In the United States, the statutory scheme grants the right to a patent to the inventors. When the invention is made by two or more persons jointly, they are required to apply for a patent jointly. This right is preserved for legal representatives in the case of death or incapacity. In the case of refusal to apply, the right is given to those with a proprietary interest.1
Patents have the attributes of personal property and are freely assignable in writing.2 Ownership of a patent beyond the initial right to apply is typically a matter of agreement. Thus, jointly owned patents may arise under the statutory invention scheme, as the result of a joint development agreement, or as the result of assignment of a partial interest in a patent. The question of who is a joint inventor raises invention contribution issues, which is a highly fact–intensive inquiry not addressed herein in view of limited space. There are potential pitfalls to avoid in the joint ownership context, which shall be discussed herein.
By way of background, it is worthwhile to first review the ground rules relating to assignments and ownership in light of recent case law developments here and abroad. An accurate determination of inventorship and ownership of patent rights must be made at the time of filing an application in the United States and, when filing an international application seeking to claim priority of that first application under the Paris Convention, we must confirm that we have all the owners claim priority in the later-filed application in order to make a valid claim to the right to priority.
I. Agreements to Assign
Employment agreements often include language relating to assignment of inventions. In the recent case of Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc.,3 the Court of Appeals for the Federal Circuit held that it is possible to assign an invention before it is created and that such an assignment is effective over an existing agreement to assign in the future.
In Stanford v. Roche, Mark Holodniy, a Stanford research fellow, signed a Copyright and Patent Agreement ("CPA") at the time of his employment with Stanford in 1988 that obligated him to assign his inventions to the university. In 1989, Holodniy conferred with Cetus Corporation over several months to learn PCR technologies and to develop a PCR-based assay for HIV. At that time Holodniy signed a Visitor's Confidentiality Agreement ("VCA") with Cetus. The VCA stated that Holodniy "will assign and do[es] hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements" that Holodniy may devise "as a consequence of" his work at Cetus.
In December 1991, the Cetus PCR business was acquired by Roche which began manufacturing HIV detection kits employing RNA assays. In May 1992, Stanford filed its initial patent application for the Holodniy PCR work that issued in June 1995, with a continuation and a divisional issuing in January 2003 and October 2006. Stanford then filed an infringement suit based on these patents against Roche in October 2005, alleging that Roche's HIV detection kits infringed its patents. Roche answered in part that Roche possessed ownership and asserted a counterclaim requesting a declaratory judgment of ownership and asserted an affirmative defense based on ownership. The District Court found the Roche claim for a declaration of ownership subject to the California statute of limitations. The District Court then found the patents invalid because they were obvious, but declined to consider Roche's affirmative defense based on ownership.
Both parties appealed. The Federal Circuit affirmed the District Court's dismissal of Roche's ownership claim on statute of limitations grounds, but held that its affirmative defense prevented Stanford from obtaining full ownership rights. The Federal Circuit then vacated the judgment that the claims were invalid for obviousness for lack of standing. Roche's ownership of Holodiny's interest defeated Stanford's right to assert the cause of action for infringement against Roche, as all co-owners of a patent must join as plaintiffs in the infringement action. In view of this finding, the Federal Circuit Court held that the District Court lacked jurisdiction over Stanford's infringement claim and it should not have addressed the validity of the patents.
The Federal Circuit found that under the contract language in the Stanford CPA, "Holodniy agreed only to assign his inventions rights to Stanford at an undetermined time" in the future. In marked contrast, the Cetus VCA language: "I will assign and do hereby assign to CETUS, my right, title and interest in each of the ideas, inventions and improvement" effects a present assignment of Holodniy's future inventions to Cetus. The Federal Circuit concluded: "Cetus immediately gained equitable title to Holodniy's inventions."
Stanford v. Roche additionally included issues concerning the Bayh-Dole Act, and, on November 1, 2010, the U.S. Supreme Court granted certiorari concerning these issues. More specifically, the U.S. Supreme Court set forth the question presented as follows:
Whether a federal contractor university's statutory right under the Bayh-Dole Act, 35 U.S.C. §§ 200-212, in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor's rights to a third party.
None of the Briefs in support of the petition for certiorari challenge the holding of the Federal Circuit that the Cetus VCA was a present assignment of Holodny's future inventions and that this took precedence over the Stanford CPA agreement to assign in the future. The focus in the appeal is on the scope of the Bayh-Dole Act and that it takes precedence over the general patent ownership scheme presented by the Patent Act, 35 U.S.C. §§ 101, 115, 116, 261.4
Subject to a contrary interpretation by the Supreme Court the lesson here is clear. In order to avoid the present versus future assignment result in Stanford v. Roche, any employment agreement involving assignment of intellectual property to be developed by an employee should track the present assignment language used in the Cetus VCA.
