Speck v. North Carolina Dairy Foundation

Marvin Speck and Stanley Gilliand (the professors) (plaintiffs) were professors of Food Science at North Carolina State University (NC State) (defendant). In this capacity, the professors performed research on milk containing lactobacillus acidophilus (LAP), a bacteria that minimizes and eliminates certain unwanted microorganisms, leading to better digestion. The professors’ research reflected an attempt to develop milk containing LAP that was better tasting. The research was conducted at NC State facilities and with resources provided by NC State. The professors were employed by NC State at all times during their research. Although the professors’ contracts did not explicitly mention this research, NC State encouraged it. Eventually, the professors succeeded in creating a new food process. After discussions within the Food Science Department and NC State, the process was licensed to the North Carolina Dairy Foundation, Inc. (the foundation) (defendant), a nonprofit corporation dedicated to funding research that promoted the public good. The foundation had a close relationship with NC State and had been providing funds for various research projects at the university. The professors did not initially object, even showing up at initial meetings of the foundation to discuss the research. The foundation entered into an agreement with two private companies to produce and market the new milk. NC State, not believing the new milk was patentable, considered the new milk a trade secret or trademark. After their requests for royalties were denied, the professors filed suit, alleging that NC State and the foundation owed them a fiduciary duty and breached it by failing to pay them any portion of royalties from the new milk. The professors sought an order imposing a constructive trust on the royalties. A trial court issued summary judgment for the foundation. A court of appeals reversed. The foundation appealed.