Assignor estoppel offers an approach to stop an infringer of your patent, who may be one of your competitors, from attacking the patent. More specifically, assignor estoppel can prevent a defendant in a patent infringement lawsuit from having their patent invalidity defenses heard on the merits if the defendant, or someone in privity with the defendant, sold the patent that the defendant is accused of infringing and thus trying to invalidate. The core rationale underlying assignor estoppel seems unassailable. Why should one who benefits from the sale of a patent be able to later assert that the patent has no value when it is convenient to do so?
The Supreme Court of the United States recently decided to review the application of assignor estoppel in patent litigation. The Court is expected to hear oral arguments in Spring of 2021. When the Supreme Court takes up its review of assignor estoppel, however, it may limit the doctrine, if not outright eliminate it altogether. In response to such a decision, we believe that you as patent owners have several options to better protect your patents, as further discussed below.
Among the policy reasons that the Supreme Court could rely on to justify limiting or eliminating assignor estoppel include:
Renowned legal scholars have discussed these policy reasons in detail. (See, for example, Mark A. Lemley, Rethinking Assignor Estoppel, 54 Houston Law Review 513 (2017).)
Hologic, Inc. v. Minerva Surgical, Inc. (Fed. Cir. 2020)
The particular Federal Circuit court case that provides the context in which the Supreme Court will review the doctrine of assignor estoppel is Hologic, Inc. v. Minerva Surgical, Inc., 957 F.3d 1256 (Fed. Cir. 2020). The particular facts of Hologic are representative of an occasional situation where the right to inventions conceived by an employee in the course of employment is assigned to the employer by a broad assignment provision such as one in an employment agreement, the employer then obtains patents on those inventions, and at some point, the employee leaves to join or found a new company that competes against the former employer. For the stated policy reasons, and contrary to the Federal Circuit’s somewhat ambivalent decision in Hologic, the Supreme Court can be expected to rule that the new employer in this situation would not be estopped in district court litigation from having its invalidity defenses heard on the merits against assertion by the former employer of the assigned patents.
In Hologic, Csaba Truckai co-founded NovaCept, Inc, a medical device technology company. Truckai assigned his patent rights to NovaCept via a broad assignment provision like one commonly found in standard employment agreements. The assignment from Truckai to NovaCept encompassed two patent applications that provide priority for U.S. Patents Nos. 6,872,183 and 9,095,348, which relate to procedures and devices for endometrial ablation.
Cytyc Corporation purchased NovaCept including the patent rights in 2004. Hologic purchased Cytyc Corporation including the patents rights in 2007. Meanwhile, Truckai left NovaCept and founded Minerva which developed and sold endometrial ablation systems. In 2015, Hologic sued Minerva for infringement of the ‘183 and ‘348 patents in the U.S. District Court for the District of Delaware.
In the district court litigation, Minerva asserted lack of enablement and insufficient written description defenses. However, the district court agreed with Hologic that the doctrine of assignor estoppel barred Minerva from challenging the validity of the patents. In doing so, the district court found that Truckai executed a broad assignment of the inventions covered by the ‘183 and ‘348 patents and patent rights thereto to NovaCept, Truckai was in privity with Minerva, and Truckai was responsible for bringing Minerva’s endometrial ablation system to market in competition with Hologic.
Parallel with the district court litigation, Minerva petitioned the United States Patent and Trademark Office (USPTO) for Inter Partes Review (IPR) of the ‘183 and ‘348 patents. The USPTO instituted review of the ‘183 patent but declined to institute review of the ‘348 patent1. The USPTO found the ‘183 patent invalid as obvious in view of prior art. Both parties appealed to the Federal Circuit.
The Federal Circuit affirmed the district court’s holding that assignor estoppel precluded Minerva from challenging the validity of the ‘348 patent in district court. The Federal Circuit also affirmed the district court’s decision that Hologic is collaterally estopped from asserting infringement of the ‘183 patent because the USPTO found it invalid in the IPR proceeding. This decision was seemingly contradictory. Minerva was able to circumvent assignor estoppel by successfully challenging the ‘183 patent in an IPR proceeding but could not do the same in district court with the ‘348 patent.
