Divided Patent Ownership, Equitable Title, and Failed Assignments

by Dennis Crouch

Gellman v. Telular Corp. (Fed. Cir. 2011)

Issues of standing continue to arise in patent infringement litigation. Well established precedent requires that plaintiffs suing for infringement collectively hold "all substantial rights" in the patent being asserted. Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24 (1923). Thus, if two entities jointly own a patent, standing would only be proper if both entities jointly filed the infringement action. A lesser explored area of the law relevant to this case involves the requirements to prove ownership and the potential burden-shifting effect of assignment recordation.

Gellman's lawsuit involves U.S. Patent No. 6,075,451 which lists Mayer Lebowitz and Jim Seivert as co-inventors. (Seivert's name is misspelled as Sievert on the patent document). Both inventors are now dead. Lebowitz's rights to the patent are being held in trust and the trustee has argued that Seivert's rights to the patent were previously assigned to Lebowitz as well. Supporting that assertion is an assignment from Seivert to Lebowitz that was recorded in the USPTO assignment database in 1998. Unfortunately for the Lebowitz Trust, the assignment document filed with the PTO had a blank signature line and the Trust has been unable to produce any evidence that the assignment document was ever signed.

Three important consequences flow from a conclusion that Seivert never transferred his interest to Lebowitz. First, Seivert's heirs,  beneficiaries, or their assigns now share ownership in the patent. In this case, it appears that Seivert did not designate a beneficiary and therefore ownership is split amongst his heirs according to state intestate law. Second, the Lebowitz trust has no standing to sue because it does not hold substantially all interests in the patent. Third, absent prior agreement, each co-owner of a patent has the full right to offer a license to the defendants to practice the invention, normally without any accounting or compensation to the other patent owners. Here, in a filing with the district court the defendants have asserted that they have each obtained a patent license and release from the Seivert estate.

The Lebowitz Trust (Gellman) made two additional arguments in an attempt to prove that rights had been transferred: (1) the consulting contract and (2) the hired-to-invent doctrine.

The consulting agreement between Seivert and Lebowitz included a clause that any “ideas, discoveries, [or] inventions” by Seivert “shall be and remain the exclusive property” of Lebowitz. And, in addition, Seivert agreed “to execute any and all assignments” necessary.  The agreement had a major problem in that the only record available was unsigned.  In examining the contract, the Federal Circuit additionally found that the agreement was inadequate to prove that a transfer occurred even if it had been properly executed. In particular, the court indicated that the future promise to execute an assignment suggested that no transfer had previously occurred.  The court wrote (I would argue incorrectly) that “[o]therwise, the 'execute any and all assignments' language in the contract is surplusage without relevant meaning.”

In reading the promise to assign, the court agreed that it may create an equitable claim to title in favor of Lebowitz.  However, the law is clear that equitable title is insufficient to confer standing.

Of note, the court's interpretation of the contract appears to be based entirely upon Federal Circuit law rather than state law.

Hired to Invent: Normally patent rights are held by the inventors until those rights are assigned in a written agreement.  This is true even when the inventor is an employee and the invention was created within the scope of the employment. There are a few limited exceptions to this practice that transfer patent rights through operation of law rather than through written assignment. One historic exception is the “hired-to-invent” doctrine that some courts have used to transfer ownership of patent rights to an employer when the employee is hired to make a particular invention. See, e.g., Solomons v. United States, 137 U.S. 342, 346 (1890). This hired to invent doctrine cannot help the Lebowitz Trust here because the doctrine has been interpreted to create “creates only an obligation for the employee to assign to his employer.”

Affirmed. Case Dismissed for Lack of Standing.

Next Steps: If the Lebowitz Trust wants to pursue the lawsuit, it will need to first force transfer of rights from the Seivert estate and then refile the suit against the accused infringers.

19 thoughts on “Divided Patent Ownership, Equitable Title, and Failed Assignments

  1. 19

    Paul, Film Tec was a panel decision. Given the heavy criticism of the case from three Supreme Court justices, I think the Federal Circuit should go en banc to review that decision from two points of view:

    1) whether an agreement to presently assign a future invention is a legal assignment of the future invention or whether it creates only an equitable obligation to assign; and

    2) to what extent is the interpretation of assignment agreements governed by Federal Law as opposed to State Law.

    Obviously, given the criticism of Film Tec by the Supreme Court, that case is in doubt. As all of us must deal in assignments on a very frequent basis, it seems the Federal Circuit needs to promptly consider Film Tec en banc. Undoubtedly, that decision, whatever it is, has the constitutional issues aplenty. The Supreme Court would normally be interested.

