You may have read the recitals or introductory clauses in a license or an assignment agreement. In most cases, these clauses are just skimmed, if they are reviewed at all. In a recent decision of the US Federal Circuit Court of Appeals, the court reviewed the impact of the so-called “consideration” clause in an assignment. In patent law, an assignment is a contract transferring ownership of an invention by the inventors. This permits the assignee (the party getting the invention, such as an employer or a purchaser) to file a patent application as the applicant and owner of the invention. This assignment document is a contract, and so it must meet all the requirements of contract law. One of those requirements is that there must be adequate “consideration” - in other words, something of value that flows to each party. It can be money, or something else of value.
In MemoryLink Corp. v. Motorola Solutions. Inc., (Fed. Cir. Dec. 5, 2014)(No. 2014-1186, N.D. Ill.), the court looked at the consideration clause in the context of a patent infringement lawsuit. Memorylink sued Motorola for infringement of a certain patent. However, both Memorylink and Motorola were joint owners of the underlying inventions by virtue of an assignment which was signed by all the inventors. Memorylink attacked the validity of that assignment, arguing there was a lack of consideration.
In June 1998, all four designated inventors signed the assignment, transferring their rights to both Motorola and Memorylink. The assignment begins with this statement: “For and in consideration of the sum of One Dollar to us in hand paid, and other good and valuable consideration, the receipt of which is hereby acknowledged..”
There are variations of that clause - sometimes the sum of one dollar, sometimes five or ten dollars - but they are all designed for the same purpose: to remove the argument that the contract should fail for lack of consideration. In the context of the assignment and transfer of valuable patent rights, is one dollar truly sufficient to create a legally binding contract?
Citing decisions that reach back to the 19th century, the US court said, yes, nominal consideration will suffice to support a contract, including an invention assignment. Courts will not inquire into whether or not the consideration listed in the agreement is adequate, unless the amount is “so grossly inadequate as to shock the conscience.” In this case, the amount of $1.00 did not shock the court’s conscience. The original 1998 assignment was valid, and Motorola was a joint owner of the patent. As a joint owner, Motorola could not be liable for infringement of the patent.