Consulting Agreement Did Not Assign Patent Rights from Pre-Agreement Contributions

Authored by D. Brian Kacedon, Matthew J. Luneack, and John C. Paul

Abstract

The Federal Circuit recently analyzed whether a consulting agreement provided for an assignment of the consultant's patent rights stemming from his contributions prior to the agreement’s effective date. The agreement required the consultant to list all of his prior inventions and provided that the failure to list any such prior inventions constituted a representation that none existed. The company argued that certain work performed by the consultant prior to the effective date and not listed in the agreement was assigned to the company. Disagreeing, the Federal Circuit found that nothing in the agreement suggested the consultant’s prior inventions would be assigned to the company, and that the representation of no prior inventions failed to prevent the consultant from licensing such inventions to competitors of the company that engaged the consultant. As a result, when the company sued a competitor for patent infringement, the competitor obtained a license from the consultant on the prior relevant invention of the consultant and relied on that license as a defense to the patent infringement suit by the manufacturer. The case, however, was remanded to the district court to determine whether the consultant’s prior work continued after the effective date such that rights in the work would be assigned to the company.

Companies frequently contract with outside consultants to assist with product development. Because collaboration with consultants may lead to patent-eligible discoveries, however, it is important that consulting agreements define the rights between the parties in any patented inventions that arise out of their work. Recently, in TriReme Medical, LLC v. AngioScore, Inc.¹, the Federal Circuit analyzed whether a consulting agreement provided for an assignment of the consultant's patent rights stemming from his contributions prior to the agreement’s effective date. The Federal Circuit found that nothing in the agreement suggested that the consultant’s rights in work prior to the effective date would be assigned to the hiring company. The case, however, was remanded to the district court to determine whether the consultant's prior work in question continued after the effective date such that the company owned any rights in those works.

Background

AngioScore owns patents directed to angioplasty balloon catheters used to open arterial blockages. AngioScore’s commercial product AngioSculpt was developed with the assistance of Dr. Chaim Lotan, who served as a consultant for AngioScore. Before the effective date of the Consulting Agreement, Dr. Lotan performed work relating to AngioScore’s patents. According to Dr. Lotan, during meetings with AngioScore he made a recommendation to improve AngioScore’s product, which later became a part of AngioScore’s patented invention.

TriReme Medical, a competitor of AngioScore, sought to acquire an interest in the AngioScore patents from Dr. Lotan. Despite not being named as an inventor on the patents, Dr. Lotan granted TriReme an exclusive license to “any and all legal and equitable rights” he held in the AngioScore patents. Under this license, if Dr. Lotan was an inventor of the AngioScore patents, TriReme would have a defense to infringement that would allow it to freely practice the patented inventions.

Seeking to have Dr. Lotan named as an inventor, TriReme brought suit in the Northern District of California for correction of inventorship of the AngioScore patents. AngioScore moved to dismiss the action, arguing that under the Consulting Agreement between Dr. Lotan and AngioScore, Dr. Lotan had already assigned to AngioScore any rights he may have had stemming from his contribution to the patents, and he thus had nothing to later license to TriReme. Two provisions of the Consulting Agreement were at issue:

9. Inventions

(a) Inventions Retained and Licensed. Consultant has attached hereto, as part of Exhibit C, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by Consultant prior to the date of this Agreement (collectively referred to as “Prior Inventions”), that belong solely to Consultant or belong to Consultant jointly with another and that relate to any of the Company’s current or proposed businesses, products or research and development; or if no such list is attached, Consultant represents that there are no such Prior Inventions. If, in the course of providing the Services, Consultant incorporates into a Company product, process or machine or into any Invention (as defined below), a Prior Invention owned by Consultant or in which Consultant has an interest, the Company is hereby granted and shall have a non-exclusive license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Inventions as part of or in connection with such product, process, machine or Invention.

(b) Assignment of Inventions. Consultant agrees to promptly disclose to the Company and hereby assigns to the Company, or its designee, all right, title and interest in and to all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable, that Consultant may solely or jointly conceive or develop or reduce to practice during the term of this Agreement that relate to the Services (collectively referred to as “Inventions”).

Section 9(a) required Dr. Lotan to list all of his inventions made before the Agreement’s effective date that related to AngioScore’s business. AngioScore would receive a nonexclusive license to any prior invention Dr. Lotan incorporated into AngioScore’s products during the course of his consulting work. Failure to list any such prior inventions constituted a representation that none existed.

Section 9(b) called for an assignment of Dr. Lotan’s rights to AngioScore for any inventions conceived, developed, or reduced to practice during the term of the Agreement.

According to AngioScore, under either section 9(a) or 9(b), it acquired all of Dr. Lotan’s rights in certain work performed prior to the Agreement’s effective date and which Dr. Lotan failed to list as a prior invention under the Agreement. The district court agreed and dismissed TriReme’s suit. TriReme appealed to the Federal Circuit.

The Federal Circuit’s Decision

The Federal Circuit reversed the district court’s decision. Turning to the express language of section 9(a), the Court found that nothing in the terms of section 9(a) suggested that Dr. Lotan would not retain ownership of any prior invention that he failed to list under the Agreement. At most, the Court stated, section 9(a) granted AngioScore a non-exclusive license in the event that Dr. Lotan incorporated a prior invention into an AngioScore product during the term of the Agreement.

The Federal Circuit also rejected AngioScore’s contention that, under estoppel by contract, TriReme was bound to Dr. Lotan’s implicit representation that he had no prior inventions that were relevant to the development of AngioScore’s prototype. The Court found that estoppel by contract did not apply because neither Dr. Lotan nor his successor in interest, TriReme, were seeking to enforce any rights under the Consulting Agreement, and AngioScore cited no cases that applied estoppel by contract where the cause of action was not founded in the written contract itself.

Next, the Federal Circuit considered AngioScore’s alternative argument that Dr. Lotan had assigned all rights from his previous work under § 9(b), which provided for an assignment to AngioScore of Dr. Lotan’s work performed during the term of the Agreement. AngioScore’s theory was that Dr. Lotan’s work prior to the effective date continued during the term of the Agreement and qualified as conceiving, developing, or reducing to practice an invention such that it would fall within the scope of § 9(b). Because this question of fact had not been adequately developed at the district court level, the Federal Circuit remanded to the district court to consider whether Dr. Lotan’s continued work after the effective date fell within the language of § 9(b).

Strategy and Conclusion

This case illustrates the issues that arise when a background rights exist as well as the importance of having a carefully drafted ownership agreement in place before collaborating with a consultant or independent party to protect patent rights and identify any preexisting intellectual property owned by the consultant prior to entering into an agreement. In the current case, while a representation of no prior relevant inventions and a non-exclusive license protected the company engaging the consultant from being sued by the consultant for patent infringement, it failed to prevent the consultant from being estopped from licensing a prior relevant invention to a competitor of the company that engaged the consultant and creating a license defense to the patent infringement suit by the company that engaged the consultant.

Endnotes
¹ The TriReme Medical, LLC v. AngioScore, Inc. decision may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/TriremeMedicalvAngioscoreInc..pdf.