I’ve written about this issue: in a community property state, does the spouse of an inventor own the patent? The answer every “family law” expert I know of says yes; every patent lawyer says “no.” It’s come up in at least one CAFC opinion, and now came up tangentially in a non-prec opinion that did not decide the issue. That case, Taylor v. Taylor Made Plastics, Inc., is here. (Why does the opinion call James Taylor “James T.” and his wife “Mary T.”?)
Here’s my article on this, which I think I posted a few months ago somewhere. Someday this is going to matter, big time, or not!
DRAFT
A Fifty-Fifty Split: What if the Spouse of Every Inventor in a Community Property State has an Undivided Interest in an Invention?
By David Hricik*
I. Introduction
If you think the title raises a wild possibility, consider what happened in a recent case appealed to the Federal Circuit. After being sued for infringement, the defendant had the ex-wife of the inventor effectively grant to it any interest she had in the patent-in-suit. As a result, the defendant argued that there could be no infringement, both because lack of standing and because it had acquired an undivided interest in the patent.
It almost worked.
The Federal Circuit recognized that under California law the patent was “presumptively community property in which [the wife] had an undivided half interest.” Fortunately for the accused infringer, the wife had not listed the patent as community property when she was divorcing, and so the court held that res judicata precluded her from arguing that she in fact had an interest in the patent.
But, the odd facts of that case should not give great comfort. It is important to recognize that if something is community property, it means it belongs to both spouses. If the spouse of every inventor in a community property state has an undivided equal interest in every patent granted during marriage to the other spouse, then employers of inventors may need to obtain assignment of both spouse’s interests for the employer to have full title. If that is the law, then many patent infringement suits can proceed only if the spouse of the inventor is joined as a party. If that is the law, many companies do not own, outright, the patents that they believe they do.
This article shows, first, that every court that has addressed the issue has held that a patent issued during marriage to one spouse is community property. Second, many states hold that property rights can arise prior to issuance, and sometimes even at the time of conception. Third, it shows that the general rule appears to allow just one spouse to alienate personal community property, but with some exceptions. Finally, it describes the implications for this body of law on patent practitioners.
2. Basic Community Property Law
No federal statute addresses ownership of a patent application, let alone an “idea” that has simply been conceived: state law would apply. Likewise, the question of who has title to even an issued patent is a question of state law.
Eleven states currently follow community property law: Alaska, Arizona, California, Hawaii, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin. Obviously, the laws of these states likely vary significantly on some issues, but a few basic points seem true among them all:
The statutes of several community property states provide that each spouse has a present, vested, one-half ownership interest in community property with equal management…. The equal management statutes give each spouse managerial rights over community property. A spouse may prevent the disposition of certain community assets by the other spouse. Further, either spouse may contract debts during the marriage that may be satisfied with community property.
The concept expressed in the first sentence is worth repeating, since those unfamiliar with community property law often think of it as mattering only upon divorce. This is dangerously incorrect: when something is community property, each spouse owns it – then and there, not just in divorce court. Also, it is important to emphasize that the community presumptively owns all property acquired during marriage, each spouse holding an undivided equal interest.[6]
With these basic principles in mind, the first question is what is “property” under these statutes, and does it include intellectual property and, most particularly, inventions, patent applications, and patents?
2. “Property” Includes Patents, and Sometimes Applications and Even Intangible Intellectual Property.
As one would expect, “property” is construed very broadly.[7] As one court stated:
The word “property” is in law a generic term of extensive application. It is not confined to tangible or corporeal objects, but is a word of unusually broad meaning. It is a general term to designate the right of ownership and includes every subject of whatever nature, upon which such a right can legally attach. It includes choses in action and is employed to signify any valuable right or interest protected by law and the subject matter or things in which rights or interests exists.[8]
An issued patent is, of course, by federal statute to be treated as personal property under state law.[9] Thus, presumptively a patent acquired by one spouse during marriage belongs to the community, not separately to the inventor.[10]
Numerous divorce courts have divided patents issued during marriage as “property” under community property statutes[11] Typically these courts assume a patent issued during marriage is community property and do not analyze whether that assumption is correct.[12] Occasionally a court engages in at least a minor amount of analysis. For example, a Florida appellate court stated that “[c]ourts outside Florida have reached the same logical conclusion — a patent is personal property that may be the subject of equitable distribution when the inventor and his or her spouse dissolve their marriage.”[13] The Kansas Supreme Court is the only court to have engaged in a lengthy analysis of the question, stating in part:
Vincent believes that the interest in the patents does not have the qualities listed [in the definition of property.] This is not self-evident….