  2. 17

    Paul, I presume that California law discussed in the LANDSLIDE article is consistent with the law described by the three justices, Breyer, Ginsburg and Sotomayor in their criticism of the federal circuits Film Tec series of cases which holds that a present assignment of a future invention is a legal assignment.

  3. 16

    You might want to consider that filing an unsigned assignment may have some effect on whether a subsequent purchaser is a BFP. At least this should put them on notice of a claim by the “assignee” to an equitable right the title.

  4. 15

    Also consider that filing an unsigned assignment may have some effect on whether a subsequent purchaser is a BFP. At least this should put them on notice of a claim by the assignee to an equitable right the title.

  5. 14

    for what the LAWYER charged to file the assignment, he had a duty to check for a signature before filing the document. Too late for a malpractice suit, maybe

    I’m not 100% familiar with all the facts here. But I believe that it can sometimes be difficult to sue your lawyer for doing what you demanded that they do.

  6. 13

    Three Justices have opined that Film Tec got it wrong: See the opinions of Breyer, Ginsburg and Sotomayor. link to law.cornell.edu

    In order for there to be a “legal” assignment of a future patent application, there must be an existing invention:

    CF, Nicolson Pavement Company v. Jenkins, 81 U.S. 14 Wall. 452 (1871)(assignment of a patent and the invention secured by the patent legally assigns later applications directed to the same invention)

    As discussed in the Breyer dissent, the well accepted law prior to Film Tec was that a present assignment of a future invention created only an equitable obligation to assign once the invention is made.

  7. 12

    Let me be more clear, Paul: perhaps Stanford’s attorneys believed that the state employee contract law wasn’t favorable to Stanford.

  8. 11

    And we all know that ABA LANDSLIDE articles are never wrong…

  9. 10

    “,i>Most recently the Fed. Cir. did so with far more serious consequences in Board of Trustees of the Leland Stanford Jr. University v. Roche Molecular Systems, Inc., 583 F.3d 832, 841 (Fed. Cir. 2009).”

    You really think that a patent question was not at the heart of that matter Paul? It was at least equal part federal question. Maybe it was not raised by the Stanfod attorneys because they looked into it and saw it was a loser argument.

  10. 9

    That ABA LANDSLIDE article seemed to suggest Stanford could have won on CA state contract law.

  11. 8

    inexplicably it had not raised by Stanford’s attorneys

    Well, there is certainly one obvious explanation (whether it’s true or not, I couldn’t say): the state employee contract law wasn’t favorable to Stanford.

  12. 7

    This continued ignoring of state contract law by the Fed. Cir. is ripe for a Sup. Ct. attack by someone. See for example the Jan./Feb. 2011 ABA IPL “LANDSLIDE” magazine article on p. 24 with extensive legal research on inconsistencies and conflicts in Fed. Cir. cases with basic Sup. Ct. principles on the [normal, unless federally essential] utilization of state law versus “federal common law”. Most recently the Fed. Cir. did so with far more serious consequences in Board of Trustees of the Leland Stanford Jr. University v. Roche Molecular Systems, Inc., 583 F.3d 832, 841 (Fed. Cir. 2009). I think Stanford’s attorneys, the Fed. Cir., and/or the Sup. Ct. should have had that case sent back for consideration of the applicable state employee contract law [instead of the Fed. Cir. making up its own contract law], as seemingly required by the fundamental Sup. Ct. Erie v. Tomkins decision, and subsequent Sup. Ct decisions. One Sup. Ct. Justice did note that it should have been considered below, in their June 6, 2011 U.S. Supreme Court decision in that Stanford case, but inexplicably it had not raised by Stanford’s attorneys.

  13. 4

    “the assignment document filed with the PTO had a blank signature line”

    Don’tcha love how the USPTO will take money for ANYTHING, even when the USPTO does NOTHING? (Think crappy 3-page provisional filed an hour before two guys seeking funding for their start-up meet with potential investors.) For 40 bucks or whatever it cost back then to record an assignment, you’da thunk the USPTO could have checked for a signature. And for what the LAWYER charged to file the assignment, he had a duty to check for a signature before filing the document. Too late for a malpractice suit, maybe, but it’s never too late for the long arm of the OED!

  14. 1

    will probably be decisive here, Lebowitz would have to sue the Seivert estate and all it heirs and obtain an assignment nunc pro tunc to the date of equitable obligation to assign first arose. The defendants in this case should have not equitable rights as a BFP, IMHO, due to the recording of the unsigned assignment in the PTO. That recording put the defendants on notice of the Lebowitz claim of ownership.

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