by Dennis Crouch
The Federal Circuit has decided an important employment agreement case. Omni MedSci v. Apple (Fed. Cir. 2021).
Dr. Islam is a professor at Michigan (UM). Back in 2012 though he took an unpaid leave-of-absence to start a LASER company. During that time he filed a number of patent applications that came from his time on-leave and that he assigned to Omni. However, UM argued that it owned the patents based upon his employment agreement; that it had expended some ongoing funds; and that Islam had bounced ideas off of some of the faculty members. This argument between Islam and UM was internal. UM did not file any paperwork with the PTO attempting to claim ownership and UM is not a party to the present litigation.
Omni later sued Apple for infringement, but the iPhone giant argued that Omni lacked standing since UM was the real patent owner. The district court sided with Omni — finding that Omni had received rights from the inventor, and that Islam had not assigned his rights to UM. On appeal, the Federal Circuit has affirmed.
The basic question is whether the Islam’s employment agreement with UM caused his inventorship rights to be automatically transferred in this situation.
Lets look at the contract. Here are the relevant clauses:
1) Patents … acquired as a result of or in connection with administration, research, or other educational activities conducted by members of the University staff and supported directly or indirectly (e.g., through the use of University resources or facilities) by funds administered by the University regardless of the source of such funds, and all royalties or other revenues derived therefrom shall be the property of the University.
* * *
4) Patents, copyrights, and property rights in computer software resulting from activities which have received no support, direct or indirect, from the University shall be the property of the inventor, author, or creator thereof, free of any limitation which might otherwise arise by virtue of University
employment.5) In cases which involve both University-supported activity and independent activity by a University staff member, patents, copyrights, or other property right in resulting work products shall be owned as agreed upon in writing and in advance of an exploitation thereof by the affected staff member and the Vice-Provost for Research in consultation with the Committee on Patents and Copyrights and with the approval of the University’s Office of the General Counsel. It is understood that such agreements shall continue to recognize the traditional faculty and staff prerogatives and property rights concerning intellectual work products.
Both the district court and appellate court agreed that the agreement was not a present assignment of future inventions. “It does not purport to effectuate the present transfer of a present or future right.” Rather, at most, the language “reflects a future agreement to assign.”
Judge Newman wrote in dissent and argued that “these patents are the property of the University.”
Although both the majority and dissent conclude that the issue is a matter of contract law, neither cite to the governing law of contracts for this case–the law of Michigan.
Thanks for your last paragraph Dennis. As noted several times before on this blog, the continued Fed. Cir. imposition of its own version of a “federal contract law” [instead of applying the contract law of the state] to contract disputes that do not require any application or interpretation of the patent statute or patent law is ripe for a Sup. Ct. cert attack as contrary to the fundamental and long standing Sup. Ct. Erie v. Tomkins requirements. See, for example the Jan./Feb. 2011 ABA IPL “LANDSLIDE” magazine article on p. 24 with its 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 old “federal common law.”
P.S. It is amazing that the University of Michigan would still have an employment agreement provision like this after the well known prior Fed. Cir. Stanford University decision on this subject.
Truthfully, the I assumed that the contract should be interpreted under Michigan law. In fact, the case does not even mention what law governs. It is as if Erie never happened.
This paper makes the Erie critique.
link to scholarship.law.ufl.edu
Thank you for the U. of FL Law Review article cite. [link to scholarship.law.ufl.edu ] I am amazed this subject of broad applicability has not properly drawn more serious legal academic interest. This is by no means the first or only case of Fed. Cir. source-of-law overreach and prior Sup. Ct. reversals.
It still has not been established that there HAS BEEN overreach here, Paul.
A portion caught in filter and not reproduced below is that there may well be a reason why neither the majority or the dissent discussed whether or not state law is the controlling aspect — for example, the lower court may have properly applied state law and neither party has made that an issue at the appeal level.
I do NOT know whether or not this is the particular case here — but critically, neither do you or the other academics chiming in here.
The U. of FL Law Review article also demonstrates Fed. Cir. inconsistency on this issue. Footnoting “See Jim Arnold Corp. v. Hydrotech Sys., Inc., 109 F.3d 1567, 1571–72 (Fed. Cir. 1997) (“It may seem strange at first blush that the question of whether a patent is valid and infringed ordinarily is one for federal courts, while the question of who owns the patent rights and on what terms typically is a question exclusively for state courts. Yet that long has been the law.”); see also Sky Techs. LLC v. SAP AG, 576 F.3d 1374, 1379 (Fed. Cir. 2009), cert. denied, 130 S. Ct. 2343 (2010).” [Contrast in this same article other cited Fed. Cir. decisions on patent ownership, security interests, etc., completely ignoring state contract law (like the subject case here of Omni MedSci v. Apple (Fed. Cir. 2021).)]
I don’t really understand the Erie objection. Obviously, Erie itself took place in the context of diversity. It didn’t purport to address cases based on federal question jurisdiction.
Apply Erie’s rationale in the patent context doesn’t make a great deal of sense either. In diversity cases, you can at least point to the interest of states retaining control over the very core of their commercial and tort laws. And, I think more importantly, there’s no, or hardly any, countervailing federal interest present. Indeed, if anything, there’s a quasi-“equal protection” federal interest against permitting the sort of “forum shopping” that existed pre-Erie.
But none of those concerns have much relevance in patent cases, at least those like the one being discussed here. The state interest in controlling patent assignments in particular seems minimal at best. In contrast, a countervailing federal interest does exist. Not only that, but it’s also substantial. There’s a strong and important need for uniformity in cases arising under the exclusive federal patent jurisdiction. And likewise, no federal/state forum shopping concern is present because exclusive jurisdiction prevents that already.