[I]ntellectual property, once it has been created, is less inextricably related to its creditor than other assets now characterized as marital property, such as pensions and professional goodwill. Unlike pensions and professional goodwill, rights in intellectual property are highly transferable, and title may be placed in the name of one who did not originally produce them.[14]
The point here is that state courts either assume or readily conclude that patents issued during marriage are community property.
In some states, a spouse has interests even before the patent issues, depending on which approach to the “inception of title” doctrine the jurisdiction takes:
Arguably, inception [of title] may occur at any of three times: (1) when the concept is sufficiently developed to generate a plan to build the invention [i.e., conception]; (2) when the invention is actually built [i.e., actual reduction to practice]; or (3) on the effective date of the patent [i.e., constructive reduction to practice].[15]
Courts have applied each view, though often not using the bracketed terms of art that patent practitioners would find comforting.
As an example of the first view, a California court divided patents that had been “perfected” during marriage but issued afterward.[16] In addition, in a rare case that provided somewhat extended discussion, a Florida appellate court reasoned that a patent application was property that was subject to equitable division because it had been “deemed sufficiently well developed to submit to the federal patent authorities on a non-provisional basis.”[17]
As an example of the third view, a Washington appellate court held that a patent issued during the marriage was community property even though the invention had been conceived prior to marriage.[18]
Some courts adopt a muddled view that seems to reflect both the third and first views. For example, the Supreme Court of Hawaii stated that “a patent does not exist until it is granted,” and so there was no property right “unless and until the patent issues.”[19] Nonetheless, it recognized that in making equitable division trial courts should determine “whether there was value in the pre-patent intangible intellectual property and the patent itself.”[20]
This shows that patents, and in some states applications and even merely conceived inventions, are “property.” All property acquired during marriage is presumptively community property, belonging to both spouses, not just the inventor.
The approach of state courts and state divorce lawyers to this question stands in stark contrast to common patent practice, at least as I know it. In my experience patent practitioners do not obtain assignments from an inventor’s spouse. Similarly, a key treatise on acquisitions makes no mention of spousal rights even as a part of due diligence during acquisition of patents. I have never seen litigated the question of whether an inventor’s spouse must be joined as an indispensable party to a patent infringement brought by the inventor’s assignee.
The incongruity between how patent lawyers and divorce lawyers look at spousal rights is significant: if the state courts are right, then spouses may have rights in patents that assignees may think they own outright. If the spouse has an undivided equal interest in the patent, then they have the unfettered right to do exactly what the assignee can: sue, license, or otherwise enforce the patent. Either state divorce courts or patent lawyers have it wrong.
Whether those rights exist means turns on the myriad facts that can arise, as well as application of particular state law. This article cannot examine all the permutations, but instead next includes several scenarios that may commonly arise where state courts have found that the spouse holds an ownership interest. It concludes by describing potential avenues to reduce the uncertainty that may face assignees, attorneys, inventors, and spouses.
II. Federal Statutes Governing Ownership of Patents and Common Practice
The Constitution of the United States rejects the proposition that inventions should at least initially belong to anyone other than their creator. In light of this, federal statutes provide that a patent must be applied for in the name of the inventor. If nothing further is done, the patent will issue in the inventor’s name. At that point, state law determines ownership. “It is important to note that only inventorship, the question of who actually invented the subject matter claimed in a patent,’ is a question of federal patent law. ‘Ownership, however, is a question of who owns legal title to the subject matter claimed in the patent, patents having attributes of personal property.’” Consequently, for example, absent written assignment, an inventor’s employer will not own any patent naming the employee as the inventor. This is true even if the employee uses only the employer’s equipment to make the invention and is paid a general salary while conceiving of or reducing to practice the patented invention.
