Breach of Confidentiality Agreement Required Transfer for Resulting Patents

In Sionyx, LLC, v. Hamamatsu Photonics KK, [2019-2359, 2020-1217] (December 7, 2020), the Federal Circuit affirmed the district court’s judgment that (1) Hamamatsu breached its Non-Disclosure Agreement SiOnyx”; (2) Hamamatsu willfully infringed U.S. Patent 8,080,467; (3) SiOnyx is entitled to $796,469 in damages and $1,091,481 of pre-judgment interest for breach of the NDA; (4) SiOnyx is entitled to $580,640 in damages and $660,536 of pre-judgment interest for unjust enrichment; (5) SiOnyx is entitled to post-judgment interest at the statutory rate for its breach of contract and unjust enrichment claims; (6) Dr. James Carey is a co-inventor of U.S. Patents 9,614,109; 9,293,499; 9,190,551; 8,994,135; 8,916,945; 8,884,226; 8,742,528; 8,629,485; and 8,564,087; (7) SiOnyx is entitled to sole ownership of the Disputed U.S. Patents; (8) SiOnyx is entitled to an injunction prohibiting Hamamatsu from practicing the Disputed U.S. Patents for breach of the NDA; and (9) SiOnyx is entitled to an injunction prohibiting Hamamatsu from practicing the ’467 patent for infringement; and rreversed the district court’s denial of SiOnyx’s motion to compel Hamamatsu to transfer ownership of the corresponding foreign patents to SiOnyx.

Eric Mazur discovered a process for creating “black silicon” by irradiating a silicon surface with ultra-short laser pulses. In addition to turning the silicon black, the process creates a textured surface, and the resulting black silicon has electronic properties different from traditional silicon. After discovering the process for making the material, Mazur worked with his students, including Carey, to study its properties and potential uses. Based on this work, Mazur and Carey filed patent applications which resulted in the issuance of several patents, including U.S. Patent No. 8,080,467.

Mazur and Carey founded SiOnyx to further develop and commercialize black silicon. SiOnyx met with Hamamatsu, a producer of silicon-based photodetector devices, enteringg an NDA to allow the parties to share confidential information relating to “evaluating applications and development opportunities of pulsed laser process doped photonic devices.

After the NDA was terminated, Hamamatsu continued to develop new photodetector devices, filing patent applications and introducing products,. SiOnyx met with Hamamatsu to discuss ownership of the disputed U.S. and Foreign patents, but the parties did not reach an agreement, so SiOnyx sued Hamamatsu claiming (1) breach of contract; (2) unjust enrichment; (3) infringement of the ’467 patent; and (4) change of inventorship of the Disputed U.S. Patents.

After a jury verdict in SiOnyx’s favor, Hamamatsu appealed. Hamamatsu first argued that the claim was barred by the statute of limitations, which Hamamatsu argued was triggered by its failure to return confindential information as required by the NDA, and by Hamamatsu emailing SiOnyx a diagram of a photodiode that SiOnyx perceived to be identical to the parties’ 2007 work. SiOnyx argued that Hamamatsu’s failure to return SiOnyx’s confidential information was an immaterial breach that did not begin the limitations period, or that Hamamatsu concealed its later use of SiOnyx’s confidential information through its repeated assurances that its new products did not infringe SiOnyx’s intellectual property. The Federal Circuit agreed with the district court that a reasonable juror could have determined that SiOnyx was not harmed by Hamamatsu’s failure to return the confidential information and that the breach was therefore immaterial and did not cause SiOnyx’s claims to accrue, as to the email disclosures, the Federal Circuit perceived no reason to upset the jury’s verdict here.

Hamamatsu also argued that the district court erred in awarding pre-judgment interest for unjust enrichment and breach of contract claims. The Federal Circuit agreed with the district court that pre-judgment interest was avaialble for both claims.

Hamamatsu challenged the injunction against infringement of SiOnyx’s ‘467 patent, arguing that SiOnyx argues primarily that SiOnyx failed to demonstrate irreparable harm and an inadequate remedy at law. SiOnyx responded that its products compete with Hamamatsu’s, and that it will suffer irreparable harm from Hamamatsu’s continued sales. The Federal Circuit was not convinced that the district court clearly erred in finding that the accused products are competitive with SiOnyx’s products, and Hamamatsu did not refute the demonstration of irreparable harm.

Hamamatsu also challenged the injunction for breach of contract. However, due to the similarity of the legal standard, the parties’ arguments were substantially similar to those made with respect to the injunction for patent infringement, and the Federal Circuit reached the same conclusion.

