The opinion of the court was delivered by: Breyer, District Judge.
Plaintiffs John Kucharczyk and Michael Moseley have filed suit against
UC Regents and the Nycomed defendants (Nycomed Salutar and Nycomed
Imaging A.S., collectively "Nycomed"), alleging that they acted to
improperly deprive plaintiffs of their rightful share of the financial
rewards of a patented medical technique they developed. A number of
summary judgment motions are presently before the Court.
The dispute arises out of the invention of a particular kind of
magnetic resonance imaging technique ("MRI"). MRI is a process whereby
physicians obtain an image of an internal part of the body in a way that
allows them to discover a contrast between healthy and diseased tissues.
This contrast is enhanced through the use of "contrast agents" that are
injected into the patients undergoing MRI.
One particular type of magnetic resonance imaging is "perfusion MRI,"
which is a technique for detecting and determining the extent of blood
flow in body tissues, and thereby detecting the presence of any blood
flow abnormalities. Plaintiffs invented a particular method for
conducting perfusion MRI, which was ultimately patented as U.S. Patent
No. 5,190,774. The abstract for that patent describes the invention as
The invention provides a method of detecting blood
flow abnormality or variation in a human or
non-human body, said method comprising
administering into the cardiovascular system of
said body a contrast enhancing amount of
intravascular paramagnetic metal containing
magnetic resonance imaging contrast agent, subject
said body to a magnetic resonance imaging
procedure capable of generating from magnetic
resonance signals from said body a series of
temporally spaced images of at least part of said
body into which said agent passes and detecting
temporal variation in said signals or images
whereby to identify regions of abnormal or
modified blood flow in said body and to indicate
the degree of blood flow abnormality or
`744 Patent. An important key to this method is the existence of a
"paramagnetic metal containing magnetic resonance imaging contrast agent"
(italicized portion above), which is to be injected into the body for the
performance of the MRI.
B. Conception and Development of the Invention
Plaintiffs conceived of this method for perfusion MRI during the late
1980s*fn1 while they were employed with the University of California at
San Francisco as professors of radiology. During the course of their
employment, their research was being funded, at least in part, by the
Nycomed defendants. Plaintiffs claim that they discovered a way to use
contrast agents to conduct a particular kind of perfusion MRI. This is
the method that was ultimately claimed in the `744 patent.
The italicized portion of the language quoted above references the type
of contrast agent that was used with the method—a "paramagnetic
metal containing magnetic resonance imaging contrast agent." Nycomed had
invented a contrast agent of this type, entitled S-043. Nycomed's
interest in plaintiffs' research stemmed from its desire to develop an
MRI technique which would incorporate the use of S-043.
On February 23, 1990, Dr. Kucharczyk faxed a disclosure form to the
University's Patent Office describing the invention and identifying
Nycomed as the funding source. This disclosure form indicated that Dr.
Scott Rocklage of Nycomed was a co-inventor of the method, and the
subsequent application to the U.S. Patent Office indicated this as well.
Shortly thereafter, pursuant to the terms of their employment with UCSF,
plaintiffs entered into an assignment agreement which transferred all
their rights in the invention to the University.
In June 1990, the University entered into a license agreement with
defendant Nycomed,*fn2 whereby Nycomed agreed to pay the University a
total of $25,000 for the exclusive right to the `744 patent. Pursuant to
the assignment agreement and patent agreement signed by the plaintiffs,
as well as the University's patent policy,*fn3 the University paid half
of this money to the plaintiffs.
Plalntiffs claim that the method which they have invented is worth
substantially more than $25,000. They allege that the University failed
to conduct a proper investigation into the nature and origin of the
invention before entering into negotiations with Nycomed, thereby leading
to a licensing agreement that was grossly one-sided. This, plaintiffs
argue, constituted a breach of the University's contractual obligations
to Dr. Kucharczyk and Dr. Moseley. Plaintiffs further argue that Nycomed
committed numerous fraudulent misrepresentations to the University and to
the inventors during the course of these negotiations, again leading to
the completion of a grossly one-sided licensing agreement in Nycomed's
Plaintiffs assert, for example, that Nycomed falsely misrepresented
that Dr. Rocklage was a co-inventor of the method, thereby causing the
University to believe that Nycomed (to whom Rocklage had assigned his
rights in the patent) already possessed an undivided right in the
method. They argue that Rocklage was not truly a co-inventor, meaning
that Nycomed did not already possess a right to use the method, which in
turn meant that the licensing agreement was much more valuable to Nycomed
and it would have paid more to the University.
