Inventor Owns Patent Unless Written Assignment Expressly Conveys Future Rights

The Court of appeals for the Federal Circuit has ruled that (a) determination as an inventor is a federal court matter and (b) with respect to future patent rights, the inventor must sign an automatic-assignment that is a “contract [that] expressly conveys rights in future inventions.” James v. J2 Cloud Services, LLC. Case No. 2017-1506 (Fed. Cir. Apr. 20, 2018)

In this action against J2 Cloud Services, Plaintiff James asserts a claim for correction of inventorship under 35 U.S.C. § 256, as well as various state-law claims. The district court dismissed the correction-of-inventorship claim for lack of jurisdiction and, consequently, dismissed the state-law claims. The Federal Circuit reversed the jurisdictional dismissal and remanded the case for further proceedings.

James’ complaint alleges that he is the sole inventor of the subject matter claimed in the ‘638 Patent which only names Rieley and Muller as the inventors. The ‘638 Patent was originally assigned to JFAX Communications, Inc., the company owned by Rieley and Muller at the time of the invention. At present, the ’638 patent is assigned to another company, AMT, and J2 has an exclusive license to it. The patent expired on April 1, 2017.

In the development contract, James stated that he would provide JFAX with three functionalities—“Fax-to-Email, Email-to-Fax, and Voicemail-to-Email.” At that time, James alleges, he agreed to “create and develop original software solutions and systems” and began working.

The Software Development Contract SDA does not mention patent rights, whereas it expressly requires the assignment to JFAX of “all copyright interests” in the developed “code and compiled software.”

The Court stated: “To have Article III standing, the ‘plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.’ Spokeo, 136 S. Ct. at 1547 (citing Defenders of Wildlife, 504 U.S. at 560–61); see Chou, 254 F.3d at 1357. “The benefit of the suit to the plaintiff must relate to the alleged injury.” Huster v. j2 Cloud Servs., Inc., 682 F. App’x 910, 914 (Fed. Cir. 2017) (citing Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 772–73 (2000)).” Therefore, James had standing in federal court to determine inventorship.

The district court did not depart from the longstanding “basic principle, codified in the Patent Act, that an inventor owns the rights to his invention.” Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 563 U.S. 776, 790 (2011); see Teets v. Chromalloy Gas Turbine Corp., 83 F.3d 403, 407 (Fed. Cir. 1996) (“Ownership springs from invention.”).

The Patent Act provides that patents and patent applications are “assignable in law by an instrument in writing.” 35 U.S.C. § 261. “Although state law governs the interpretation of contracts generally,” whether a contract “creates an automatic assignment or merely an obligation to assign” is a matter of federal law. DDB Techs., L.L.C. v. MLB Advanced Media, L.P., 517 F.3d 1284, 1290 (Fed. Cir. 2008); see Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1364 (Fed. Cir. 2010); Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000). On the automatic-assignment side of the line is a “contract [that] expressly conveys rights in future inventions.” Abraxis, 625 F.3d at 1364. On the other side of the line is a “mere promise to assign rights in the future.” Id. at 1365. “In construing the substance of [an alleged] assignment, a court must carefully consider the intention of the parties and the language of the grant.” Israel Bio-Eng’g Project v. Amgen, Inc., 475 F.3d 1256, 1265 (Fed. Cir. 2007) (citing Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 874 (Fed. Cir. 1991)).

James’ Software Development, Section 3, is open to interpretation. It provides: “JFAX shall become the sole owner of all code and compiled software solutions as described in this Agreement as soon as it is developed, and GSP shall assign to JFAX all copyright interests in such code and compiled software.” Indeed, the “compiled software solutions” language suggests that “software solutions”—the term in the SDA preamble—itself refers to the actual code, not underlying patentable methods.

Further support for James’ view is that the Development is silent about patents.

Defendant argued that James was hired under an “hired-to-invent” rule which is “firmly grounded in the principles of contract law,” Banks v. Unisys Corp., 228 F.3d 1357, 1359 (Fed. Cir. 2000), its applicability depends on the particular relationship between the “employee” and “employer” in a given case where the rule is invoked. “[T]o apply this contract principle, a court must examine the employment relationship at the time of the inventive work to determine if the parties entered an implied-in-fact contract to assign patent rights.” Teets, 83 F.3d at 407; see also Gellman v. Telular Corp., 449 F. App’x 941, 945 (Fed. Cir. 2011) (explaining that the hired-to-invent “doctrine is expressly equitable, and creates only an obligation for the employee to assign to his employer”) (citing Melin v. United States, 478 F.2d 1210, 1213 (Ct. Cl. 1973)). Further, “[a]s a matter of common law, after the Supreme Court’s decision in Erie Railroad v. Tompkins, 304 U.S. 64 (1938), state contract principles provide the rules for identifying and enforcing implied-in-fact contracts.” Teets, 83 F.3d at 407 (applying Florida law).

Since there was an open issue on these topics, the case was remanded to the district court.

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