While Patent Assignees May Be Estopped from Challenging Patent Validity, It May Be Premature to Strike Such Validity Challenges at the Pleading Stage

Abstract

A California court found that it is premature to determine whether assignee estoppel bars the affirmative defense of patent invalidity at the pleading stage. Instead, the court decided to wait and determine that issue after the facts surrounding the negotiation and performance of the assignment agreement were developed.

In determining whether a party may challenge the validity of a patent, it is important to determine whether the challenger is an assignee of the patent or a licensee under the patent. A patent assignee may be estopped from challenging the validity of the patent it acquired, while a patent licensee generally cannot be. In balancing the principles of contract law, which forbids a purchaser from repudiating a promise because they become dissatisfied with the bargain, and federal law, which requires that ideas be dedicated to the common good unless they are protected by a valid patent, the Supreme Court in Lear found that federal law weighs more heavily and abolished the doctrine of licensee estoppel. However, it did not abolish the doctrine of assignee estoppel.

Background

MACOM sued Infineon for breaching an intellectual property agreement between Nitronext (the predecessor-in-interest to MACOM) and IR (the predecessor-in-interest to Infineon). The agreement assigns certain patents to IR, requires that IR and Nitronex work together on enforcing the Nitronex Patents, defines a "Field of Use" for IR and Nitronex, and further provides Nitronex with the exclusive right to practice the Nitronex Patents, including against IR, in an "Exclusive Field."

The agreement also provides that IR itself may not directly or indirectly market, sell or service Products in the Exclusive Field and IR may not grant any further licenses or sublicenses to any other party under the Licensed Patents to design, develop, make, have made, use, market, sell or service Products in the "Field of Use."

In answering the complaint, Infineon alleged several defenses, including patent invalidity. MACOM moved to strike that affirmative defense under the doctrine of assignee estoppel. The court discussed the legal principles of assignee estoppel and licensee estoppel, and concluded that, while MACOM may ultimately prevail in its argument that Infineon should be estopped from asserting an invalidity defense, it was premature to bar such a defense at this early stage of the proceeding.

The MACOM Decision

Discussing Lear, the court explained that the doctrine of assignee estoppel is not exactly a "jurisprudence fixture." The court acknowledged decisions indicating that the distinction between licensee and assignee estoppel has not always been logical and noted that at least one other district court declined to apply the doctrine of assignee estoppel. In addition, decisions since Learthat have addressed the scope and applied the doctrine of assignee estoppel were unpersuasive authority because they were factually different: (1) MACOM was not left with nothing after the agreement since it retained the right to prosecute infringers and practice the Nitronex Patents and (2) MACOM did not contend that Infineon asserts invalidity to avoid royalty payments under the license.

The court did not decide the issue of whether the doctrine of assignee estoppel is still viable. Instead, the court concluded that, even assuming assignor estoppel remained good law, the issue was not well suited for resolution at the pleading stage because the court would have to weigh not only the equities regarding the parties’ contentions on the agreement but also the circumstances under which the agreement was negotiated and evidence of the parties’ performance. Because the factual issues were not developed at the early stage of the case, the court was ill-situated to balance the equities between the parties.

Strategy and Conclusion

While applying assignee estoppel at the pleading stage to bar a defense of patent validity may be premature, assignee estoppel remains a viable doctrine that may be used once the relevant factual issues have been developed in the case to show whether the balance of the equities weighs in favor of its application.