II. Timing of Transfer
The timing of when transfer of rights pursuant to an assignment takes place not only bears on who owns the rights to the inventions, as in Stanford v. Roche, but also bears on who has the right to claim priority in an international application. In the international context, the right to priority of an earlier application is governed by the Paris Convention. Article 4 of the Paris Convention provides that:
Any person who has duly filed an application for a patent…in one of the countries of the Union, or his successor in title, shall enjoy, for the purpose of filing in the other countries, a right of priority…
Who holds this right of priority is important when an application is first filed in the United States in the name of individual inventors and the later international application (often a PCT application) is filed in the name of the company (employer or assignee). If there is a specific assignment of the first application to the company, and the company is the applicant in the later-filed application, then the company holds the right as successor in title. Any interest less than that of the first applicant can raise serious consequences.
The England and Wales High Court, in Edwards Lifesciences AG v. Cook Biotech Incorporated,5 confirmed that the applicant for the later-filed application must be entitled to the invention at the filing date of the later application. Here, the initial U.S. application No. 60/179,195 was filed in the name of Joe Obermiller, Francisco Osse, and Patricia Thorpe as joint inventors on January 31, 2000, and the PCT application No. PCT/US01/03095 was filed by Cook Biotech on January 31, 2001, claiming priority of the U.S. provisional application. The national phase European application was granted as EP 1 255 510 B1 on April 25, 2007, and validated in the U.K. Edwards sought revocation of the patent and Cook counterclaimed for infringement.
Mr. Obermiller was an employee of Cook at the time the invention was made. Mr. Osse and Ms. Thorpe were not. The only interest Cook held in the invention on January 31, 2001, was pursuant to Mr. Obermiller's contract of employment.
The Court found that Cook held Obermiller's interest, but not the others. Their interests were not assigned to Cook until September 2002. This was 21 months after Cook filed the PCT application, but before grant of the EP patent. The Court then looked to Article 4 of the Paris Convention and held that it is the person who filed the application who is granted a right to priority — only if he himself claims the right, or if he is the successor in title to the person who filed the earlier application. The later applicant's position is not typically improved if he acquires title subsequent to filing the later application. Thus, the Court held that Cook was not entitled to make the claim to the January 31, 2000, priority date.
This was a critical finding in this case. In view of the loss of priority, a paper published in 2000 became relevant prior art. The Court ultimately concluded that claim 1 of the patent was obvious over this reference published in 2000.
The fact pattern in Edwards v. Cook raises the question of whether one can file the later application in the name of the individual inventors to be entitled to claim priority, and then subsequently take title. Yes, this can be done, but caution must be exercised that title actually rests with the individual inventors at the time of filing the first application. If ownership was transferred by virtue of an employment agreement (as in the case of Obermiller), or a VCA as in the Stanford v. Roche scenario, we would not have identity of applicants for both applications.
A possible resolution is to obtain a specific assignment of the priority application at or before its initial filing. At times this is impractical when inventors leave, and thus may be unavailable. However, another recent U.K. case has confirmed that a prospective assignment of an employee's future inventions is effective to secure the right to claim priority. Thus, a suitably worded employment contract or other agreement is sufficient to ensure that a company can validly claim priority in the later application filed in the company name, and make a valid claim to priority of a U.S. application filed in the name of the inventors.6
Edwards v. Cook also confirmed that when there are multiple inventors whose rights pass to different entities, all the owning entities must be included as applicants on the later application for the claim priority to be valid. The reverse occurred in the case of KCI Licensing Inc. v. Smith & Nephew,7 where one company was entitled to the priority application, but the PCT application was filed in the name of two companies. This was held to be permissible as all holders of the right under Article 4 of the Paris Convention were included. The additional applicant in the later application becomes a beneficiary of an implicit assignment of the priority right in the invention of the earlier application to the second company.
III. Joint Ownership
A. The United States
The rights attaching to joint ownership of patents in the United States are governed by the U.S. Patent Act as follows:
In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.8
The Patent Act allows each co-owner of a patent to make, use, offer to sell, sell and import the patented invention without the consent of the other owner. One approach is to have the parties agree to and assign the patent to one of the parties with appropriate compensation to the assigning party before any development work commences. Otherwise, if one owner wishes to pursue an infringer, one of the other owners may be free to refuse to join and/or could license that infringer and extinguish a prospective claim against the infringer (though this would typically not impact upon the right to sue for accrued damages for past infringement).9
An alternative to assignment to one party is to assign ownership to a newly formed company to exploit the patent for the benefit of both parties to the venture. In this case, the board of the new company would include members from both sides to ensure that decisions are made for the mutual benefit of the parties.
