Advanced Video Tech. LLC v. HTC Corp., Case No. 2016-2309 (Fed. Cir. Jan. 11, 2018)

In Advanced Video Tech. LLC v. HTC Corp, the Court of Appeals for the Federal Circuit ("CAFC") held that an employment contract purporting to transfer an employee's rights in U.S. Patent No. 5,781,788 ("the '788 Patent") did not constitute a cognizable assignment.

The technology of the '788 Patent was not at issue in the case. Rather, the case focused on the assignment of rights of one of the three co-inventors.

Two of the three co-inventors executed assignments to the applicant of the '788 patent, the co-inventors' employer. The third inventor, Vivian Hsiun refused to execute an assignment. Accordingly, the co-inventors' employer petitioned the U.S. Patent and Trademark Office ("PTO") and requested permission to prosecute the '788 Patent without the executed assignment of Ms. Hsiun. The employer included in their petition a declaration and a copy of the employment agreement between Ms. Hsiun and her employer, the applicant. The PTO ultimately granted the employer's petition and the '788 Patent issued in 1998.

Following a series of asset transfers, Advanced Video Tech ("Advanced Video") obtained, what it believed to be, the rights to the '788 Patent. Accordingly, Advanced Video sued HTC et al. in the District Court for the Southern District of New York.

The District Court dismissed the infringement case, and held that "Advanced Video had no ownership interest in the patent", and therefore lacked standing to sue. Advanced Video subsequently appealed to the CAFC.

At the CAFC, Advanced Video argued the following: "[T]he transfer [of Ms. Hsiun's ownership rights were] effected pursuant to three provisions of the Employment Agreement: [(1)] a 'will assign' provision, [(2)] a 'trust' provision, and [(3)] a 'quitclaim' provision." That is, Advanced Video argued that each and every provision was individually and cumulatively effective in transferring Ms. Hsiun's rights in the '788 Patent to her employer. Thus, since Advanced Video had obtained, what it believed to be the rights of the '788 Patent from Ms. Hsiun's employer, Advanced Video argued that it owned the '788 Patent.

The "will assign" and "trust" provisions of the Employment Agreement read in pertinent part (emphasis added): "I agree that I. . . will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions". The "quitclaim" provision of the Employment Agreement reads in part (emphasis added): "I hereby waive and quitclaim to the Company any and all claims . . . [of]infringement of any patents . . . ".

Regarding the relevant language of the Employment Agreement, and in particular the "will assign" language, the CAFC held that the "will" of the "will assign" clause "does not create an immediate assignment . . . ". Accordingly, the CAFC affirmed the District Court's finding that the "will assign" provision "invoked a promise to do something in the future and did not effect a present assignment."

With respect to the quitclaim provision, the CAFC held:"[A]s no patent rights were ever assigned . . . the quitclaim provision has no application."

As to the "trust" provision ,the CAFC held that, assuming arguendo that Ms. Hsiun's rights are held in trust, "Advanced Video, as a trust beneficiary, cannot maintain a patent infringement suit where Ms. Hsiun is not a party". Further, the CAFC held that Ms. Hsiun could not be involuntarily joined to the suit under Federal Rule 19.

Generally, Rule 19, which governs required joinder, provides that a "required party" may be involuntarily joined as a plaintiff. However the general rule does not apply in patent infringement suits. In STC.UNM v. Intel Corp., the CAFC held that “to impede an infringement suit . . . is a substantive right that trumps the procedural rule for involuntary joinder”. See FED. R. CIV. P. 19; STC.UNM v. Intel Corp., 754 F.3d 940, 945–46 (Fed. Cir. 2014).

Judge O'Malley in her concurrence took particular issue with the courts previous holding in STC.UNM, and argued that the CAFC should either clarify the basis for the exception to Rule 19, or in alternative, reverse course, and hold that Rule 19 applies to infringement suits.

Judge Newman on the other hand dissented, and argued that the intent of the parties to the Employment Agreement should control, and that accordingly, as the parties intended to transfer Ms. Hsiun's rights, the Agreement was effective in that regard. The majority however noted that this position appeared contrary to the relevant controlling control law.