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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 11, 2008 Decided April 18, 2008

No. 07-7065

JOHN E. DRAIM, ET AL.,

APPELLEES

v.

VIRTUAL GEOSATELLITE HOLDINGS, INC.,

DELAWARE CORPORATION AND

MOBILE COMMUNICATIONS HOLDINGS, INC., DELAWARE

CORPORATION,

APPELLANTS

Appeal from the United States District Court

for the District of Columbia

(No. 01cv02690)

Thomas E. Patton argued the cause and filed the briefs for

appellants. Neal Goldfarb entered an appearance.

Mary C. Zinsner argued the cause and filed the brief for

appellee. 

USCA Case #07-7065 Document #1111794 Filed: 04/18/2008 Page 1 of 9
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Before: ROGERS, BROWN and GRIFFITH, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge: John E. Draim sued Virtual

Geosatellite Holdings, Inc. and Mobile Communications

Holdings, Inc. (collectively “Virtual Geo”) for breach of

contract by failing to pay him bonuses upon issuance of certain

patents. Virtual Geo interposed three defenses, including that

Draim was not entitled to the bonuses because he had breached

his employment contract. The magistrate judge rendered

judgment for Draim on all but one of his bonus claims.

However, although finding that a contract existed, requiring that

Draim assign to Virtual Geo ownership rights in all the work

performed as its employee in return for certain bonuses, the

judge never determined whether Draim’s conduct breached the

contract and thereby disqualified him from collecting under it.

Accordingly we reverse.

I.

The underlying dispute arises from Draim’s claimed

entitlement to bonuses for patents that were issued based on

applications filed while he was employed by Virtual Geo. In

1992, Draim began working as a consultant for Mobile

Communications Holdings, Inc. (“Mobile”). He signed an

employment contract with its president, David Castiel, under

which Draim agreed to assign to Mobile all rights in his

inventions conceived during the term of the contract and Mobile

agreed to pay Draim a bonus of up to $2,000 upon the filing of

a patent application, and a bonus of up to $10,000 upon the

successful issuance of any patent. According to the contract,

each bonus would be divided by the number of co-inventors

listed on the patent application. Draim worked for Mobile as a

consultant through June 1997.

USCA Case #07-7065 Document #1111794 Filed: 04/18/2008 Page 2 of 9
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In July 1997, Draim became a salaried employee of Mobile

and its affiliate Virtual Geosatellite Holdings, Inc., but a written

employment contract was never signed. Instead, during Draim’s

employment, the parties continued to operate with the

understanding that Draim’s inventions would be assigned to

Virtual Geo and that he would be paid up to $2,000 for each

patent application and up to $10,000 for each successful

issuance of a patent. At some point during Draim’s

employment, the maximum bonus for filing a patent application

increased to $2,500 and the maximum bonus for the issuance of

a patent increased to $12,500. 

On May 24, 2000, Draim terminated his employment and

one day later began to work for VGS, Inc., a Delaware

corporation created by Peter Sahagen, a minority shareholder of

Virtual Geosatellite, LLC, in which Virtual Geosatellite

Holdings, Inc. is a member; VGS later became known as Space

Resources America Corporation (“Space Resources”). Around

the time of Draim’s resignation, several other Virtual Geo

employees also left to work for VGS. During the summer of

2000, Castiel and Sahagen were engaged in litigation before the

Delaware Chancery Court regarding Sahagen’s attempt to merge

Virtual Geosatellite, LLC into VGS. On August 31, 2000, the

Delaware Chancery Court invalidated the merger and enjoined

VGS from continuing to assert ownership or control over Virtual

Geo’s property. 

At the time Draim terminated his employment with Virtual

Geo, there were numerous outstanding patent applications in

which he was a named inventor. These applications have since

resulted in the issuance of eleven patents, all of them naming

Virtual Geo as assignee. Draim is listed as either the sole

inventor or as one of three or four inventors on these patents.

Two of these patents are divisional patents, which occur when

the U.S. Patent and Trademark Office (“Patent Office”) breaks

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down a single application into different parts resulting in the

issuance of multiple patents. See 35 U.S.C. § 121. Draim has

not been paid a bonus for the issuance of any of these patents. 

Also, in February 2000, three months before Draim

resigned, Draim and Castiel filed a provisional patent

application for an invention called the “168 slot” invention. A

provisional patent application is essentially a placeholder filed

with the Patent Office after which an applicant has one year to

file the actual patent application. In this application, Castiel and

Draim were listed as co-inventors. In November 2000, Space

Resources filed an “interfering” patent application for the “168

slot” invention, naming Draim as the sole inventor.

Subsequently, in February 2001, Castiel filed an application for

the same invention, but did not name Draim as an inventor.

