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Darling v. Standard AK Prod.Co., et al. (10/17/91), 818 P 2d 677
<![CDATA[
NOTICE: This opinion is subject to
formal correction before publication in the
Pacific Reporter. Readers are requested to
bring typographical or other formal errors to
the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
ROBERT DARLING, d/b/a/ )
DARLING ENTERPRISES, )
) Supreme Court No. S-3777
Appellant, )
)
v. ) Superior Court No.
) 4FA-88-110 Civil
STANDARD ALASKA PRODUCTION )
COMPANY, EXXON CORPORATION, )
UNION OIL COMPANY OF ) O P I N I O N
CALIFORNIA, AMOCO PRODUCTION )
COMPANY, COOK INLET REGION, )
INC., NANA REGIONAL )
CORPORATION, INC., DOYON )
LIMITED and ARCO ALASKA, INC.,) [No. 3765 - October 17, 1991]
)
Appellees. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks,
Jay Hodges, Judge.
Appearances: Mark A. Sandberg and Henry
J. Camarot, Sandberg & Smith, Anchorage for
Appellant. John M. Conway and Craig F.
Stowers, Atkinson, Conway & Gagnon,
Anchorage, for Appellees.
Before: Rabinowitz, Chief Justice,
Matthews, Compton, and Moore, Justices.
[Burke, Justice, not participating.]
RABINOWITZ, Chief Justice.
Robert Darling filed suit against the owners and
operators of the Endicott Island production facility, claiming
they had appropriated cinder blocks of his design in protecting
against shore erosion. The superior court held that Darling's
claim was preempted by federal patent law, and granted summary
judgment against Darling. We affirm.
I
Endicott Island is a forty-five acre artificial island,
located in the Beaufort Sea, approximately fifteen miles from
Prudhoe Bay. It was constructed for oil exploration and
production. Construction of the island was completed in 1987.
The island and connecting causeway consist of nearly
seven million cubic yards of gravel. The island is protected
from erosion, waves, and polar ice by a shore protection system
consisting of a mat of interconnected concrete blocks.
Robert Darling, a Fairbanks entrepreneur, designed and
sold a system of linked concrete blocks, called Linkrete, for use
in shore protection in arctic conditions. Darling believed that
the owners of Endicott appropriated the Linkrete design from him
without authorization or compensation. Darling filed suit for
unjust enrichment against Standard Alaska Production Company, the
operator and owner of the largest share of the project, and the
other owners of Endicott ("Standard").
Darling first designed Linkrete in 1980. He asserts
that he was contacted by Exxon and Sohio Alaska Petroleum Company
("Sohio"), Standard's predecessor, and in 1980 sold each of them
samples of Linkrete for test purposes. Later, thinking that
Exxon would be the operator of the Endicott project, Darling
presented a seminar on Linkrete for Exxon's engineering firm.
When it became clear that Sohio would be the operator
of the Endicott project, Darling communicated with the
engineering firms of Ralph M. Parsons Company ("Parsons"), and
Tekmarine, Inc. ("Tekmarine") and supplied them with information
about Linkrete.1 From August 21, 1984 to March 26, 1986,
Darling's patent application was under consideration, and Darling
notified Sohio that he had a patent pending on Linkrete. In
1984, when Sohio put the shore protection system up for bid,
Darling informed Sohio that the system it had specified in its
bid might infringe on his pending patent.2 The parties seem to
have assumed that Darling had rights in Linkrete, but apparently
the subject never was discussed directly.3
Standard never contracted with Darling for any aspect
of the work on Endicott Island, or for any services related to
Linkrete. The Endicott shore protection system was manufactured
and installed by Tekmarine and Parson; Standard paid $520,353 for
it.
Darling filed suit in superior court on January 22,
1988. Darling did not allege any tort or breach of contract.
Rather, he sought both compensatory and punitive damages based on
an unjust enrichment claim.
