The Euclid Chemical Company v. Vector Corrosion Technologies, Inc. (Fed. Cir. 2009)

Euclid Chemical filed a declaratory judgment action alleging that it did not infringe six patents and/or that five of the six patents were invalid. Euclid alleged that the patents were licensed exclusively to Vector Corrosion Technologies. Vector Corrosion convinced the lower court, in its counterclaim, that it owned one of the patents-in-suit based on a December 20, 2001 assignment agreement. Euclid Chemical appealed two remaining issues, one regarding the assignment’s conveyance. The Federal Circuit vacated the lower court’s decision and remanded the case for consideration of extrinsic evidence.

The ownership dispute involved U.S. Patent No. 6,217,742 (the “’742 patent”). The ’742 patent is a continuation-in-part of an earlier patent application that issued as U.S. Patent No. 6,033,553 (the “‘553 patent”). The ’742 patent, was however, issued on April 17, 2001, that is, before the December 20, 2001 assignment.

By applying Ohio law, the lower court found the assignment unambiguous because it contained language stating that it assigns “all rights in the ’553 patent and all continuations-in-part thereof.” Under Ohio contract law, external evidence could not be used to expound upon the contract meaning unless the contract was found ambiguous. The lower court, however, found the assignment contract unambiguous and therefore external evidence was barred.

The Federal Circuit disagreed with the lower court’s findings in its de novo review of the ruling, citing Sixth Circuit precedent and stating that “[a]mbiguity exists only where a term cannot be determined from the four corners of the agreement or where contract language is susceptible to two or more reasonable interpretations.” Although the district court was held correct that the assignment purported to convey “US Patent 6,033,553” and “any and all divisional applications, continuations, and continuations in part,” and that the ’742 patent is a continuation-in-part of the ’553 patent, “[t]he Assignment, however, also include[d] language that suggests that it was not intended to effect an assignment of the ’742 patent.”

The Federal Circuit pointed out that, while “applications” were referenced (i.e., in the plural), a single “issued US patent” was referred to in the singular. Had the assignee intended, through the assignment of “continuations in part” to assign other issued U.S. patents, it would be expected that the Assignment would have said that the inventor was assigning his “issued U.S. patents”—plural—and even recited the patent number of the issued ’742 patent. The Federal Circuit therefore found the assignment to be subject to at least two reasonable interpretations, thereby rendering the assignment ambiguous. The case was therefore remanded to the lower court to address the issue by allowing inspection of extrinsic evidence.

Judge Newman dissented in part with the ruling and argued that a trial was not necessary to determine whether it was intended to assign the ’742 patent, because the ’742 patent was for a different invention from the 553 patent and was fully known to Vector Corrosion. Looking to the assignment contract, Judge Newman showed that, in the assignment’s five enumerated listed items, only one issued patent was listed; namely, the ’553 patent. All four of the other listed items were applications. No mention was made in the assignment of the ’742 patent that issued eight months before the assignment was executed. Also, a second agreement existed (a “Consulting Agreement”), which also listed only the same “issued US patent 6,033,553.” Judge Newman therefore believed that the remand was due to “an abundance of caution” and that only one reasonable interpretation of the assignment was possible. That is, that the ’742 patent was not included in the assignment.

Practice Tip:

Patent assignees, and assignment contract drafters, should be diligent and ensure that any issued patents that stem from applications related to primary patents being assigned are explicitly listed in an assignment contract if the intention is indeed to assign such patents. Listings of the various application types that may stem from a parent in the language of assignment (i.e., divisionals, continuations, continuations-in-part, foreign applications, etc.) may be held ambiguous, and should not be relied upon, if some of those applications have already issued as patents.