legally enforceable
licensing contract with empty assurances of future agreements which
it never intended to fulfill. We cannot imagine that Congress
intended, simply by enacting the phrase "[i]n the absence of any
agreement to the contrary," to preclude the inventor-plaintiff from
establishing such an agreement within the framework of an equitable
cause of action under state law. Conflict preemption applies only
when "there is such a direct conflict between . . . the patent code
and . . . [state] law that compliance with both the patent law and
state law is a 'physical impossibility,' or . . . the state law
'stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress' in enacting" the federal
statute. Cover v. Hydramatic Packing Co., 83 F.3d 1390, 1393 (Fed.
Cir. 1996) (quoting Gade v. Nat'l Solid Wastes Mgmt. Ass'n, 505
U.S. 88, 98 (1992)). We do not find such a "direct conflict" here,
and while the present case differs from the hypothetical, the
-41-
differences lie in the facts and equities, not the law of
preemption.
For all these reasons, MEEI's unjust enrichment claim is
not preempted.
We also find that MEEI's unjust enrichment claim should
survive summary judgment based on the allegations of QLT's misuse
of confidential information. Under Massachusetts law, "[a]
constructive trust is . . . imposed to avoid the unjust enrichment
of one party at the expense of the other where 'information
confidentially given or acquired was used to the advantage of the
recipient at the expense of the one who disclosed the
information.'" Mass Cash Register, Inc. v. Comtrex Sys. Corp., 901
F. Supp. 404, 423 (D. Mass. 1995) (quoting John Alden Transp. Co.
v. Arnold Bloom, 415 N.E.2d 250, 250 (Mass. App. Ct. 1981)). The
facts underlying this theory will be laid out in the course of our
subsequent trade secret claim analysis.13
E. Trade Secret and Unfair Trade Practices Claims
The right to control how research is used and who is
privy to trade secrets is crucial to protecting the economic
interests of non-profit research institutions like MEEI, just as it
is essential to for-profit businesses. Without the ability to
guard their own data, there would be fewer incentives for
13
Although MEEI cannot recover twice for the same conduct, MEEI
should have the opportunity to prove the distinct elements of its
unjust enrichment and trade secret claims.
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institutions like MEEI to engage in this type of cutting-edge
research. The allegations before this court are that QLT was
entrusted with the result of MEEI's research and breached that
trust, primarily by sharing information with its partner CIBA
Vision without authorization from MEEI. We now consider whether
the district court correctly found that these claims were brought
by MEEI after the statute of limitations had already run.
1. Misappropriation of Trade Secrets
MEEI claims that QLT misappropriated its trade secrets
without MEEI's knowledge, in particular, by disclosing certain
research results to QLT's eventual partner, CIBA Vision. MEEI
argues that the district court erred in concluding that MEEI's
trade secret claim was time barred by the three-year statute of
limitations for tort actions because, under Massachusetts law, the
statute should have been tolled.
Massachusetts law establishes two avenues by which the
three-year statute of limitations that would ordinarily apply to
MEEI's trade secret claims can be tolled. The Massachusetts common
law "discovery rule" provides that the statute of limitations is
tolled "until a plaintiff knows, or reasonably should have known,
that it has been harmed or may have been harmed by the defendant's
conduct." Taygeta Corp. v. Varian Assocs., Inc., 763 N.E.2d 1053,
1063 (Mass. 2002). "The appropriate standard to be applied when
assessing knowledge or notice is that of a 'reasonable person in
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the plaintiff's position.'" Id. (citing Riley v. Presnell, 565
N.E.2d 780, 785 (Mass. 1991)). Thus, under Massachusetts'
discovery rule, the question before the district court was when
MEEI actually knew or should have known of QLT's misappropriations
of its trade secrets.
Massachusetts statutory law also grants a reprieve from
the statute of limitations when a potential defendant fraudulently
conceals the basis for a cause of action:
If a person liable to a personal action
fraudulently conceals the cause of such action
from the knowledge of the person entitled to
bring it, the period prior to the discovery of
his cause of action by the person so entitled
shall be excluded in determining the time
limited for the commencement of the action.
Mass. Gen. Laws ch. 260, § 12 (2004). Under this law, the statute
of limitations "will be tolled if the wrongdoer either concealed
the existence of a cause of action through some affirmative act
done with intent to deceive or breached a fiduciary duty of full
disclosure." Stark v. Advanced Magnetics, Inc., 736 N.E.2d 434,
442 (Mass. App. Ct. 2000) (quotations and citations omitted). "The
statute of limitations, however, is not tolled if the plaintiff has
actual knowledge of the facts giving rise to his cause of action."