Hamamatsu filed a post-trial motion for judgment as a matter of law that SiOnyx is not owed damages for the breach of contract and unjust enrichment claims after the confidentiality period of the NDA expired. SiOnyx responded that the jury reasonably could have inferred that Hamamatsu continued to benefit from its breach beyond the expiration of the confidentiality period. The Federal Circuit agreed that the jury’s verdict could be reasonably construed to incorporate a finding that Hamamatsu continued to reap the benefit of their earlier breach by selling products that it had designed using SiOnyx’s confidential information, and declined .” Id. slip op. at 3. We agree that such an inference is reasonable, and we de-cline to alter the jury’s damages award.

On appeal, Hamamatsu argues that the district court erred in granting SiOnyx sole ownership of the disputed U.S. Patents because the jury’s finding of co-inventorship necessarily implied that the jury found that Hamamatsu also contributed to the patents. The NDA provided that “a party receiving confidential information acknowledges that the disclosing party claims ownership of the information and all patent rights “in, or arising from” the information.” Thus the Federal Circuit found that the district court’s decision transferring ownership of the patents according to the terms of the NDA was an equitable remedy which is reviewed for abuse of discretion (under Massachusetts law). The Federal Circuit said that absent evidence that Hamamatsu contributed confidential information to the patents under the NDA, it was not entitled to co-ownership of the patents under the agreement.

On appeal, Hamamatsu maintained that its infringement was not willful, challenging the adequacy of the evidence presented at trial to support the jury’s finding. However, the Federal Circuit said that given that the district court awarded no enhanced damages based on willfulness, it is not apparent what effect the jury’s finding of willfulness had on the district court’s judgment, and it is likewise not apparent what the effect a reversal by this court would be. Hamamatsu was in effect requesting an advisory opinion, which the Federal Circuit lacks the authority to provide.

On SiOnyx’s cross appeal, SiOnyx aruged that the district court should have granted it ownership of the corresponding foreign patents as well. The Federal Circuit agree with SiOnyx that the evidence that established SiOnyx’s right to sole ownership of the disputed U.S. Patents also applied to the disputed foreign patents. Because the district court erroneously perceived that it lacked authority to compel the transfer of ownership, the Federal Circuit said it was an abuse of discretion to distinguish between the two groups of patents. The Federal Circuit stated that the district court had authority to transfer foreign patents owned by the parties before it.

It’s Not Always Nice to Share

Joint ownership of a patent creates complications for the joint owners. Pursuant to 35 USC 262 “each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.” This means that each of the joint owners can use the patent or license the patent to someone else, and not have to ask the other joint owners, and not have to share any of the proceed with the other joint owners. A consequence of this statute is that the particular percentage of ownership is irrelevant: the joint owner of 1% of a patent has the same rights as the joint owner of 99% of the patent.

A second problem with joint ownership is splitting the costs of obtaining and maintaining the patent. If one or more of the joint owners doesn’t want to contribute to the costs, the remaining co-owners have to pick up the slack. Even if everyone pays their fair share, what happens if there is disagreement over strategy.

Finally, when it comes time to enforce the patent, the Court of Appeals for the Federal Circuit requires that all of the joint owners participate in the law suit. Moreover the Federal Circuit has indicated that you cannot force joint owners to join a suit.

There are at least two solutions to the problems of shared patent ownership. The first solution is to eliminate shared ownership by forming a entity, such as a limited liability company, to hold all of the patent rights. This allows all of the problems of joint ownership to be resolved by the operating agreement of the entity.

The second solution is to have the joint owners sign an agreement that they will share the costs and benefits of the patent. This solves the problems of joint ownership though a negotiated agreement. Key provisions of such an agreement include:

  • A mechanism for making decisions about prosecution of the patent.
  • A mechanism for making decisions about enforcement of the patent.
  • An apportionment of costs of obtaining, maintaining, licensing, and enforcing patents.
  • A mechanism for addressing joint owners who do not pay their share of costs.
  • An apportionment of revenue from using, licensing, and enforcing the patent.
  • A duty to join in infringement actions.

“Will Assign” ≠ “Do Assign”; Check Your Chain of Title

In Advanced Video Technologies LLC v. HTC Corporation, [2016-2309, 2016-2310, 2016-2311] (January 11, 2018) the Federal Circuit affirmed the dismissal of an action for infringement of U.S. Patent No. 5,781,788 on the ground that a co-owner of the patent was not a party to the suit.

The Federal Circuit explained that the single issue involved in the appeal was whether a co-inventor of the patent transferred her co-ownership interests in the patent under the terms of an employment agreement.

