January 10, 2011
LES Insights
Authored by D. Brian Kacedon, David K. Mroz, and John C. Paul
When corporations undergo changes in corporate form, structure, or state of incorporation, enforcement problems may occur if the chain of title of patents owned by the original corporation is overlooked. Specifically, if the chain of title is broken, a successor company intended to be the patent owner may be unable establish that it is the proper owner of the patent, and a court may find that that it does not have standing to sue and enforce that patent. In Tri-Star Electronics Int'l, Inc. v. Preci-Dip Durtal SA, No. 2009-1337 (Fed. Cir. Sept. 9, 2010), the United States Court of Appeals for the Federal Circuit addressed the issue of a plaintiff with potential chain of title problems due to a corporate reorganization.
In Tri-Star, the asserted patent was initially assigned by the inventor through an employment contract to his employer, Tri-Star Electronics International, Inc., and its "successors, legal representatives, and assigns." This assignment document, executed in 1999, stated that Tri-Star Electronics International, Inc. was an Ohio corporation. Four years before the execution of this assignment, however, Tri-Star Electronics International, Inc. ("Tri-Star Ohio"), merged into a newly created California corporation with the same name ("Tri-Star California"). This meant that Tri-Star Ohio technically did not exist when the inventor assigned the asserted patent to it. In 2005, after both the assignment and the merger, Tri-Star California merged into a newly created Delaware corporation with the same name ("Tri-Star Delaware"). This new entity initiated the lawsuit mentioned above, asserting the patent assigned by the inventor to Tri-Star Ohio in 1999.
During the lawsuit, the defendant argued that Tri-Star Delaware lacked sufficient ownership in the patent to have standing to sue. Specifically, the defendant argued that the chain of ownership in the asserted patent broke when the inventor assigned it to Tri-Star Ohio, which did not exist at the time of the assignment. The plaintiff responded by asserting that the initial assignment document not only assigned the invention to Tri-Star Ohio, but also to that entity's successors and assigns. And since Tri-Star California was a successor to Tri-Star Ohio, the asserted patent was properly transferred to Tri-Star California before ultimately transferring to Tri-Star Delaware via merger.
The Federal Circuit ruled for the plaintiff, holding that Tri-Star Delaware obtained ownership in the patent and had standing to sue. In reaching this conclusion, the court provided the following reasoning:
Companies undergoing changes in corporate structure (such as mergers, spin-offs, buyouts, etc.) should take steps to ensure that their intellectual property assignments track the proper corporate chain of ownership.
Copyright ©Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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