State law determines whether there is an obligation of assignment and its scope. By federal statute, assignments are to be construed under state law. Thus, the Supreme Court has held that state courts “may try questions of title, and may construe an enforce contracts relating to patents.” Similarly, state intestacy laws govern ownership of patents of deceased inventors, and foreign intestacy laws govern patents owned by foreign individuals.
There are other circumstances where state law determines ownership of an invention. The point here is that nothing in the Patent Act, at least, indicates that state marital property law should not also apply. Thus, absent operation of state law to the contrary, the inventor owns the patent.
As a result, it is routine for corporations and other entities that employ those likely to invent patents to require that employees assign any ownership rights to the entity. The assumption is that because the inventor has assigned his invention to the entity, the entity holds full legal title, and thus is the not just the only party with standing to enforce the patent, but also the only party necessary to enforce the patent. All rights, lawyers and assignees believe, belong to the assignee.
Consistent with this practice and beliefs, in my experience no patent lawyer seeks assignment of any right from any inventor’s spouse. The form assignment used by patent practitioners that originated with the USPTO does not do so. Thus, if the spouse has an interest, then on its face the typical form and practice do not accomplish assignment of the spouse’s interest, especially – for reasons that will become clear — if the assignment is obtained after the patent has issued. The next question is: does the spouse have an interest?
III. State Court Application of Community Property Laws to Patent Ownership
The precise contours of each particular community property state are beyond the scope of this article. No doubt in particular circumstances those facts will matter greatly. However, three basic principles seem to apply across the jurisdictions, with no doubt differences at their margins but not at their core.
First, the community presumptively owns all property acquired during marriage, each spouse holding an undivided equal interest in the whole. While it is just that – a presumption – nonetheless it is the starting point.
Second, with narrow exceptions addressed below, one spouse cannot alienate community property; only both spouses can. For example, a Louisiana statute provides:
A spouse may not alienate, encumber, or lease to a third person his undivided interest in the community or in particular things of the community prior to the termination of the regime.
Under this statute, any contract not signed by both spouses to alienate community property is void.
Again, the statutes and case law do vary. Washington has a similar statute, but requires that both parties sign any agreement conveying community property only if it is real property. Thus, it may be that in some community property states patents may be alienable by only the inventor.
Third, with respect to personalty, “property” is construed very broadly. As one court stated:
The word “property” is in law a generic term of extensive application. It is not confined to tangible or corporeal objects, but is a word of unusually broad meaning. It is a general term to designate the right of ownership and includes every subject of whatever nature, upon which such a right can legally attach. It includes choses in action and is employed to signify any valuable right or interest protected by law and the subject matter or things in which rights or interests exists.
Patents are, of course, by federal statute to be treated as personal property under state law. Thus, presumptively a patent acquired by one spouse during marriage belongs to the community, not separately to the inventor. As next shown, that is in fact the result that the courts have uniformly reached in the family law context, when addressing divorce, alimony, or child support.
While patents are personal property and treated as such by state courts, there is less agreement on whether intangible intellectual property that leads to or could lead to a patent is community property. The “inception of title” doctrine is a critical concept in community property states, and perhaps should be to patent lawyers, because if title is obtained prior to marriage, that property is separately owned. Thus, for example, if a husband conceives of an invention during marriage, and then gets divorced, the spouse may have an interest in any resulting patent. Conversely, if title only arises when the patent issues, then the spouse would have no interest in patents issued after divorce from an employed inventor.
The state courts have recognized that inception of title to patent rights can occur before a patent issues:
Arguably, inception [of title] may occur at any of three times: (1) when the concept is sufficiently developed to generate a plan to build the invention [i.e., conception]; (2) when the invention is actually built [i.e., actual reduction to practice]; or (3) on the effective date of the patent [i.e., constructive reduction to practice].
