The opinion of the court was delivered by: LYNCH
Plaintiffs, both scientists who formerly worked for the University of California San Francisco ("UCSF"), are suing the Regents of the University of California ("the University"), Nycomed Salutar ("Salutar" or "Nycomed"), and Nycomed Imaging AS ("NIAS"), Salutar's parent company, alleging a number of theories in ten causes of action. Salutar has counterclaimed against plaintiffs and cross-claimed against the University.
This suit arises out of plaintiffs' invention of a process in the magnetic resonance imaging ("MRI") field and the University's subsequent licensing of that invention. The invention was eventually patented as U.S. Patent No. 5,190,744 ("'744 Patent"), entitled "Methods for Detecting Blood Perfusion Variations by Magnetic Resonance Imaging." The invention was a method of using DyDTPA-BMA, a chemical compound. Salutar owns the patent in DyDTPA-BMA. Dr. Scott Rocklage, a Salutar employee, was named on the '744 patent as a co-inventor, thereby giving Salutar an undivided right in the patent.
Plaintiffs assigned their rights in the invention to the University pursuant to a Patent Agreement they entered into upon their employment by the University. The Patent Agreement required plaintiffs to assign all inventions to the University and in turn obligated the University to pay them 50% of all royalties collected. Upon being assigned the invention, the University entered into an exclusive License Agreement with Salutar. Salutar agreed to pay the University a total of $ 25,000, half of which was paid to plaintiffs.
In essence, plaintiffs allege that they were the sole inventors of the process, that it was worth significantly more than $ 25,000, and that plaintiffs were entitled to greater rewards for their invention. Plaintiffs have alleged ten causes of action. First, plaintiffs allege that their civil rights, including their property rights, were impaired in violation of 42 U.S.C. § 1983.
Second, plaintiffs seek a declaration that they were sole inventors of the invention claimed by the '744 patent. Next, they allege that when the University entered into an exclusive licensing agreement with Salutar and accepted a lump-sum payment of only $ 25,000, the University breached its contract with plaintiffs which required it to secure a royalty-bearing, non-exclusive license. In their third cause of action, they seek rescission of the Assignment Agreements on the grounds that there was a "fundamental lack of actual, mutual agreement." Alternately, in their fourth cause of action, they seek monetary damages for the University's breach of contract. In their fifth cause of action, plaintiffs allege a conspiracy to induce the breach of contract and seek punitive damages. In their sixth cause of action, they claim that the University's breach of its contracts was tortious and fraudulent and in breach of the implied covenant of good faith and fair dealing. The seventh cause of action claims fraud and deceit in connection with their employment contracts and Assignment Agreements. Eighthly, plaintiffs claim negligent misrepresentation. In their ninth cause of action, plaintiffs allege that they were fraudulently induced to enter into employment agreements, Assignment Agreements, and other unspecified contracts with the University. Finally, in their tenth cause of action, plaintiffs allege that defendants Salutar and NIAS have tortiously interfered with their contracts with the University.
Plaintiffs and the University have filed cross-motions for summary judgment; plaintiffs seek summary adjudication of their breach of contract claim, and the University seeks summary judgment on all of plaintiffs' causes of action except the claim seeking a declaratory judgment removing Scott Rocklage as the inventor of the '744 patent.
The Court has requested and received supplemental briefing, and the matter has been extensively briefed and argued.
For the reasons set forth below, the Court will deny plaintiffs' motion for summary judgment and grant the University's motion. However, the Court will certify this case for interlocutory review.
Plaintiff Moseley was hired by the University in 1982 as an Associate Professor of Radiology at UCSF. Upon being hired, Moseley executed a form Patent Agreement that required him to assign all rights in any invention developed during his employment to the University. Plaintiff Kucharczyk joined the UCSF faculty in 1988 and was a tenured member of the UCSF Department of Radiology. Prior to his employment, Kucharczyk also signed a form Patent Agreement in which he agreed to assign all invention rights to the University.
