University of New Mexico Owns Patents for Cancer Treatment Compounds
February 28, 2003
Last Month at the Federal Circuit - March 2003
Judges: Lourie (author), Newman, and Schall
In Regents of the University of New Mexico v. Knight, No. 02-1018 (Fed. Cir. Feb. 28, 2003), the Federal Circuit affirmed-in-part, reversed-in-part, and vacated-in-part the district court’s rulings concerning ownership of several patents and applications relating to beta-alethine compounds and vitaletheine. Drs. Galen Knight and Terence Scallen served respectively as a faculty staff member and a professor of biochemistry at the University of New Mexico (“UNM”). While employed by UNM, they, along with an additional faculty member, invented the cancer compounds disclosed. In 1990, UNM filed patent applications based on those compounds. A year later, the inventors assigned the applications to UNM and signed a UNM Co-Inventor Agreement relating to the vitaletheine inventions. In 1992, UNM filed continuation-inpart (“CIP”) applications from each of the previously filed parent applications. However, Scallen and Knight never assigned any of the CIP applications to UNM.
In 1994, UNM entered into a license agreement with Dovetail Technologies, Inc. (“Dovetail”), in which UNM warranted its ownership of the patents and applications related to the compounds. Dovetail, through another company, then attempted to synthesize the compounds and found that they could not be made according to the patent disclosure. UNM retained two scientists to synthesize the compounds, and they determined that the structures were inaccurate and ascertained the correct structures of the compounds. UNM then submitted amendments changing the structures of the compounds. Scallen and Knight objected to the changes, but the PTO accepted them.
In 1999, Dovetail notified UNM that it was in breach of the warranty of ownership provision of their license agreement. Subsequently, UNM filed suit against Scallen and Knight, seeking ownership of the patents and applications, correction of inventorship, alleged breach of the UNM Intellectual Property Policy and the Co-Inventor Agreement, and other state law claims. Scallen and Knight, acting pro se, filed counterclaims against UNM.
The district court appointed a SM to evaluate the case and make recommendations. The SM found that Scallen and Knight were obligated to assign the beta-alethine patents and applications, based on a review of the 1983 UNM Patent Policy and the 1991 Joint Assignments, and the fact that the inventors had also signed powers of attorney and claimed small-entity status during the initial patent and CIP filings. The SM also found that the Appellants had breached their agreements with UNM by not executing assignments of the betaalethine patents and applications. The district court adopted the recommendations and entered SJ on the counts related to the ownership of the betaalethine patents/applications and breach of UNM’s policies relating to intellectual property. The district court then determined that the compounds described in the parent and CIP applications were inherently the same structures found in the amendments and relied on the PTO’s decision that the amendments did not introduce new matter. The district court also granted UNM’s motion to amend its complaint and withdraw any request for money damages. Additionally, the district court held that UNM, as an arm of the state, had not waived its Eleventh Amendment immunity because UNM’s amended complaint no longer sought any money damages.
The Federal Circuit affirmed the lower court’s grant of SJ that Scallen and Knight had breached their contractual obligation to assign their patents and applications to UNM. The Court ruled that state law governs contractual obligations and transfers of property rights, including those relating to patents. In this case, the Court applied New Mexico state law to UNM’s breach of contract claim. As a faculty member, Scallen entered into a written employment contract with UNM, which incorporated the 1983 Patent Policy. Knight, as a faculty staff member, did not enter into an employment contract with UNM; however, under New Mexico law, a written personnel policy may form an implied employment contract. The Patent Policy provided that staff members whose inventions and discoveries were made using UNM’s resources, belong to UNM. Also, each staff member who makes such an invention has a duty to cooperate fully with UNM and this cooperation includes the signing of patent applications and associated documents. The Co-Inventor Agreement contains similar language regarding cooperation in preparation of patent applications, etc. Additionally, the Joint Assignment agreements require Scallen and Knight to sign all lawful papers to execute all applications. The Court determined that the inventions belong to UNM and Scallen and Knight were under a duty to cooperate in prosecution of patent applications dealing with those inventions and to assign their inventions and all related patents and applications, including the CIP applications. The Court also found that Scallen and Knight had conducted themselves as though they were obligated to assign their inventions for several years, until a dispute broke out.
Scallen and Knight argued that they are not the inventors of the subject matter of the invention since UNM allegedly added new matter to the CIP applications. However, the Federal Circuit found that there was no new matter added to the applications since the amendments did not describe new inventions, but just clarified and corrected the incorrect characterization of the already disclosed invention.
Thus, Scallen and Knight were contractually obligated to assign the patents and applications to UNM, and UNM is the rightful owner of the betaalethine patents and applications.
The Federal Circuit also found that the district court did not abuse its discretion in permitting amendment of the complaint, but reversed the lower court’s dismissal of Scallen’s and Knight’s counterclaims for money damages as being barred under the Eleventh Amendment. In ruling on this issue, to promote national uniformity in the application of the patent law, the Federal Circuit found that the question of Eleventh Amendment waiver is a matter of Federal Circuit law. The Court found that such a waiver occurs when a state voluntarily appears in federal court and, therefore, waives its immunity for all compulsory counterclaims. Compulsory counterclaims arise from the same transaction or occurrence and are not strictly for the same kind or nature, but are those that should be litigated together. Accordingly, the Court held that when UNM (a state entity) filed suit in federal court to enforce its claims to certain patents, it waived its Eleventh Amendment immunity with respect to compulsory counterclaims arising from those contracts and conduct.