Plaintiffs also argue that Nycomed grossly underrepresented the value
of the contemplated licensing agreement, knowing that the company
actually stood to make millions of dollars from it. Again, these
fraudulent misrepresentations allegedly caused the University to enter
into a lopsided agreement with Nycomed. Further, plaintiffs argue that
minimal investigation by the University would have revealed the fraud and
would have caused the University to obtain more valuable consideration
for itself and for plaintiffs in exchange for the license. Indeed,
plaintiffs argue that the University could have successfully obtained a
substantial running royalty for the sale of Nycomed's contrast agent,
This lawsuit was filed more than five years ago and is presently on its
third district judge. First, on September 11, 1996, Judge Eugene Lynch
issued a published decision granting summary judgment for the University
on most of the claims against it. Kucharczyk v. Regents of the University
of California, 946 F. Supp. 1419 (N.D.Ca. 1996). He ruled, inter alia,
that the plaintiffs could not properly rescind the agreement by which
they had assigned their rights in the patent to the University, nor could
they bring actions against the University that sounded in tort. As to
plaintiffs' breach of contract claim, Judge Lynch issued a partial
ruling, as explained below.
In order to reach his partial ruling on plaintiffs' breach of contract
claim, Judge Lynch was required to conduct some assessment of the
University's contractual obligations to the plaintiffs. In this respect,
he ruled that, as a general matter, the University had no contractual
obligation to obtain a running royalty in exchange for the grant of an
exclusive license to a patented invention. Id. at 1432. This, at the
time, was plaintiffs' primary legal argument.
Thus, because the University had no per se contractual obligation to
its employees to obtain a running royalty in exchange for a license to
use its inventions, and because the University is a public entity, Judge
Lynch reviewed plaintiffs' claim for a running royalty using the
"arbitrary and capricious" standard rather than the "breach of contract"
standard, relying only on the "closed record" of information that was
available to the University at the time. He suggested that because
plaintiffs had no contractual right to a running royalty, they were in
essence making a challenge to the licensing agreement between the
University and Nycomed. This agreement, Lynch suggested, was
quasi-legislative in nature and thus required review under the arbitrary
and capricious standard.
Applying this standard, Judge Lynch first rejected plaintiffs' claim
that the University was arbitrary and capricious in entering into the
license agreement without investigating whether Scott Rocklage was truly
a co-inventor of the method. He cited the fact that plaintiffs themselves
informed the University, in the disclosure form that Dr. Kucharczyk sent
to the University's patent office, that Rocklage was a do-inventor. Id.
at 1440. Furthermore, the Judge found that "though plaintiffs were well
aware that the University was treating Rocklage as an inventor, and
plaintiffs were familiar with their invention and its genesis, they never
challenged that treatment." Id. at 1442.
Judge Lynch further held that the University's decision to enter into
the licensing agreement for $25,000 up front, without royalty payments,
was not arbitrary and capricious based on the facts disclosed in the
administrative record. For example, the disclosure form that Dr.
Kucharczyk faxed to the University patent office indicated that Nycomed
was the only funding source for the invention. See id. at 1439. The Judge
also found that "[f]rom the beginning [Nycomed] was unwilling to pay a
royalty because they owned the patent to the compound used in the
plaintiffs method," and that Nycomed was only willing to pay a small
amount for the license. Id. at 1439, 1443. He further emphasized that the
University's negotiating position was colored by the fact that both the
Regents and plaintiff Kucharczyk himself wanted to maintain a research
funding relationship with Nycomed. Id. at 1443.