Standard moved for summary judgment and to strike
Darling's demand for a jury trial. For the purposes of summary
judgment, and thus, for the purposes of this appeal, Standard
admits that Darling invented Linkrete, that Standard used
Darling's Linkrete design in constructing Endicott Island and
that Standard never compensated Darling.
After a hearing, the superior court granted summary
judgment to Standard dismissing Darling's unjust enrichment claim
on the ground that federal patent law precluded a suit for unjust
enrichment based on an unpatented invention.4 The superior court
also granted partial summary judgment to Standard on Darling's
claim for punitive damages, and granted Standard's motion to
strike Darling's demand for a jury trial.
Darling appeals the superior court's grant of summary
judgment as to his unjust enrichment claim, the grant of partial
summary judgment as to punitive damages, and the denial of his
demand for a jury trial.5
II
Darling bases his unjust enrichment claim on "quasi-
contract" or "contract-implied-in-law" theories. Unjust
enrichment does not depend on any actual contract, or any
"agreement between the parties, objective or subjective." Alaska
Sales and Serv., Inc. v. Millet, 735 P.2d 743, 746 (Alaska 1987).
In Alaska Sales, we noted that "unjust enrichment is not in and
of itself a theory of recovery. Rather, it is a prerequisite for
the enforcement of restitution; that is, if there is no unjust
enrichment, there is no basis for restitution." Id. Alaska
Sales identified three elements of a claim sounding in quasi-
contract for unjust enrichment:
1) a benefit conferred upon the
defendant by the plaintiff;
2) appreciation by the defendant of such
benefit; and
3) acceptance and retention by the
defendant of such benefit under such
circumstances that it would be inequitable
for him to retain it without paying the value
thereof.
Id. For purposes of this appeal, Standard does not dispute that
it received a benefit from Darling and that it appreciated that
benefit. Therefore, we must address whether considerations of
equity will permit Standard to retain the benefit without
compensating Darling.6
Federal patent law grants inventors limited protection
from exploitation of their inventions by others. "The applicant
whose invention satisfies the requirements of novelty,
nonobviousness, and utility . . . is granted 'the right to
exclude others from making, using, or selling the invention
throughout the United States' for a period of 17 years." Bonito
Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 150
(1989) (quoting 35 U.S.C. 154). Federal patent law recognizes
two conflicting objectives. "The tension between the desire to
freely exploit the full potential of our inventive resources and
the need to create an incentive to deploy those resources is
constant." Id. at 152. The United States Supreme Court,
however, has held that "free exploitation of ideas will be the
rule, to which the protection of a federal patent is the
exception." Id. at 151. Whatever unfairness inheres in allowing
the free exploitation of ideas must give way to the greater
societal benefit of achieving the full potential of our inventive
resources, unless the federal government has granted the
protection of a patent.
Under the supremacy clause of the United States
Constitution,7 federal patent law preempts state awards of patent-
like protection. "[S]tate regulation of intellectual property
must yield to the extent that it clashes with the balance struck
by Congress in our patent laws." Id. at 152. Thus, in Bonito,
the United States Supreme Court struck down a Florida law which
prevented manufacturers from copying an unpatented boat design.
See also Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964)
(state may not award damages based on unfair competition laws
where Sears had merely copied the design of a lamp which was in
the public domain and did not have the protection of a valid
patent); Compco Corp. v. Day-Brite Lighting, Inc, 376 U.S. 234
(1964) (states may not prevent or impose liability for copying or
selling copies of unpatented items). Significantly, in Sears,
the designer of the lamp originally had been issued patents, but
the patents were later held invalid due to the obviousness of the
design. The Supreme Court recognized that denial of a patent had
the same effect as expiration of a patent and placed the product
in the public domain, allowing free exploitation. 376 U.S. at
231.