The '744 Patent grew out of plaintiffs' work at the UCSF Department of Radiology in the late 1980s. Plaintiffs' research was initially funded by Syntex to assess therapeutic drugs used for stroke treatment. However, Syntex ended its funding, and Salutar began funding plaintiffs' research. Plaintiffs claim that on February 13, 1989, they conceived of the use of DyDTPA-BMA, a chemical compound invented by Salutar, as a contrasting agent useful in detecting strokes via MRI. On February 23, 1990, plaintiffs faxed a disclosure form to the University's Patent Office discussing the invention and identifying the funding source or sponsor for the project as "Salutar, Inc." On March 9, 1990, Salutar and the University filed a patent application for the process. That application named as inventors Rocklage and both plaintiffs. In April of 1990, the University and Salutar submitted a grant application to California Department of Commerce for a CompTech grant under which Salutar sought to contribute $ 150,000 toward the research, and Salutar and the University asked the state to match that amount with a $ 150,000 grant. The University and Salutar executed an agreement entitled Memo of Understanding Under California Competitive Technology Program Grant Application (the "Research Funding Agreement"). The Research Funding Agreement designated Kucharczyk as the Principal Investigator for the University and Moseley as co-investigator. Kucharczyk signed the Research Funding Agreement. In 1990, CompTech provided $ 150,000 in research funds to UCSF.
Plaintiffs assigned their rights in the invention to the University in the Assignment Agreement they signed in early 1990.
Rocklage assigned his rights to Salutar, which in turn assigned its rights to the University on May 7, 1990. On June 13, 1990, Salutar and the University entered into their exclusive License Agreement ("License Agreement"). In accordance with the License, Salutar paid the University $ 12,500 upon executing the license and paid an additional $ 12,500 patent issued in March of 1993. The University paid plaintiffs 50% of each of those payments.
Both parties have moved for summary judgment. Summary judgment is appropriate where no genuine issue exists as to any material fact and where the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The moving party has the burden of establishing that there is no genuine issue of material fact. Id. ; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Generally, after the moving party makes a properly supported motion, the non-moving party has the burden of presenting specific facts showing that contradiction is possible. British Airways Board v. Boeing Co., 585 F.2d 946, 950-52 (9th Cir. 1978). It is not enough for the non-moving party to point to the mere allegations or denials contained in the pleadings. Instead, it must set forth, by affidavit or other admissible evidence, specific facts demonstrating the existence of an actual issue for trial. The evidence must be more than a mere "scintilla" of evidence; the non-moving party must show that the trier of fact could reasonably find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Summary judgment may be granted "if the evidence is merely colorable . . . or is not significantly probative." Eisenberg v. Insurance Co. of North America, 815 F.2d 1285, 1288 (9th Cir. 1987). In reviewing a motion for summary judgment, the Court must take the non-movant's evidence as true and all inferences are to be drawn in the light most favorable to the non-movant. Id. at 1289.
At issue in this case are several contracts: (1) the Patent Agreement between each of the plaintiffs and the University; (2) the Assignment Agreement between the plaintiffs and the University; (3) the CompTech Research Funding Agreement between the University and Salutar; and (4) the Licensing Agreement between the University and Salutar. Plaintiffs contend that the University was obligated by contract to obtain a reasonable running royalty upon licensing their invention. The Court's first task in this case is thus an analysis of the nature and content of the various contracts at issue here to determine whether they contain such an obligation as well as an analysis of the requirements of the Patent Policy, which plaintiffs argue obligates the University to obtain a reasonable royalty.
The Court first discusses the Patent Agreement and the Assignment Agreement. Though neither expressly requires the University to obtain a royalty, both of these documents refer to the University's Patent Policy. Plaintiffs contend that the Patent Policy applies to them as a matter of contract because it is incorporated by reference into the Patent and Assignment Agreements. They also contend that the Patent Policy requires a mandatory royalty. The Court agrees that the Patent Policy applies here, but for the reasons set forth in detail below, the Court finds that the Policy does not contain such an obligation. The Court also finds that neither the Research Funding Agreement nor the License Agreement contains a contract term requiring the University to obtain a royalty on the plaintiffs' invention.
Upon joining the University faculty, each plaintiff executed a form Patent Agreement with the University requiring them to assign to the University all rights in any invention developed in the course of their employment. Plaintiff Moseley signed a 1980 version of the Patent Agreement on October 21, 1982. Plaintiff Kucharczyk signed a 1985 version Patent Agreement on December 30, 1987. The Patent Agreements are very similar, and the parties agree that the 1985 version of the Patent Agreement is applicable here.
For that reason, only the 1985 version will be described here.
The Patent Agreement states: "by execution of this agreement, I understand that I am not waiving any rights to a percentage of royalty payments received by University, as set forth in University Patent Policy." It further states that it is made "in part consideration of my employment, and of wages and/or salary to be paid to me during any period of employment, by University, and/or my utilization of University research facilities and/or my receipt of gift, grant or contract research funds through the University." The Patent Agreement further requires each plaintiff to do all things necessary to assign the rights to the University. No express term in the Patent Policy requires the University to obtain a royalty.
