APaTS : Licensing

Who's ̶O̶n̶ Owns First?

admin — Mon, 26 Oct 2009 16:01:00 GMT

The decision in Stanford University v. Roche Molecular Systems demonstrates the importance of sorting out the players when it comes to patent ownership and when multiple assignments of patent rights occur. Patent holder Stanford University brought an action for patent infringement against alleged infringer Roche. Stanford based its claim for patent ownership (in part) upon a written promise by one of the inventors to assign his inventions. Roche countered that it had an actual assignment from that inventor which trumped Stanford's. Though the statute of limitation had already run on Roche's ability to bring an action on ownership, Roche argued the assignment meant Stanford lacked standing. The trial court rejected Roche's claims but found the patent invalid for obviousness. Vacating that decision, the Federal Circuit remanded the case and ordered the district court to dismiss the action finding that what's on second was lack of standing.

The patents at issue covered a novel way to measure the effectiveness of antiretroviral medications in the blood of individuals with HIV. Stanford developed the test in partnership with a company that was later acquired by Roche. Stanford initially offered to license the technology rights to Roche. When negotiations failed, Stanford sued Roche for patent infringement.

Roche pled the ownership issue as an affirmative defense and as a counterclaim. The district court said the claims were time barred because the relevant statute of limitations had already run. The Federal Circuit held otherwise, noting the well-settled rule that questions of standing can be raised at any time and are not foreclosed by, or subject to, statutes of limitations. The panel found that statutory limitations on Roche's affirmative right to claim ownership (which had clearly passed) did not apply when its ownership was raised as a challenge to Stanford's standing to sue.

Roche's ownership interest could not be refuted. Though the agreement it acquired from its predecessor had been executed after the one the inventor signed with Stanford, it contained an actual assignment versus the promise to assign contained in the Stanford agreement. Promises to assign (like the one held by Stanford) require an additional assignment contract in order to transfer rights. Because of its agreement, Roche could claim equitable title immediately at the moment of invention, and the inventor actually had nothing left to assign to Stanford despite his contractual obligation. Roche also automatically held legal title in the patent application at the moment it was filed, negating the inventor's subsequent assignment to Stanford during patent prosecution.

Nor could Stanford obtain the benefit of the USPTO's recordation rules which generally grant ownership to the first assignee to record when, as here, two entities claim ownership. In order to take advantage of the provision, the assignee filing must be a bona fide purchaser who takes without notice and pays valuable consideration. Here, the Federal Circuit found that Stanford was at least on inquiry notice of the relationship between the inventor and Roche's predecessor and the potential for a rights-transfer. As a result, Stanford's was not entitled to the priority otherwise accorded a bona fide first-filed assignment.

Because Stanford could not establish full patent ownership, it lacked standing to assert its claims of infringement against Roche. Thus, the district court lacked jurisdiction over Stanford's infringement claim and also should not have addressed the validity of the patents, resulting in the Federal Circuit's order for vacation and dismissal.

Stanford underscores the importance of carefully scrutinizing ownership and standing issues before filing suit. Our advice? When it comes to answering the question "Who owns the patent in this litigation?" don't let the guy on third^[1] be the only one with an answer.

[1] Costello: I don't know.
Abbott: He's on third.
Please see http://www.baseball-almanac.com/humor4.shtml for a full transcript.

Yours, Mine and Ours

admin — Wed, 10 Jun 2009 18:29:00 GMT

Sometimes, the merger of two companies requires a sorting of the Cinderellas from the ugly stepsisters when it comes to pre-existing contractual relationships. The decision in Epistar Corp. v. International Trade Commission involves one such blended family tale. There, after a merger, the alleged infringer found itself with separate licensing agreements that both prohibited and allowed invalidity challenges in future litigation with the same patent holder. The patent holder claimed the agreement that precluded invalidity challenges governed and the International Trade Commission agreed. The Federal Circuit reversed and remanded, finding that the merger, in and of itself, was not enough to prevent the invalidity defense from coming to the dance.

The patent at issue in Epistar covered technology for LEDs. Both alleged infringer Epistar and the company with which it merged (UEC) had entered into settlement agreements with the patent holder in prior infringement actions. Epistar agreed to pay a licensing fee for certain products, but retained the right to challenge the patent if the patent holder sued Epistar in the future. In its license, UEC agreed (prior to the merger) that neither it, nor its successors, could challenge the validity of the patent at issue.

