Opinion ID: 203621
Heading Depth: 2
Heading Rank: 2

Heading: Unjust Enrichment Damages

Text: The parties agree that a royalty rate based on the net sales of Visudyne is the appropriate measure of QLT's unjust enrichment. MEEI-III, 495 F.Supp.2d at 216. Unfortunately, the parties agree on little else. Consequently, we return to the basics of unjust enrichment. In this case, the appropriate measure of damages should be an approximation of the value of the benefit MEEI conferred on QLT. Such an approach is in harmony with our prior decision, see MEEI-II, 412 F.3d at 234, and Massachusetts case law, see J.A. Sullivan Corp. v. Massachusetts, 397 Mass. 789, 494 N.E.2d 374, 379 (1986); see also Fox v. F & J Gattozzi Corp., 41 Mass.App.Ct. 581, 672 N.E.2d 547, 552 (1996)( quoting Restatement of Restitution § 1 (1937)). When a defendant has received a benefit that is significantly greater than the plaintiff's loss and justice so requires, the defendant may be under a duty to give the plaintiff the amount by which he has been enriched. Restatement of Restitution § 1 cmt. e. The passage of time has not dulled this conception; the tentative draft of the Restatement (Third) of Restitution advocates the same result: a party's recovery based on an indefinite agreement is measured solely by the value of the claimant's performance to the defendant. Restatement (Third) of Restitution and Unjust Enrichment § 31 cmt. h (T.D. No. 3, 2004). QLT argues that MEEI failed to prove such damages and consequently QLT should be entitled to a judgment. QLT primarily relies on Incase to support this position. 488 F.3d at 54-55. In Incase, the plaintiff claimed that the defendant was unjustly enriched when it commissioned the plaintiff to design watch displays with removable flags (for which plaintiff did not charge separately) on the understanding that the defendant would then purchase the design from plaintiff. The defendant instead contracted with a foreign firm to produce plaintiff's design. Id. at 55. To prove unjust enrichment, the plaintiff introduced evidence of the amount of profits it would have earned had the defendant purchased the designed product from plaintiff. Id. Giving credit to this evidence, the jury awarded damages in that amount. On appeal, we reviewed Massachusetts case law on the measure of unjust enrichment damages  a body of law that is equally applicable to the present case. We begin with the basic proposition that the determination of the value of the benefit conferred on the defendant is a question of fact. Id. at 54 ( quoting Guenard v. Burke, 387 Mass. 802, 443 N.E.2d 892, 896 (1983)). Moreover, Massachusetts has made clear that a jury's unjust enrichment award need not be susceptible of calculation with mathematical exactness, provided there is a sufficient foundation for a rational conclusion. Lowrie v. Castle, 225 Mass. 37, 113 N.E. 206, 210 (1916); see also Kitner v. CTW Transp., Inc., 53 Mass.App.Ct. 741, 762 N.E.2d 867, 873 (2002). In a case where the jury cannot estimate the value of a benefit from common knowledge, the plaintiff must present evidence of the reasonable value of the benefit in order to receive anything more than nominal damages. Incase, 488 F.3d at 54 ( citing Hurwitz v. Parkway Country Club, Inc., 343 Mass. 661, 180 N.E.2d 94, 97 (1962)). Finally, we note here, as we did in Incase, that unjust enrichment damages may not be based only upon [the plaintiff's] lost profits. Id. at 46 ( citing J.A. Sullivan Corp., 494 N.E.2d at 379). After reviewing this case law, in Incase, we found the plaintiff's sole reliance on evidence of his own lost profits insufficient to sustain a claim for unjust enrichment damages. Id. at 55 (Instead of presenting evidence of the value of its labor and materials and other costs ... or of the value of the benefit conferred to Timex ... Incase presented evidence only of the profit it would have had.). Withal, it is important to note the questions left open in Incase. We made clear that a plaintiff may not recover her own lost profits through an unjust enrichment claim, but we did not determine whether unjust enrichment doctrine could force the defendant to disgorge any profit it made as the result of unjust or wrongful conduct. Thus, Incase could not recover its 6.9 cent per unit profit margin in an unjust enrichment action. Id. at 54-55. But we did not decide whether Incase could have forced Timex to disgorge the profits Timex earned as the result of its actions. Indeed, we could not have reached such a conclusion because Incase failed to provide