Assignor estoppel provides patent owners a powerful tool against accused infringers who attempt to assert a defense of patent invalidity. Specifically, the doctrine prevents an assignor of a patent or patent application, or an entity in privity with such an assignor, from later challenging the validity of that patent.1 The Federal Circuit’s recent decision in Mag Aerospace Industries Inc. v. B/E Aerospace, Inc. has reaffirmed the continued vitality of this doctrine and highlighted an often-overlooked aspect.2 In particular, Mag Aerospace makes clear that companies risk having assignor estoppel applied against them when they hire employees that have previously invented a patent and assigned that patent to a prior employer.3 In other words, hiring an inventor-employee away from a competitor creates the risk that the new employer will be precluded from asserting patent invalidity as a defense if that employee’s prior patents are asserted against her new employer.
That is not to say that an accused infringer has no recourse in such a case. Importantly, the Patent Trial and Appeal Board (“PTAB”) does not recognize assignor estoppel as a bar to inter partes review (IPR) proceedings.4 Consequently, the PTAB is an important venue for parties faced with a potential assignor estoppel issue.
I. The Problem of the Infectious Employee
The Federal Circuit has held that if an inventor assigns his invention to Company A and later leaves to join Company B, he might be in privity with Company B if certain conditions are met.5 Consequently, if Company A (the inventor’s former employer) sues company B (the inventor’s new employer) for infringement of the employee’s patent, the doctrine of assignor estoppel may preclude Company B from asserting patent invalidity as a defense to the infringement action.6 Thus, the inventor/employee might be considered potentially infectious, insofar as hiring her has the potential to prevent the new employer from asserting an important defense against a subsequent patent assertion. The Federal Circuit recently re-affirmed this principle in its 2016 Mag Aerospace decision.7 There, the Federal Circuit applied eight factors (“Shamrock factors”) to determine whether an employee-assignor is in privity with a defendant employer such that assignor estoppel is applied against the new employer: (1) the employee’s leadership role at the new employer; (2) the employee’s ownership stake in the accused infringer; (3) whether the accused infringer changed course from manufacturing non-infringing goods to infringing activity after the inventor was hired; (4) the employee’s role in the infringing activities; (5) whether the employee was hired to start the infringing operations; (6) whether the decision to manufacture the infringing product was made partly by the employee; (7) whether the accused infringer began manufacturing the accused product shortly after hiring the employee; and (8) whether the employee was in charge of the operation accused of infringement.8
In Mag Aerospace, the Federal Circuit emphasized a number of facts about the relationship between the inventor/employee and the accused infringer that warranted the application of assignor estoppel.9 For example, the court noted that the accused infringer used the employee’s knowledge to conduct allegedly infringing activities.10 Moreover, the employee was specifically hired to develop the allegedly infringing products, and the employee held a leadership position within the department responsible for developing the allegedly infringing products.11 Notably, not all of the Shamrock factors weighed in favor of the application of assignor estoppel in this case. Nevertheless, the Federal Circuit found that enough factors weighed in favor of privity to uphold the district court’s decision.12
II. The PTAB Does Not Recognize Assignor Estoppel as a Defense
Although a defendant’s invalidity arguments may be precluded by assignor estoppel in district court, the Patent Trial and Appeal Board (PTAB) does not recognize assignor estoppel as a bar to an IPR.13 The PTAB has noted that assignor estoppel is entirely an equitable doctrine, and finds no support in the America Invents Act (“AIA”), which created PTAB Trials, such as IPRs.14, 15 Instead, the PTAB has concluded that the AIA allows anyone who is not the owner of a patent to file a petition for an IPR.16 Consequently assignor estoppel does not preclude a party, even the prior assignor of the patent at issue, from seeking an IPR.17 Applying assignor estoppel to IPRs, according to the PTAB, would violate this statutory mandate.18
In one recent appeal to the Federal Circuit, the court explicitly chose not to address whether assignor estoppel should bar an IPR.19 In that case, the patent owner sought a preliminary injunction to prevent the defendant from instituting an IPR.20 Because assignor estoppel might apply in district court, the patent owner argued that the defendant should be prevented from “making an end-run around the doctrine by invalidating [the patent owner’s] patents at the PTO instead.”21 The Federal Circuit, however, decided not to grant the injunction.22 The court noted that the patent owner had failed to show that irreparable injury was likely to happen in the absence of an injunction because predicting the outcome of any IPRs remained speculative at that time.23 Most notably, the Federal Circuit explicitly declined to directly address whether assignor estoppel should apply in PTO proceedings.24 Thus, the Federal Circuit seems unwilling to enjoin defendants from seeking an IPR solely because a patent owner has raised an assignor estoppel defense. It therefore remains an open question whether assignor estoppel might in the future be found to bar the pursuit of an IPR or other PTAB Trial.
III. Parallel Cases: Likelihood of a District Court Stay When Using an IPR to Avoid Assignor Estoppel
As noted above, accused infringers should consider instituting a PTAB trial (such as an IPR) when facing an assignor estoppel issue. It is often useful to seek a stay of the district court litigation pending parallel IPR proceedings. When deciding whether to stay a litigation pending an IPR, district courts weigh several factors. For example, district courts often consider: (1) the stage of the case; (2) whether a stay will simplify the court proceedings; and (3) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party.25 One interesting question is whether the district courts are less likely to order a stay when the accused infringer is barred from raising invalidity in the district court due to assignor estoppel. In at least one court, the answer seems to be no.
In Roche Molecular Systems, Inc. v. Cepheid, a Magistrate Judge in the Northern District of California granted a stay pending an IPR even though the patent owner was asserting that the accused infringer was barred from asserting invalidity due to assignor estoppel.26 The court noted that the patent owner “cannot reasonably claim to be ‘tactically disadvantaged’ in this litigation by a statutory framework which limits the issues authorized by Congress to be raised in IPR proceedings or the discovery allowed to be taken in such proceedings.”27 Additionally, before the passage of the AIA, some district courts had granted stays pending the outcome of inter partes and ex partes reexaminations even for cases involving assignor estoppel.28 That said, not all courts may be as likely to grant stays in favor of a pending IPR when there is an assignor estoppel issue at play. In such circumstances, it is advisable to file the IPR as early as possible, to minimize the possibility that the district court action results in an enforceable final judgment before the IPR process is complete.29
IV. Practical Implications Of Assignor Estoppel
The recent PTAB, Federal Circuit, and district court decisions regarding assignor estoppel raise several practice suggestions.
First, hiring managers should be aware of the potential danger of hiring employees who have assigned patents and patent applications to prior employers. Depending on the employee’s role at his new company, the employee may be “in privity” with his new employer. As a consequence, assignor estoppel might attach to the new employer if the employee’s prior employer sues for infringement. In particular, employees hired to develop an allegedly infringing product, employees assuming leadership roles, and employees having a financial interest in the new employer are more likely to infect their new company with assignor estoppel.
Second, patent challengers facing an opponent’s assertion of assignor estoppel in district court should strongly consider seeking an IPR during the early stages of litigation. Some courts have been willing to grant stays pending PTAB proceedings early in the litigation process even if assignor estoppel issues are raised. Most importantly, the PTAB does not recognize assignor estoppel as a defense during IPRs, so IPRs present a viable opportunity to invalidate patents for parties facing potential assignor estoppel issues in district court. The Federal Circuit, however, has not directly addressed the impact of assignor estoppel on PTAB Trials.30 Thus, for now, IPRs provide patent challengers a path to assert invalidity, even when faced with an assignor estoppel issue.