Finally, I don’t understand how the UFL paper is making an “Erie critique” either. It doesn’t even mention Erie by name. (I’ll of course grant that it can invoke Erie without mentioning it expressly.) And it only refers to invention assignment cases like this one in passing. Moreover, the references only serve to distinguish such cases from the actual focus of the paper, which seems to be APAs, secured transactions, and bankruptcy etc. I suppose you nevertheless could view those passing references as some kind of oblique criticism of the invention assignment caselaw, but that’s a bit of a stretch and I don’t see it that way.
If SCOTUS perceives a serious problem with that caselaw, it’s had upwards of two decades since Arachnid et al. to take action or at least speak up on the topic.
A parting caveat that I’m unable to access the Landslide article Paul Morgan references. I might adjust my take if I ever have a chance to study that article.
I am not sure whether it was appropriate for either the majority or dissent to note the controlling contract law — was that point at issue from either party?
I cannot tell without the decisions below whether or not “Federal Common Law” IS being applied here (and neither can Paul or Prof. Crouch).
Anyone have a view into:
“The Eastern District of Texas concluded that para- graph 1 of bylaw 3.10 was not a present automatic assign- ment of title, but, at most, a statement of a future intention to assign. Omni Medsci, Inc. v. Apple Inc., No. 2:18-cv- 00134, ECF No. 276 (E.D. Tex. Aug. 14, 2019) (“District Court Op.”). The district court thus concluded that dismis- sal was improper. Id. at 1. The case was thereafter trans- ferred to the Northern District of California. Apple filed for reconsideration, which the district court denied, finding “no manifest error” in the Eastern District’s decision. Omni MedSci, Inc. v. Apple Inc., No. 19-cv-05924, ECF No. 346 (N.D. Cal. Nov. 25, 2019).”
… and whether the Texas court states what law it applied in its “no manifest error” decision?
Please pardon potential rePeat (f a t fingers)
I cannot tell without the decisions below whether or not “Federal Common Law” IS being applied here (and neither can Paul or Prof. Crouch).
Anyone have a view into:
“The Eastern District of Texas concluded that para- graph 1 of bylaw 3.10 was not a present automatic assign- ment of title, but, at most, a statement of a future intention to assign. Omni Medsci, Inc. v. Apple Inc., No. 2:18-cv- 00134, ECF No. 276 (E.D. Tex. Aug. 14, 2019) (“District Court Op.”). The district court thus concluded that dismis- sal was improper. Id. at 1. The case was thereafter trans- ferred to the Northern District of California. Apple filed for reconsideration, which the district court denied, finding “no manifest error” in the Eastern District’s decision. Omni MedSci, Inc. v. Apple Inc., No. 19-cv-05924, ECF No. 346 (N.D. Cal. Nov. 25, 2019).”
… and whether the Texas court states what law it applied in its “no manifest error” decision?
The CAFC never explicitly mentions that the case is governed by Michigan law, but they appear to acknowledge as much when they cite (slip op. at 8) Drouillard v. Am. Alternative Ins. Corp., 929 N.W.2d 777, 779 (Mich. 2019) as authority for their construction of contract terms. In other words, it appears that the distinctions between federal common law and MI law are not outcome determinative here, because both sets of precedents point in the same direction on this point. I wonder if the choice of law issue was even contested?
Excellent point. I was still in mid-composition above and didn’t have the benefit of this before commenting.
That said, I don’t think it contradicts what I said above or necessarily indicates any inconsistency. I don’t find it improper for CAFC to take a hybrid approach where it applies the relevant state-law principles in many aspects of interpretation, but still reserves the ultimate assignment question for itself as a matter of “federal common law” for patent cases. That seems to be exactly what happened in DDB for example.
I’ll also take this opportunity to say that SCOTUS itself has on occasions felt the need to disregard/commandeer state courts’ interpretation of state contract and other law when it felt that a federal interest needed protection. A classic fed courts example is Anderson v. Brand. More recently and (in)famously, there’s Bush v. Gore.
Thanks Greg, but this decision on page 6 says: “We apply federal law to determine whether the contract here created an automatic assignment or created an obligation to assign, because that question is “intimately bound up with the question of standing in patent cases.”
Thanks Paul.
But that does sound different than being State contract law, now doesn’t it?
[But note that the disputed issue here is the “choice of [case] law” for a disputed private contract language interpretation, not any “standing” legal issues. [An interpretation disputed by Judge Newman in her dissent.]
I note that the dissent would frame the issue like that.
I also note that the majority clearly did not agree with the dissent and DID frame the issue LESS as “contract” and MORE as “standing.”
link to cafc.uscourts.gov
Thank you!
There’s no link to the opinion. Just from the contract language and the facts involved though, it seems like the majority is right and Newman is wrong.
Au contraire. It’s pretty straightforward:
prof gets no help from U – it belongs to prof.
Prof does it as part of his activities at U/supported by U – belongs to U.
Hybrid, with some developed independently and some as a result of work at U – subject to separate agreement between the parties.
It’s not a future promise to assign. Sounds like majority wants it to be worded “belongs to” instead of “shall belong”, but seeing how the contract covers all cases, I don’t see how there’s room that.
And I don’t see why CAFC gets to impose its own made-up contract law on Michigan contract law.
AM,
Thanks – without a closer read (in other words, you may be right, but on the surface), I do tend to look at this AS a standing over state contract decision, AND that agreeing to by-laws is NOT an effective actual assignment.
Compare and contrast with Stanford’s efforts in a similar vein.
I do GET what Newman is saying. Here though, I think that Newman is applying her OWN common sense approach to what a “contract is” (and that application of common sense – coming from Dame Newman may indeed be wise – is just NOT controlling).
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