Alexander Shukh v. Seagate (Fed. Cir. 2015)
Mr. Shukh sued his former employer Seagate asking for a correction of inventorship under 35 U.S.C. § 256 as well as breach of contract and discrimination associated with his firing.
Because Shukh had already assigned-away his ownership rights to the patents, the District Court ruled that the Shukh’s standing for the inventorship claim hung on his alleged reputational harm due Seagate’s failure to list him as a co-inventor on six different patents. The district court also dismissed the state law allegations for failure to state a claim. At the close of discovery, the district court then dismissed the case on summary judgment – finding that Shukh had not produced evidence to prove the reputational harm.
On appeal, the Federal Circuit has vacated the lower court’s summary judgment –
Today, we hold that concrete and particularized reputational injury can give rise to Article III standing. As we noted in Chou, “being considered an inventor of important subject matter is a mark of success in one’s field, comparable to being an author of an important scientific paper.” 254 F.3d at 1359. We reasoned that “[p]ecuniary consequences may well flow from being designated as an inventor.” Id. This is particularly true when the claimed inventor is employed or seeks to be employed in the field of his or her claimed invention. For example, if the claimed inventor can show that being named as an inventor on a patent would affect his employment, the alleged reputational injury likely has an economic component sufficient to demonstrate Article III standing.
We find that there is a question of material fact as to whether Dr. Shukh’s omission as a named inventor on the disputed patents caused him reputational injury. Dr. Shukh presented evidence such that a trier of fact could conclude that this omission injured his reputation in at least two ways: first, it harmed his reputation as an inventor in the field of semiconductor physics, and second, it contributed to his reputation for poor teamwork due in part to his accusations that others were stealing his work. Moreover, Dr. Shukh presented evidence from which a trier of fact could conclude that these reputational harms had economic consequences—namely, that Dr. Shukh was unable to find employment after he was terminated from Seagate.
This case highlights a troubling issue for inventors. The difficulty for inventors is that an inventor does not automatically have standing to sue for being improperly excluded from being listed as an inventor. Rather, the inventor must be able to allege additional cognizable harm before the court will hear the case.
Hereby Assign: Shukh’s employment contract with Seagate included a statement that he “hereby assign[s]” his future invention rights to Seagate. Although these contracts are generally interpreted by state-law, the Federal Circuit issued a 1991 patent-specific ruling that this clause results in an automatic assignment of rights. Filmtec Corp. v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991). The Filmtec outcome should be contrasted with agreements where employees “agree to assign.” In the agreement-to-assign case, legal title does not shift until the inventor actually does assign after inventing. In his appeal, Shukh asked the Federal Circuit to overrule Filmtec – which it refused to do here on stare decisis grounds. “[W]e cannot overrule that holding without en banc action.”
The suggestion for en banc action has some strong backers. In his dissenting opinion in Stanford v. Roche, Justice Breyer challenged the Federal Circuit rule. Relying upon history and tradition, Justice Breyer wrote that the initial “hereby-assign” employment contract as creating equitable title in the invention whose legal title does not automatically transfer.
Given what seem only slight linguistic differences in the contractual language, this reasoning seems to make too much of too little. Dr. Holodniy executed his agreement with Stanford in 1988. At that time, patent law appears to have long specified that a present assignment of future inventions (as in both contracts here) conveyed equitable, but not legal, title. See, e.g., G. Curtis, A Treatise on the Law of Patents for Useful Inventions §170, p. 155 (3d ed. 1867) (“A contract to convey a future invention . . . cannot alone authorize a patent to be taken by the party in whose favor such a contract was intended to operate”); Comment, Contract Rights as Commercial Security: Present and Future Intangibles, 67 Yale L. J. 847, 854, n. 27 (1958) (“The rule generally applicable grants equitable enforcement to an assignment of an expectancy but demands a further act, either reduction to possession or further assignment of the right when it comes into existence”).
Under this rule, both the initial Stanford and later Cetus agreements could have given rise only to equitable interests in Dr. Holodniy’s invention. And as between these two claims in equity, the facts that Stanford’s contract came first and that Stanford subsequently obtained a postinvention assignment as well should have meant that Stanford, not Cetus, would receive the rights its contract conveyed.
In 1991, however, the Federal Circuit, in FilmTec, adopted the new rule quoted above—a rule that distinguishes between these equitable claims and, in effect, says that Cetus must win. The Federal Circuit provided no explanation for what seems a significant change in the law. Nor did it give any explanation for that change in its opinion in this case. The Federal Circuit’s FilmTec rule undercuts the objectives of the Bayh-Dole Act. While the cognoscenti may be able to meet the FilmTec rule in future contracts simply by copying the precise words blessed by the Federal Circuit, the rule nonetheless remains a technical drafting trap for the unwary. It is unclear to me why, where the Bayh-Dole Act is at issue, we should prefer the Federal Circuit’s FilmTec rule to the rule, of apparently much longer vintage, that would treat both agreements in this case as creating merely equitable rights.
The majority in Stanford v. Roche did not particularly address the issue.