The International Trade Commission ruled that the agreement UEC had with the patent holder precluded Epistar from contesting the validity of the patent at issue with respect to any UEC or Epistar product. However, the Commission failed to acknowledge the separate agreement Epistar had with the patent holder which preserved Epistar's right to challenge patent validity with respect to Epistar's products. The Commission later explained that though it had failed to take into account the Epistar license, Epistar could not challenge the decision because it became final when the Commission declined review.

On appeal, the Federal Circuit overturned the Commission's final determination and found that the agreement Epistar had with the patent holder governed its right to contest the validity of the patent with respect to its products. The patent holder could not use the UEC agreement to gain any further preclusion because that agreement only covered UEC product lines. Because Epistar's separate agreement clearly preserved Epistar's right to contest the validity of the patent in other contexts, the patent holder could only limit Epistar from asserting patent invalidity as to the product lines it acquired from UEC. It could not use the UEC preclusion agreement to reach products that agreement didn't cover. In other words, the patent holder could only preclude Epistar to the extent which UEC was formerly limited.

Epistar's moral? You can't use a merger to cram one license agreement's claim preclusions into a separate agreement in order to encompass a successor's products. Instead, both sides to a license agreement (even one negotiated in the throes of litigation) need to remember that corporate mergers, marriages, dissolutions and divorces are a fact of modern life and to plan accordingly. Then, one hopes, patent holders and the alleged infringers who have become their licensees will have an agreement that fits so that both can live happily ever after.

Patent Law's New Math: Medimmune + KSR ≥ Your License Agreement

admin — Fri, 18 May 2007 13:16:00 GMT

MedImmune, Inc. v. Genentech, Inc. and KSR International Co. v. Teleflex Inc....(read more)

You Show Me Your . . . Patent and I’ll Show You My . . . DJ

admin — Fri, 04 May 2007 13:56:00 GMT

SanDisk Corp v. STMicroElectronics, Inc....(read more)

The Cost of Cake

admin — Thu, 26 Apr 2007 11:10:00 GMT

The patent law bar is in a dither over the Supreme Court's decision in MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (U.S. 2007). MedImmune changes the rules for when a patent licensee may use a declaratory judgment (DJ) action to challenge a licensed patent. Before MedImmune, a licensee usually had to stop paying royalties and breach the license in order to bring a federal court action challenging the validity or enforceability of licensed patents-a requirement, it appeared, dictated by the rules regarding subject matter jurisdiction. Under the old rules, there simply wasn't a case or controversy sufficient to support federal court jurisdiction unless the licensee stepped up to the plate and took enough action to create adversity and a "reasonable apprehension" of suit.

The MedImmune decision changes the ante. Now, a patent licensee may remain in good standing under the license and still bring a DJ action to challenge the validity or enforceability of the licensed patent. Under the MedImmune decision it seems unhappy licensees can have their cake and eat it too.

Certainly, licensors can expect a flurry activity in MedImmune's wake as licensees seek to leverage the decision to their advantage, particularly when the license includes a package of patents. Whether through audit, threats, or actual litigation, some licensees may use a MedImmune club to challenge the validity or enforceability of involved patents in order to negotiate lower royalty rates.

Our take? Not so fast.

Many licenses contain contractual provisions stipulating to the validity and enforceability of the licensed patents. How courts will handle these provisions is still anyone's guess. Should they be deemed enforceable, licensee DJ actions and threats thereof will lose much of their possible bite.

Licensors also can and should evolve their license agreements to obviate the potential problems MedImmune raises. Contract language requiring tripled royalties or attorneys fees as a penalty for unsuccessful challenges will certainly reduce frivolous actions. Licensors may also begin to include termination provisions giving them the right to terminate the license for all patents in a package upon a challenge to the validity or enforceability of a particular one.

Licensors may even use litigation itself as a way to control validity or enforceability challenges. Licensors could file a complaint for infringement, which the licensee would answer with a counterclaim asserting invalidity and a counterclaim asserting unenforceability. Getting the desired license would require the licensee to enter into a binding settlement or consent judgment resolving from the outset patent validity and enforceability.

As these and other MedImmune-influenced provisions roll out, licenses will learn that the decision is not the free-for-all many have made it out to be. In the long run, we believe that licensees will still have to pay, and maybe even pay more, in order to have their cake.