Patent Rights are a Marital Asset and Non-Inventing Spouse is a Co-Owner

By Dennis Crouch

James Taylor v Taylor Made Plastics (Fed. Cir. 2014)

I should note here that this case is neither about the musician or the golf club company. Rather, it is about the now fractured Taylor family and their patented pipe plugs. I discussed the district court decision earlier here.

Several years ago James T. invented storm drain equipment and obtained a patent in his name only. U.S. Patent No. 5,806,566. When he and his wife Mary T. later divorced, the divorce court ordered “equitable distribution of marital property” with Mary T. receiving 60% of proceeds from the patent and James T. receiving 40%. The divorce court seemingly only dealt with equitable title in the form of rights-to-proceeds and not with legal title to the patent itself. And, in particular, the divorce court did not identify who held the exclusive rights associated with the patent.

Following the divorce, James T. seems to have lost control of the Taylor Made Plastics company that sells the devices he invented and the company also stopped paying on the patent. Mary T., however, is on much better terms with the company that continues to be family run. So, when James T. filed his infringement lawsuit against Taylor Made Plastics, Mary T. sided with the company and the district court dismissed the case – finding that title to the patent was divided between the two former spouses and, as a consequence, any infringement lawsuit must be filed by both co-owners acting in concert.

On appeal, the Federal Circuit has affirmed – finding that Mary T. was properly considered a co-owner and therefor a necessary party for any infringement lawsuit to consider.

The appellate panel began by highlighting the rule that equitable title is not the type of ownership we are talking about. Thus, the fact that Mary T. is owed 60% of the distribution is irrelevant. Rather the correct question is whether Mary T. has at least partial power to wield the rights-of-exclusivity inherent to the patent.

The long-established rule is that a suit for patent infringement must join all co-owners of the patent as plaintiffs. Waterman v. Mackenzie, 138 U.S. 252 (1891). If any co-owner should refuse to join as a co-plaintiff, the suit must be dismissed for lack of standing. But a party is not co-owner of a patent for standing purposes merely because he or she holds an equitable interest in the patent. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574 (Fed. Cir. 1991). Rather, a co-owner must hold legal title to the patent. Id. (citing Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24 (1923)). Legal title vests initially in the inventor, and passes to others only through assignment or other effective legal transfer.

As in most states, assets acquired by either spouse during a Florida marriage are presumed to be marital assets subject to equitable distribution on divorce. It is through that process that Mary T. became a co-owner. In the appeal, James T. represented himself pro se and seemingly did a poor job by offering number of arguments “only in a cursory fashion without any supporting facts.” At the Federal Circuit, James T. argued (but failed to provide any evidence) that Mary T. had signed a contractual agreement to enforce the patent against Taylor Made. If that contract exists and is enforceable then James T. should be able to re-file the lawsuit and force her to participate in the next go-round.

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Professor Hricik provides his thoughts here: http://patently.wpengine.com/hricik/2014/05/spouses-inventors-owners.html

 

44 thoughts on “Patent Rights are a Marital Asset and Non-Inventing Spouse is a Co-Owner

  1. Where have you gone, Ned Heller? A nation turns it’s lonely eyes to you (Woo, woo, woo) . What’s that you say, Mrs. Robinson, Nefarious Ned has left and gone away (Hey, hey, hey…hey, hey, hey).

    With due apologies to Messrs Simon and Garfunkal.

    (hmmm, seems like being polite is no way to keep a conversation going…)

    1. anon, if the husband is paid to for his work from which the invention ensues, and he agrees to assign the patent, her community property interest is in his wages, not the patent.

      1. Potentially wrong Ned.

        The patent itself is property (your focus on proceeds from the property instead of the property is clear legal error).

        As we saw in Stanford v. Roche, an agreement to assign will not be the top trump.

        Clearly, depending on the particular state law, the aspect of the patent as property (under law) can trump ANY agreement to assign, if such is merely an agreement to assign in the future, and the state law presents a legal assignment at the point that any patent right is first created with the spouse-inventor.

        As in our past discussions, I am right (again) and I wonder why you continue to fight me given all evidence supporting my views on the topic.

  2. What happens if the inventor is married to a patent examiner, who, under 35 U.S.C. 4, is forbidden from holding any interest in patent rights except through inheritance? Before this ruling, I would have said maybe it doesn’t matter, because the inventor would be the only one actually holding rights in the patent. But now, it would seem that there’s an additional wrinkle to consider. Would the examiner have to file a paper disclaiming all rights in the patent application to avoid the USPTO denying it a filing date, or would that disclaimer be automatic on the basis of the statutory exclusion?

