Patentee’s standing to sue for infringement evaporates after correction of inventorship

Nicolas Seckel | August 25, 2016

Vapor Point v. Moorhead (Precedential)

August 10, 2016

Before O’Malley, Chen, Stoll (per Curiam, O’Malley concurrence)

Summary:

After NanoVapor filed patent applications on a VOC removal technology, naming only its in-house inventor, it was sued by two non-employees trying to be added as inventors through an inventorship correction action. NanoVapor countersued for patent infringement, but having tied its infringement action to the inventorship action, NanoVapor lost standing when it lost on the inventorship action.

Details:

NanoVapor is a specialist of VOC removal for use in the maintenance of gasoline tanks in the petroleum industry. NanoVapor asked non-employees Nathan and Matheson to work on a new absorption technique. Various employment, partnership, and non-disclosure agreements were discussed with Nathan and Matheson, but remained un-signed. Moorhead later joined the project as employee of NanoVapor. NanoVapor kept struggling financially, so Nathan and Matheson left to develop their own company Vapor Point.

NanoVapor filed patent applications on the new VOC removal technology, naming Moorhead as sole inventor. Nathan and Matheson filed their own patent applications, which they assigned to Vapor Point. When Nathan and Matheson learned of the Moorhead patent applications, they and their company Vapor Point sued for inventorship correction under section 256 of the U.S. patent statute, along with various state law claims. NanoVapor countersued for patent infringement, inventorship correction of the Vapor Point patents, other state law claims, and NanoVapor also asserted various affirmative defenses, including assignment by Nathan and Matheson.

Section 256 states that a court may correct inventorship of a patent “on notice and hearing of all parties concerned”. In the District Court, the parties simplified the issues by stipulating to dismissal of all the state law claims with prejudice, so that only Vapor Point’s inventorship correction claim and NanoVapor’s patent infringement counterclaim remained. The District Court, after interpreting the patent claims, held an evidentiary hearing on the issue of inventorship.

The District Court determined that Nathan and Matheson had participated in the conception of at least one element of a claim in each of the NanoVapor patents, and thus, the District Court held that Nathan and Matheson were co-inventors of the NanoVapor patents, whereas Moorhead was not a co-inventor of the Vapor Point patents.

Following the inventorship correction, the District Court dismissed NanoVapor’s patent infringement counter-claim for lack of standing. Since NanoVapor was no longer the sole owner of the patents, and it could not join the co-owners Nathan and Matheson, NanoVapor had no standing to maintain the infringement action.

On appeal, the Federal Circuit affirmed. The District Court committed no clear error in the inventorship determination, based on the record of communications between the individuals concerned at the time of conception. And the District Court was correct in holding that, since NanoVapor’s ownership by assignment assertion had been an affirmative defense to the state claims, not to Vapor Point’s inventorship correction action, the issue did not remain after dismissal of the state law claims.

Concurrence

The Court of Appeals found an “easy” way to affirm unanimously on the procedural point of the state law claims dismissal, but concurring judge O’Malley wishes to express her opinion that, separately from whether NanoVapor had waived the assignment issue by agreeing to the state law claims dismissal, NanoVapor could not have standing to maintain an infringement action because it had no assignment “in writing” from Nathan and Matheson.

Section 261 of the U.S. patent statute states that “[a]pplications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing” (emphasis added). Judge O’Malley acknowledges that some transfers by operation of law are not “assignments”, but insists that shop rights or implied-in-fact contracts are equitable ownership transfer doctrines that are available only as a defense against an infringement action, but can never confer standing under the letter of section 261.

According to Judge O’Malley, the unsigned employments agreements between Nathan and Matheson and NanoVapor are examples of documents that cannot be an assignment in writing under section 261, but could at most evidence an “obligation to assign”. Judge O’Malley would like to see a 1996 decision, in which an implied-in-fact contract was held to have transferred ownership by operation of state law, overruled at least to that extent.

Takeaway:

The link between inventorship and ownership remains a trap to the unwary. For U.S. patents, it is important, not only to determine the inventive entity carefully based on the individuals’ participation in the conception of the claimed subject matter, but also to secure a complete written assignment chain. This will comply with USPTO rules that assignments should be recorded so the patent issues to the “real party of interest”, and it will strengthen the patentee’s standing to sue for infringement, now, or in the future, for example, if the courts evolves toward a stricter interpretation of the “assignment in writing” requirement in the patent statute.

Full Opinion

 

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