Federal Circuit Review - December 2020

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Non-Disclosure Agreement Controls Ownership of Patents Arising From Confidential Information Received Thereunder

In Sionyx LLC v. Hamamatsu Photonics K.K., Appeal No. 19-2359, the Federal Circuit held that a party who discloses confidential information pursuant to an NDA may be entitled to ownership of U.S. and foreign patents filed by the receiving party when the patents arise from confidential information provided by the disclosing party, and the terms of the NDA provide that ownership of any patents arising from confidential information are owned by the disclosing party, even if employees of the receiving party contribute to the patented invention.

SiOnyx LLC was founded to commercialize a patented process for making silicon with new electronic properties. Hamamatsu entered into a Non-Disclosure Agreement (“NDA”) with SiOnyx to discuss joint development of the technology and received confidential information. The NDA provided that ownership of all patent rights in or arising from confidential information would be owned by the disclosing party. Hamamatsu ultimately declined to use SiOnyx’s proprietary process. However, Hamamatsu continued to develop photodetector devices using SiOnyx’s confidential information, devices that Hamamatsu patented in the U.S. and several other countries.

After Hamamatsu started commercializing products, SiOnyx sued Hamamatsu for breach of contract, unjust enrichment, patent infringement and correction of inventorship in Hamamatsu’s U.S. patents. After trial, a jury found for SiOnyx, and in particular, found that Hamamatsu breached the NDA by using SiOnyx’s confidential information and that one of SiOnyx’s founders was a co-inventor of Hamamatsu’s U.S. patents. In post-trial motions, SiOnyx sought a determination of sole-ownership of Hamamatsu’s U.S. and foreign patents. The district court granted SiOnyx’s motion regarding ownership of Hamamatsu’s U.S patents, but denied the motion with respect to its foreign patents.

On appeal, the Federal Circuit affirmed the district court’s decision transferring ownership of the U.S. patents and reversed with respect to the foreign patents. The court found that, under the NDA, the disclosing party owned the patents arising from the disclosing party’s confidential information exchanged under the agreement. Hamamatsu failed to show any evidence that it contributed confidential information to the patents under the terms of the NDA, other than that which it appropriated from SiOnyx. Although the court noted that the jury’s finding of co-inventorship might imply that Hamamatsu employees contributed to the claimed inventions, the court distinguished inventorship from ownership. Further, the court found that the employees’ rights transferred to Hamamatsu, the contracting party in the NDA. The court held that modification of the claims based on contributions from Hamamatsu employees did not warrant denial of the equitable remedy. Regarding Hamamatsu’s foreign patents, the Federal Circuit found that the evidence establishing SiOnyx’s sole ownership of the U.S. patents also applied to ownership of the foreign patents, and that the district court could compel transfer of ownership of the foreign patents as an exercise of the court’s authority over Hamamatsu.

No Simulating Alice Requirements: Application of Abstract Ideas Alone Cannot Transform Patent-Ineligible Subject Matter

In Simio, LLC v. Flexsim Software Products, Inc., Appeal No. 20-1171, the Federal Circuit held that a claim whose only inventive concept is the application of an abstract idea using conventional and well-understood techniques is not sufficient to transform the claim into a patent-eligible idea.

Simio sued FlexSim Software Products (“FlexSim”) for infringing its patent directed to creating object-oriented simulations using graphics instead of coding to allow the user to more easily build the simulations. FlexSim moved to dismiss the complaint for failure to state a claim, arguing that Simio’s asserted claims were abstract ideas that were ineligible for patenting under § 101. The district court dismissed the complaint, finding that Simio’s claims were not patent-eligible under Alice’s two-step framework. Simio then filed a motion for reconsideration, which the district court denied. Simio appealed.

The Federal Circuit affirmed, holding that the claims were directed to patent-ineligible subject matter. The Federal Circuit agreed that the claims were directed to the abstract idea of using graphics instead of programming to create object-oriented simulations, which had been used since the 1980s and 1990s. The Federal Circuit disagreed with Simio that the asserted claims improve the functionality of prior simulations because the claims improve the user experience, not the functionality of the computer itself. The Federal Circuit also held that the claims did not transform the abstract idea into patent-eligible inventions because the claims lacked any inventive concept or meaningful application of the abstract idea to save the claims. Thus, the claims were patent-ineligible.

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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