Id.The district court made short work of MEEI's trade
secrets claims by finding that MEEI had actual knowledge of its
claims more than three years before bringing this suit on April 24,
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2000. Since the district court concluded that there were
sufficient facts to prove MEEI's knowledge of its claims, it did
not need to go any further in analyzing the tolling of the trade
secret claims under either the common law discovery rule or the
fraudulent concealment statute. However, we must evaluate the
district court's factual conclusions to determine whether they
supported summary judgment.
a. Review of District Court Summary Judgment Decision
Summary judgment is appropriate when "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to judgment as a matter of law." Fed. R. Civ. P. 56(c). Since
genuine issues of material fact remain concerning MEEI's knowledge
of QLT's misappropriations of its trade secrets -- facts that could
bring MEEI's claims within the statute of limitations -- we find
that the court erred in granting summary judgment on MEEI's trade
secret claims.
"Our review of the district court's grant of summary
judgment is plenary, and we read the record in the light most
amicable to the party contesting summary judgment." Cambridge
Plating Co. v. Napco, Inc., 991 F.2d 21, 24 (1st Cir. 1993)
(reversing the district court grant of summary judgment because
material facts remained at issue where plaintiff knew it had been
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harmed, but could not attribute it with certainty to defendant's
actions). Considered in the light most favorable to MEEI, neither
the facts singled out by the district court, nor the record as a
whole, suffice to support the district court's conclusion that MEEI
had knowledge of trade secret misappropriations. The district
court based its conclusion on, inter alia, MEEI's awareness of
QLT's partnership with CIBA Vision, Dr. Miller's statements that
she was concerned about the confidentiality of her work, and
Dr. Miller's learning from CIBA Vision that some of her data had
been shared without her permission. However, it is not enough to
show that Dr. Miller was suspicious about what QLT might have
disclosed. "Suspicion and knowledge are poles apart on a continuum
of understanding," and "the [Massachusetts fraudulent concealment]
statute itself uses the unqualified word 'knowledge' in setting
forth the prescribed state of a plaintiff's perception."
Tracerlab, Inc. v. Indus. Nucleonics Corp., 313 F.2d 97, 102 (1st
Cir. 1963). We will address the question of MEEI's admitted
knowledge of some disclosures below.
The district court seems to have given little weight to
MEEI's claims that QLT repeatedly reassured Miller that it was not
disclosing any confidential information. Rather, the district
court found that in a 1996 letter to QLT, MEEI indicated that it
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was already aware of its trade secrets cause of action.14 The
letter stated in part, "[w]e believe that you may have already
entered into an agreement with a third party using, in part,
technology that was developed here at the Infirmary. If that is
untrue, please so advise us." Tracerlab, 313 F.2d at 102. QLT
never responded to the letter. In our view, this letter
demonstrates only that MEEI was aware of QLT's business
relationship with CIBA Vision and about the potential for trade
secret misappropriation existing in that relationship. The letter
makes no precise accusations and gives no indication that MEEI was
aware of particular instances of misappropriation.
b. Applying Massachusetts Tolling Law
We have held that "the Massachusetts court does not
equate suspicion with knowledge, but is explicit in requiring
actual knowledge, or, as an equivalent, full means of detecting the
fraud." Id. (internal quotation omitted). The district court
rejected MEEI's reliance on Tracerlab, because it found that the
1992 letter, among other evidence, showed that MEEI actually
believed it had a cause of action for trade secret
misappropriation. The district court believed that plaintiffs
14
The district court also placed weight on the deposition
testimony of MEEI's witness Lisa Petukian that Miller had said that
some of her data had been shared with CIBA Vision. However, from
this testimony, we do not know whether Miller knew anything about
the scope of the misappropriations or whether they were more than
isolated events.
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clearly had more knowledge of QLT's misappropriations than the
plaintiffs had in Tracerlab, where the court found that the
plaintiff's belief was based on "gossamer threads of speculation,
suspicion and surmise." Id. at 100.
However, we find Tracerlab instructive. As in this case,
the plaintiffs in Tracerlab knew that the defendants possessed the
trade secrets in question. Id. at 99 ("There is no question but
that [the plaintiff] was aware from the beginning that [the
defendants] knew plaintiff's trade secrets" because they were
former employees of the plaintiff.) Furthermore, in Tracerlab, the
court found that the plaintiff was "well aware from the very outset
that [the defendants] had gone into the [same] field and were
producing a competitive product." Id. at 100. Still, in that
case, we found that "all of this is a far different thing from
having knowledge that the defendant had misappropriated and was
using the self-same . . . trade secrets . . . underl[ying] the
present cause of action." Id. Moreover, unlike most trade secret
cases, during much of the time in question in this case, use of
MEEI's trade secrets by data recipients like CIBA Vision would
still have remained behind closed doors, as product development was
not yet complete. Therefore, MEEI was even less likely to become
aware of any unauthorized disclosures.
