A Company Accused of Patent Infringement May Challenge the Validity of a Patent Invented by a Current Employee at his Previous Job, Where the Employee Was Not the "Driving Force" Behind the Company's Decision to Infringe

Authored by D. Brian Kacedon, John C. Paul, and Benjamin T. Sirolly

Abstract

A Wisconsin court held that a company was not estopped from challenging the validity of a patent invented by a current employee at his previous job even though the employee performed practically the same role in developing the infringing software as he did in inventing the patented software—directing software design. The employee was not the "driving force" behind the employer's infringing operations and no evidence suggested that the inventor was involved in the decision to engage in infringing activity. Rather, the employer would have likely infringed the patents even without the inventor's employment. Therefore, despite testing the infringing software and suggesting improvements, the inventor was not "in privity" with his employer, and the employer was permitted to challenge the patent's validity.

The equitable doctrine of assignor estoppel bars a patent's assignor from later claiming that what was assigned was a nullity. Thus, after assigning a patent, an inventor typically cannot engage in infringing activity and then assert that the patent is invalid. But if the inventor is hired as a high-level employee, the question becomes whether the employer is also estopped from challenging the patent's validity?

The U.S. District Court for the Eastern District of Wisconsin recently considered this question in Mikkelsen Graphic Engineering Inc. v. Zund America, Inc.¹ (E.D. Wis. May 23, 2014). On a motion for summary judgment, the court held that assignor estoppel did not extend to the employer of an inventor because the inventor's employment in a high-level role in infringing operations was insufficient to establish privity between the employee and employer. In particular, the employed inventor was not the "driving force" behind the employer's infringement, despite having performed practically the same role in developing the infringing software as he did in inventing the patented software—directing software design. As the court explained, no evidence suggested that the inventor was involved in his employer's decision to begin infringing operations, and, further, the inventor provided comments and advice on the accused software only after others had independently created the infringing features. Thus, the employee was not ultimately responsible for the alleged infringement.

Background

Plaintiff Mikkelsen Graphic Engineering ("MGE") sued Zund America, Inc. for infringement of two patents coinvented by Peter Alsten while employed at MGE. Mr. Alsten assigned the patents to MGE under an employment agreement. He later left MGE and joined Zund America, a subsidiary of Zund Systemtechnik, where he worked as the "North American Product Manager." He supervised product sales and demonstrations, and assisted with technical support and installation of Zund products.

Years later, Zund Systemtechnik developed the accused devices in Switzerland. By the time Mr. Alsten became involved, the products already possessed the infringing functionality. Mr. Alsten's involvement included testing the software and suggesting improvements to the developers, a role nearly identical to the one he played in developing the asserted patents.

Mr. Alsten's original employer, MGE, sued Zund for infringement. The court found infringement on summary judgment, and thus Zund's remaining defense centered on invalidity. MGE argued that because assignor estoppel would bar Mr. Alsten from challenging the validity of the asserted patents, his employer, Zund should also be barred from challenging the validity of those patents. Zund responded that Mr. Alsten was merely an employee, whose role was insufficient to estop it from challenging the patents' validity.

The Mikkelsen Decision

Presenting the legal framework, the court explained that assignor estoppel applies not only to the assignor, but also to anyone in privity with the assignor. Privity, as the court observed, measures the legal closeness between two parties, such that they may be equitably bound to one legal outcome.

Some privity determinations are clear. For example, as the court described, if the assignor is a "mere employee" of a company, the two are not in privity. But if the assignor is the founder or owner of the company, they are. In between those extremes—as was the case here—the court noted that one must determine "whether the assignor is the driving force behind the new company's infringing operations, such that it is fair to characterize the assignor as the person ultimately responsible for infringement and the invalidity argument."

Though Mr. Alsten had helped develop the accused products, his assistance postdated the development of the infringing functionality. Thus, the court concluded that Zund's software would have likely infringed even without Mr. Alsten's employment. Moreover, no evidence suggested that Alsten contributed to Zund's decision to begin infringing operations. Under these circumstances, the court found no reason to "view Zund's invalidity argument as an attempt by Alsten to render his previous assignments worthless." Accordingly, upon finding that Mr. Alsten and Zund were not in privity, the court denied MGE's motion for summary judgment of assignor estoppel.

Conclusion

This decision reminds employers to consider the prior employment history of their employees, including any prior inventions made by that employee, before assigning them to new products and initiatives. Employee inventors often move between competitors, and sometimes their most valuable knowledge may be patented and assigned to a former employer. If those employees develop products similar to their patented inventions and act as the "driving force" behind alleged infringement, their new employers may be barred from asserting an invalidity defense under the doctrine of assignor estoppel.

Endnotes

¹ The Mikkelsen Graphic Engineering Inc. v. Zund America, Inc. decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2014/Mikkelsen_v_Zund.pdf.

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