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Court Remands for Limited Jurisdictional Discovery as to Whether Patents Fell Within Scope of Inventor’s Employment Agreement

February 13, 2008

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Last Month at the Federal Circuit - March 2008

Judges: Newman (dissenting-in-part and concurring-in-part), Clevenger, Dyk (author)

[Appealed from: W.D. Tex., Judge Yeakel]

In DDB Technologies, L.L.C. v. MLB Advanced Media, L.P., No. 07-1211 (Fed. Cir. Feb. 13, 2008), the Federal Circuit affirmed-in-part and vacated-in-part the district court’s ruling dismissing DDB Technologies, L.L.C.’s (“DDB”) patent infringement suit for lack of subject matter jurisdiction, and remanded for limited jurisdictional discovery. The Court held that the interpretation of a patent assignment clause in an employment agreement was a matter of federal law. Even though the district court had not addressed the question, the Federal Circuit also held that a factual issue regarding patent ownership was intimately bound up with standing and, therefore, did not need to be tried to the jury.

DDB sued MLB Advanced Media, L.P. (“MLBAM”) for infringement of several patents. The technology of the patents was developed while the inventor, David Barstow, was employed by Schlumberger Technology Corporation (“Schlumberger”). Barstow had entered into an employment agreement with Schlumberger that, inter alia, assigned the rights to any technology he invented during his employment. Barstow claimed that the patented technology was a personal project not covered by the employment agreement, and several former Schlumberger employees testified that they knew generally of the project and did not believe it belonged to Schlumberger. Several months after the suit against MLBAM was filed, Schlumberger assigned all of its rights in the patents-in-suit to MLBAM and granted a retroactive license.

MLBAM moved the district court to dismiss for lack of subject matter jurisdiction based on DDB’s failure to join all the owners of the patents and MLBAM’s interest in the patents. The district court denied DDB’s request for additional jurisdictional discovery and granted the motion to dismiss. The district court held that the patents-in-suit were related to Barstow’s work for Schlumberger and, therefore, were covered by the employment agreement. The district court also found that the patent assignment clause operated automatically and, therefore, DDB’s equitable and statute of limitations defenses were barred. Because Schlumberger, and then MLBAM, was a co-owner of the patents, the district court determined that it lacked subject matter jurisdiction because DDB had not joined Schlumberger and could not join MLBAM.

The Federal Circuit agreed with the district court that, assuming the patents-in-suit were covered by the plaintiff’s original employment agreement with Schlumberger, the agreement would have assigned them automatically. As a result, the district court properly rejected the plaintiff’s statute of limitations and equitable defenses against Schlumberger’s claim of ownership. However, the Federal Circuit agreed with DDB that there was a factual question of whether the employment agreement covered the patents-in-suit, and remanded for additional discovery on that issue.

The Court first looked at DDB’s statute of limitations and estoppel defenses against Schlumberger’s claim of ownership. If the inventor’s employment agreement assigned his rights to Schlumberger automatically, Texas law precluded him from asserting any equitable defenses against the assignee. The Federal Circuit noted that the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is intimately bound up with the question of standing in patent cases, and is therefore a matter of federal law. Applying federal law, the Court examined the contractual language of the employment agreement and found that there was not merely an agreement to assign, but an express assignment of rights in future inventions. The Court therefore found that the agreement operated automatically, and DDB’s statute of limitations and estoppel defenses were properly dismissed.

The Federal Circuit then addressed whether the employment agreement covered the patents-in-suit, an issue governed by Texas law. DDB argued that it was entitled to a jury trial on the underlying factual questions because the jurisdictional facts were intertwined with the merits of its claim of patent infringement. The Court observed that the right to a jury trial on disputed jurisdictional facts that also implicate the merits of plaintiff’s cause of action was an issue of first impression for the Federal Circuit. The Court held that the appropriate standard is to look to the degree of intertwinement between the jurisdictional facts and the facts underlying the merits of the cause of action to determine whether dismissal on jurisdictional grounds is appropriate, or whether resolution of the issues must await SJ proceedings or trial on the merits.

Applying this standard, the Court found that the interpretation of the employment agreement, which depended in part on state contract law and in part on Federal Circuit law regarding patent assignment clauses, was not so intertwined with the substantive federal patent law governing DDB’s infringement claims and MLBAM’s invalidity counterclaims that dismissal on jurisdictional grounds would be inappropriate. Therefore, DDB had no right to a jury trial on the issue of standing.

In the alternative, DDB argued that it should have been entitled to jurisdictional discovery before the district court dismissed on jurisdictional grounds. The Court agreed with DDB that the employment agreement was ambiguous with respect to whether it covered the patents-in-suit, and agreed that additional jurisdictional discovery was appropriate. Given the central relevance of the information sought by DDB, it was an abuse of discretion for the district court to deny jurisdictional discovery. The Court remanded with instructions to allow limited jurisdictional discovery and to reconsider the dismissal in light of that new discovery.

In an opinion dissenting-in-part and concurringin- part, Judge Newman agreed with the majority that additional jurisdictional discovery was appropriate. However, she criticized the majority for holding that DDB’s statute of limitations, waiver, and estoppel defenses were without merit, instead of waiting for additional discovery on these issues. Judge Newman also criticized the majority for applying federal rather than state law to the interpretation of the employment agreement. “Neither state employment law, nor the jury role,” she wrote, “can be eliminated by designating a disputed factual issue as related to ‘standing’ and therefore ‘jurisdictional.’” Newman Dissent at 6.