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KUCHARCZYK v. UNIV. OF CALIF.

May 6, 1999

JOHN KUCHARCZYK, AN INDIVIDUAL, AND MICHAEL MOSELEY, AN INDIVIDUAL, PLAINTIFFS,
v.
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, NYCOMED SALUTAR, A CALIFORNIA CORPORATION; AND NYCOMED IMAGING AS, A NORWEGIAN BUSINESS ENTITY, DEFENDANTS.



The opinion of the court was delivered by: Breyer, District Judge.

MEMORANDUM AND ORDER

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.

BACKGROUND

A. The Patent

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 follows:

      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
      modification therein.

`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.

C. The Dispute

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 favor.

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, S-043.

D. Procedural History

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 id.

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 summary judgment.

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
                             against University

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 ...

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