    1. APoTU, for inventors who are employed, the spouse has community property interest in the wages and the patent is properly assigned to the company.

      The problem may arise with individual inventors and their spouses.

      I am sure that having married examiners file a disclaimer as you suggest will go down well — particularly in California.

      Alternatively, provide an interpretation of the statute that community property title will be treated the same as inherited title. This might go down a tad bit better — trust me.

      1. Ned,

        You spout nonsense. Why do you do so and not address the counter points raised to you?

        Clearly, you CANNOT assume that an employee has ANY particular type of employment agreement signed that would do as you so presumptuously declare.

        You ask for trust when you show no reason to give you such trust.

        For shame.

  3. The pro per Plaintiff goofed. The CAFC made clear that the ex-wife was only awarded in the divorce an equitable interest in the proceeds derived from the patent. And that is NOT legal title — which means she did not have to join the Plaintiff’s infringement suit. The CAFC held only that the Plaintiff failed to prove he had standing absent the ex-wife’s participation. Not that he couldn’t prove standing without her — he simply didn’t. The CAFC would have reversed and held he had standing had he made the equitable interest argument on appeal.

    1. And that is NOT legal title

      Dan, I think you missed the point that legal title by the wife existed so as to place the patent into the communal property bin, so that the mechanism of equity affects that personal property.

    1. anon, the hubby dropped his only defense, i.e., that the wife’s title was equitable.

      One wonders why?

      1. Why do you think that is was so?

        (sorry not to comment directly on the immediate case itself yet, – still need to read it)

      2. OK Ned, read the case. Why do you think the hubby punted and basically admitted that the wife’s title was legal?

        Perhaps because the cited Florida case (Gulbrandsen v Gulbrandsen) painted a not-so-good picture? While the remedy was equitable, the marital assets ownership was of legal title:

        Florida law is clear that a trial court may award one spouse one-half of the other spouse’s ownership interest in a closely held corporation. Although such awards are not favored and may well produce friction or additional litigation between the former spouses, one of whom essentially becomes a shareholder in the other spouse’s post-judgment business activity, this is an equitable remedy and the former wife obviously believes that it will produce future income for her.” (the patent in that case was being discussed with the corporation).

        1. Why did the hubby abandon his only defense that made sense? You got me.

          If he had legal title, that ended the dispute about standing. He should have figured that out.

          1. Ned,

            That’s just it: his only defense did not make sense – see the note about the cited Gulbrandsen case at my comment 2.1.2.

            My guess would be that counsel recognized that the argument was a loser and could not pursue it at appeal.

            You know – an ethical thing to do when one realizes that their mantra is based on a fallacy…

  4. So… Joe Inventor, husband of Mary Inventor and an employee of BigTech, invents something useful, a patent is applied for and eventually granted, and BigTech believes that it holds title to the patent as a result of the assignment provision in Joe Inventor’s employment agreement as well as the assignment to BigTech that he executed specifically in connection with that invention.

    A few years later BigTech sells the patent to an NPE and slips them a few claim charts reading the claims on the products of their competitor MegaNano. NPE sues MegaNano for infringement.

    Can MegaNano end the case by getting a license from Mary Inventor? Should BigTech have paid Mary Inventor to assign her rights to BigTech? Are all of BigTech’s rights in patents invented by married employees impaired? Will Mary demand a piece of the backend from NPE and buy herself a nice ranch in East Texas?

    1. Might depend on state law and the facts. But, I believe in some states one spouse has the ability to sell or dispose of marital property (while the couple are still married). So the assignment even without Mary’s signature may be enough. Any lawyers of this type out there though that have something more definitive?

      1. Anonymous,

        In separate conversations I have previously stated such and recommended that Chisum Chapter 22 be reviewed.

      2. Almost all property during marriage can be sold by one spouse usually. When you sell a computer, a car, old clothes, don’t usually need your spouse’s permission. I think what happens is then the money/ consideration you receive for that assigment becomes martial property which both spouses have access to. i.e. you assign your patent rights to a company for a royalty, company gives you royalty, spouses can then fight over who gets what amount of the royalty but not whether the patent was assigned or not.

      3. If the invention/patent is assigned pursuant to the employee-inventor’s employment obligations, it was never that person’s property. It was ab initio the employer’s property.

        So it was never marital property.

        Now, you might obtain a different situation (and requiring review of relevant state laws) if the patent is obtained by the inventing spouse outside of an employment obligation, and then is assigned (during the marriage) to a new employer or other such entity. But even then the non-inventing soon-to-be ex-spouse should not have a claim on the patent as property, just a claim to the proceeds that if any that are marital property.

