The Future of Expectancy Interests in Patent Rights

Justice Breyer’s dissent in Stanford v. Roche focused (in part) on what he suspected was an error in the Federal Circuit’s rule distinguishing a promise to transfer from an automatic future-transfer agreement.  Justice Breyer considers a pre-invention contract as creating equitable title in the invention and that, at least historically, courts did not automatically transfer of legal title to patent rights.  Breyer’s dissent has created a large amount of uncertainty in whether the Federal Circuit’s rule of enforcing automatic transfer agreements will remain in force.

The language of automatic future transfer agreements is certainly strained and requires some disconnect from reality.  Typically, when joining a company a new employee will “hereby assign” all rights to future inventions.  Of course, at that point the new employee has no future inventions and no rights to assign.  However, when the language is written correctly, the Federal Circuit rule operates so that rights to any future invention automatically transfers to the employer at the point of invention.  (Query later how to conceptualize the “point of invention).  In many other areas of property law, this type of futures contract would not result in an automatic transfer of property rights but instead only an equitable expectancy interest and contract damages if rights were not delivered.  Copyright has a special statutory provision for works-made-for-hire that handle this situation by automatically vesting rights in the employer.

In an interesting first-response to Stanford v. Roche, Professor Hagelin (Syracuse) argues that the language of the Patent Act requires that transfer of legal title in patent right can only take place after the patent application has been filed — and therefore that the Federal Circuit rule is wrong.

Hagelin writes:

Section 261 of the Patent Act prescribes how legal title to patents and patent application may be transferred. Section 261 states: “Applications for patents, patents, or any interest therein, shall be assignable in law by an instrument in writing.” Clearly, the Patent Act contemplates that a transfer of legal title to patents and patent applications can only be accomplished after the patent has issued or the patent application has been filed. The phrase “any interest therein” in Section 261 does not alter the Patent Act’s basic requirement that legal title to patents and patent applications can only be transferred after a patent has issued or a patent application has been filed. The phrase “any interest therein” refers directly to patent applications and issued patents and covers situations in which submitters may be joint inventors or multiple assignees.

. . . .

It would seem, therefore, that the Federal Circuit’s notion of an expectant interest transforming into a legal title by operation of law, without any further act on the part of the transferor, is a fiction which flies in the face of legal and practical realities. The only way legal title in an invention can be transferred from an inventor to another party is through a written document executed after a patent has issued, or after, or concurrently with, the filing of a patent application. It does not matter whether the employee-inventor has signed an employment agreement in which he or she has agreed to presently assign patent rights in future inventions. Legal title cannot pass to the employer until an assignment document is executed after a patent has issued or a patent application has been filed, and the assignment document is recorded with the PTO.

Hagelin’s notion that title cannot transfer without recording the transfer is wrong.   However, there is merit to the general point made by both Breyer and Hagelin — that the Federal Circuit automatic transfer rule has problems.