However, not all forms of state protection are
preempted by federal patent law. Bonito noted that Sears did not
"prohibit the States from regulating the deceptive simulation of
trade dress or the tortious appropriation of private
information." 489 U.S. at 154. Kewanee Oil v. Bicron Corp., 416
U.S. 470 (1974), held that state protection of trade secrets did
not conflict with federal patent law. Kewanee further noted that
trade secret laws protect rights, such as privacy, which are
beyond the economic sphere and provide less monopolistic
protection than patent law. Id. at 487. Moreover, patent law is
not intended to protect "industrial espionage."8
Federal patent law does not necessarily prohibit states
from enforcing valid contracts under state contract law when such
contracts provide protection for unpatented products. Bonito,
489 U.S. at 156; Aronson v. Quick Point Pencil Co., 440 U.S. 257
(1979). In Aronson, Aronson had invented a unique keyholder and
applied for a patent. Before the design was placed in the public
domain, Aronson negotiated a royalty contract with Quick Point,
which then began manufacturing the keyholders. After her patent
application had been denied, and other manufacturers were free to
copy the keyholder, Quick Point sued for a declaratory judgment
that federal law preempted the enforceability of the contract.
The Supreme Court held that parties may contract to pay royalties
for an unpatented product which is not in the public domain, and
that state courts may award damages for breach of such a
contract.
Here, Standard asserts that Sears allows Standard to
exploit Linkrete because Linkrete is in the public domain.9
Darling distinguishes Sears and Bonito by arguing that his claim
against Standard does not conflict with the policies underlying
federal patent law.10 Darling does not deny that anyone other
than Standard could copy and use Linkrete with impunity.
Nevertheless, Darling asserts that he is entitled to recover
against Standard on the basis that they had a relationship and
Standard used that relationship to unfairly exploit him.
Darling argues that Aronson is particularly supportive of
his position because a cause of action in quasi-contract, like a
cause of action in contract, only accrues when the parties have a
relationship. Thus, Darling concludes, "[a]fter Aronson, it is
clear that Darling and the owner companies could have validly
contracted for the use of Linkrete. There is no reason that a
claim in quasi contract should be treated differently."11
In urging that his claim against Standard is not
contrary to the policies underlying federal patent law, Darling
correctly notes that both Kewanee and Aronson allowed state law
protection of intellectual property because the protection in
those instances "was not offensive to federal patent policies."
Aronson, 440 U.S. at 266. However, Darling fails to identify how
enforcement of his claim would not offend federal patent
policies. Federal policy both encourages disclosure of ideas and
innovation and demands "substantially free trade in publicly
known, unpatented [products]." Bonito, 489 U.S. at 156; see also
Sears, 376 U.S. at 231; Lear, Inc. v. Adkins, 395 U.S. 653, 670
(1969). Here, Darling voluntarily disclosed his idea without
obtaining an agreement for compensation. In such circumstances,
enforcement of Darling's unjust enrichment claim would clearly
hamper free exploitation of ideas which are in the public domain,
without affecting the existing incentives inventors have for
disclosure. Those inventors who require assurance of
compensation before disclosure might be affected by whether
Darling has a claim in unjust enrichment. Yet, those inventors
can already protect themselves by patent, contract, or trade
secret. Those who voluntarily disclose without rending an
assurance of compensation would be the only inventors affected by
a ruling in Darling's favor. Therefore, it is unnecessary to
rule in Darling's favor to further the federal policy of
disclosure.
Finally, because Darling has not shown that his claim
comports with federal policy, Darling cannot establish that any
injustice has occurred. Federal policy discourages monopoly
pricing unless a valid patent is in force. Here, Darling was
seeking the right to charge Standard a price above that
controlled by the free market. Unless federal policy requires
otherwise, denying Darling this right does not create an
injustice. In short, because Linkrete was in the public domain
and because Darling asserted no basis for his claim other than
injustice based on his disappointed expectations, we conclude
that he failed to establish the elements of a claim for unjust
enrichment.
