Corporations Who Fail to Properly Assign Patents as Part of Corporate Sales or Restructuring May Lose Standing to Bring a Patent Infringement Suit

Authored by Amanda Joy Dittmar, D. Brian Kacedon, and John C. Paul

Corporations today frequently engage in inter or intra-corporate sales or transfers of intellectual property as part of a restructuring or other asset sales or purchases. Failing to properly draft and execute assignment documents can compromise the ability to bring a suit for patent infringement. In a recent case, the Federal Circuit found that the plaintiff, Abraxis Bioscience, did not have standing to file a lawsuit because the language used in an asset purchase agreement did not transfer legal title in the patents-in-suit before Abraxis filed the initial complaint.

The Abraxis Decision^{1 2}

Abraxis markets the drug Naropin^® for use in surgery and for acute pain management. In November 2006, Navinta filed an ANDA for a generic version of Naropin^®, and Abraxis subsequently filed suit in the United States District Court for the District of New Jersey against Navinta alleging that the generic drug infringed three patents. The inventor of the first patent had assigned his rights to Astra Lakemedel Aktieboag ("Astra L") in 1986, and the inventor of the other two patents assigned his rights to AB Astra in 1994. AB Astra later merged with AstraZeneca AB ("AZ-AB") and assigned those two patents to AZ-AB.

In April 2006, Abraxis entered into an Asset Purchase Agreement ("APA") with AstraZeneca ("AZ-UK"), which stated that AZ-UK "shall or shall cause one or more of its Affiliates to, Transfer to the Purchaser, and the Purchaser shall purchase an accept from the Seller or its Affiliates, as applicable, all of the right, title and interests of the Seller and its Affiliates in" the three patents-in-suit. In June 2006, Abraxis and AZ-UK executed an Intellectual Property Assignment Agreement ("IP Assignment Agreement") with a "Further Assurances" provision stating that "Seller will . . . execute . . . any and all further . . . assignments . . . as necessary to . . . vest in Buyer any of the Transferred Intellectual Property." At this time, however, Astra L and AZ-AB had not yet assigned their ownership of the patent to AZ-UK so AZ-UK did not actually own the patents-in-suit. It was not until the day Abraxis filed suit against Navinta, March 15, 2007, that Astra L and AZ-AB assigned their respective patents to AZ-UK. Then, in November 2007, during the pendency of the litigation, AZ-UK and Abraxis entered into a "Intellectual Property Assignment Agreement" to "confirm the sale, assignment, conveyance and transfer to Abraxis" of the three patents-in-suit.

Navinta filed a motion to dismiss the case for lack of standing alleging that Abraxis merely received a promise to transfer patent rights in the future from AZ-UK, and thus did not own the patents-in-suit, at the time the complaint was filed. To file a lawsuit, the United States Constitution requires a plaintiff to have standing at the time of filing the initial complaint. In patent cases, standing requires the plaintiff to have legal title to the asserted patents. The New Jersey district court held that the "intent" of the related Astra entities was sufficient to imply a nunc pro tunc assignment based on the relationship between the corporate entities, and gave the March 15, 2007 assignments nunc pro tunc ("now for then") effect based on the June 2006 IP Assignment Agreement between AZ-UK and Abraxis. On appeal, the Federal Circuit reversed the district court's decision.

Generally, state law applies to contract interpretation, but the Federal Circuit has held that the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is treated as a matter of federal law because it is bound up with the question of standing in patent cases. The contractual language of the APA between AZ-UK and Abraxis indicated that the transfer of patent rights was to occur in the future by means of a separate IP Assignment Agreement. AZ-UK and Abraxis executed the IP Assignment Agreement, but that agreement's Further Assurances provision also indicated a future transfer of patent rights. In addition, in June 2006 when the IP Assignment Agreement was executed, AZ-UK had no legal title to assign. The legal title remained with Astra L and AZ-AB until March 15, 2007, and thus, Abraxis did not possess title until November 2007, when AZ-UK finally assigned the patents-in-suit to Abraxis, seven months after filing suit.

According to the Federal Circuit, "if the original plaintiff lacked Article III initial standing, the suit must be dismissed, and the jurisdiction defect cannot be cured by . . . the subsequent purchase of an interest in the patent in suit." Thus, because Abraxis could not retroactively meet the requirement of having legal title to the patents on the day it filed the complaint, the Federal Circuit found that Abraxis lacked standing. The Federal Circuit also noted that Abraxis lacked standing to sue for past infringement. A party may sue for infringement occurring before it acquired legal title, but only if the assignment expressly grants the party a right to do so. AZ-UK had not granted Abraxis such a right.

Strategy and Conclusion

This case can provide several insights for assignees and parties to a patent infringement litigation:

1. Before filing a patent infringement action, patent owners should confirm they have legal ttle to patents they plan to assert. This requires checking the full chain of title from the inventors to the ultimate assignee, confirming that prior assignors had legal title to those patents at the time the rights were transferred. Defective legal title at the time of filing cannot be cured retroactively by a later transfer of patent rights.

2. When drafting an agreement, assignees should consider whether the assignment of patent rights is automatic or merely a promise to assign. If the agreement expressly conveys rights in future inventions, the transfer of title occurs by operation of law once an invention comes into being. In contrast, an agreement that merely obligates the owner to grant rights in the future does not vest legal title to the patents in the assignee, and further future action is required to vest those rights.

3. If the parties enter into an agreement providing for the future transfer of rights, the parties should confirm that such transfers are actually drafted and executed, rather than being lost in the details of the transaction, as appears to have happened in this case.

Endnotes

¹ The Abraxis decision: http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1539.pdf.

² The Abraxis denial of rehearing: http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1539%20order.pdf.

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