Courts have adopted the second view. For example, a Washington appellate court held that a patent issued during the marriage was community property even though the invention had been conceived prior to marriage. A California court likewise divided patents which had been “perfected” during marriage. In a rare case that provided somewhat extended discussion, a Florida appellate court reasoned that a patent application was subject to equitable division because it had been “deemed sufficiently well developed to submit to the federal patent authorities on a non-provisional basis.” Thus, a spouse can have an interest in patent applications filed during marriage, not just patents issued during marriage.
Some courts adopt a muddled view that seems to reflect both the third and first views. For example, the Supreme Court of Hawaii stated that “a patent does not exist until it is granted,” and so there was no right protected “unless and until the patent issues.” Nonetheless, it recognized that in making equitable division trial courts should determine “whether there was value in the pre-patent intangible intellectual property and the patent itself.” Further, it held that a trade secret became community property when the trade secret had presently existing value. “[O]ne ‘owns’ a trade secret when one knows of it….” This holding could, of course, create a conflict between the spouses over whether to file for a patent application or to maintain protection of the invention only as a trade secret. The employer’s interests may conflict with the spouse’s.
Numerous courts have divided patents issued during marriage as “property” under community property without needing to address whether inception of title could have occurred earlier. Several cases have simply assumed that patents are community property subject to division by just dividing them.
Typically these courts assume a patent issued during marriage is community property and do not analyze whether that assumption is correct. Occasionally a court engages in at least a minor amount of analysis. For example, a Florida appellate court stated that “[c]ourts outside Florida have reached the same logical conclusion — a patent is personal property that may be the subject of equitable distribution when the inventor and his or her spouse dissolve their marriage.” The point here is that frequently state courts either assume or readily conclude that patents issued during marriage are community property.
The Kansas Supreme Court is the only court to have engaged in a lengthy analysis of the question, stating:
Vincent believes that the interest in the patents does not have the qualities listed [in the definition of property.] This is not self-evident. The business plan, which is built on the patented concept, undoubtedly will be used in an effort to raise capital for the enterprise. Thus, there is a sense in which the patents may be said to have loan value. Another, perhaps more typical, arrangement is for a patent holder to enter into a licensing agreement with a manufacturer/distributor for use of a patent. Consideration under the licensing agreement might be a lump sum. An initial fee and royalties is another likely form for consideration to take.
The court went on to state that:
[I]ntellectual property, once it has been created, is less inextricably related to its creditor than other assets now characterized as marital property, such as pensions and professional goodwill. Unlike pensions and professional goodwill, rights in intellectual property are highly transferable, and title may be placed in the name of one who did not originally produce them.
Thus, state courts either assume, conclude, or have held that patents issued during marriage are community property. The most-cited treatise by these courts as indicating that patents are community property does not aggressively take that position, instead discussing the cases and stating among other things that “a spouse would expect to share as fully in intellectual property acquired during marriage as in any other variety of property.”
Finally, while obviously income from patents that are community property belongs to the community, the majority of courts that have addressed the issue have also held that income received during a marriage from even separately owned patents is community property.
III. Federal Law Allowing for Prosecution by Persons With a Proprietary Interest in the Application May Permit Spouses to Control or Interfere with Prosecution.
While it is clear that an assignee of the entire interest in application may prosecute it, federal law sometimes permits even those with merely a “proprietary interest” to continue and even undertake prosecution, at least where the inventor refuses to do so. Specifically, Section 118 of the Patent Act states:
Whenever an inventor refuses to execute an application for patent, or cannot be found or reached after diligent effort, [1] a person to whom the inventor has assigned or agreed in writing to assign the invention or [2] who otherwise shows sufficient proprietary interest in the matter justifying such action, may make application for patent on behalf of and as agent for the inventor on proof of the pertinent facts and a showing that such action is necessary to preserve the rights of the parties or to prevent irreparable damage; and the Director may grant a patent to such inventor upon such notice to him as the Director deems sufficient, and on compliance with such regulations as he prescribes.
The PTO has interpreted this statute to permit heirs, for example, to not only continue prosecution upon the death of an inventor, but to file an application for an inventor who dies prior to filing the application. The heirs thus must have a proprietary interest in the application or patent.