        1. Mellow, Possibly not correct.

          I suggest that you review the Stanford v. Roche case and note that the argument for ab initio belonging to the employer was flat out rejected by the Supreme Court. Ab initio, ALL inventions first and automatically belong to the inventor, regardless of employment agreement. That first vesting is what accords from the Constitutional clause, and is one of those things that simply must be. That is a starting point – no matter which state law you then seek to employ.

          1. Thanks.

            Moving away from marriage, what other issues crop up? Just thinking out loud…. in all of my employment contracts I have agreed that any inventions and confidential information I develop belong to the employer and that I must assign and maintain confidentiality.

            But S v. R says that my inventions at least initially vest with me, based on what the constitution says about giving Congress the authority to set up the patent laws enabling grant to inventors exclusive rights in their invention.

            What if I turn in an invention disclosure to my employer and no patent application is made? (E.g., many times this is the case for manufacturing process inventions – the employer would prefer not to disclose difficult-to-police inventions.)

            Is the patent act (and Ar.1, 8/8) only engaged if a patent application is actually filed? Likely not.

            So if no patent app is filed – as when the employer wants to keep a manufacturing invention confidential – should the employer nonetheless formally obtain an assignment of the invention from the inventor employee?

            What about the ~ 50-70% (or more) of invention disclosures coming in to companies with large R&D depts that are never filed for patent (because they’re just not worth filing on)? But which the employer would still nonetheless want to hold as confidential, and own – must it obtain assignments to all of those? And if it does not, then does the inventor actually own all those (unfiled) inventions?

            Can he take them with him when he leaves the employer?

            Can he publish them against the employer’s wishes, and in “breach” of the employment contract’s confidentiality clauses? Most likely not, but if not, then the idea of his “ownership” of the invention is just window dressing because he can do absolutely nothing with it.

            How do we define the “invention” that is subject of Ar.1, 8/8 anyway? Is an unpatentably obvious (but still commercially valuable) tweak on a manufacturing process nonetheless an “invention” that is vested in the inventor? Or is it some lesser category of a thing which, if not an invention, can pass directly to the employer’s ownership?

            1. As I have said many times over the course of many threads, the inventor/owner issues can easily become snarled in a swamp of state laws.

              As I suggested that Ned Heller do, I extend that suggestion to all: review Chisum, Chapter 22.

            2. “As I suggested that Ned Heller do, I extend that suggestion to all: review Chisum, Chapter 22.”

              If you think that answers the questions raised above, I’d suggest you’re the one in need of a refresher on §22.

              Regarding, “As I have said many times over the course of many threads…” – well, gee, sorry, Punkin, some of us only get around once a week (or less) and so must make our way through our pitiful lives bereft of the majority of your, uh, wisdom.

            3. LOL – you jump the gun way too early Mellow.

              First, refreshing yourself on what Chisum has to say on the inventor/owner issues is ALWAYS good advice.

              Second, I did not attempt to answer any of your specific questions as I would want you to check out Chisum first.

              Third, I suspect that you are not a lawyer to begin with ( if you were, then you would realize that at your filling out your firm’s invention disclosure paperwork has not created any rights whatsoever.

              At best, when you actually have a filing of an application, THEN you create what is called an inchoate right. In order to be able to do anything substantive with that right, you must turn that inchoate right into a firm right.

              Your snark is mightily misplaced. A gracious “thank you” would have been much more appropriate.

            4. refreshing yourself on what Chisum has to say on the inventor/owner issues is ALWAYS good advice.

              When you’re done licking his boots, don’t forget to shine the shoes in his closet, too.

              Seriously, man: pull your head out of your a– just so you’ll be a little less full of yourself.

            5. Yet another emtpy and vapid Malcolm post.

              Oh, that’s right, Malcolm does not think that Chisum is a (recognized – or otherwise) expert on patent law…

              As I recall, Malcolm bailed on an invitation to discuss Chisum on a particular issue.

              Funny, Malcolm has no shortage of ad hominem, but just try to get him to volunteer any meaningful comments on substantive issues and he just runs away (usually mumbling something about his burnt fingers)

            6. (anon) “Third… filling out your firm’s invention disclosure paperwork has not created any rights whatsoever.”

              That is a spectacularly incorrect response.

            7. Except it is not.

              (well, there is something new under the AIA that may in part be being created – but I am pretty sure that you did not have that in mind).

