A Defense to Patent Infringement Under the Shop-Rights Doctrine Should Be Supported by Factual Findings on the Conception of the Invention and the Scope of the Allegedly Infringing Use

Authored by D. Brian Kacedon; John C. Paul; and Daniel T. Sharpe, III

The shop-rights doctrine is a defense to patent infringement that may be raised by an employer when an employee sues an employer based on a patented invention that was created using the employer's resources. While the contours of the doctrine are not clearly defined, it generally protects onlyan employer's internal uses rather than sales to an unrelated third-party.

In Beriont v. GTE Labs., Inc.,¹ the Federal Circuit reviewed the trial court's ruling that GTE could rely on shop rights to absolve it of any infringement claims occurring before GTE acquired ownership of the relevant patent. The court also reviewed the trial court's finding that a settlement agreement reached between the parties absolved GTE of liability for infringement occurring after the date of the settlement. Noting that the district court failed to make many relevant factual and legal findings, the Federal Circuit reversed the district court's decision regarding GTE's shop-right defense and remanded for factual findings relating to infringement during this time.

Background

GTE hired Walter Beriont as an engineer and, during his employment, he conceived of an invention relating to television-network power distribution. He disclosed this invention to GTE and a coworker, Alfred Bellows. Mr. Beriont and Mr. Bellows jointly filed a patent application through GTE's counsel. The patent that issued was assigned on its face to GTE and listed Mr. Beriont and Mr. Bellows as coinventors. Following the issuance of the patent, Mr. Beriont questioned the assignment and joint inventorship, so he filed suit in the federal district court seeking a declaration that he was the sole inventor, removal of Mr. Bellows as a coinventor, removal of GTE as an assignee, and a judgment of patent infringement against GTE.

Separate from these federal-court claims, the parties were also litigating some state-court claims related to issues in the federal-court claims. As a result, the district court stayed the case pending the state-court actions. The state-court claims were ultimately dismissed because of an oral settlement agreement the parties presented to the state court. With the state-court claims dismissed, the federal case resumed.

During a pretrial conference in the federal case, the parties agreed on certain terms of the oral settlement agreement from the state-court claims. One of those agreed-upon terms established that the parties jointly owned the patent. Because of this, the district court entered final judgment that the patent is jointly owned by Mr. Beriont and GTE. This joint ownership, according to the district court, absolved GTE of liability for infringement occurring after the agreement, and the shop-rights doctrine absolved GTE of liability for infringement occurring before the agreement. Mr. Beriont appealed the district court's decision, claiming, among other things, that GTE was liable as an infringer for activities occurring before the settlement agreement because the joint-ownership agreement was not retroactive and the shop-rights doctrine did not protect GTE for its acts during that time.

The Beriont Decision

While agreeing with the district court that GTE was not liable for infringement occurring after the settlement agreement was reached, the Federal Circuit remanded the case back to the district court to further develop the record on infringement occurring before the settlement agreement was reached. The Federal Circuit found the district court's factual record inadequate to support the shop-rights doctrine and directed the district court to address Mr. Beriont's inventorship claim.

First, the Federal Circuit rejected Mr. Beriont's argument that he did not contemplate full joint ownership (i.e., a 50/50 split) when negotiating the settlement agreement. Citing the default rule of joint ownership—that in the absence of an agreement to the contrary, joint owners of a patent may use the patent without the other owners' consent—the Federal Circuit found nothing in the agreement departing from the rule. Instead, because he conceded that in the settlement agreement GTE is a joint owner, Mr. Beriont would have, at most, a state-law contract claim that the profits were to be shared disproportionately, according to the court.

Regarding the infringement occurring before the settlement agreement was reached, the Federal Circuit discussed the shop-rights doctrine—a defense to patent infringement based on a judicially created theory of an implied license. It allows an employer to practice an invention internally when the invention belongs to an employee who created it with the employer's resources. Mr. Beriont alleged that GTE manufactured and sold the invention, an activity the Federal Circuit recognized as outside the scope of the doctrine. Furthermore, the district court received no briefing on the shop-rights doctrine and did not make the factual findings necessary to place GTE's actions within the boundaries of the doctrine. As a result, the court concluded that remand to the district court was necessary to develop the record.

The Federal Circuit also mentioned alternative grounds that might support a finding that GTE was not liable for infringement prior to the agreement. First, the agreement, which is governed by state law, may have had retroactive effect. Second, even if not retroactive, GTE may have benefited from a separate assignment agreement from Mr. Beriont that predated the conception of the invention. Apparently, the parties did not address this agreement in either stage of the case in the federal courts, although it was important to the state-court decision. Finally, the U.S. Patent and Trademark Office has an executed assignment recorded and entered in 2002, apparently as a result of a judgment regarding assignment, that the parties also did not address.

In dissent, Judge Lourie explained that he would not remand the case to further consider whether GTE was liable for infringement occurring before the settlement agreement was reached. In his view, the record contained sufficient evidence—specifically the assignment agreements—to find that GTE had ownership rights to the patent and was therefore free to practice the patent.

Strategy and Conclusion

In Beriont, the Federal Circuit required a more complete record of the underlying facts before allowing a party to rely on shop rights as a defense to infringement. Although the contours of the shop-rights doctrine may remain uncertain, it can be helpful for parties facing issues relating to ownership and assignment in the employer-employee context to consider potential implications of the shop-rights doctrine and establish a record of the facts surrounding the employment, conception of the invention, and the scope of the defendant's use of the invention.

Endnotes
¹ The Federal Circuit's Beriont decision may be found at http://www.finnegan.com/files/Publication/17ea501a-964f-484b-9bca-913d18f24510/Presentation/PublicationAttachment/891a8d3e-087f-4818-a90a-950324aa43dc/13-1109%208-6-13.pdf.

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