The Assignment Agreement too makes reference to the Patent Policy. Following their invention, Kucharczyk and Moseley entered into an Assignment Agreement with the University whereby plaintiffs assigned all their rights in their process to the University. The Assignment Agreement recited that the assignment was made:
in consideration of One Dollar ($ 1.00) and in consideration of the benefits stipulated in the "University of California Policy Regarding Patents", as revised and effective as of November 18, 1985, which document is made by reference part hereof, and in fulfillment of my Patent Agreement with the University of California.
The assignment Agreement itself does not contain any term requiring the University to obtain a royalty on an invention.
The Court now turns to a discussion of the Patent Policy, which plaintiffs argue applies to them and requires the University to obtain a royalty on their invention. The Patent Policy itself is not an agreement between the parties. Instead, as a policy of the University, it has the force and effect of statute. Regents of University of California v. City of Santa Monica, 77 Cal. App. 3d 130, 135, 143 Cal. Rptr. 276 (1978).
However, plaintiffs contend that the Patent Agreement and the Assignment Agreement incorporate by reference the Patent Policy and that the Patent Policy thereby became a term of these agreements
"For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties." Williams Const. Co. v. Standard-Pacific Corp., 254 Cal. App. 2d 442, 61 Cal. Rptr. 912 (1967). While the Patent Agreement does not expressly state that it is incorporating the Patent Policy by reference, it clearly and unequivocally refers to it, stating that execution of the agreement does not waive the signer's "rights to a percentage of royalty payments received by University, as set forth in University Patent Policy, hereinafter called 'Policy'" and making several other references to the Policy. The reference is called to the attention of both parties. Finally, the Patent Policy is easily available to the contracting parties given that it is printed on the reverse side of the Patent Agreement. The Court finds that the Patent Policy is thus incorporated by reference into the Patent Agreement. See, Singer v. The Regents of the University of California, No. 950381 (San Francisco Super. Ct. Mar. 1, 1996), slip op. at 8 (holding Patent Policy incorporated by reference into Patent Agreement). The Patent Policy is likewise expressly incorporated by reference in the Assignment Agreement, which states that the assignment is made "in consideration of the benefits stipulated in the 'University of California Policy Regarding Patents', as revised and effective as of November 18, 1985, which document is made by reference part hereof." The Patent Policy thus is both an official policy of the University, with the force and effect of statute, Regents v. Santa Monica, 77 Cal. App. 3d at 135, and a contract term.
Having concluded that the Patent Policy was incorporated by reference into both the Patent Agreement and the Assignment Agreement, the Court now turns to an analysis of the Patent Policy, a subject of no small dispute. In brief, plaintiffs contend that the Patent Policy contains a requirement that all licenses bear reasonable royalties; the University contends that it does not. Both parties point to different documents in support of their positions. For the reasons set forth below, the Court finds that the Patent Policy does not require all licenses to be royalty-bearing.
2. Patent Policy Statement
The University contends that the Patent Policy consists solely of the Patent Policy Statement, i.e., the words reproduced on the 1985 Patent Agreement in the section titled: "University of California Patent Policy." The Patent Policy Statement consists of three parts: (I) Preamble, (II) Statement of Policy, and (III) Patent Responsibilities and Administration. The Preamble states the purpose of the Patent Policy:
It is the intent of the President of the University of California, in administering intellectual property rights for the public benefit, to encourage and assist members of the faculty, staff, and others associated with the University in the use of the patent system in a manner that is equitable to all parties involved.
The Preamble further states that the Patent Policy was adopted:
To encourage the practical application of University research for the broad public benefit, to appraise and determine relative rights and equities of all parties concerned, to facilitate patent applications, licensing, equitable distribution of royalties, if any, to assist in obtaining funds for research, to provide for the use of invention-related income for the further support of research and education, and to provide a uniform procedure in patent matters when the University has a right or equity . . .
Sections A and B of the Statement of Policy provide that employees must promptly disclose and assign all inventions to the University. In Section C, the University "agrees, for and in consideration of said assignment of patent rights, to pay annually to the named inventor(s) . . . 50% of the net royalties and fees received by the University." The Patent Responsibilities and Administration portion of the Patent Policy Statement delegates duties to various the University personnel.
The Patent Policy Statement does not require the University to obtain a royalty on any invention, though it does impose on the University the obligation to share any royalty it does obtain with the inventor. The University thus argues that it has no duty, contractual or otherwise, to obtain a royalty on plaintiffs' invention. Plaintiffs contend that the Patent Policy Statement is not the complete Patent Policy, and that the complete Patent Policy does impose a royalty requirement on the University.