We think it determinative that Darling relied
exclusively upon his patent application for protection of his
rights in Linkrete. This alone distinguishes this case from
Aronson, where the inventor had sought protection by contract.12
Here, Darling and Standard conferred about Linkrete with the
knowledge that Darling had applied for a patent. The record
reveals that Darling sought no further protection of his alleged
design, either contractual or promissory. Darling relied
exclusively on his patent application to protect his rights.
When the federal government denied Darling's patent, Darling's
shore protection design was copyable by anybody who obtained the
idea through legal and non-confidential means. In short, where
an inventor applies for a patent on a product, and relies solely
on that patent application to protect his or her rights, the
inventor cannot obtain restitution for unjust enrichment from a
party who copies and uses that product if the patent application
is ultimately rejected.13
In conclusion, we hold that Darling has failed to
present a genuine issue of material fact as to the third element
of his unjust enrichment claim: whether it would be unfair to
allow Standard to retain the benefits it obtained from Darling
without compensating him.
III
The superior court's grant of summary judgment
dismissing Darling's claim for restitution based on unjust
enrichment is AFFIRMED.14
_______________________________
1. Darling alleges that Parsons and Tekmarine were agents
of Standard; Standard asserts that they were independent
contractors. The decision of the superior court did not turn on
this determination.
2. In March 1986, the federal patent office denied
Darling's application, concluding that the purported design was
obvious in light of existing technology.
3. For example, in a letter dated May 14, 1984, Darling
wrote to Tekmarine stating that Linkrete would be marketed under
a trade name, and that a patent was pending. The record also
contains project notes prepared by Parsons summarizing a meeting
with Darling on June 14, 1984. The meeting was attended by
representatives of Parsons, Tekmarine, and Sohio. The project
notes state that Linkrete was patented. Additionally, the record
contains a letter of October 5, 1984 from Darling's patent
attorney to Sohio, noting that the Invitation to Bid for shore
protection for Endicott Island "indicates a preference for the
shore protection system which comes within the scope of [the
applied for patent]."
4. In its decision, the superior court stated:
It is undisputed that Plaintiff
possessed no patent on his claimed invention
of the shore protection system design. It is
clear from the allegations contained in
Plaintiff's Complaint and his other
pleadings, and it is also clear from the
evidence submitted, that Plaintiff's claimed
shore protection system design was publicly
known and publicly disclosed, and was so
obvious that persons skilled in the shore
protection art readily could have developed
the Plaintiff's design. Under authority of
Bonito Boats, Inc. v. Thunder Craft Boats,
Inc., 489 U.S. 141, 109 S. Ct. 971, 103 L.
Ed. 2d 118 (1989); Sears Roebuck & Co. v.
Stiffel Co., 376 U.S. 225, 84 S. Ct. 784, 11
L. Ed. 2d 661 (1964); and Compco Corp. v. Day-
Brite Lighting, Inc. 376 U.S. 234, 84 S. Ct.
779, 11 L. Ed. 2d 669 (1964), the court
concludes that Plaintiff's claimed shore
protection system design was in the public
domain, and that Defendants were legally
entitled to freely copy and use that shore
protection system design. Because Defendants
received nothing more than that which they
were legally entitled to use, Defendants were
not unjustly enriched.
The Court further concludes that
Plaintiff's unjust enrichment claim is
preempted under federal patent law and
federal preclusion principles as applied to
the States by the Supremacy Clause of the
United States Constitution. Therefore,
Defendant's Motion to Dismiss Unjust
Enrichment Claim is Granted.
The court also awarded summary judgment on the alternative
theory: "since the full value or value was paid, unjust
enrichment cannot be obtained against the Defendants in this
case."
5. The superior court filed findings of fact upon which it
based its grants of summary judgment and partial summary
judgment. However, these findings are not subject to deferential
review. Moore v. State, 553 P.2d 8, 15 n.3 (Alaska 1976).
