Employer Lacks Right to Sue for Patent Infringement When Employment Agreement Fails to Assign Employee Inventions

Abstract

An employer lacked standing to sue for patent infringement because the employment agreement with the inventor simply provided an obligation to assign in the future, rather than an assignment that is effective without further action.  Similarly, the agreement’s quitclaim and trust provisions did not rectify the situation because they did not effect a transfer or create standing to sue.

To have standing to sue for patent infringement in the United States, a plaintiff generally must have received an assignment from all of the inventors.  If any inventor has not transferred its rights to the plaintiff or has not joined in the litigation, the patent infringement suit may not proceed.

The Federal Circuit recently considered whether an employment agreement with one of the patent’s inventors transferred adequate rights to create standing to sue for patent infringement.

Background

Advanced Video Technologies LLC sued a number of defendants for infringing a patent on a video codec.  The patent lists three inventors who worked for Infochips Systems Inc. when they created the invention.  Only two of the inventors assigned their interests in the patent to Advanced Video, so there was a question as to whether the rights of the third inventor were transferred to Advanced Video so that Advanced Video had standing to sue for patent infringement.

Advanced Video maintained that it obtained the third inventor’s interests in the patent through a series of transfers, including an alleged transfer under provisions of a January 1992 employment agreement between the third inventor and Infochips that was in place before the patent application was filed. 

Advanced Video relied on three provisions of the employment agreement to support its position that it had obtained sufficient rights from the third inventor to have standing to sue for patent infringement: 1) a "will assign" provision; 2) a trust provision; and 3) a quitclaim provision:

I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions . . .

I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company.

The trial court ruled that these provisions did not transfer the inventor’s ownership rights in the asserted patent to Advanced Video and, because the inventor was not a party to the suit, dismissed the case for lack of standing.

The Federal Circuit Decision on Appeal

On appeal, the Federal Circuit rejected Advanced Video’s claim to ownership under all three provisions of the employment agreement.

The "will assign" language provided an obligation to assign but did not create an immediate assignment.  The trust provision provided evidence that an immediate assignment did not occur, because an inventor could not immediately assign patent rights and at the same time hold them in trust.  

Similarly, the "will hold in trust" provision did not create an immediate trust under California law in which the employer received legal title to the patent rights of the inventor.  Even if the IP interests were immediately placed in trust, it would not follow that the interests were ever transferred out of trust in favor of the employer.  And even if Advanced Video were the beneficiary of the trust, under California law, the legal title and right to sue is owned by the trustee, so a beneficiary, who is not the real party in interest, may not sue in the name of the trust, and has no title or ownership interest in the trust.

Lastly, although the quitclaim provision waived the inventor’s interest in any patent rights that she assigned under the agreement, because no patent rights were ever assigned, this provision was inapplicable.

A concurring opinion by one judge agreed that, under applicable precedents, the case must be dismissed because Advanced Video did not have full ownership of the asserted patent, but argued that non-consenting co-inventors should be able to be joined involuntarily to infringement suits under Federal rules allowing for the involuntary joinder of necessary parties.  The concurring opinion argued that not allowing such involuntary joinder prevents a patent co-owner from seeking a remedy for patent infringement to which they are entitled where a co-owner refuses to join an infringement suit.

A dissenting opinion by one judge argued that the co-inventor never had ownership of the patent and therefore Advanced Video did not need to acquire any ownership interest from the co-inventor.  The dissent argued that the "detailed and thorough" terms of the employment agreement placed all inventions under the ownership of the employer.  Along with the "will assign," trust, and quitclaim provisions, the dissent pointed to provisions of the employment agreement providing that invention records are the property of the company, that the employee has an obligation to assist in obtaining patents, and providing for action by the company in the absence of the employee’s signature on patent documents.  The dissent stated that the majority’s decision to dismiss the case was not supported "under any view of any law."

Strategy and Conclusion

General terms of employment agreements that contain provisions relating to transferring IP rights, but which do not actually transfer those rights, may prevent the beneficiary or intended owner of those IP rights from asserting them in litigation until the title of those IP rights are transferred to the intended owner.  This case illustrates the value of having employment agreements that automatically assign any inventions and resulting patents of their employees to the employer, so the employer has legal title to the patents and standing to sue for patent infringement, rather than merely create obligations to assign inventions in the future, so the employer has equitable title and the right to obtain legal title, but does not have standing to sue for patent infringement until legal title is acquired.

Further Information
The Advanced Video decision can be found here.