In support of their argument that the Patent Policy is not limited to the Patent Statement, plaintiffs rely on Exhibit 21 of the Sponsored Programs Office ("SPO") Handbook. Exhibit 21 is the subject of vigorous dispute, and so is described in some detail. Exhibit 21 in the SPO Handbook is 12 typeset pages long, and each page bears the heading "Exhibit 21 - Patent Policy."
The exhibit consists of a number of documents. The first page is a memo dated September 1, 1987 from the University Provost for Research to various administrators at the University which discusses the University Patent Agreement. The memo states that "guidelines pertaining to the University of California Patent Agreement are set forth in the attachment." The next three pages consist of "Guidelines Concerning the Patent Agreement." These Guidelines are likewise dated September 1987. The next page is labeled Appendix B, and is a form Exemption to Signing Patent Agreement. The sixth page is a memo from the Vice Chancellor of Research to a number of University administrators.
The memo refers to "the attached University of California Patent Policy, dated November 18, 1985" and indicates that "there are no substantive changes in the new patent policy statement." The following four pages consist of the Patent Policy Statement.
The first of the four pages is labeled "University of California Patent Policy" and is dated November 18, 1985.
Following those four pages is a document labeled "Attachment, November 18, 1985" and titled "University of California Patent Policy: Administrative Statements Concerning University Patent Matters." That document is a one-page list of various statements which "are to be considered in effect until such time as each is specifically rescinded or superseded." The last page of Exhibit 21, which is the source of a great deal of dispute in this case, is a document titled: "University of California Summary of Sponsor Patent Rights Applicable to Funding Agreements with Industrial (For Profit) Sponsors of Research" ("Summary"). The bottom of the Summary bears the date March 1984. Plaintiffs contend that the Patent Policy consists of the final six pages of Exhibit 21, and that the obligations they seek to enforce are contained in the Summary.
The Summary contains the language that plaintiffs contend impose a contractual duty to obtain royalties. The Summary, whose purpose is to provide "guidance on University of California patent rights policies to its potential industrial Sponsors of research," states that licenses to industry sponsors will:
a) be royalty-bearing, rates negotiable and based on general industry practices for the type of invention involved;
c) normally require a license issue fee and appropriate minimum annual royalties.
Plaintiffs contend that the Summary is a part of the Patent Policy and has therefore been incorporated by reference into the Patent and Assignment Agreements, making the requirement of a royalty a term of their contracts with the University. They further argue that the University breached this term by entering into a Licensing Agreement with Salutar whereby Salutar was obligated to make only two lump-sum payments but was not required to pay a running royalty. The University argues that the Summary is not part of the Patent Policy, but is instead merely a summary of the "Guidelines For Patent Clauses In Agreements With For-Profit Sponsors" which is in turn contained in the University Contract and Grant Manual. The University contends that the Summary is not a part of any contract between it and the plaintiffs, and that it is therefore not liable for any failure to comply with its terms. The question of whether the Summary is part of the Patent Policy is thus crucial to the determination of this case.
In order to analyze this case, the Court must determine the terms of the Patent Policy. The Patent Agreements signed by both plaintiffs contained the Patent Policy Statement. Both Patent Agreements directed the signatory to read the Patent Policy reprinted on the form agreement. Nothing in the Patent Policy Statement printed on that form indicates in any way that it is not the complete Patent Policy. The terms of the agreement would therefore appear to be limited to those printed on the form signed by each plaintiff. However, plaintiffs offer Exhibit 21 as extrinsic evidence supporting the finding that the Patent Policy and thus the contract contains a royalty requirement.