Rather, "the standard of review for summary judgment is to
determine whether the moving party is entitled to judgment on the
law applicable to the established facts." Reed v. Municipality
of Anchorage, 741 P.2d 1181, 1184 (Alaska 1987). Our review is
de novo, and we will "adopt the rule of law that is most
persuasive in light of precedent, reason and policy." Langdon v.
Champion, 745 P.2d 1371, 1372 n.2. (Alaska 1987) (citations
omitted).
If the grant of summary judgment depends on a finding
of fact, we examine the record on appeal, and, viewing the facts
in the light most favorable to the non-moving party, determine
whether a material issue of fact exists regarding any of the
predicate facts supporting the grant of summary judgment, and
whether the moving party is entitled to judgment as a matter of
law. Zeman v. Lufthansa German Airlines, 699 P.2d 1274 (Alaska
1985).
6. Not all benefits conferred without compensation
constitute unjust enrichment. For example, when benefits are
"given gratuitously"and "without expectation of payment,"courts
will allow the recipient to retain the benefit without
compensating the provider. Sparks v. Gustafson, 750 P.2d 338,
342 (Alaska 1988) (citing Murdock-Bryant Constr. v. Pearson, 703
P.2d 1197, 1203 (Ariz. 1985)). In Sparks, however, we upheld a
finding of unjust enrichment because the evidence showed no
gratuitous intent on the part of the plaintiff. There, the
plaintiff had provided various business services, which were not
of the type "one would ordinarily expect to receive from a friend
as a mere gratuity." Id. at 343.
Here, Darling alleged in his complaint that "[a]ll of
the disclosures made by Mr. Darling to the defendants or their
representatives were made with the expectation . . . that Mr.
Darling would receive monetary compensation were his system
used." Darling did not act out of friendship; there is no
dispute that the relationship between Darling and Standard was a
business relationship. The mere existence of a business
relationship, however, does not establish the element of
injustice. "[C]ompensation [is not] mandated where the services
were rendered simply in order to gain a business advantage."
Bloomgarden v. Coyer, 479 F.2d 201, 211 (D.C. Cir. 1973)
(footnote omitted).
7. Article VI, clause 2 of the United States Constitution
provides:
This Constitution, and the laws of the
United States which shall be made in
pursuance thereof; and all treaties made, or
which shall be made, under the authority of
the United States, shall be the supreme law
of the land . . . .
8. Kewanee additionally noted that state trade secret
protection still allowed the public to exploit unpatented
products in the public domain through reverse engineering or
independent creation. Id. at 490.
9. The superior court found, and Darling does not dispute,
that Linkrete was in the public domain.
10. Darling expressly disavows any recovery for the value of
his services under a quantum meruit theory. He states in his
brief, "Darling's claim does not sound in quantum meruit"
(emphasis in original). Therefore, Darling's claim must stand
upon his rights in intellectual property.
11. Whether Darling could in fact enforce a licensing
agreement for the use of Linkrete is doubtful, given that
Linkrete was in the public domain, and that Darling was relying
on his patent application to protect his rights. See Aronson,
440 U.S. at 263. Importantly, Darling had no contract; Aronson
clearly rests on freedom of contract principles. Id. at 262-63.
Moreover, Aronson does not support Darling's argument
that the policies underlying federal patent law only apply
against the world, and not to individual agreements. Aronson
explicitly avoids overruling two previous cases, which disallowed
enforcement of valid contracts that interfered with federal
policy. See Aronson, 440 U.S. at 264-65, citing Lear, Inc. v.