Ultimately the patent was issued to Virtual Geo as assignee and

Draim was not listed as an inventor. Draim was never paid a

bonus for the issuance of the “168 slot” patent. 

In October 2001, Draim sued Virtual Geo in the district

court for the Eastern District of Virginia; the case was

transferred to the District of Columbia pursuant to 28 U.S.C. §

1631. Virtual Geo, in turn, sued Draim in the D.C. Superior

Court; this case was removed to the federal court pursuant to 28

U.S.C. § 1441(a) and consolidated with Draim’s complaint. In

2005, the parties agreed to limit their claims to whether Draim

is entitled to bonus payments for patents in which he is a named

inventor that issued after he resigned from Virtual Geo. Virtual

Geo interposed three defenses: (1) Draim has already been paid

more than he is entitled to receive; (2) Draim is not entitled to

payments on divisional patents; and (3) Draim breached his

employment agreement and “cannot seek the fruits of an

agreement which he willfully breached.” Joint Pretrial

Statement at 4 (Mar. 17, 2006). 

USCA Case #07-7065 Document #1111794 Filed: 04/18/2008 Page 4 of 9
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1

 Although the allegation in the complaint that Draim is a

resident of Virginia was insufficient to establish subject matter

jurisdiction based on complete diversity, see Novak v. Capital Mgmt.

& Dev. Corp., 452 F.3d 902, 906 (D.C. Cir. 2006), we grant his

unopposed motion to amend paragraphs 3 and 6 of his complaint to

allege, respectively, that “Plaintiff Draim is an individual who is

resident in, and a citizen of, the Commonwealth of Virginia” and

“Defendant Castiel is an individual who resides in, and is a citizen of,

Washington, D.C.” Dist. of Columbia ex rel. Am. Combustion Inc. v.

Transamerica Ins. Co., 797 F.2d 1041, 1044 (D.C. Cir. 1986); see also

Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989); 28

U.S.C. § 1653.

2

 The magistrate judge denied Virtual Geo’s motion for a

new trial, which was based on the Patent Office’s subsequent grant of

Virtual Geo’s ex parte request for reexamination of a patent issued to

Draim and assigned to Space Resources as being duplicative of a

Virtual Geo patent, finding that the reexamination was not newly

discovered evidence and that any relief must be sought pursuant to

Fed. R. Civ. P. 60. The judge denied Virtual Geo’s Rule 60(b) motion

for lack of jurisdiction after Virtual Geo had filed a Notice of Appeal,

see Draim v. Virtual Geosatellite Holdings, Inc., No. 01-2690, 2007

WL 2774703 (D.D.C. Sept. 24, 2007), and upon reconsideration

On May 15, 2006, a magistrate judge awarded Draim

bonuses for the patents issued after his resignation.1 The judge

denied him a bonus for the “168 slot” patent because his

employment contract did not address provisional patent

applications. Rejecting Virtual Geo’s defenses that Draim had

already been paid more than he was entitled to receive under his

employment contract and that Draim was not entitled to bonuses

on divisional patents, the magistrate judge found that “even if

Draim owed a fiduciary duty to [Virtual Geo], . . . enforcement

of the contract cannot be denied on the ground that Draim

breached any such fiduciary duty by participating in a

conspiracy.” Draim v. Virtual Geosatellite Holdings, Inc., 433

F. Supp. 2d 99, 103 (D.D.C. 2006).2

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denied the motion as untimely, Memorandum Order, Dist. Ct. Docket

No. 107 (Nov. 26, 2007). Virtual Geo again moved for

reconsideration.

3

 This court will set aside the district court’s findings of fact

only if they are clearly erroneous, Fed. R. Civ. P. 52(a), while the

district court’s conclusions of law are reviewed de novo, see Teva

Pharms., USA, Inc. v. FDA, 182 F.3d 1003, 1007 (D.C. Cir. 1999). 

4

 Paragraph 9 states:

Consultant shall treat as proprietary any information

belonging to Client, its affiliated companies, or any

third parties, disclosed to Consultant in the course of

Consultant’s services. Consultant assigns and agrees

II.

If Draim engaged in conduct that constituted a material

breach of his employment contract, then he is not entitled to

payment of bonuses under the contract. “A total breach may be

. . . by such a material failure of performance when due as to go

to the essence and frustrate substantially the purpose for which

the contract was agreed to by the injured party.” Keefe Co. v.

Americable Int’l, Inc., 755 A.2d 469, 475 (D.C. 2000) (quoting

San Carlos Irrigation & Drainage Dist. v. United States, 23 Cl.

