Former Employee Does Not Have to Assign Inventions to Covidien, First Circuit Says

By Butch Laker
April 14, 2021

“The First Circuit agreed with the district court that ‘Covidien’s proposed reading of the verdict was ‘internally inconsistent’ and the jury’s ‘decisive’ negative answer to Question 3 could only be read as a factual finding that no ‘Inventions’ were made that are encompassed under the Employment Agreement.’”

https://depositphotos.com/229492118/stock-photo-word-phrase-affirm-dictionary-highlighted.htmlLast week, the U.S. Court of Appeals for the First Circuit affirmed a district court ruling denying a request for declaratory judgment by Covidien LP and Covidien Holding Inc. (collectively, “Covidien”) against appellee Brady Esch, a former employee who assigned a medical device patent to a company he founded. After a nine-day trial, the jury awarded Covidien nearly $800,000, finding Esch incurred in a breach of confidential information. Covidien subsequently moved for a declaratory judgment asking the court to require Esch to assign later inventions. The district court denied this request. The First Circuit was tasked with determining whether the district court abused its discretion. Finding it did not, they affirmed.

Esch Leaves Covidien to Form Startup

Brady Esch was an employee of VNUS Technologies. In December 2009, Covidien, a global healthcare company, acquired VNUS. Following this acquisition, Esch signed a Non-Competition, Non-Solicitation, and Confidentiality Agreement (“Employment Agreement”). During his employment, Esch worked in the fields of Endovenous (“EV”) and venous radiofrequency (“RF”) ablation devices to help treat varicose veins. As part of an eight-person team, Esch primarily worked on a confidential global project, titled Project Cattleya, aimed at developing medical devices to treat varicose veins.

In 2013, Esch was terminated from Covidien and signed a Separation of Employment Agreement and General Release (“Separation Agreement”), which incorporated the same provisions from Esch’s Employment Agreement, one of which provided that Esch had to disclose all “Inventions” created within Covidien or within one year after leaving the company.

Shortly after leaving Covidien, Esch incorporated Venclose Inc. (“Venclose”), which manufactured and sold medical devices to treat varicose veins. In the following months, Esch filed Provisional Patent Application No. 61/970,498 (the ‘498 Application), which described an improvement to venous RF ablation devices. A year later, Esch and several others filed for a Utility Patent No. 14/670,338 (the ‘338 Application) and a PCT application PCT/US2015/022849 (the ‘849 Application) (all three collectively, “Patent Applications”) with the USPTO.

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Covidien Argues Special Instruction Form Fails to Address all Questions of Fact

In November 2016, Covidien filed a five-count complaint against Esch seeking declaratory judgment, which sought to required Esch to assign his rights, title, and interest in the Patent Applications to Covidien (Count I). Covidien further alleged that Esch breached his obligation under the Employment and Separation Agreements by “failing to disclose ‘Inventions’ (Count II), failing to abide by an implied covenant of good faith and fair dealing (Count III), and disclosing ‘Confidential Information’ (Counts IV and V).”

The district court issued a preliminary injunction to enjoin Esch from making, developing, manufacturing, or selling products that disclose or use any “Confidential Information” belonging to Covidien.

In May of 2019, the district court held a nine-day jury trial to answer eight questions of fact. Questions 1 and 2 inquired whether Esch breached his confidentiality obligations to Covidien, and if so, whether Covidien had proven damages resulting from the breach. Questions 3 and 4 of the verdict form asked the jury whether Esch breached his obligations to disclose “inventions” to Covidien under the Employment Agreement, or further, if he breached the implied covenant of good faith and fair dealing. Question 5 instructed the jury to award the amount of damages, if any, to Covidien as a result of Esch’s breach. Questions 6-8 asked the jury whether Covidien proved that Esch reduced to practice the ‘498 patent before termination, and further prove whether the ‘338 non-provisional or the Patent Cooperation Treaty (PCT) applications included the “Inventions” disclosed in the ‘498 provisional, respectively.

Covidien filed a written objection to the special verdict form requesting modifications to the form, chiefly, that the jury be instructed to answer Question 5, even if they found Esch hadn’t breached any obligations to Covidien outlined in Questions 1-4. The district court noted, “Covidien’s motion did not request that the jury be instructed to answer Questions 6, 7, and 8.”