evidence of the value of any benefit to Timex, much less the extent to which Timex profited as the result of its unjust conduct. Courts that have considered the issue have permitted disgorgement of the malefactor's profits as a remedy for unjust enrichment in patent disputes. See, e.g., Univ. of Colo. Found., Inc. v. Am. Cyanamid Co., 342 F.3d 1298, 1311-13 (Fed.Cir. 2003) (applying Colorado law). [23] Although Massachusetts courts have not squarely considered the availability of profit disgorgement in an unjust enrichment action, we think it likely that they would approve of a disgorgement remedy in the present unjust enrichment context. See Demoulas, 677 N.E.2d at 196 (noting that disgorgement is necessary to prevent unjust enrichment in breach of fiduciary duty context). With this case law in mind, we evaluate the jury's damage award. The jury heard all of the evidence supporting the conferral of both the confidential information and the patent application benefits. In addition, each side presented damages experts to help the jury understand how to express the benefits conferred as an ongoing royalty. MEEI's expert provided important background evidence showing reasonable royalties in the pharmaceutical industry, and further described other QLT and Novartis licenses to give the jury a background as to the outer limits of a license that MEEI could have negotiated from QLT. [24] In addition, MEEI's damages expert testified that a reasonable royalty could be as high as 13.5%, which would constitute approximately 50% of QLT's net profits from the sale of Visudyne. In reaching this conclusion, the expert explained that he discounted QLT's royalty agreement with MGH because it had a most favored nation clause and because he understood MEEI to have conferred a larger benefit to QLT than MGH. [25] QLT also presented evidence from its own damages expert. QLT's expert attempted to discredit the surveys upon which MEEI's expert relied. Similarly, QLT's expert opined that a fair royalty to MEEI could not exceed the royalty paid for the use of BPD, which was 2%. Furthermore, QLT's expert posited that the jury should consider the fact that Dr. Julia Levy was a co-inventor and had the right to practice the invention independently. QLT's expert therefore believed that QLT did not have to pay any royalties, and in these circumstances, the 0.5% royalty offered to MGH constituted a royalty that was not only fair, but munificent. From this competing testimony, the jury had enough information to establish an approximate valuation of the benefit MEEI conferred on QLT. The damages experts ensured that the jury engaged in an effort to determine a reasonable approximation of the value of the benefits MEEI conferred on QLT. It is true that MEEI's expert referred to QLT's profits from the sale of Visudyne, but this was in no way inconsistent with our holding in Incase. After all, QLT's profits served as a reasonable approximation of the value of the benefit conferred at a particularly critical time in the life cycle of a nascent biotechnology company with a product (BPD) in search of an application. We further note  as the parties agreed at trial  that royalty rates based on sales are the preferred method to express the value conferred in the pharmaceutical context. [26] Given these considerations, we cannot conclude that the damages evidence was insufficient as a matter of law to permit a reasonable approximation of the value of the benefit conferred on QLT. Nor do we fault the amount of the award. The jury grappled with highly complex, voluminous evidence and reached a reasonable conclusion. It rejected MEEI's out-sized valuation of its own contributions to Visudyne, while simultaneously rejecting QLT's cramped view. The trial court agreed, noting that it would have awarded a slightly higher royalty rate, but also noting its belief that the jury's rate was within the realm of reasonability. MEEI-III, 495 F.Supp.2d at 217-18. We see no reason to disturb the jury's findings. QLT raises a number of other challenges to the damage award, which we now address. First, QLT argues that the scope of the royalty should have been limited to the U.S. and Canada. But because we have concluded that MEEI proved its unjust enrichment claim under a confidential information theory, QLT's objections lack force. Similarly, because we have determined that there was sufficient evidence that QLT acquired benefits as early as the spring of 1994, QLT's complaints about the timing of the accrual of the obligation to pay also lack force.