Ct. 276, 280 (1991)) (internal quotation marks omitted); see also

23 WILLISTON ON CONTRACTS § 63.3 (4th ed.) 

Although the written employment contract expired before

Draim’s resignation from Virtual Geo, the magistrate judge

found that the parties continued to operate under the

understanding articulated in the contract and neither party

disputes this finding on appeal.3

 At trial, Paragraph 9 of the

employment contract was the primary basis for the underlying

dispute.4 During his opening argument, Draim’s counsel stated

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to assign to Client or its nominee all rights in

inventions or other proprietary information conceived

by Consultant during the term of this Agreement with

respect to any work which Consultant performs, and

is financially compensated for by Client or the

Corporation, under this Agreement. In addition, the

Corporation will pay Consultant an amount not to

exceed $2,000 as a bonus upon the completion of

successful filing for any one patent. The actual

amount will be determined in inverse proportion to

the number of co-inventors listed in the patent

application(s). If Consultant is the sole inventor, the

full $2,000 will be paid. Likewise, upon successful

issuance of any one patent, the Corporation will pay

Consultant an additional bonus not to exceed

$10,000, the actual amount of the bonus being

determined in inverse proportion to the number of coinventors listed in the patent(s).

Employment Contract at 2-3 (Nov. 1, 1992), Dist. Ct. Docket No. 40-

1, Exhibit 1 (Apr. 1, 2003). 

that the trial involved “a single fairly straightforward claim by

Mr. Draim against the corporate defendant for approximately

$82,000 for patents that issued since May of 2000 and for which

he has not been paid.” Trial Tr. at 2 (Apr. 18, 2006). Draim

proffered the employment contract as an exhibit. Virtual Geo,

in turn, argued that Draim had breached his employment

contract, asserting that “a party who breaches an agreement or

contract or a duty is not entitled to the benefits of that same

agreement.” Id. at 7. According to Virtual Geo, Draim

participated in a conspiracy to misappropriate its intellectual

property, and “[t]herefore, he has violated the terms of his

[employment contract].” Id. 

Upon cross examination, Virtual Geo confronted Draim

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5

 Paragraph 8 states:

During the time of this Agreement, Consultant shall

not enter into any activity, employment, or business

arrangement which conflicts with Client’s interest or

Consultant’s obligations under this Agreement. In

view of the sensitive nature of Consultant’s status,

Client shall have the option of terminating this

Agreement at any time if, in its sole judgment, a

conflict of interest exists or is imminent. . . .

Consultant shall advise Client of its position with

respect to any activity, employment, or business

arrangement contemplated by Consultant which may

be relevant to this Paragraph. For this purpose

Consultant agrees to disclose any such plans to Client

prior to implementation. 

Employment Contract at 2. Paragraph 10 allowed either party to

with the fact that he developed substantial intellectual property

while its employee and that his “agreement with Virtual Geo did

require [him] to maintain that proprietary information as Virtual

Geo’s property.” Id. at 32. Virtual Geo questioned Draim about

his attempts to obtain patent rights to Virtual Geo’s intellectual

property on behalf of his new employer, establishing its breach

of contract defense. Specifically, Virtual Geo presented Draim

with a VGS marketing brochure containing some of Virtual

Geo’s proprietary information and questioned him about the

extent of his participation in creating that document. See id. at

54-55. Castiel testified on direct examination regarding the

requirement in the employment contract that Draim assign all

inventions conceived during his employment to Virtual Geo and

proffered his understanding that Draim’s conduct after his

resignation breached this provision. At trial, Virtual Geo also

alluded to Draim’s violations of Paragraphs 8 and 10 of the

employment contract.5

 Id. at 88-89, 98-99. During closing

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terminate the contract upon thirty days’ notice by registered or

certified mail. Id. at 3. 

arguments, both parties identified the enforcement and potential

breach of the employment contract as central to the resolution of

the case. 

Virtual Geo complemented its breach of contract defense

with assertions that Draim participated in a conspiracy to

misappropriate its property, breached a fiduciary duty, and

violated the Delaware court’s injunction. These claims,

however, were relevant only as they related to Draim’s potential

breach of Paragraph 9 of the employment contract. According

to Virtual Geo, “[t]he terms of his employment agreement

essentially continued,” and Draim “breached his employment

obligations” by participating in his new employer’s attempts “to

assert control over Virtual Geo[’s] . . . patent portfolio,

intellectual property, [and] proprietary information.” Id. at 161.

Despite the trial record of Virtual Geo’s defense that Draim

had breached the employment contract, the magistrate judge

never made a finding on this defense to enforcement of the

patent bonuses. The order awarding bonuses to Draim provides

no analysis of his conduct with regard to any contractual

provision. Instead, the magistrate judge decided only that Draim

did not violate any fiduciary duty by participating in a

conspiracy. But the potential breach of a fiduciary duty is

beside the point, and Draim’s alleged participation in a

conspiracy does not resolve whether his conduct breached the

employment contract. In the absence of a breach of contract

finding, the judgment cannot stand. 

Accordingly, we reverse and remand the case to the district

court.

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