Plaintiff, Advanced Video, Advanced Video asserted that it obtained co-inventor Hsiun’s co-ownership interests in the invention through a
series of transfers:

  1. The first transfer was made before the ’788 patent application was
    filed, pursuant to a January 1992 Employment Agreement
    (“Employment Agreement”) between Ms. Hsiun and
    Infochips.
  2. The second transfer occurred when Infochips’ “receivables,” which had been pledged as security in a financing agreement between Infochips and an entity called Lease Management Services, were seized by Lease Management when Infochips went out of business in 1993.
  3. The third transfer occurred in 1995 when Lease Management sold the Infochips assets to Mr. Woo, one of the three co-inventors.
  4. The fourth transfer occurred when Mr. Woo assigned his ownership interest in the ’788 patent to an entity called AVC Technology Inc. (“AVC”),

Hsiun’s employment agree provided that she would “hold in trust” for the company and “will assign” to the company all inventions, and quitclaimed any and all claims for infringement.  The district court concluded that these provisions did not effect a transfer of Hsiun’s ownership rights to Advanced Video.

The district court found that “will assign” invoked a promise to do
something in the future and did not effect a present assignment, and the Federal Circuit agreed.  Regarding the trust language, the Federal Circuit said even if it determined that Hsiun’s interests in the invention were immediately placed in trust, it did not follow that those interests were automatically, or ever, actually transferred out of trust in favor of
Advanced Video’s predecessor. Absent a transfer, Hsiun would continue
to hold the invention rights as a trustee.  Noting that because Advanced Video had not sought to enforce any obligation Hsiun might have under the trust, it ultimately has no standing to bring a patent infringement
action.  The Federal Circuit was similarly unimpressed with the quitclaim assignment of right to sue for infringements, noting that this cannot result in a transfer that did not in fact occur.

 

 

Check Each Link in the Chain of Title; The Time to Find Out Your Assignor Does Not Exist is Before you Sue

In In re Certain Thermoplastic-Encapsulated Electric Motors, 337-TA-1052, (August 11, 2017), Administrative Judge Dee Lord dismissed Intellectual Ventures II LLC complaint asserting infringement of U.S. Patent Nos. 7,154,200, 7,067,944, 7,683,509 and 7,928,348 for lack of standing.  Intellectual Ventures predecessor in interest received an assignment from Encap Technologies in 2012.  Unfortunately for Intellectual Ventures Encap Technologies did not exist in 2012, having merged with Encap Holding back in 2008.

Intellectual Ventures made a number of technical arguments about how the documents could be construed to transfer title, including arguing that the intention to transfer was clear, and that Encap Technologies was simply acting for Encap Holding.  Regardless of what the intention of the parties may have been, the documents simply did not reflect this intent.

Intellectual Ventures also deployed the panacea for chain of title defects — the confirmatory assignment.  However,  as the ALJ noted, “such after-the-fact attempts to alter the plain language of an assignment agreement during litigation cannot establish standing.”  Federal law requires that a complainant establish standing at the time the complaint is filed.

The ALJ noted that Intellectual Ventures best argument was for reformation of the contracts conveying title so as to effectuate the obvious intent of the parties and permit the plaintiffs to claim rights as patent owners. Case law supports such reformation in a number of instances, but unfortunately for Intellectual Ventures, while a court has the power to reform a contract, the ITC is not a court, and lacks the authority to reform the agreements which on their face showed that Intellectual Ventures lacked ownership and therefore standing.

While Intellectual Ventures might have obtained a better result in a district court than before the ITC, the case is reminder of the importance of minding the chain of title, each link of which must be tested to ensure that assignor and assignee in fact existed at the time.

 

Don’t Take Your Eye Off the Ball or Your Patent Assignment Will End Up in the Dirt

In Intellectual Ventures I LLC v. Erie Indemnity Company, [2016-1128, 2016-1132] (March 7, 2017), the Federal Circuit affirmed in part, vacated in part, and remanded in part the district court’s decision finding all claims of U.S. Patent Nos. 6,510,434, 6,519,581 and 6,546,002 ineligible under 35 U.S.C. § 101, and the infringement claim of the ’581 patent for lack of standing.

