Assignor Estoppel: When Are Inventors Allowed to Attack Their Own Inventions?

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[co-author: Olivia Stein]

An inventor develops an invention, files a patent application and assigns the application for value to the company they founded. Later, the inventor founds another company and develops an improved version of their original invention. Then, the inventor’s former company sues the inventor or the inventor’s current company for patent infringement. In response, the inventor argues that the patent for the original invention is invalid. Should the inventor be able to do so? The U.S. Supreme Court’s decision in Minerva v. Hologic answers this question in part, but leaves several issues open for later resolution.

Background

Csaba Truckai invented a device to treat abnormal uterine bleeding called the NovaSure System. He then filed a patent application and assigned his interest in the application, along with his interest in any continuation applications, to the company he founded, Novacept. Novacept later sold all its assets, including the NovaSure System patent, and the patent was eventually acquired by Hologic. Truckai went on to found Minerva Surgical and invented an improved device to treat abnormal uterine bleeding. The NovaSure System is “moisture permeable” and conducts fluid out of the uterine cavity during treatment. In contrast, Truckai’s new invention, the Minerva Endometrial Ablation System, is “moisture impermeable” and does not remove any fluid during treatment.

In response, Hologic filed a continuation application requesting to add claims to its patent. Hologic drafted one of the claims generally, to encompass both moisture permeable and moisture impermeable ablation devices. Then, Hologic sued Minerva for patent infringement in the U.S. District Court for the District of Delaware. Minerva asserted that the NovaSure System patent was invalid, and Hologic invoked the doctrine of assignor estoppel—which bars the inventor assignor of a patent from denying the validity of their previously assigned patent.

The District of Delaware held that assignor estoppel barred Minerva’s estoppel defense because Minerva was the alter-ego of Truckai, and the U.S. Court of Appeals for the Federal Circuit affirmed. The Supreme Court granted certiorari and reversed the lower courts.

The Majority’s Ruling—and Its Effect on Assignor Estoppel

Although Minerva argued for assignor estoppel to be eliminated entirely, the Supreme Court declined to do so. Instead, the Court defined assignor estoppel based on principles of fairness, which narrowed the doctrine. When an inventor applies for a patent, the inventor takes an oath asserting that they are the “original inventor” of the “claimed invention” and assumes a “duty of candor and good faith” in the patent process, including a “duty to disclose” to the U.S. Patent and Trademark Office all information they know “to be material to patentability.” If the assignee company sues for infringement and the inventor attempts to argue patent invalidity, the inventor is contradicting their earlier assurances that the invention was patentable.

In Minerva, the Court characterized the primary purpose of assignor estoppel as seeking to prevent this kind of inconsistency, but also noted that it supports a healthy marketplace of ideas. Allowing an inventor to raise an invalidity defense would allow the inventor to doubly profit by receiving the value of the assignment along with the continued right to use the invention it covers. Furthermore, patent assignments would chill because assignees would receive a less valuable product: a patent that is vulnerable to attack by its creator.

The Court differentiated the doctrine of assignor estoppel from the doctrine of licensee estoppel. Licensee estoppel bars a patent licensee from contesting the validity of a patent the licensee has paid to use. In Lear v. Atkins, the Court eliminated the doctrine of licensee estoppel because the doctrine failed to serve the same principles of fairness that upheld assignor estoppel. Unlike an assignor who assigns the patent to another, a licensee makes no assurances of patent validity when it purchases the right to use a patented device. If the patent is invalid, the licensee need not pay for the right to use the device. Thus, invalidating the doctrine of licensee estoppel and allowing licensees to challenge patents on the basis of invalidity serves “the important public interest in permitting full and free competition in the use of ideas.”

While the Court held that assignor estoppel should not suffer the same fate as licensee estoppel, it clarified that the doctrine should only extend as far as principles of fairness support. At the time of assignment, the doctrine implies that the assignor is vouching for the patent’s validity and should be estopped from claiming the patent is invalid. However, the assignor does not necessarily vouch for the patent’s validity as it is shaped by post-assignment developments.

The Court enumerated three scenarios for post-assignment developments where assignor estoppel would not apply:

  1. Assignor estoppel does not apply if the assignment occurs before an inventor can make a warranty of validity as to specific patent claims. For example, many employment contracts include an assignment by which the employee grants the employer rights to any future inventions the employee may develop during employment. The invention itself has not come into being at the time the employee signs the employment contract. It follows that the inventor cannot vouch for the validity of a patent for an invention that does not exist. Therefore, the inventor is not precluded from raising an invalidity defense solely based on an assignment in an earlier executed employment contract.
  2. Assignor estoppel does not apply if a later legal development renders the warranty given at the time of the assignment irrelevant, for example, changes to the standard for patent-eligible subject matter. An inventor who assigned a patent to a company before such a change would have been unable to vouch that the invention would be considered to contain patent-eligible subject matter later on.
  3. Assignor estoppel does not apply if the assignee enlarges the patent claims such that they are “materially broader than the older claims.” Recall that in the case being discussed here, Hologic had added new claims to the NovaSure System patent that claimed the device generally, without reference to whether the device was moisture permeable or impermeable. Minerva had unsuccessfully argued in the Federal Circuit that the assignor estoppel should not apply because Minerva was challenging a claim that was materially broader than original claims. The Supreme Court held that the Federal Circuit erred by considering Minerva’s argument “legally irrelevant.” Truckai’s warranty of validity extended only to the claims as written at the time of the assignment. Thus, the Court reasoned that assignor estoppel would not apply if the new claim was “materially broader” than the pre-existing claims.

Mixed Guidance for Entrepreneurs

Moving forward, entrepreneurs should feel more confident, but still rely on sound judgment and advice of counsel, when deciding whether to develop an improvement of a previously assigned patent.

Although the Court narrowed assignor estoppel, it did not eliminate the doctrine. In fact, aside from assignor estoppel, many such patent assignment deals may also contain non-compete provisions barring inventors from engaging in such activities. Minerva described the doctrine of assignor estoppel as one of good faith. Serial entrepreneurs who continuously assign patents for value and develop infringing improvements will not be relieved from all the constraints of assignor estoppel. On the other hand, an entrepreneur’s new venture should not hesitate to assert an invalidity defense if post-assignment changes are such that the inventor’s warranty would not be contradicted by an invalidity defense.

Additional notes on assignor estoppel to consider going forward:

  1. What constitutes a materially broader claim to which assignor estoppel will not apply?

    The Supreme Court remanded Minerva v. Hologic to the Federal Circuit to determine whether Hologic’s new claim is materially broader than the ones drafted at the time Truckai assigned his rights. The Federal Circuit’s treatment of this case on remand will likely provide some guidance regarding whether the “materially broader” requirement will be a strenuous or relaxed standard for inventors to meet.

  2. When does assignor estoppel bar an inventor’s company from raising an invalidity defense?

    One issue that the Supreme Court left undisturbed was the doctrine of privity. An inventor may be constrained from arguing invalidity due to assignor estoppel, but an inventor’s company is not constrained from arguing invalidity unless the inventor and the company are in privity. On appeal to the Federal Circuit, Minerva did not contest the district court’s finding that itself and Truckai were in privity, which extends the assignor estoppel that attached to Truckai to Minerva.

    Courts balance the equities in privity determinations. Status as the founder of a company generally carries a great weight on the determining whether privity exists between the inventor and her venture for purposes of assignor estoppel. However, in light of increased employee mobility and the presence of alternatives to the traditional hierarchical system in the technology industry, whether the doctrine of privity will apply to an individual inventor and their new venture is uncertain. In general, the closer the relationship between the inventor and the company accused of infringement, the more likely the equities will favor determining the company and the inventor are in privity. Where the inventor exercised substantial control over and/or held considerable financial interest in, the defendant corporation, courts were more likely to find a privity relationship extending the application of assignor estoppel to the defendant corporation.

    Also, the relationship between the inventor and the defendant corporation need not be formal. For example, the title of the employee is not dispositive in this analysis. The inventor in Acushnet v. Dunlop Maxfli Sports was not found to be in privity with his employer despite having the title of “Vice President of Research and Development,” while one of the inventors in Juniper Networks v. Palo Alto Networks was found to be in privity with his employer despite his testimony that he was “not a title person” and was not listed as the founder of the company.

    At bottom, what is dispositive for a determination of privity is what the employee does for the company. Key employees of the defendant company are likely to satisfy the privity test. It is also significant whether the accused company availed itself of the inventor’s knowledge and assistance to conduct the infringement, but not necessarily through the inventor’s design of the infringing features. And the inventor’s inability to control the defendant corporation is not dispositive for the privity analysis.

Best Practices for Employers in Light of Minerva

In Minerva, the Supreme Court held that Truckai’s patent assignment, which assigned rights to his patent application as well as continuation applications that claim the benefit of priority to his application, did not necessarily bar him from asserting a defense of invalidity. Assuming that the new claim was materially broader than the original patent claims, Truckai could have not necessarily foreseen the change when signing his patent application. The Court did not explain what kind of agreements employers could implement to successfully to bar inventors from later raising an invalidity defense, however.

Employers and other assignees may have a range of tools to strengthen assignor estoppel claims on their patents, ranging from obtaining additional oaths and declarations upon inventor’s review of allowed claims, confirmatory assignments which may include warranty provisions for additional consideration, well-compensated patent bonus programs, as well as contractual restrictions, where appropriate.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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