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IP Alert: Cautionary Tale Regarding Patent Assignment Agreements

February 5, 2016

Today, the U.S. Court of Appeals for the Federal Circuit issued a decision in TriReme Medical, LLC v. AngioScore, Inc. The decision constitutes a cautionary tale for those drafting or using agreements to assign patent rights.

AngioScore, a seller of angioplasty balloon catheters, nominally owns the three patents at issue in the lawsuit. TriReme is a competitor of AngioScore. The parties disputed whether Dr. Chaim Lotan, who was a prior consultant for AngioScore, had made an inventive contribution to the patents. Dr. Lotan had not been named as an inventor on any of the patents, but TriReme nonetheless acquired from Dr. Lotan his interests in the patents via an effective quitclaim. Under the law, if Dr. Lotan was established as an inventor, then TriReme’s acquisition of Dr. Lotan’s rights might enable TriReme to practice the patents without accounting to AngioScore.

Seeking to establish Dr. Lotan’s inventorship in the patents—and to establish its own interest in the patents as a result—TriReme brought suit for correction of inventorship under 35 U.S.C. 256. The district court dismissed the action, relying on the language in a consulting agreement signed by Dr. Lotan. Dr. Lotan claimed that his inventive contribution in the patents arose from his work with AngioScore before he had actually signed the consulting agreement. But the district court nonetheless held that the terms of the consulting agreement vested title to the patents in AngioScore anyway, leaving no rights for Dr. Lotan to have conveyed to TriReme. TriReme appealed.

The dispute centered on two provisions of Dr. Lotan’s consulting agreement, paragraphs 9(a) and 9(b):
9(a) Inventions Retained and Licensed. Consultant has attached hereto, as part of Exhibit C, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by Consultant prior to the date of this Agreement (collectively referred to as “Prior Inventions”), that belong solely to Consultant or belong to Consultant jointly with another and that relate to any of the Company’s current or proposed businesses, products or research and development; or if no such list is attached, Consultant represents that there are no such Prior Inventions. If, in the course of providing the Services, Consultant incorporates into a Company product, process or machine or into any Invention (as defined below), a Prior Invention owned by Consultant or in which Consultant has an interest, the Company is hereby granted and shall have a non-exclusive license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Inventions as part of or in connection with such product, process, machine or Invention.

(b) Assignment of Inventions. Consultant agrees to promptly disclose to the Company and hereby assigns to the Company, or its designee, all right, title and interest in and to all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable, that Consultant may solely or jointly conceive or develop or reduce to practice during the term of this Agreement that relate to the Services (collectively referred to as “Inventions”). (Emphasis omitted.)

AngioScore asserted that under Section 9(a) of the agreement, Dr. Lotan was required to attach a list of any “prior inventions” to the consulting agreement, and this would have to have included any prior inventive work that led to the three patents in suit. Dr. Lotan did not attach any such list. Therefore, AngioScore asserted, this omission was tantamount to a representation that there were no such prior inventions, such that any unlisted inventions belonged to AngioScore.

The Federal Circuit disagreed, and reversed the judgment of the district court. Construing the agreement under California law, which governed the interpretation of the contract, the court observed that the contract “certainly does not provide that inventions that are not listed are assigned, rather than licensed.” Accordingly, the court interpreted Section 9(b) of the contract to grant AngioScore at most a nonexclusive license to Dr. Lotan’s prior inventions, to the extent that such inventions were incorporated into an AngioScore product. Such a nonexclusive license would not have prevented Dr. Lotan from subsequently assigning his rights in those contributions to TriReme.

AngioScore further argued that the doctrine of “estoppel by contract” precluded TriReme from now alleging that Dr. Lotan had made an inventive contribution on which TriReme could base an inventorship claim. The court disagreed, finding that the doctrine of estoppel by contract was inapplicable because neither Dr. Lotan nor TriReme sought to enforce any rights under the contract.

Finally, AngioScore alleged that Section 9(b) operated to assign all rights in Dr. Lotan’s inventive contribution, because Dr. Lotan’s efforts after the agreement began amounted to “development” and “reduction to practice” within the meaning of Section 9(b). This was so, AngioScore argued, even if some of the work in conceiving these inventions had been performed before the date of the contract. The Federal Circuit held that this issue presented a question of fact that was unresolvable on a motion to dismiss, and accordingly remanded to the district court for an answer to this question.

The decision illustrates two practice pointers for corporate attorneys who draft and implement contracts with employees and consultants. First, when retaining an employee or consultant who is expected to convey inventive rights, it is a best practice to require that person to execute the operative instrument before the commencement of any work. Second, in cases where this has not been done or is not possible, careful review of the operative instrument is warranted to ensure that patent rights are conveyed as expected.

Please contact Fitch Even partner Allen E. Hoover with any questions concerning the above case.

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