## Facts

- A corporation later known as VRT, Inc. was formed to commercialize an inventor’s patient-lifting equipment for hospitals and nursing homes.
- VRT retained an attorney to file a patent application and represented to a prospective manufacturer, Dutton-Lainson Co., that a patent application had been filed and a patent was expected.
- Relying on those representations and its own patent counsel’s view that a patent was likely, Dutton-Lainson entered a purchase and sale agreement to buy assets tied to the equipment, including rights in the invention, the patent application, and related names/marks, in exchange for royalties.
- At closing, VRT delivered assignment documents purporting to transfer rights in the invention and the patent application.
- In fact, the patent application had not been properly filed; no patent issued, and the delay later made issuance impossible.
- VRT brought a declaratory judgment action seeking a declaration of entitlement to past and future royalties, alleging Dutton-Lainson breached by withholding payment.
- The trial court ruled for VRT and ordered payment of past-due and future royalties; Dutton-Lainson appealed.

## Issues

1. Whether VRT substantially performed its contractual obligations so as to enforce the royalty provision despite the absence of a filed patent application and any issued patent.
2. Whether the failure of VRT’s attorney to file the patent application was legally attributable to VRT for purposes of determining substantial performance.

## Decision

- The Nebraska Supreme Court treated the declaratory judgment action as an action at law arising from alleged breach of contract.
- The court reversed the trial court’s judgment.
- The court held VRT did not substantially perform because the patent application was never filed and no patent ever issued, defeating a central element of the bargain.
- The court held the attorney’s failure to file was imputable to VRT; VRT could not avoid nonperformance by blaming its lawyer.
- The case was remanded with directions to dismiss VRT’s action, and VRT was not entitled to past or future royalties.

## Legal Principles

- A party seeking to recover under a contract must show substantial performance of its own contractual obligations.
- Substantial performance exists only when deviations from the contract are relatively minor and do not prejudice the other party.
- Failure to deliver an essential component of the contracted-for exchange is not substantial performance and bars enforcement of the counterparty’s payment obligation.
- In attorney-client relations, an attorney’s acts and omissions are treated as the client’s acts and omissions; attorney neglect is equivalent to client neglect.

## Conclusion

Because the expected patent protection (and even a properly filed patent application) was central to the royalty bargain, VRT’s failure to secure and convey that benefit was a material nonperformance that barred recovery; the attorney’s filing failure was attributed to VRT, requiring dismissal of its claim for royalties.


VRT, Inc. v. Dutton-Lainson Co., 530 N.W.2d 619 (Neb. 1995)