Under California law, it is "a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence." Delucchi v. County of Santa Cruz County, 179 Cal. App. 3d 814, 820, 225 Cal. Rptr. 43 (1986)(citation and quotation omitted). "The court must "provisionally consider all credible evidence concerning the intention of the parties so that the court can place itself in the same situation in which the parties found themselves at the time they entered the agreement." Id. at 821, citing Pacific Gas & Elec. Co. v. G.W. Thomas Drayage Co., 69 Cal. 2d 33, 39-40, 69 Cal. Rptr. 561, 442 P.2d 641 (1968). In the final analysis, the evidence is admissible only if the court determines "that the contract is reasonably susceptible to the offered interpretation." Delucchi, 179 Cal. App. 3d at 821. If the evidence "tend[s] to prove a meaning of which the language [of the contract] is not reasonably susceptible, Thomas Drayage, 69 Cal. 2d at 40 n.7, the court may then exclude the evidence." Id. "It is solely a judicial function to interpret a written contract unless the interpretation turns upon the credibility of extrinsic evidence, even when conflicting inferences may be drawn from uncontroverted evidence." Garcia v. Truck Ins. Exchange, 36 Cal. 3d 426, 435, 204 Cal. Rptr. 435, 682 P.2d 1100 (1984). If the credibility of the extrinsic evidence is not in question, then the question of whether contract is reasonably susceptible to the interpretation offered by the plaintiffs is a question of law for the court. Id. ; see also, Delucchi, 179 Cal. App. 3d at 821. See also, Okun v. Morton, 203 Cal. App. 3d 805, 816, 250 Cal. Rptr. 220 (1988) ("Although defendant and plaintiff dispute the inferences to be drawn from this evidence, the evidentiary facts themselves are not in substantial conflict. We therefore review the pertinent provisions of the contract in the context of the extrinsic evidence and make an independent determination of the meaning of the agreement.")
Here, the credibility of Exhibit 21 and the other extrinsic evidence supported by plaintiffs is not in dispute. Instead, the parties argue in favor of "conflicting inferences" which "may be drawn from uncontroverted evidence." Garcia, 36 Cal. 3d at 435. This is thus a question for the Court. Id.
The Court finds that the evidence offered by plaintiff tends to prove a meaning of which the contract is not reasonably susceptible. An examination of the face of the Summary shows that it is not part of the Patent Policy. First, the title of the document shows that it is the summary of sponsor patent rights, not part of the Patent Policy. In addition, it states that "this summary provides guidance on the University of California patent rights policies to its. potential industrial Sponsors of research." (Emphasis added.) Thus, the language of the Summary states that it is aimed at "potential industrial Sponsors," not employees. Moreover, unlike any other version of the Patent Policy Statement, the document provides an address and telephone number that the sponsors may use to contact the Patent, Trademark and Copyright Office. The face of the document thus indicates that it is not part of the Patent Policy.
In addition, the whole of Exhibit 21 does not support a finding that it is the Patent Policy. First, the SPO Handbook expressly states at page iv that it "is not intended to replace existing policies and procedures, but to point out those policies which may be applicable and those procedures which may need to be satisfied." Second, Exhibit 21 contains documents which are clearly not part of the Patent Policy, but are instead explanatory material, including the introductory memo, the Guidelines Concerning the Patent Agreement, a copy of an exemption form, and a memo from the Vice-Chancellor-Research regarding revisions to the Patent Policy. Plaintiffs do not contend that the entirety of Exhibit 21 constitutes the Patent Policy, but argue that it consists of the final six pages, which include the Patent Policy Statement, the administrative statements attachment, and the Summary. Plaintiff Kucharczyk contends that when he asked for the Patent Policy, he was sent these six pages, but does not otherwise explain why only the second half of Exhibit 21 should constitute the Patent Policy.
Thirdly, the December 6, 1985 letter from the Vice Chancellor of Research, which immediately precedes the Patent Policy Statement in Exhibit 21, suggests that the Summary is not part of the Patent Policy. That letter states that the Patent Policy dated November 18, 1995, supersedes the April 1, 1980 University Patent Policy, and indicates that the Patent Policy is attached. The letter further states that "there are no substantive changes in the new policy statement." The Summary, which would constitute a substantive change from the 1980 Patent Policy if it were part of the Patent Policy, is dated March 1984. This indicates that the Summary is not a part of the Patent Policy.
Finally, not only do several sections of the Guidelines suggest that the Patent Policy Statement is the entirety of the Patent Policy and that the Summary is a summary of a separate guideline, but also several attachments to the Guidelines suggest that the summary is not part of the Patent Policy. For instance, Section 11-220 of the Guidelines states:
In November, 1985, the President issued the University of California Patent Policy, pursuant to his authority under Standing Order 100.4(gg). The policy includes: Section I, Preamble, an outline of the principles upon which the policy is based; Section II, Statement of Policy, which sets forth the requirement that employees and certain others agree to assign inventions and patents to the University or other parties as appropriate, to promptly report and fully disclose potentially patentable inventions, and sets forth royalty-sharing provisions with the inventor and use of royalty income; and Section III, Patent Responsibilities and Administration, detailing responsibilities of the Intellectual Property Advisory Council charged by the Senior Vice President. -- Academic Affairs, and ...