## Facts

- Peter M. Roberts, an 18-year-old Sears sales clerk with limited education and business experience, invented a quick-release socket wrench and filed a patent application.
- At Sears’s urging, Roberts submitted the invention to Sears for evaluation; Sears tested the prototype through its manufacturer and received favorable results supporting its utility and marketability.
- Sears negotiated with Roberts while allegedly minimizing the invention’s value and representing that Sears sought only a license, despite preparing a written agreement that effected a complete assignment of Roberts’s patent rights.
- The agreement provided a royalty of two cents per wrench until $10,000 was paid; Sears quickly sold large quantities, paid Roberts $10,000, and acquired all rights.
- After learning of the product’s commercial success, Roberts sued, asserting fraud, breach of a confidential relationship, and negligent misrepresentation, and sought both damages and equitable relief (rescission and restitution returning the patent and related benefits).

## Issues

1. Whether the district court was required to adjudicate patent validity (and admit prior-art evidence) in an action for fraud, breach of a confidential relationship, and negligent misrepresentation in procuring an assignment of patent rights.
2. Whether entry of a damages judgment on the legal claims barred rescission and restitution under the election-of-remedies doctrine.
3. Whether the evidence supported findings of a confidential relationship and actionable misrepresentation or nondisclosure by Sears in obtaining the assignment.

## Decision

- Affirmed the jury’s liability findings and the $1,000,000 damages award for fraud, breach of a confidential relationship, and negligent misrepresentation.
- Held the district court properly declined to decide patent validity and properly excluded prior-art evidence as irrelevant to the fraud-based procurement claims.
- Reversed the ruling that Roberts’s damages recovery barred rescission and restitution; remanded for the district court to determine whether rescission and restitution were appropriate and how to structure equitable relief consistent with the jury’s verdict.

## Legal Principles

- In a fraud-based challenge to the procurement of an assignment of patent rights, patent validity need not be litigated when the dispute centers on misrepresentation and unfair dealing rather than infringement or enforceability.
- Evidence aimed primarily at trying patent invalidity (including prior art) may be excluded when it would convert a fraud case into a collateral validity trial without aiding resolution of the procurement misconduct.
- A confidential relationship may arise in a commercial setting where a sophisticated party invites and benefits from the reliance of a markedly less sophisticated inventor, supporting duties of fair dealing and full disclosure in negotiations.
- Election of remedies does not automatically bar rescission after a damages verdict when damages and rescission address different aspects of harm (past losses versus restoration of ongoing property rights) and can be made consistent.

## Conclusion

The Seventh Circuit upheld a substantial verdict against Sears for fraud-based procurement of an inventor’s patent assignment, ruled that patent validity was not an issue that had to be tried in that action, and held that a damages judgment did not, by itself, foreclose rescission and restitution; the case was remanded to decide whether equitable relief returning the patent should be granted.


Roberts v. Sears, Roebuck & Co., 573 F.2d 976 (7th Cir. 1978)