Federal Circuit Law Governs Patent Assignment Interpretation and Nunc Pro Tunc Assignments Cannot Retroactively Confer Standing
November 09, 2010
Last Month at the Federal Circuit - December 2010
Judges: Neman (dissenting), Gajarsa (author), and Linn
[Appealed from: D.N.J., Judge Pisano]
In Abraxis Bioscience, Inc. v. Navinta LLC, No. 09-1539 (Fed. Cir. Nov. 9, 2010), the Federal Circuit reversed the district court’s denial of Navinta LLC’s (“Navinta”) motion to dismiss for lack of standing, vacated the judgment, and remanded for the district court to dismiss the complaint with prejudice.
Abraxis Bioscience, Inc. (“Abraxis”) markets the anesthetic Naropin®. U.S. Patent No. 4,870,086 (“the ’086 patent”) discloses Naropin’s active ingredient, ropivacaine hydrochloride monohydrate (“ropivacaine”). U.S. Patent Nos. 5,670,524 (“the ’524 patent”) and 5,834,489 (“the ’489 patent”) disclose methods of pain treatment using low-concentration ropivacaine.
Abraxis acquired the patents from AstraZeneca (“AZ-UK”). In 2006, Abraxis and AZ-UK executed an Asset Purchase Agreement (“APA”). The APA provided that AZ-UK “shall or shall cause one or more of its Affiliates” to transfer to Abraxis all of AZ-UK’s right, title, and interests in the asserted patents. Two months later, pursuant to the APA, Abraxis and AZ-UK executed an IP Assignment Agreement (“the First Agreement”), purportedly transferring title in the asserted patents. The First Agreement contained a “Further Assurances” provision, which ensured AZ-UK would execute all further assignments necessary to vest the transferred IP title in Abraxis. After discovering AZ-UK affiliates never formally assigned the asserted patents to AZ-UK, Abraxis invoked the Further Assurances provision. In March 2007, AZ-UK secured written assignments transferring title from its affiliates to AZ-UK. Later in November 2007, Abraxis and AZ-UK executed a second IP Assignment Agreement (“the Second Agreement”), confirming the asserted patents’ sale, assignment, conveyance, and transfer to Abraxis.
On the same day AZ-UK secured the written assignments in March 2007, Abraxis filed suit against Navinta under the Hatch-Waxman Act. Navinta previously filed both an ANDA for a generic Naropin and a Paragraph IV Certification, certifying its generic would not infringe the ’086 patent. Accordingly, under 35 U.S.C. § 271(e)(2), Abraxis alleged artificial infringement of the ’086 patent—the only patent listed in the Orange Book. Unable to allege § 271(e)(2) infringement of the ’524 and ’489 patents, Abraxis argued indirect infringement under 35 U.S.C. § 271(b)–(c). Electing to await the expiration of the’086 patent, Navinta filed a “Section viii Statement” and proposed a label carving out uses covered by the ’524 and ’489 patents to avoid infringement allegations. Navinta therefore filed a motion to dismiss for lack of subject matter jurisdiction, arguing that Abraxis’s counts alleged speculative future infringement. Abraxis countered by listing the ’524 and ’489 patents in the Orange Book and amending its complaint to allege infringement under § 271(e)(2). Navinta changed tactics, declared Abraxis did not own the asserted patents when Abraxis filed its complaint, and filed a second Rule 12(b)(1) motion to dismiss for lack of standing. Denying Navinta’s motion, the district court acknowledged the March 2007 assignment’s nunc pro tunc provisions bestowing retroactive effect to the First Agreement in 2006. Following a bench trial, the district court found direct and indirect infringement of the ’086 patent and indirect infringement of the ’524 and ’489 patents.
