Two weeks ago, the Supreme Court heard oral argument in Minerva Surgical Inc. v. Hologic, Inc. over the rather arcane issue of assignor estoppel. Stop - I can figuratively feel your eyes rolling after reading the phase “assignor estoppel” – “why would I care about that!?” Well, the potential validity of patents developed by your employees that are assigned to (i.e., owned by) your company are at significant risk based on the potential outcomes of this case.
Assignor estoppel has differences in both philosophy and patent policy from licensee estoppel, which was abolished by the Supreme Court in Lear, Inc. v. Adkins, in 1969. In Lear, the Supreme Court found that licensee estoppel was against public policy because a licensee of an invalid patent, of all parties, has the most incentive to see such patents invalidated. Under assignor estoppel, a patent owner, which could be an inventor, an employee, or a company that has acquired rights to a patent, has transferred ownership rights in their patent and is subsequently barred from challenging the transferred patent's validity. Differentially, unlike the licensee in Lear, who might be forced to continue to pay for a potentially invalid patent, the patent assignor who would challenge the patent has already been fully paid for the patent rights.
The arguments presented to the Court focused on three potential outcomes. First, don’t modify the long relied upon assignor estoppel doctrine and continue to bar the patent assignor from challenging the assigned patent’s validity. Second, eliminate the doctrine of assignor estoppel and allow for a former patent owner or inventor to argue the validity of an assigned patent. Finally, modify the application of assignor estoppel doctrine to only apply the doctrine under narrow circumstances. Details of the respective arguments are outlined in a recent article I wrote for the American Bar Association’s Preview of United States Supreme Court Cases (April 19, 2021 edition).
Based on the questions presented in Minerva’s hearing, the Justices appear to be searching for a pathway to constrain the doctrine of assignor estoppel rather than to overrule it completely. The equity of the proposed middle ground of retaining a narrowly constrained version of assignor estoppel received a great deal of attention throughout the questioning. The Justices seem to recognize that the application of assignor estoppel might require looking at a multitude of relevant facts, such as what kind of representation did the assignor make when assigning the patent, to determine if assignor estoppel should apply.
Given the potential changes to the doctrine, what can assignees do to limit the effects of assignor challenges to the acquired patents? Solely relying on standard inventor-employee assignment agreements can be problematic. The customary assignment agreement transfers ownership of the patent application/patent for “valuable consideration,” which is generally the value of the ongoing employment. There is typically no other specific consideration given for the ownership transfer of the patent rights. An assignee may want to insure that specific consideration is paid to the inventor-employee for the broad based rights to the patent, which would include having a written description of the broadest potential application of the assigned patent rights. This latter consideration is of especial concern when the claims of a patent, at the time of the assignment, are narrower in scope than that of the claims that issue in the patent or any subsequent patent that issues based on the assigned patent rights. In practice, an assignee should insure that very broad based patent claims are on file with the patent office at the time of the assignment or, at the very least, have insured that broad based patent claims have been presented to the inventor so that the scope of the assigned rights can be acknowledged by the inventor/assignor at the time of the assignment.
In anticipation of the Court’s opinion, inventor-employee assignment agreements should be modified to include contractual provisions that discourage the assignor’s challenges or otherwise limit the assignee’s losses from the challenges. For instance, an inventor-employee assignment agreement can include a contractual provision that gives the assignor the right to challenge the assigned or sold patents only under defined terms and conditions such as, for example, a provision that gives the assignor the right to challenge the validity of the patents in IPRs and litigation if doing so in defense to a suit initiated by the assignee or its successor or assign. Further, the assignee can obligate the inventor-employee to provide first-party indemnification for all legal costs, including attorney’s fees, arising from invalidity challenges carried out by the inventor-employee, or others in privity with the inventor-employee.
As one will appreciate, Minerva has potential long range operational implications for companies that own, via their own employees or via mergers and acquisitions, patent portfolios through the vehicle of patent assignments. Actions should be taken immediate to insure continued unrestrained vitality of these valuable company resources.