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Lack of Assignment Provision in a Consulting Agreement Leads to Loss of Patent Rights

January 13, 2012

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Last Month at the Federal Circuit - February 2012

Judges: Rader (author), Lourie, Bryson (dissenting)

[Appealed from: N.D. Ala., Chief Judge Blackburn]

In Abbott Point of Care Inc. v. Epocal, Inc., No. 11-1024 (Fed. Cir. Jan. 13, 2012), the Federal Circuit affirmed the district court’s grant of Epocal, Inc.’s (“Epocal”) motion to dismiss Abbott Point of Care Inc.’s (“Abbott”) complaint for patent infringement of, and legal title to, U.S. Patent Nos. 6,845,327 (“the ’327 patent”) and 6,896,778 (“the ’778 patent”). The ’327 and ’778 patents are directed to point-of-care systems for diagnostic blood sample testing. Both patents are assigned to Epocal and name Dr. Imants Lauks, Epocal’s founder, as the sole inventor.

Abbott claimed ownership of the ’327 and ’778 patents by virtue of three contracts between Lauks and Abbott’s predecessors. Lauks signed Employment Agreements with Abbott’s predecessor companies, Integrated Ionics Incorporated and i-STAT Corporation (“i-STAT”), in 1984 (“the 1984 Employment Agreement”) and 1992 (“the 1992 Employment Agreement”), respectively. The 1984 Employment Agreement contained provisions on confidentiality, noncompetition, nonsolicitation, and disclosure and assignment of Lauks’s inventions during the course of employment, and the 1992 Employment Agreement incorporated all of those provisions.

In 1999, Lauks resigned from his position and entered into an eighteen-month Consulting Agreement with i-STAT (“the 1999 Consulting Agreement”). The 1999 Consulting Agreement included provisions on confidentiality, noncompetition, and nonsolicitation “as if Lauks remained employed by [i-STAT],” but did not include an assignment clause. Slip op. at 4 (alteration in original). A little over two years after resigning from i-STAT, Lauks filed patent applications that issued as the ’327 and ’778 patents.

In 2009, Abbott filed suit against Epocal for infringing the ’327 and ’778 patents, claiming legal title to both. Abbott contended that the 1999 Consulting Agreement incorporated the assignment clause in the 1984 and 1992 Employment Agreements. Epocal moved to dismiss the case for lack of subject matter jurisdiction and failure to state a claim. The district court granted Epocal’s motion to dismiss, finding that Abbott lacked standing since the 1999 Consulting Agreement did not preserve the assignment provision included in the 1984 and 1992 Employment Agreements.

On appeal, initially the Federal Circuit noted that state law governs contract interpretation and that the Court reviews contract interpretations without deference. Id. at 6. Accordingly, the Court held that the earlier 1984 and 1992 Employment Agreements between Lauks and Abbott’s predecessors ended in 1999 when Lauks resigned. Citing New Jersey case law, the Court held that “[a]bsent ambiguity, the intention of the parties is to be ascertained by the language of the contract.” Id. at 7 (alteration in original) (citation omitted). Therefore, upon finding no ambiguity in the 1999 Consulting Agreement, the Court found that Lauks was under no obligation to assign his inventions to Abbott or its predecessors.

The Court further reviewed the district court’s ruling on standing to sue without deference. The Court cited 35 U.S.C. § 281 and held that only a patentee or successor in title had standing to sue for patent infringement. Because the 1999 Consulting Agreement did not contain an assignment clause, the Federal Circuit upheld the district court’s ruling that Abbott did not have a valid claim to title in either the ’327 or the ’778 patent. Abbott therefore lacked standing to sue for patent infringement.

On appeal, Abbott also argued that the lower court incorrectly denied its request for additional discovery to construe the 1999 Consulting Agreement. Addressing the issue, the Court held: “Because the agreements contain no ambiguity, Abbott’s request is unavailing. Extrinsic evidence simply cannot change or contradict the contract’s language.” Id. at 9. Finding that the district court properly evaluated the contracts between Lauks and Abbott’s predecessors, and that Abbott lacked standing to sue, the Court upheld the district court’s dismissal of the complaint.

In a dissenting opinion, Judge Bryson indicated that he would have reversed and remanded the case to the district court based on relevant ambiguities in the 1999 Consulting Agreement. Judge Bryson stated, in part, that the 1992 Employment Agreement referred only to some provisions of the 1984 Employment Agreement, but was interpreted by both parties as including all of the provisions of the earlier agreement. Thus, he posited, the 1999 Consulting Agreement, which similarly referred only to some provisions of the Employment Agreements, contained ambiguities warranting the district court’s further consideration and interpretation.