Adkins, 395 U.S. 653 (1969) (if patent underlying royalty
agreement is declared invalid, manufacturer need not pay
royalties from time that it challenges validity of patent, even
though required to do so by contract); Brulotte v. Thys Co., 379
U.S. 29 (1964) (contractual obligation to pay royalties based on
a patent may not be enforced beyond the life of the patent),
reh'g denied, 379 U.S. 985 (1964). Both these cases refute
Darling's contention that federal policy only operates to prevent
state law enforcement of "rights against the world." Both cases
also establish that the equities do not require enforcement of an
inventor's contractual rights where those rights conflict with
federal patent policy. See, e.g., Lear, 395 U.S. at 670 ("the
equities of the licensor do not weigh very heavily when they are
balanced against the important public interest in permitting full
and free competition in the use of ideas which are in reality a
part of the public domain."). In Lear, the equities in favor of
enforcement were stronger than in the instant case, given the
contract; yet, here, Darling must show inequity as a matter of
law.
By reaffirming Lear and Brulotte, Aronson emphasizes
the importance of a valid patent to protect rights in
intellectual property. In Aronson, the contract survived because
"the parties resolved the uncertainties by their bargain." 440
U.S. at 264. Darling, on the other hand, never resolved the
uncertainties in his relationship with Standard.
12. Darling quotes Matarese v. Moore-McCormack Lines, 158
F.2d 631, 634 (2nd Cir. 1946), for the proposition that "[t]he
doctrine [of unjust enrichment] is applicable to a situation
where, as here, the product of an inventor's brain is knowingly
received and used by another to his own great benefit without
compensating the inventor." Id. However, in Matarese, the
manufacturer had made an explicit promise of compensation to the
inventor. Moreover, the inventor later obtained a patent. The
Matarese court noted the importance of this fact, stating that
recovery in unjust enrichment would only exist if the plaintiff's
idea was novel and created a property right. Id. at 634. Here,
the denial of Darling's patent establishes that Darling had no
property right in his design. Therefore, under Matarese, he
cannot maintain a suit in unjust enrichment based on the
exploitation of unprotected ideas.
13. We do not address whether federal patent law forecloses
other causes of action surrounding the same course of dealing,
e.g. fraud, misrepresentation, quantum meruit, or promissory
estoppel. Darling has not plead any claims for relief grounded
on these theories. Accordingly, the cases cited by Darling are
distinguishable. See Ocor Products Corp. v. Walt Disney
Productions, 682 F. Supp. 90 (D.N.H. 1988) (unjust enrichment
claim may rest on a breach of an express agreement not to copy a
design; design was provided to defendant only upon defendant's
promise not to copy and reproduce it); Marcraft Recreation Corp.
v. Frances Devlin Co., 459 F. Supp. 195 (S.D.N.Y. 1978) (claim
for quantum meruit may be based on value of technical services
provided; here, plaintiff had also alleged a breach of contract
based on an express agreement for exclusive merchandising);
Roberts v. Sears, Roebuck & Co., 471 F. Supp. 372 (N.D. Ill.
1979) (following rescission of a fraudulently induced licensing
contract, courts may award restitution based on the unjust
enrichment of the fraudulent party), cert. denied, 449 U.S. 975
(1981).
Darling believes that the following statement from
Aronson provides implicit support for his unjust enrichment
theory: "[i]n negotiating the [license] agreement, Mrs. Aronson
disclosed the design in confidence. Had Quick Point tried to
exploit the design in breach of that confidence, it would have
risked legal liability." 440 U.S. at 263. Here, Darling does
allege in his complaint that defendants assured him that the
information he provided in 1983 and 1984 would remain
confidential. However, he admits that the earlier disclosures of
Linkrete were made only with the subjective "expectation that he
would receive compensation." His complaint does not allege a
breach of confidentiality. Significantly, Darling's response to
a perceived threat to his rights was a letter from his patent
attorney invoking his patent rights. This letter does not
mention promises, confidentiality, reliance, or other possible
protection of his interests. Moreover Darling does not deny that
Linkrete was in the public domain at the time that Standard built
Endicott Island. These facts preclude recovery in unjust
enrichment.
14. Given this holding, it is unnecessary to address
Darling's remaining specifications of error.
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