Lack of Standing

The rights of the parent application of the ‘581 patent, together with “all continuations” (including the ‘581 patent application, which was pending at the time, were assigned to ALLAdvantage.com.  AllAdvantage.com then assigned various patent (including the parent of the ‘581 patent) to Alset.  Although this agreement expressly identified the various patents and pending applications subject to assignment—including
the ’581 parent and several of its pending foreign patent application counterparts—it did not explicitly list the ’581 patent’s then-pending application.  The assignment generally provided:

The Federal Circuit concluded that the Alset Agreement did not include an assignment of rights to the ’581 patent and affirmed the district court’s Rule 12(b)(1) dismissal.  The Federal Circuit rejected the argument that the language implicitly included the ‘581 patent application.  Applying California contract law, the Federal Circuit agreed with the district court’s conclusion that there is no ambiguity within the Alset Agreement that could render it reasonably susceptible to an interpretation that the ‘581 patent application was transferred.  The fact that Alset recorded the assignment at the PTO, represented in a terminal disclaimer that it owned all the rights to the ’581 patent, and filed updated power of attorneys and paid the ’581 patent’s issuance fee.  The Federal Circuit said that although this evidence may lead one to reasonably conclude that Alset believed it owned the ’581 patent application at some later point in time, it would be error to rewrite the parties’ agreement to include that which was plainly not included.  The fact that other pending applications were expressly listed also did not help plaintiff’s cause.

Because the Federal Circuit agreed that plaintiff lacked standing to sue under the ‘581 patent, it vacated the finding that the ‘581 patent was invalid under §101.

Don’t Take Your Eye Off the Ball

Conveying a pending patent application should be routine.  And perhaps because it was so routine is the reason that things went wrong.  If you want to assign a pending application, it is a probably a good idea to specifically identify that application.  If you want to include all continuations, divisionals, and continuations in part, than it is a good idea idea to say “including all continuations, divisionals, and continuations in part” rather than “together with the goodwill of the business symbolized by said patents and applications and registrations thereof.”

Invalidity Under §101

As to the ‘434 patent, which contained twenty-eight claims relating to methods and apparatuses that use an index to locate desired information in a computer database:  Under step one of the Mayo/Alice test the Federal Circuit agreed with the district court that the invention is drawn to the abstract idea of “creating an index and using that index to search for and retrieve data.  The Federal Circuit noted that it had previously held patents ineligible for reciting similar abstract concepts that merely collect, classify, or otherwise filter data.  Under step two of the Mayo/Alice test the Federal Circuit agreed with the district court that they lack an “inventive concept” that transforms the abstract idea of creating an index and using that index to search for and retrieve data into a patent-eligible application of that abstract idea.  The fact that the claimed invention employed an index of XML tags was not significant in view of the patent’s admission that such tags are known.  Moreover limiting an abstract idea to a particular field does not make the idea any less abstract.  The Federal Circuit concluded that the claimed computer functionality can only be described as generic or conventional.

As to the ‘002 patent, which contained 49 claims relating to systems and methods for accessing a user’s remotely stored data and files:

Under step one of the Mayo/Alice test the Federal Circuit agreed with the district court that the claims are drawn to the idea of “remotely accessing user specific information.  Under step two of the Mayo/Alice test, the Federal Circuit concluded that the claims recite no “inventive concept” to transform the abstract idea of remotely accessing user-specific information into a patent eligible application of that abstract idea. Rather, the Federal Circuit said that the claims merely recite generic, computer implementations
of the abstract idea itself.

It’s a Good Idea to Actually Own the Patents you Sue on

In National Oilwell Varco, L.P. v. Omron Oilfield and Marine, Inc., [2015-1406] (January 25, 2017), in a non-precedential opinion, the Federal Circuit affirmed the dismissal of claim for infringement of U.S. Patent No. 5,474,142 because of problems with the chain of title which deprived NOV of standing.

Bobbie Bowden, the named inventor on the ’142 Patent assigned the patent to Wildcat Services, L.P., on October 9, 2001.  Wildcat Services, L.P. assigned the ’142 Patent to MD/Totco, a Division of Varco, L.P.,1 on June
30, 2004.  NOV claimed it purchased the ’142 Patent from Varco, L.P., pursuant to an Asset Contribution Agreement dated January 1, 2006.

NOV initially refused to produce the ACA, instead producing only a “Assistant Secretary’s Certificate,” which assigned only “physical assets.” After being forced to produce the ACA, Omron renewed its motion to dismiss for lack of standing.  The district court agreed that that the NOV could not prove ownership of the ’142 Patent as of the filing date of this case, and dismissed the case, with prejudice, for lack of standing.

The Federal Circuit agreed with the district court, noting that the ACA contains no reference to patents except within Exhibit A, which had a column labeled “Patents – Patents.”  The Federal Circuit said that the district court correctly interpreted the ACA to find that its plain meaning did not include transferring the ’142 Patent from Varco, L.P. to NOV because the Exhibit A spreadsheet shows a “0” where the patents row intersects with the MD/Totco column.  The Federal Circuit concluded that a plain
reading of the ACA reveals that it did not transfer the ’142 Patent from MD/Totco to NOV.