Addressing the issue of federal jurisdiction based on a lack of Art. III standing by plaintiff, the US Court of Appeals for the Federal Circuit reversed a district court’s dismissal of a claim for correction of inventorship for lack of standing, finding that there was at least a factual dispute about any implied assignment or promise to assign patent rights by the inventor. James v. J2 Cloud Services, LLC, Case No. 17-1506 (Fed. Cir., Apr. 20, 2018) (Taranto, J).

Gregory James filed a lawsuit asserting a claim for correction of inventorship under 35 USC § 256, along with state law claims for unjust enrichment, conversion, misappropriation and unfair competition. The complaint alleged that James was the sole inventor of the subject matter claimed in a patent directed to systems and methods “for accepting an incoming message over a circuit switched network and transmitting it over a packet switched network.” The patent named Jack Rieley and Jaye Muller as the inventors and was originally assigned to JFAX Communications, a company owned by Rieley and Muller. 

The complaint alleged that a Software Development Agreement (SDA) was entered into between JFAX (for which Rieley signed) and GSP Software, a partnership of professional software developers and independent contractors (for which James signed). The SDA preamble stated that GSP “will develop software solutions for the exclusive use of JFAX” but did not mention patent rights, whereas it expressly required the assignment to JFAX of “all copyright interests” in the developed “code and compiled software.” The complaint also alleged that James developed the software and hardware components covered by the patent and assigned all copyrights in the code and compiled software to JFAX, but did not assign any patent rights.

The current assignee, AMT, and j2, an exclusive licensee, filed a motion under Rule 12(b)(1) to dismiss the case for lack of jurisdiction, asserting that James had no Article III standing to bring the action. The district court granted the motion, concluding that James lacked a stake in the controversy because he failed to allege facts sufficient to show he had an ownership or financial interest in the patent, and also dismissed the state law claims. James appealed.

The Federal Circuit reversed, explaining that

. . . if Mr. James were to prevail on his allegations that he is the sole inventor and owner of the patent, he would stand to gain concretely, whether through securing an entitlement to seek damages for past acts of infringement or otherwise. Such a gain would directly be related to the merits of the claim and would redress the asserted injury of being deprived of allegedly rightful ownership. In the absence of other facts, that is enough to give Mr. James Article III standing. 

The Federal Circuit noted that the district court did not conclude otherwise but found this reasoning inapplicable, focusing instead on the important qualification that “[w]hen the owner of a patent assigns away all rights to the patent, neither he nor his later assignee has a ‘concrete financial interest in the patent’ that would support standing in a correction of inventorship action.’” The Federal Circuit noted that the district court relied on two sources for its conclusion—the SDA and the “hired-to-invent doctrine”—but explained that neither supported the conclusion that James had assigned, or obligated himself to assign, his patent rights to JFAX, at least not at this stage of the action. The Court noted that the SDA was amenable to the construction that James did not assign or promise to assign patent rights that would have accrued to him as an inventor. The Court also noted that the hired-to-invent principle does not apply where the underlying agreement for engagement of services was between two legal entities where the inventor was not personally a party.