"Although the Massachusetts legislature has set statutory
limitations periods for various causes of action[,] . . .
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determining when claims accrue 'has long been the product of
judicial interpretation.'" Cambridge Plating Co., 991 F.2d at 25(quoting Franklin v. Albert, 411 N.E.2d 458 (Mass. 1980)).
"Massachusetts courts have recognized that it would be unfair to
begin running the statute of limitations before a plaintiff is put
on notice that she has a claim." Id. (citing Bowen v. Eli Lilly &
Co., 557 N.E.2d 739 (Mass. 1990)).
Although it is true that "[t]he plaintiff need not know
the full extent of the injury before the statute starts to run,"
Bowen, 557 N.E.2d at 741 (emphasis added), the district court
incorrectly expanded this principle to find that MEEI need not know
"the full extent of its claim." Mass. Eye & Ear Infirmary v. QLT
Phototherapeutics, Inc., No. 00-10783, at 12 (D. Mass. Apr. 23,
2002) (sealed memorandum in support of summary judgment). This is
not a case in which MEEI claims only that it did not know how much
it had been harmed; rather, MEEI claims that it did not know that
it had been harmed at all.
c. MEEI's Awareness of Some of QLT's Misappropriations
In order for the statute of limitations to start to run,
"an event or events [must] have occurred that are reasonably likely
to have put the plaintiff on notice that he has been harmed."
Stark, 736 N.E.2d at 442 (citing Bowen, 557 N.E.2d at 741). We do
not believe that in a complex case of this nature -- where trade
secrets of varying importance are alleged to have been divulged
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over a period of years -- that notice of one misappropriation can
constitute sufficient notice to begin tolling the statute for all
misappropriations. Although we are not prepared to state a general
rule, in a case such as this one, a wronged party should not be
prejudiced with regards to later torts committed against it, simply
because a defendant started the clock running by committing similar
acts at an earlier time. Statutes of limitations provide necessary
closure and fairness for potential defendants. However, a
plaintiff must be able to decide when the harms it has sustained
require bringing suit, and no defendant should be able to immunize
itself from later, potentially graver claims, by openly engaging in
prior, similar offenses that the future plaintiff does not believe
warrant bringing suit.
MEEI has not denied knowledge of some of QLT's alleged
trade secrets misappropriations. The record does not, however,
indicate that MEEI knew of all, or substantially all, such
misappropriations. Furthermore, MEEI's claims are strengthened by
the existence of the Confidentiality Agreement and QLT's repeated
assurances that its trade secrets were not being disclosed. To
assume that MEEI knew the full extent of disclosure to CIBA Vision
would be to assume that MEEI was already aware that it was on the
verge of being cut out of any future profits from the newly
developed photodynamic therapy. Though this may be the case, we do
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not believe that such a factual judgment can be made at the summary
judgment stage.
QLT points out that MEEI does not claim that it gained
any additional knowledge in the years prior to filing suit in 2000,
and thus MEEI could just as easily have filed suit more than three
years prior. However, this fact alone is not sufficient to show
that MEEI should have filed suit earlier. Because of the nature of
the claim, it is possible that some of MEEI's trade secret claims
were only shots in the dark at the time MEEI filed its complaint,
and that MEEI only learned of the facts substantiating some of its
claim after receiving discovery. Although the fact that a
plaintiff files suit is usually strong evidence that he knows the
facts underlying each of his own claims, filing suit does not
prove, in itself, that he has sufficient knowledge to prevent
tolling of the statute of limitations.
d. Fraudulent Concealment or Breach of Fiduciary Duty
Since the district court found that MEEI had actual
knowledge of QLT's alleged misappropriations, it did not need to
reach the question of whether QLT actively concealed its
disclosures of MEEI's trade secrets. Having found that the issue
of MEEI's knowledge of its trade secret claims was not properly
decided on summary judgment, we believe that MEEI's claims based on
fraudulent concealment should also survive summary judgment.
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Where a "defendant[] 'made representations [he] knew or
should have known would induce the plaintiff to put off bringing
suit and . . . the plaintiff did in fact delay in reliance on the
representations,'" the statute of limitations is tolled. Olsen v.