              So tell me Mellow, what is it that you have legally with a mere filled out invention disclosure form – and nothing more?

              Wow us all with your fantabulous legal prowess.

            8. (anon) “Third… filling out your firm’s invention disclosure paperwork has not created any rights whatsoever.”

              anon:

              Clearly the firm does have property rights in the invention disclosure (or more particularly, the subject matter/information provided in the invention disclosure).

              For you to argue that no rights whatsoever exist at that point is simply ludicrous. If anything more needed to be done to create property rights, the idea of employee-generated, employer-owned trade secrets would never have been developed.

              P.S., since we’re having this nice conversation, why do you so often retreat into your little catty comeback, “I suspect that you are not a lawyer to begin with”?

              Does it matter whether you’re discussing such matters with a patent agent or a patent attorney? Or a law grad? Or a law student?

              Snob much?

            9. Mellow,

              I can snob as much as I want given that I am 100% correct on this issue.

              Clearly the firm does have property rights in the invention disclosure (or more particularly, the subject matter/information provided in the invention disclosure).

              LOL – provide a citation as to this “property right.” And surely you want to mean more than just the physical property of the piece of paper, right? And just as clearly, you are not moving the goalposts to try to talk about trade secret rights, which require more than just the piece of paper, right – as I indicated at 1.1.3.1.1.7?

              And clearly, your lack of understanding of the law is less a dig against those groups you name and more a dig against you personally for making statements that you cannot back up – the irony being that you fail to see the ‘snob’ effect that you are bringing to the table, an effect that is not supported by actual knowledge.

              When (or if) you have that knowledge, then
              feel free to comment on style. Until that point, may I suggest that you put your energy into content, as your content is just not up to snuff.

            10. (anon) “Third… filling out your firm’s invention disclosure paperwork has not created any rights whatsoever.”

              and

              (anon) “LOL – provide a citation as to this “property right.” And surely you want to mean more than just the physical property of the piece of paper, right?”

              Look, Punkin, I’m sorry if you’ve never heard of the UTSA (Florida’s adoption of its version the UTSA), but trade secrets are indeed property rights.

              Now, if you want to decide post hoc that when you wrote “has not created any rights whatsoever” you didn’t really mean to write “not created any rights whatsoever”, then perhaps you’d better just admit that.

              As it is, what you wrote is “has not created any rights whatsoever”.

              As already mentioned, that is a spectacularly incorrect statement.

              Good luck to you in your pursuits.

            11. ?Look, Punkin, I’m sorry if you’ve never heard of the UTSA (Florida’s adoption of its version the UTSA), but trade secrets are indeed property rights.

              You jump too quickly Mellow, as I accounted for Trade Secrets in my comments, and noted that you need more than merely a paper to earn even trade secrets.

              Pay attention.

    2. State law might have something to say about the non-inventing spouse’s rights to IP that was contracted away as part of the inventing spouse’s employment agreement.

      1. MM, the wife has her interest in his income which is the husband’s compensation for the assignment of the invention.

        1. Ned,

          You miss the point that the patent itself is property and the wife has a communal interest in that very property.

          You appear to eager to remove the interest from the actual property to some type of measure merely related to the property.

          This is clear error.

          1. anon, community property?

            Where was that in the case?

            Regardless, there is no holding, at least that I know of, in the great state of Kalifornia that holds an inventor’s inventions are community property such that a company must obtain assignments from the spouse as well as their employee-inventors. If the state were to hold such, I am sure there just might be an issue of preemption.

            1. The California case we discussed previously did not get to that point due to a technical error by one of the spouses omitting the property from the list of properties.

            2. Can you develop your thoughts on preemption? Clearly we are talking about property and state law attributes as opposed to any direct federal question.

    3. responsible D, no, not on the facts you state.

      But let’s assume there is no legal assignment of the application or patent to Big Tech. All Big Tech has is an employment agreement. I has a present assignment of future inventions clause. But this is not a legal assignment, only equitable. They still must reduce it to a legal assignment and the employee might assert defenses such as that he was not an employee, or that the invention was made on his own time, etc.

      Until Big Company acts to perfect its rights, it is subject to losing them subsequent divorce settlement where the wife is granted her equitable and perhaps legal interest.

      At least that is the way I see it shaking out.

      Something similar happened in Stanford v. Roche where an equitable title was subject to later equities developed by others.

      1. Almost there Ned on Stanford v Roche

        …just not quite right yet.

        (it was less a matter of later developing title – legal or equitable – and more a matter of the School trying to force the inventor out of the picture as a type of preempted First Owner)

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