The Supreme Court may very well decide that Minerva should have been able to assert invalidity defenses against the ‘348 patent in district court. Specifically, in its upcoming decision, the Supreme Court may abolish assignor estoppel with the reasoning that the interests of employee mobility, avoiding effective non-compete encumbrances on inventors and their privies (disfavored by many states), avoiding inconsistency with the option to invalidate a patent via an IPR proceeding, and invalidating low-quality patents2 outweigh any unfairness in allowing a defendant in a situation such as Minerva and Truckai to challenge the validity of assigned patents in district court.
One might ask how this would have helped Minerva in this case where the USPTO declined to institute review of the ‘348 patent on prior art grounds? However, there are invalidity defenses other than prior art defenses that a defendant can set forth in district court litigation that cannot be used as grounds for instituting Inter Partes Review of a patent before the USPTO. In Hologic, but for the application of assignor estoppel, Minerva would have had its lack of enablement and insufficient written description defenses heard on the merits3.
In this regard, it should be noted when Truckai assigned the right to his inventions to NovaCept, he likely did not make any assertions about or have control over the sufficiency of the description of his inventions in the patent applications filed. Ensuring a sufficient description of an invention in a patent application – including meeting the enablement and written description requirements of 35 U.S.C. § 112 – is typically the job of the patent attorney or the patent agent preparing the application. Hence, the Supreme Court may decide that it is not unfair to allow Minerva to attack the sufficiency the ‘348 patent’s description of Truckai’s invention.
While outright elimination of assignor estoppel is possible, the Supreme Court may instead merely limit the doctrine to situations where the assignor engages in misrepresentation or fraud, or where the defendant practices the same invention that the assignor-inventor actually invented, as opposed to practicing an invention that infringes a patent with over-broad claims that issues from a patent application filed by the assignee after the assignment of patent rights4.
If the Supreme Court decides as expected, assignees including employers may look to contract for assignor estoppel. As noted above, however, many states disfavor non-compete provisions, especially in the context of employment agreements and hiring contractors. Enforceability of assignor estoppel contract provisions in these contexts that go beyond the scope of the Supreme Court’s decision will be an issue for assignee-employers. Assignees may also seek lower purchase prices of patent assets to account for the probability that assignor estoppel will not apply to the assignor and those in privity with the assignor, and who may be some of the most likely infringers of the patents.
While the outcome is not certain, the Supreme Court should be expected to eliminate assignor estoppel or limit the application of it to narrow circumstances. This may result in increased invalidity attacks on patents in district court litigation especially on the grounds of lack of subject matter eligibility, lack of enablement, and lack of written description. For the patent community, the expected decision by the Supreme Court reinforces the importance of obtaining high-quality patents. If you are thinking of patent protection for your invention, obtaining artisan quality patents is our specialty.
Disclaimer: This article is purely a public resource of general information that is intended, but not guaranteed, to be correct and complete. It is not intended to be a source of solicitation or legal advice and is for informational and entertainment purposes only. The information is not intended to create, and receipt does not constitute, an attorney-client relationship. The laws of different jurisdictions may be implicated, and facts and circumstances can vary widely. Therefore, the reader should not rely or act upon any information in this article, but should instead seek legal counsel for individualized legal advice. For more information, please contact a firm attorney through www.hickmanbecker.com.
1 Without getting into the weeds of IPR practice, the ‘183 patent and the ‘348 patent claim different inventions. The USPTO instituted review of the ‘183 patent because it found that there was a reasonable likelihood that Minerva would prevail in an IPR proceeding in invalidating at least one claim of the ‘183 patent on prior art grounds. But the USPTO did not find so for any claim of the ‘348 patent. This was likely because Minerva was able to find prior art close to the claimed invention of the ‘183 patent but was unable to find close enough prior art to the invention claimed by the ‘348 patent.
2 An example of a “low-quality” patent is one that is invalid under 35 U.S.C. §§ 101 (subject matter eligibility), 112 (written description, enablement, indefiniteness), 102 (novelty), or 103 (obviousness).
3 Lack of subject matter eligibility is another potentially effective defense that can be asserted in district court litigation that in most cases cannot be used as grounds for instituting review of a patent before the UPSTO.
4 An example of such a patent application is a so-called “continuation” application that is filed after the original application on an invention but enjoys the benefit of priority date of the original application for prior art purposes. Clever patent attorneys often file continuation applications for the purpose of drafting claims that precisely cover a competitor’s practice. In some cases, those claims may be drafted in a way that is broader than what inventor actually invented.