Inventor Barred From Proceeds of Intel Buyout

     (CN) – An inventor cannot pursue his claim to a portion of the $409 million that his ex-business partner gained from selling Intel technology that they worked on together, the Federal Circuit ruled.

     Frank Shum and the ex-partner, Jean-Marc Verdiell, had dissolved their company, Radiance Design, just nine months after its formation, with a disputed patent on optical sensor assemblies as the only product of their brief union. They agreed that they had equal rights to independently develop the technology on their own.
     As Shum took a salaried position at an established company, Verdiell formed LightLogic, which Intel bought in 2001 for $409 million.
     Verdiell personally netted $58.4 million from the sale of LightLogic, which he grew from a small lab in Verdiell’s bedroom to a company with 75 employees, actual light-sensing devices and a raft of new patents.
     After the buyout, Shum filed suit, demanding co-inventor rights to LightLogic’s patents and claiming Verdiell violated his fiduciary duty to Shum and their defunct company.
     Shum prevailed on some of his inventorship claims at trial, and his name was added to five patents held by Verdiell and LightLogic, but he could not claim a share of the $409 million. The jury was deadlocked on Shum’s state law claims, all of which were essentially grounded in fraud, and the federal court dismissed Shum’s claims.
     On appeal, the Federal Circuit issued a split-panel decision upholding the lower court’s ruling.
     In the court’s majority opinion, Judge Sharon Prost found that Verdiell did not owe a fiduciary duty to Shum, and Shum lacked standing to sue over any fiduciary duty Verdiell may owe to their defunct partnership.
     Judge Pauline Newman dissented from her colleagues, writing that the appeals and district courts had both improperly eliminated Shum’s constitutional right by to a trial by jury.
     “That a jury is deadlocked does not convert fact into law, and the constitutional right is not negated when the jury is deadlocked,” Newman wrote. “The district court inappropriately terminated the proceedings ‘as a matter of law,’ for there was sufficient evidence on which a jury could have found in favor of Shum on one or more liability theories. Shum is entitled to a retrial.”
     The court’s majority opinion states that California law narrowly defines fiduciary duty to just four basic areas: attorney-client, trustee-beneficiary, guardian-ward or principal-agent, the ruling states. Shum was in no way reliant on Verdiell after they agreed to dissolve their company and could have pursued the commercial possibilities of their ideas on his own, if he so chose, Prost wrote.
     “Plans and activities to dissolve and compete with an existing business … do not, of themselves, constitute a breach of any fiduciary duty,” the ruling states, adding that any duty Verdiell had owed dissolved along with the company.
     The appeals court also rejected Shum’s claim that Verdiell had fraudulently concealed his intentions to start a new company.
     In a related decision, also written by Prost, the court found that Shum was properly ordered to pay the defendants’ trial costs of $134,300.
     Newman dissented from her colleagues in this respect as well, calling the ruling “unusual” and “flawed.”
     “Mr. Shum is the prevailing party,” Newman wrote. “At worst, the award should be ‘no costs.’ The district court exceeded its discretion in requiring Shum to pay Intel the difference between Shum’s lower costs and Intel’s higher costs, even on the district court’s theory that it was ‘close’ as to which side ‘prevailed.’ It is grievously unjust to tax Mr. Shum with the net costs of Intel’s unsuccessful but more expensive defense. This approach cannot be reconciled with any theory of taxable costs.”

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