It may be desirable for parties to a joint development agreement to agree whether one or neither has the right to license third parties as long as a jointly owned patent is in force. An alternative may be to maintain this obligation so long as the other party is practicing the patent by manufacture and/or use. It is also recommended that a party be obligated to account to the other owner(s) for any royalties received.
An agreement between co-owners might also provide for a unilateral right to sue for infringement. In this case, it may be provided that the non-joining party does not share in any recovery.
B. Outside the United States
The legal relationship between joint owners of patents is based on the national law of the individual country involved. In view of the divergent rules governing these rights and obligations outside the United States, it is worthwhile to review the results for developed countries, such as Canada, the United Kingdom, France, Germany, and Japan.
In Canada, one co-owner, without the consent of the other(s), can make or sell in Canada the patented invention. A co-owner cannot grant a valid license to a third party without the consent of the other co-owner(s). If he purports to do so, the purported license is not valid, as such a license is considered to dilute the rights of the other co-owner(s).
One co-owner can assign their entire interest in a patent to a third party without the consent of the other co-owner(s) and without accounting to the other co-owner(s), as long as the transfer does not have the effect of diluting the rights of the other co-owner(s). In this instance, a third-party assignee becomes a co-owner of the patent.
- The United Kingdom
The rights of joint proprietors to a patent in the United Kingdom are governed by Section 36 of the United Kingdom Patent Act. Each proprietor or its agents may utilize the invention for its own benefit without the consent of or the need to account to the other owners. This language is similar to the above-quoted section of the U.S. Patent Act. However, subsection 3 of Section 36 of the U.K. Patent Act provides as follows:
Subject to the provisions of sections 8 and 12 above and section 37 below and to any agreement for the time being in force, where two or more persons are proprietors of a patent one of them shall not without the consent of the other or others grant a license under the patent or assign or mortgage a share of the patent or in Scotland cause or permit security to be granted over it.10
In France, the rights of joint owners are governed by Article L613-29 of the Intellectual Property Code. Each of the co-owners of the patent is entitled to exploit the invention and to take action against infringers for their own benefit. Each co-owner is entitled to grant nonexclusive licenses to third parties, provided that he reasonably indemnifies the co-owner who does not exploit the patent himself or has granted licenses. If an agreement with respect to indemnification cannot be reached, the District Court will fix the amount. A draft license agreement must be communicated to the other co-owner together with any offer of assignment of the share at a fixed price. In the case of dispute, the District Court will fix the price.
Each co-owner has the right to assign his share, but the other co-owners have a preemptive right with regard to that share during three months after notification of the intended assignment.
Of course, these rules in France are all subject to modification by mutual agreement between the parties.
Section 6 of the German Patent Act grants the right to a patent to the inventor or his successor in title. Section 6 also provides, "If two or more persons have jointly made an invention, the rights in the patent will be shared by such persons jointly."
The rights of the co-owners are governed by Sections 741 et seq. of the Civil Code, which allows a co-owner to assign his share without the consent of the other owner. The other co-owners are not entitled to a purchase option as granted in France. In the absence of an agreement to the contrary, a legal entity sharing undivided interests in the patent is created on a per capita basis (Bruchteilsgemeinschaft). Each party is entitled to use the patent.
In 2005, contrary to the then generally accepted view, the German Supreme Court decided that, in the absence of an agreement to the contrary, the use by an individual member does not create an obligation to compensate the non-user, so long as that use is not prejudicial to the actual use by the other party.
Licensing requires the consent of all the parties who can be obliged to give such consent as a result of a majority decision of the legal entity. At any time, the parties can seek dissolution of the joint ownership, resulting in a sale and division of proceeds.11
The Japan Patent Act in Article 73 allows each of the co-owners of the patent to work the invention, but they may not grant a license, assign, or establish a right of pledge on their share in the patent without the consent of the other owners.
These different rules in the United States and other developed countries suggest that a suitable long-term ownership agreement between joint owners may be advantageous and should be considered. One option is a transfer from the owners to a corporation in which the owners are stockholders, or to a partnership of which the proposed owners are members. Another option is a written contract defining the rights of the respective co-owners. Watch this space, as in the future we will discuss issues relating to determination of joint inventorship and joint ownership of trademarks, copyrights, and trade secrets.