10.06.2009

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Updates

On October 1, 2009, the Federal Circuit issued an opinion in Stanford v. Roche, Case Nos. 2008-1509, 2008-1510.  One section addresses the interpretation of a patent assignment clause to determine whether it creates an automatic assignment or merely an obligation to assign.  The court held that the contract language "do hereby assign" effected a present assignment of an inventor's future inventions, and the contract language "agree to assign" reflected a promise to assign rights in the future.  

Discussion

In the Northern District of California, the Board of Trustees of the Leland Stanford Junior University (Stanford) filed suit against Roche Molecular Systems, Inc. (Roche) for patent infringement.  Stanford asserted that Roche's HIV test kits, including a PCR assay, infringe one or more claims of three patents-in-suit.  In an answer and counterclaim, Roche asserted that it owned the patents-in-suit through an acquisition from Cetus, a company where PCR techniques matured in the early 1980s.  At the time of the invention, an inventor, Holodniy, was a Stanford employee who had learned PCR while visiting Cetus.  While Holodniy "agree[d] to assign" all inventions to Stanford pursuant to his employment agreement, Holodniy signed a "Visitor's Confidentiality Agreement," stating that Holodniy "will assign and do[es] hereby assign" all inventions that he may devise as a consequence of his work at Cetus to Cetus.  Holodniy then assigned his patent application to Stanford, an assignment Stanford timely recorded with the U.S. Patent and Trademark Office.  Roche subsequently acquired Cetus' PCR business. 

Based on the competing contract provisions, the parties cross-moved for summary judgment on Roche's alleged ownership of the patents-in-suit.  The district court denied Roche's motion in full and granted Stanford's motion in part, finding that Roche's ownership claims were barred by the California statutes of limitation.  The district court then determined that the patent claims asserted by Stanford were invalid and granted summary judgment in favor of Roche.  Stanford appealed and Roche cross-appealed.

The Federal Circuit affirmed the district court's dismissal of Roche's ownership counterclaim as time-barred by the statutes of limitation.  The court held, however, that Roche's affirmative defense of ownership is not barred, and as such, Stanford lacked the standing to sue because Stanford was not owner of the patents-in-suit in the view of Holodniy's assignment of his rights to Cetus.  Accordingly, the court vacated the invalidity judgment and remanded with instructions to dismiss Stanford's claim. 

The Federal Circuit followed circuit precedent, holding that the contractual provision "agree to assign" in the agreement between Holodniy and Stanford "reflects a mere promise to assign rights in the future, not an immediate transfer of expectant interests."  Stanford neither immediately acquired title to Holodniy's inventions at the time the parties executed the agreement, nor at the time of the invention.  In contrast, the contract term "do hereby assign" in the "Visitor's Confidentiality Agreement," between Holodniy and Cetus "effected a present assignment of Holodniy's future inventions to Cetus."  Cetus immediately gained equitable title to Holodniy's prospective inventions which converted to legal title when Holodniy's invention materialized.  Holodniy forfeited ownership rights negating his subsequent assignment to Stanford during patent prosecution. 

Stanford argued that its recordation of Holodniy's assignment to Stanford trumped the prior assignment to Cetus because neither Roche nor Cetus had recorded the Cetus assignment with the U.S. Patent and Trademark Office.  The Federal Circuit rejected Stanford's bona fide purchaser argument, holding Stanford had at least constructive or inquiry notice of the agreement between Holodniy and Cetus because Stanford employed Holodniy.

Significance

The Federal Circuit's decision illustrates the importance of including clear and appropriate language in an assignment clause of an employee agreement.  The distinction between "agree to assign" and "do hereby assign" accounted for Stanford's failure to secure title to the patents and defeated Stanford's suit for patent infringement.  Employers should consider reviewing their employment agreements to ensure that they contain a present, as opposed to a future, assignment of patent rights and advise employees of the dangers of confidentiality agreements with third parties.