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IP Alert: Federal Circuit Broadly Applies Assignor Estoppel Doctrine

April 1, 2016

The Court of Appeals for the Federal Circuit recently affirmed the Central District of California’s expansive finding of assignor estoppel in MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc. The Federal Circuit reviewed the district court’s factual findings for “clear error,” and the district court’s ultimate conclusion for “abuse of discretion,” standards that give significant deference to the district court. The Federal Circuit agreed that defendant B/E Aerospace was barred from alleging the affirmative defense of patent invalidity under the doctrine of assignor estoppel because B/E was in privity with one of the original assignors of the three patents-in-suit, perhaps a surprising result, given the size of corporate defendant B/E.

In the 1988 decision of Diamond Scientific Co. v. Ambico, Inc., the Federal Circuit held that assignor estoppel was an equitable remedy that prohibited the assignor of a patent from later asserting a defense of patent invalidity against the assignee. Notably, this bar also operates to prevent entities in privity with the assignor—such as corporations founded by the assignor—from asserting an invalidity defense.

In MAG v. B/E, the three patents-in-suit relate to the repair of vacuum toilets commonly used on commercial aircrafts. Mark Pondelick, one of the inventors of the patents-in-suit, had assigned his rights in the patents to his former employer, which later assigned them to plaintiff MAG. Pondelick subsequently was hired by defendant B/E. When MAG sued B/E alleging infringement of the three patents, B/E raised the affirmative defense of patent invalidity. Plaintiff MAG then argued that B/E was estopped from asserting invalidity under the doctrine of assignor estoppel.

Notably, B/E is a large aerospace corporation, and its relationship with Pondelick was one of employer to employee. Pondelick did not found B/E and was not a corporate officer or significant owner of the corporation. Nonetheless, the district court found that there was sufficient “privity” between B/E and Pondelick to warrant the application of assignor estoppel.

In its decision, the district court had looked at several factors set forth in Shamrock Technologies Inc. v. Medical Sterilization, Inc., 903 F.2d 789 (Fed. Cir. 1990), to determine whether defendant B/E was in privity with Pondelick. The factors considered were
  1. the assignor’s leadership role at the new employer;
  2. the assignor’s ownership stake in the defendant company;
  3. whether the defendant company changed from the manufacture of non-infringing to infringing goods after the hire of the assignor/inventor;
  4. the assignor’s role in the allegedly infringing activities;
  5. whether the inventor was hired to begin the infringing activities;
  6. whether the decision to manufacture the infringing product was made by the assignor/inventor;
  7. whether the defendant company began manufacturing the accused product shortly after hiring the assignor/inventor; and
  8. whether the inventor was in charge of the infringing operation.
The Federal Circuit found that the lower court’s ruling that Pondelick was in privity with B/E was not clearly erroneous because several of the aforementioned factors favored the finding of privity. Specifically, the Federal Circuit noted that Pondelick was hired by B/E specifically to develop the products currently being accused of infringement, and that B/E used Pondelick’s knowledge to conduct the accused activities. Additionally, while at B/E, Pondelick became the Vice President and General Manager of the B/E division responsible for manufacturing the accused toilets.

Based on these factual findings, the Federal Circuit found that it could not find an abuse of discretion based on the extent of Pondelick’s involvement in the alleged infringing activities and the fact that B/E used Pondelick’s knowledge and assistance to conduct the alleged infringing activities. Accordingly, the Federal Circuit affirmed the district court’s decision barring B/E from asserting patent invalidity under the doctrine of assignor estoppel.

The decision is potentially significant in patent cases that involve employees who have been hired away from competitors. Also notable is the high standard of deference that the Federal Circuit will accord the findings and conclusion of the district court.

For more information, please contact Fitch Even partner Calista J. Mitchell, author of this alert.

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