Does a spouse in a community property state? The meaning of “proprietary interest” would seem to encompass rights of a spouse in a community property state. “A ‘proprietary’ interest at the very least suggests some element of ownership or dominion….” Given, as shown above, that a spouse in a community property state may have an undivided equal interest in the patent, that interest would clearly qualify as “ownership or dominion.” Thus, federal law would seem to permit spouse to control prosecution if the inventor dies.
IV. Possible Ways to Defeat a Spouse’s Interest
A. Federal Preemption of State Community Property Law
Courts have uniformly held that state law determines ownership of patents – in every context in which the issue has arisen. Federal law thus is held to apply, and so there is no conflict, and nothing to preempt state law.
In fact, the few courts that have analyzed whether federal law preempts state law have each rejected preemption, though without rigorous analysis. Divorce lawyers believe there is no conflict between state and federal law. As a leading commentator wrote:
The federal statute on the transfer of patents, 35 U.S.C. § 261, states generally that patents constitute property and that they are subject to assignment. Courts considering the issue have held that an inventor’s creditors can reach the inventor’s patents, although with somewhat more difficulty than other types of assets. 60 Am. Jur. 2d Patents § 1168 (1987). Given these points, there is general agreement that federal law does not prevent a court from treating a patent as divisible property in a divorce case.
Significantly, state courts have not analyzed this question at length, but instead seem to accept the proposition that patent law does not preempt state community property law. State courts regularly divide patents among divorcing spouses — despite federal statutes and the Constitution and the obvious federal source of patent rights.
There is a distinction between the cases that apply state law relied upon by these courts and applying state law in this context: in the other instances, the state law determines who owns a patent or application from the inventor, while application of community property law divests sole ownership from the inventor.
B. The Exception for Sole Management Community Property
Some states allow one spouse to alienate certain property, even if community property. The Washington Statute quoted above, for example, requires both spouses to consent to alienation of real, but not personal, property.
Other states recognize similar doctrines, including recognizing that some community property is, nonetheless, subject to the “sole management” of one spouse. Under this doctrine, it may be that an invention qualifies as “sole management” community property, and so assignment by the spouse is not required
C. Estoppel
Estoppel likely would not be a useful tool at least in those states that require that both spouses engage in the conduct that gives rise to the estoppel. So, for example, in an Arizona case the fact that the husband engaged in conduct that might have estopped him from denying an agreement to sell property did not mean that the wife, or the community was estopped. While facts could of course give rise to an estoppel against both, in routine transactions that seems unlikely.
IV. Application of State Law to Common Fact Patterns
As explained in the introduction, accused infringers have raised ownership interests in spouses as a defense to standing in a few cases, but have lost due to procedural issues. The case law suggests that there may be more opportunities for this defense, and some thorny issues concerning ownership of existing patents that lawyers and owners of intellectual property need to consider.
Suppose, for example, that an inventor acquires a patent while married. If the buyer fails to obtain assignment from the spouse, then the buyer may acquire merely an undivided equal interest with the inventor’s spouse.
Or, suppose that the employee is subject to an obligation to assign any patent issued during assignment. The spouse may have an interest in a patent application filed on that invention before the obligation to assign the patent arises. Again, the purported assignor may own only an equal undivided interest in the patent.
There are myriad fact patterns that could arise. State law may provide the answer to some of them, indicating that the spouse has no interest, or that the inventor alone can alienate the property. But where state law indicates that the spouse has an interest, then only if state law is preempted or the spouse assigns its interest can the assignee feel comfortable in believing it owns full and clear title.
V. Conclusion: What to Do?
As noted at the outset, this article was intended to raise the issues arising from the conflicting approaches of divorce lawyers and patent lawyers to patent ownership. It may be that state laws will need to be reformed to exclude patents from community property, or to allow for the inventor to alienate all rights without its spouse’s consent. It may be that a condition of employment must be that the spouse either relinquish any community property rights or to permit the inventor to alienate any intellectual property rights without permission.
In pending cases, there may be standing defenses that can be raised, since the plaintiff may not have full title. Further, particularly thorny issues may face corporations that have acquired intellectual property from inventors or from small companies in bulk without due diligence on these issues.
