International Trade Commission May Not Reform Patent Assignment Agreement to Cure Lack of Standing

Abstract

The U.S. International Trade Commission terminated its investigation of patent infringement because the complainant never acquired title to the patents it was asserting.  The patent assignment agreement that purported to convey the patent rights to the complainant was defective because it was signed on behalf of a corporate entity that had ceased to exist due to a corporate merger rather than on behalf of the corporate entity that survived the merger and owned the patents.  The ITC could not reform the agreement to reflect what the parties intended, so it dismissed the case.

The U.S. International Trade Commission (ITC) recently found that the complainant in a patent infringement action failed to acquire the asserted patents through an attempted assignment from a corporate entity that ceased to exist through a previous merger.

Background

In 2008, Encap Technologies merged into its corporate parent and ceased to exist, with all of its property going to Encap Holding.  In 2012, Intellectual Ventures signed an agreement with Encap Technologies to purchase patents previously held by Encap Technologies.  However, by then, Encap Technologies no longer existed.

Intellectual Ventures later sued several respondents for patent infringement at the ITC. The Respondents challenged Intellectual Ventures’ standing to assert the patents because Intellectual Ventures acquired the patents from Encap Technologies at a time when it did not exist.

The ITC Decision

The parties agreed that the 2012 assignment agreement purported to transfer ownership of the asserted patents from Encap Technologies to Intellectual Ventures.  However, they disagreed on whether Encap Technologies could convey any rights in the patents since Encap Technologies had been merged with Encap Holding four years before the purported assignment.  

The ITC administrative law judge applied Illinois law to both the 2012 assignment agreement and earlier merger agreement.  When interpreting an agreement under Illinois law, a court can rely only on the plain language of an agreement if the agreement is unambiguous.  Only if there is ambiguity in the contract, can the court look to evidence outside the language of the contract. In this case, the ITC found that both agreements clearly and unambiguously provided that Encap Technologies no longer existed, owned nothing, and could convey nothing through the 2012 assignment agreement.

Intellectual Ventures argued that courts can reform obvious mistakes in a contract.  While other courts have this power to reform a contract, the judge ruled that Congress never granted this power to the ITC, just as the ITC does not have the power to change the inventorship of a patent, while courts do. 

The judge also rejected Intellectual Ventures’ argument that Encap Technologies was merely a trade name for Encap Holding, finding no precedent for a patent conveyance under a trade name instead of the name of the true owner. Because Encap Technologies did not exist and had no property rights to convey, Intellectual Ventures did not acquire the patents and did not have standing to sue for patent infringement at the ITC.  A confirmatory assignment executed in response to standing challenge was also insufficient to save standing, which is evaluated at the time of filing. 

Strategy and Conclusion

This case illustrates two points.  A defect that can arise in chains of title that involve companies that reorganize by merger and acquisition.  And the ITC may not reform a contract to remedy an obvious mistake. 

The In re Certain Thermoplastic-Encapsulated Electric Motors opinion can be found here.