Bell Tel. Labs., Inc., 445 N.E.2d 609, 612 (Mass. 1983) (quoting
White v. Peabody Constr. Co., 434 N.E.2d 1015, 1023 (Mass. 1982)).
QLT does not dispute that MEEI may have been assured by QLT that
certain trade secrets were not disclosed. Furthermore, considering
the evidence that QLT continued licensing negotiations at least in
part because it feared suit by MEEI, it is reasonable at this
summary judgment stage to assume that QLT's purpose in making
assurances to MEEI could have been to delay a suit that would
include trade secret claims.
In addition, MEEI's claim that QLT owed fiduciary duties
to MEEI has some persuasive force. Fiduciary duties exist "when a
party to a contract expressly repose[s] a trust or confidence in
the other party" or "where the contract or transaction was
intrinsically fiduciary and, therefore, required perfect good
faith." 26 Richard A. Lord, Williston on Contracts, § 69:23 (4th
ed. 2004). By entering into their joint research relationship,
MEEI and QLT each put their valuable trade secrets in the others'
hands, arguably requiring full disclosure of any misappropriation
of those secrets. Furthermore, in Massachusetts, if a defendant
fails to learn of a trade secret violation due to a fiduciary's
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failure to disclose, then plaintiffs do not have a duty to exercise
due diligence. Puritan Med. Ctr., Inc. v. Cashman, 596 N.E.2d
1004, 1010, n.9 (Mass. 1992). "Once fraudulent concealment is
established, the limitations period is tolled until plaintiffs
actually become aware of the operative facts. Mere suspicion of
fraud is insufficient to end the tolling period." Compagnie de
Reassurance d'Ile de France v. New Eng. Reins. Corp., 944 F. Supp.
986, 995 (D. Mass. 1996) (citing Tracerlab, 313 F.2d at 102).
Thus, if QLT owes a duty of disclosure, then QLT will be forced to
prove that MEEI had actual knowledge of all of QLT's alleged
misappropriations in order to prevent tolling of the statute.
e. MEEI's Late Addition of Trade Secret Claims
MEEI provided no credible explanation for its delayed
attempt to amend its complaint, and thus, we cannot say that the
district court abused its discretion in refusing to allow MEEI to
assert additional claims based on QLT's alleged disclosure of the
results of the Preclinical Bolus Study and its visual acuity data.
See, Torres-Ríos v. LPS Labs., Inc., 152 F.3d 11, 16 (1st Cir.
1998); Hayes v. New Eng. Millwork Distribs., 602 F.2d 15, 19 (1st
Cir. 1979).
2. Unfair Trade Practices
The district court held that its "previous rulings on
Contract and Trade Secret Claims," as well as MEEI's other claims,
"indicate there is no basis, on these facts, for a 93A claim."
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Mass. Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., No. 00-
10783, at 21 (D. Mass. Sep. 23, 2002) (sealed memorandum in support
of summary judgment). Having remanded the unjust enrichment and
trade secret claims, we also remand MEEI's 93A unfair trade
practices claims, noting that the success of the unfair trade
practices claims is not necessarily dependent on the success of the
unjust enrichment or trade secret claims.
Massachusetts General Law ch. 93A, § 2 provides that
"[u]nfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce" are unlawful.
Mass. Gen. Law ch. 93A, § 2. In determining whether a practice
violates Chapter 93A, we look to "(1) whether the practice . . . is
within at least the penumbra of some common-law, statutory, or
other established concept of unfairness; (2) whether it is immoral,
unethical, oppressive, or unscrupulous; [and] (3) whether it causes
substantial injury to consumers (or competitors or other
businessmen)." PMP Assocs., Inc. v. Globe Newspaper Co., 321
N.E.2d 915, 917 (Mass. 1975) (quotations omitted). We believe that
the same allegations underlying MEEI's unjust enrichment claim
could potentially meet these requirements. Moreover, MEEI alleges
that QLT's trade secret misappropriations played an integral part
in cutting MEEI out of its fair share of the ample profit from the
sale of Visudyne. From the record developed thus far, this court
sees no reason why these allegations and possibly others could not
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meet all three of the 93A factors. Under Massachusetts law,
misappropriation of trade secrets alone can constitute a violation
of Chapter 93A. See, e.g., Jillian's Billiard Club of Am., Inc. v.
Beloff Billiards, Inc., 619 N.E.2d 635 (Mass. App. Ct. 1993).
Thus, we remand MEEI's unfair trade practices claim along with its
unjust enrichment and trade secret claims.
IV. Conclusion
For the foregoing reasons, the judgment of the district
court is affirmed in part and reversed and remanded in part.
Affirmed in part and reversed and remanded in part. No
costs.
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