On appeal, the Court first restated a bedrock principle—standing is a constitutional requirement pursuant to Article III and a threshold jurisdictional issue reviewed de novo. The Court then reiterated that Federal Circuit law—not state law—governs whether a patent assignment clause creates a present assignment of patent rights or an agreement to assign rights in the future (citing DDB Techs., LLC v. MLB Advanced Media, LP, 517 F.3d 1284, 1290 (Fed. Cir. 2008)). The Court distinguished contract language expressly conveying rights in future inventions from contract language obligating a future promise to convey. The former needs no further act once an invention comes into being; indeed, the transfer of title occurs by operation of law. By contrast, the latter vests no legal title in the assignee; the contract merely obligates the owner to grant rights at some point in the future. Thus, the Court explained, “agrees to assign” reflects a mere promise to assign rights in the future, not an immediate transfer of expectant interests (citing Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 841–42 (Fed. Cir. 2009) (cert. granted Nov. 1, 2010)).
Relying on the APA contractual language, the Court concluded that the parties intended to achieve actual transfer of title by a separate agreement. In other words, the APA established a promise to assign in the future and the consummation of the assignment could only occur by a subsequent written agreement. While Abraxis and AZ-UK executed the First Agreement after the APA, AZ-UK did not yet possess title to the patents. Therefore, when the parties executed the First Agreement, AZ-UK lacked authority to assign the patents to Abraxis.
The Court further explained, although the March 2007 assignments vested title in AZ-UK, the assignments did not automatically consummate an assignment to Abraxis. For title to vest in Abraxis, the Court reasoned, AZ-UK had to execute a further assignment to Abraxis, which it did in the Second Agreement. The Second Agreement, however, postdated Abraxis’s complaint. Thus, the Court held Abraxis did not own the patents when it filed its complaint and lacked standing to file the lawsuit.
In so holding, the Court rejected the district court’s finding of retroactive title. Regardless of the retroactive validity of either the March 2007 assignments to AZ-UK or the Second Agreement, the Court found Abraxis lacked standing. AZ-UK did not assign the patents to Abraxis until the Second Agreement, which occurred after Abraxis filed its complaint. Nunc pro tunc assignments, the Court clarified, cannot retroactively confer standing (citing Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998)). One narrow exception to the Court’s holding—a party may sue for past infringement before it acquires legal title if the written assignment so authorizes—does not apply to Abraxis’s case.
The Court also found irrelevant Abraxis’s reliance on Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574 (Fed. Cir. 1991). Abraxis contended that the APA was sufficient to transfer equitable title, which thereby conferred standing. But the Court distinguished Arachnid as concerning a present agreement to assign future inventions. By contrast, Abraxis’s APA and First Agreement with AZ-UK attempted to assign rights to existing patents, but failed. Thus, not yet owning the asserted patents, Abraxis lacked standing on the day it filed its complaint, a defect Abraxis cannot retroactively fix.
In a dissenting opinion, Judge Newman disagreed with the majority’s preemption of state law and imposition of Federal Circuit law, “a new and convoluted law unique to the patent aspect of commercial transactions.” Newman Dissent at 2. Judge Newman characterized patent conveyances as contracts and supported the district court’s application of New York state law. Judge Newman emphasized both parties’ clear, unmistakable intent to transfer patent ownership, evidenced by the language in all of the documents—the APA, the First Agreement, the March 2007 assignments, and the Second Agreement. Thus, Judge Newman found ample support in New York state law to uphold the district court’s ruling.
Even under the majority’s application of Federal Circuit law, Judge Newman further disagreed with the majority’s reasoning. Judge Newman distinguished this case from the cases used by the majority, which she described as cases debating rights to future inventions. Specifically, Judge Newman distinguished Enzo, another case where the Court denied retroactive validity to a patent assignment agreement. In Enzo, however, the Court found no evidence of either parties’ intention to confer an exclusive license before the licensee filed suit. By contrast, the parties here clearly intended for patent ownership to transfer to Abraxis before Abraxis filed suit, first when they executed the APA and again when they executed the First Agreement.
In Judge Newman’s view, the majority vitiated the parties’ intent by “engrafting a meaning” to the contracts that neither party reasonably or possibly intended. Newman Dissent at 9. Throughout the dissent, Judge Newman underscored the importance of honoring contractual intent and applying the law that the parties agreed to apply to their contracts.
Summary authored by Mindy L. Ehrenfried, Esq.