Advanced Video Techs., LLC v. HTC Corp.
879 F.3d 1314 (Fed. Cir. 2018)
Authored by Nalini Mummalaneni
Statement of Facts: The U.S. Patent No. 5,781,788 (“the ’788 patent”), subject to an infringement suit, has three co-inventors. When the parent application of the ’788 patent was filed, two of the inventors assigned their co-ownership interests to AVC Technology Inc. (“AVC”), but the third inventor, Ms. Hsiun, refused to do so. AVC filed a petition before the U.S. Patent and Trademark Office (“PTO”) requesting that it be permitted to prosecute the patent application without an assignment from Ms. Hsiun, offering as evidence of ownership the 1992 Employment Agreement (“Agreement”) executed by Ms. Hsiun. AVC subsequently transferred its ownership interests to Advanced Video Technologies LLC (“Advanced Video”), the appellant in the infringement suit. Advanced Video argued that Ms. Hsiun immediately transferred her ownership interests in the ’788 patent upon execution of the Agreement, pursuant to the three provisions of the Agreement: a will assign provision, a trust provision, and a quitclaim provision. Advanced Video filed three infringement suits against the appellees in the United States District Court for the Southern District of New York (“district court”).
Procedural History: The district court agreed with the appellees and dismissed Advanced Video’s complaint for lack of standing because the co-inventor, Ms. Hsiun, had not assigned co-ownership interest in the ’788 patent pursuant to the Agreement and was not a party to the action. In response to appellees’ motion to dismiss, Advanced Video argued that Ms. Hsiun’s transfer of her ownership interests in the ’788 patent was effected upon execution of the Employment Agreement. Advanced Video appealed to the Federal Circuit.
Questions Presented: First, can the employer rely upon the “will assign,” trust, and quitclaim provisions of an Employment Agreement executed by the employee inventor prior to the filing of the patent application to obtain ownership interests in the patent invented by the employee when the employee refused to assign the rights in the patent to the employer? Second, can a non-consenting co-inventor or co-owner be involuntarily joined in an infringement action?
Holding: No to both. Unless there is a current assignment of ownership rights in the patent under question, the employment agreement executed before such assignment, standing alone, cannot immediately transfer ownership rights in the patent to the employer. A non-consenting co-inventor or co-owner can never be involuntarily joined in an infringement action. The court affirmed the district court’s dismissal.
Reasoning: The Agreement was executed under California law. The “will assign” language in the Agreement did not itself effect an assignment but was merely a promise to assign.
The “will hold in trust” clause created an immediate trust in favor of the assignee employer with Ms. Hsiun as the beneficiary, but did not automatically transfer ownership interests out of the trust in favor of the employer. In order to be a “real party in interest” to the infringement suit, Advanced Video must obtain complete ownership rights in the ’788 patent by effectuating transfer of invention rights from Ms. Hsiun (for example, by bringing a suit against Ms. Hsiun for breach of her duties as a trustee). Alternatively, Ms. Hsiun could be made a party to the infringement suit or could consent to the suit.
The quitclaim provision waives Ms. Hsiun’s rights to interests in any patent rights that she assigned under the Agreement, but the ’788 patent rights were never actually assigned. Therefore, the Agreement was insufficient to confer standing to Advanced Video. Because Advanced Video does not have full ownership of the ’788 patent and Ms. Hsiun is neither a party to the suit nor has consented to the suit, Advanced Video has no standing to maintain the infringement suit against the appellees.
Concurring Opinion: Judge O’Malley concurred in the judgement, agreeing with the majority’s application of California law to interpret the Agreement, but disagreed with the majority’s opinion that a non-consenting co-inventor or co-owner could never be involuntarily joined in an infringement action. Judge O’Malley called for a change in Federal Circuit’s precedent to allow involuntary joinder of a non-consenting co-inventor or co-owner in patent infringement suits pursuant to Rule 19 of the Federal Rules of Civil Procedure. To support her argument, Judge O’Malley explained that the criteria for assessing joinder in patent cases, like any other federal civil actions, are governed by Rule 19 and not by substantive judge-made laws. Judge O’Malley examined Rule 19, pertinent case law, and the Patent Act to conclude that the Federal Circuit’s precedent lacks statutory basis and is inconsistent with the Patent Act. Rather than exempting patent cases from the rules governing mainstream federal litigation, Judge O’Malley further suggested that the Federal Circuit reconsider, en banc, the Federal Circuit’s Rule 19 precedent, and either clarify the basis for such a precedent or hold that the involuntary joinder provisions of Rule 19 apply to patent cases.
Dissenting Opinion: Judge Newman dissented, arguing that Ms. Hsiun never had co-ownership rights because the Agreement placed ownership of Ms. Hsiun’s inventions with the employer. PTO accepted the Agreement as proof of assignment of ownership rights by Ms. Hsiun to the employer and Ms. Hsiun never asserted her ownership interests in the ’788 patent.
Judge Newman opined that, according to the Agreement, the trust vested immediately upon creation of an invention, and that the beneficiary could act on behalf of the trust if the trustee were absent or inactive. The quitclaim provision of the Agreement demonstrates a mutual intent and understanding that Ms. Hsiun retained no ownership of patents on her inventions.