Following one day of deliberation, the jury reached a verdict finding Esch breached his confidentiality obligations to Covidien under the Employment and Separation Agreements (Questions 1 and 2) and awarded Covidien $794,892.24 in damages (Question 5). The jury further found that Esch neither breached his obligation to disclose “Inventions” (Question 3) nor his covenant of good faith and fair dealing (Question 4). Covidien petitioned to have the jury deliberate and respond to questions 6, 7, and 8, arguing that its motion requested the jury to be instructed to answer each of the Questions.

Upon conclusion of the jury trial, Covidien moved for declaratory judgment and post-trial relief. The declaratory judgment sought to require Esch to assign any “Inventions” to Covidien. The district court denied Covidien’s request. It reasoned that “Covidien’s proposed reading of the verdict was ‘internally inconsistent’ and the jury’s ‘decisive’ negative answer to Question 3 could only be read as a factual finding that no ‘Inventions’ were made that are encompassed under the Employment Agreement.”

A ‘Middle Ground’ Standard of Review

Covidien argued that it was entitled to a post-trial equitable declaratory judgment since the evidence presented at trial supported its contractual breach claim. However, the Declaratory Judgment Act has been interpreted to “confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants…. If ‘considerations of practicality and wise judicial administration’ advise against it, a trial court may choose, in its discretion, not to grant a declaratory judgment.” (Wilton, 515 U.S. at 288.)

The First Circuit determined that two procedural questions must be answered. First, it had to consider whether the special verdict form and the jury instructions were adequate and whether the trial court’s decision not to modify them constituted a reversible error. Second, it had to determine that the district court’s factual inference that no “Inventions” were made is permissible and internally consistent with the jury’s verdict. In its review, the First Circuit applied “a standard slightly more rigorous than abuse of discretion.” (Nat’l. R.R. Passenger Corp. v. Providence.)

Verdict Form and Jury Instructions Were Properly Issued

Covidien argued that the district court erred in denying declaratory judgment because the verdict form did not require the jury to deliberate Questions 6, 7, and 8, which would determine whether Esch took affirmative steps to reduce an “Invention” to practice. From Sáchez-López v. Fuentes-Pujols, “[a] verdict form must be reasonably capable of an interpretation that would allow the jury to address all factual issues essential to the judgment.”

The First Circuit reviewed the jury instruction de novo to determine if the district court erred in its delivery of the Questions. It found that the district court logically laid out the Questions, noting that the final version of the special verdict form was almost identical to Covidien’s proposed form.

The Court then reviewed Questions 6, 7, and 8 as a whole, and determined they were consistent with the applicable law. The First Circuit reasoned that because Question 3 must be analyzed within the scope of the Employment Agreement, and that any restrictions to Inventions were disclosed therein, that Questions 6, 7, and 8, were necessarily addressed. The First Circuit reasoned the special verdict form was logically laid out because it “unmistakably directed the jury to consider and weigh the evidence presented during trial according to the terms of the entire Employment Agreement, including both the disclosure and assignment obligations…” Because all issues of facts were properly addressed, the district court did not produce a reversible error.

First Circuit Finds the Verdict Consistent

In its Memorandum and Order denying declaratory relief, the district court explained that an inconsistent verdict would be reached if the publication of the ‘338 Patent Application simultaneously breached Esch’s confidentiality obligation under the Employment Agreement, and a satisfaction of his obligation to disclose “Inventions” to Covidien. Thus, the verdict was determined to only be consistently interpreted where Esch made no “Inventions” under the Employee Agreement, and that there was no need to answer Questions 6, 7, and 8.

Precedent already opines, “it is the duty of the courts to attempt to harmonize the answers [to special interrogatories], if it is possible under a fair reading of them.”(Gallick v. Baltimore & Ohio R. Co.) The First Circuit found that the district court’s inference in reconciling the verdict was not only permissible, but necessary to harmonize two seemingly exclusive jury findings.

In conclusion, the First Circuit held that the district court did not abuse its discretion in denying Appellant’s post-trial declaratory judgment request and affirmed the judgment.

 

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The Author

Butch Laker

Butch Laker is a 2L student at UNH Franklin Pierce School of Law. He is also the Managing Director for the Patent Law Forum on campus. Before law school, he attended Purdue University, where he majored in Physics. He hopes to combine his passions for science and law as he pursues a career in patent law.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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  1. Anon2 April 14, 2021 10:57 am

    It’s nice to see a court protect rights in trade secrets and contract which are important whether or not the particular disclosures constitute an invention. This is of course all irrespective of whether the trade secret public disclosures happened to be found in a sort of background in a description of later formed inventive subject matter. If they were confidential they should not have been caused to be published at all.

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