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Constitutional Requirements for Standing to Seek Correction of Inventorship Not Met Where Alleged Inventor Had No Ownership or Financial Interest in Patents

June 05, 2009

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Last Month at the Federal Circuit - July 2009

Judges: Gajarsa, Moore, Arterton (District Judge sitting by designation; author)

[Appealed from: M.D. Fla., Judge Presnell]

In Larson v. Correct Craft, Inc., Nos. 08-1208, -1209 (Fed. Cir. June 5, 2009), the Federal Circuit concluded that it lacked jurisdiction to reach the merits of the appeal because Borden Larson lacked standing in the district court to correct patents, and a claim to correct inventorship under 35 U.S.C. § 256 was the only basis for removal from state court. The Court vacated the district court’s grant of SJ concerning the parties’ rights to the patents and remanded with instructions to return the case to state court.

Correct Craft, Inc. (“Correct Craft”) is a boat manufacturer that employed Larson as a designer. While employed at Correct Craft, Larson designed a “wakeboard tower”—a tower structure mounted on a water sports boat to allow for the attachment of an elevated tow line. Larson transferred all of his interests in the wakeboard tower invention to Correct Craft by way of patent assignments. Larson also attested that he was a coinventor of the wakeboard tower, along with William Snook, another engineer at Correct Craft, and Robert Todd, the owner of the fabrication company that delivered the first prototype of the wakeboard tower. After Correct Craft terminated his employment, Larson believed that Correct Craft misled him about his obligation to sign the patent assignments. Larson sued Correct Craft, Snook, and Todd in Florida state court, asserting five state law claims against Correct Craft and three counts seeking DJ against Correct Craft, Snook, and Todd concerning the parties’ rights to the wakeboard tower patents.

Correct Craft removed the case to federal court, citing Larson’s addition of the DJ claims, which sought removal of Snook and Todd as coinventors of the patents. The district court denied Larson’s motion for SJ on his DJ claims on the ground that contested issues of material fact existed regarding the effect of documents that Larson had signed. The district court then granted SJ in favor of the defendants after ruling that (1) Larson had failed to offer sufficient evidence of fraud to warrant a trial on any fraud-based claims; and (2) entry of SJ on the fraud-based claims meant that Larson could not succeed on his DJ claims because there was no controversy remaining as to his patent rights.

On appeal, the Federal Circuit first considered its jurisdiction, identifying two issues related to the basis of federal jurisdiction. First, the Court examined whether Correct Craft (in removing the case) and the district court (in exercising jurisdiction) correctly treated Larson’s DJ claims as implicating 35 U.S.C. § 256, although the claims did not actually invoke § 256. The Court concluded that Larson sought a judicial determination that he, not Todd or Snook, is the true and sole inventor of the wakeboard tower. Because this is the same relief that the patent statute provides in 35 U.S.C. § 256, the Court accepted that Larson pleaded an action for correction of inventorship pursuant to federal law.

Next, the Court examined whether Larson, having not yet prevailed on his separate claim for equitable relief setting aside the patent assignments, nevertheless had standing to pursue a claim for correction of inventorship in federal court. The Court noted that a plaintiff in an action under § 256 need not have an ownership interest at stake in the suit to have standing and that a “concrete financial interest” in the patents was enough to satisfy the requirements for constitutional standing— namely, injury, causation, and redressability. Slip op. at 11 (citing Chou v. Univ. of Chi., 254 F.3d 1347, 1359 (Fed. Cir. 2001)).

Here, the Court found that Larson had no concrete financial interest in the patents because he had affirmatively transferred title to Correct Craft and thus stood to reap no benefit from a preexisting licensing or royalties agreement. The Court found that his only path to financial reward under § 256 depended on his first succeeding on his state law claims and obtaining rescission of the patent assignments. The Court analogized Larson’s situation to that where a plaintiff who had assigned away his patent rights lacked standing to pursue a patent infringement claim because, “absent judicial intervention to change the situation,” he did not have an ownership interest in the patents. Id. at 12 (quoting Jim Arnold Corp. v. Hydrotech Sys., Inc., 109 F.3d 1567, 1572 (Fed. Cir. 1997)).

The Court concluded that “Larson’s financial stake in the patents is contingent on him obtaining relief that a federal court has no jurisdiction under [28 U.S.C.] § 1338 to provide.” Id. Because Larson lacked an ownership interest, and because being declared the sole inventor would not generate any other direct financial rewards, the Court held that Larson had no constitutional standing to sue for correction of inventorship in federal court. The Court left open the question of whether a purely reputational interest is sufficient to confer standing for a § 256 claim because the Court found that the issue was not presented by Larson’s claims. Accordingly, the Court vacated the judgment of the district court and remanded with instructions to return the case to state court.

Summary authored by Joyce Craig, Esq.