Despite this ruling, Judge Lynch left "for another day" the question
whether the University had violated some other contractual duty to
plaintiffs. For example, although he found that the University was not
arbitrary and capricious in not conducting further investigation on the
question whether Dr. Rocklage truly was a coinventor, he explicitly
reserved the question whether the University had a contractial duty to
the plaintiffs to conduct an inventorship audit. See id. at 1432, fn.
10. He also reserved the question whether the University had a
contractual duty to properly inform itself regarding the nature and value
of the invention before negotiating a license agreement with Nycomed. See
Next, in November 1997, the University brought a summary judgment
motion before Judge Maxine Chesney on plaintiffs' remaining claims
against it.*fn4 These claims included the question whether Dr. Rocklage
was a true coinventor of the method and the question whether the
University had breached some contractual obligation to the plaintiffs in
conjunction with its granting of the license to Nycomed. Judge Chesney
denied summary judgment on the question of who invented the patent, on
the grounds that a triable issue of fact existed "with respect to the
equitable defenses of estoppel and laches, and defendant has failed to
make a prima facie showing as to assignor estoppel." She also denied the
University's summary judgment motion on plaintiffs' breach of contract
claims. Judge Chesney emphasized the fact that only limited discovery had
taken place up to that point, suggesting that plaintiffs had not yet been
given a fair opportunity to present facts that would warrant a denial of
In December 1998, Nycomed moved for summary judgment in this Court on
all claims against it. In addition, Nycomed moved to dismiss the
complaint on the grounds that even if Nycomed was liable in contract or
in tort, plaintiffs had suffered no damages because the `744 patent was
worthless. The Court rejected this latter claim, ruling that if
plaintiffs are able to establish that Nycomed fraudulently caused them to
receive a lesser payment in connection with the licensing agreement, they
will, by definition, show that they were damaged. The Court then denied
Nycomed's summary judgment motion on the grounds that plaintiffs had not
yet been granted adequate discovery. The Court then lifted the stay on
discovery and informed Nycomed that it could renew its summary judgment
motion at the close of discovery.
F. Motions Currently Before the Court
Discovery having been largely completed, the parties have filed or
renewed various motions:
1. Breach of contract claim
First, plaintiffs seek summary judgment on their third claim for
relief, which alleges breach of contract by the University for, inter
alia, failure to determine the nature of the invention, failure to
determine the true inventors, failure to determine the true sponsors of
the inventors' research, and failure to determine the value of the patent
before granting a license to Nycomed. The University has filed a
cross-motion for summary judgment on this issue, arguing that: 1) no such
contractual obligations exist, and 2) to the extent that they may exist,
they were not breached in the present case.
2. Claims against Nycomed
Second, Nycomed seeks summary judgment on all claims against it.
Plaintiffs' second amended complaint asserts the following causes of
action against Nycomed:
* Declaration of Sole Inventorship (First Claim
for Relief): plaintiffs first ask the Court to
declare that they are the sole inventors of the
method claimed in the `744 patent, arguing that
the inclusion of Nycomed employee Scott Rocklage
as a co-inventor was erroneous. Plaintiffs bring
this claim under 35 U.S.C. § 256.
* Breach of Contract (Fourth Claim for Relief):
plaintiffs allege that Nycomed breached its
research funding agreement*fn5 with the
University, and assert that as thirdparty
beneficiaries to that contract, they may recover
for the breach.
* Inducing Breach of Contract (Fifth Claim for
Relief): plaintiffs further allege that Nycomed
engaged in fraudulent conduct which caused the
University to breach its contract with
plaintiffs. They first allege that their contract
with the University required that the University
obtain ongoing royalty payments from Nycomed for
the patent, half of which would have belonged to
plaintiffs. As explained above, however, Judge
Lynch has already disposed of this issue; he has
ruled that the University did not have a per se
contractual obligation to obtain a running royalty
from Nycomed. However, plaintiffs also allege that
the University had the contractual obligation to
pursue negotiations vigorously, conduct an
investigation as to ...