On January 11, 2018, the Court of Appeals for the Federal Circuit ruled on the Advanced Video Technology, LLC v. HTC Corp., case.[1] This case is a unique one dealing with the logistics of a patent assignment document, and the proper mechanisms to effect a proper transfer of rights. Absent these things, and the party goes up in smoke.
The facts of the case are as follows.
The patent involved is U.S. Patent No. 5,781,788 (‘788), for “Full Duplix Single Clip Video Codec,” of which the subject matter is not at issue in this case. While the ‘788 patent has three co-inventors, only one, Vivian Hsiun, and the facts surrounding her involvement are at-issue. The other two inventors, Benny Woo and Xiaoming Li, had simply assigned their rights to Advanced Video, probably through a standard assignment form. Ms. Hsiun, however, was not as cooperative, and ownership rights took a more circuitous route, according to AVT. First, Infochip Systems Inc., at which all three inventors were employed, obtained Ms. Hsiun’s patent rights through her Employment Agreement. The patent rights were then obtained by a bankruptcy receivership company after Infochips went bankrupt. These rights then were obtained through a further assignment to Mr. Woo, who then assigned his patent rights to AVC Technology. AVC is the predecessor company to AVT and originally filed the parent application to the application which eventually issued as ‘788.
During prosecution of the ‘788 application, Ms. Hsiun refused to sign any inventor-required documents, and AVT filed a petition for unavailability of inventor due to refusal to join application,[2] which was granted by the USPTO. The ‘788 patent issued to AVC, which subsequently transferred its assets to AVT after AVC dissolved. AVT then filed patent infringement suit against HTC. However, the district court found AVT did not actually own the ‘788 patent, and dismissed the suit for lack of standing.[3] A few procedural court filings later, AVT appealed to the Fed Circuit.
The issue on appeal is whether AVT properly owns the ‘788 patent through the chain-of-title such that it has standing to sue for patent infringement. The Fed Circuit panel, composed of Judges Reyna, O’Malley, and Newman, found that it did not, and affirmed the district court decision.[4]
There were three provisions in the Employment Agreement which are at-issue.
First, there are the “will assign” and trust provisions:
I agree that I will promptly make full written disclosure to the Company [Infochip Systems], will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company.[5]
(Emphasis added.)
The quitclaim provision was as follows:
I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company.[6]
(Emphasis added.)
As for the “will assign” provision, the Fed Circuit panel held that it was not sufficient to “create an immediate assignment of Ms. Hsiun’s rights in the invention to Infochips.”[7] There must be a present intent to assign the property right of patents, and there was not in this language.
As for the trust language, the Fed Circuit panel deferred to state law. Since trusts and estates are governed by state law, California law was analyzed with regard to the trust language. Under California law, a “trust beneficiary is generally not the real party in interest.”[8] As such, the panel found the answer pretty simple: since California law did not allow the trust beneficiary (i.e., Infochips) as a party-in-interest, it could not maintain a lawsuit in court on behalf of Ms. Hsiun.
As for the quitclaim provision, the panel found it to be moot. Because there was no patent right transferred from Ms. Hsiun to Infochips in the first place the quitclaim provision does not even kick in as a remedy. It is, therefore, irrelevant to the proceedings.
Judge O’Malley concurred in the judgment; she only disagreed that a co-inventor could not be joined under a Federal rule of procedure.
Judge Newman dissented. She believed the Employment Agreement provided ample support for a transfer of the patent rights to Infochips which allowed AVT standing to sue in court for patent infringement.
What Judge Newman seems to not comprehend here is that this case is about an inventor who has had enough of all the documents which she must sign (and there are several) during the course of prosecuting an application. And, even when the patent issues, there may be further documents which an original inventor must sign, like what AVT had to go through in order to proceed in its patent infringement suit in court. However, there comes a point (and this author knows very well since he has been through it already as an inventor) when the assignee/company needs to get its act together and procure the necessary documentation at one time, rather than having multiple signings over many years after the application has been prosecuted and probably even issued. This is one of the most frustrating aspects of being a corporate inventor, that is, being forced to sign document after document years, sometimes decades, after all formality issues surrounding that patent should have been resolved.
The moral of the story is: prepare a proper assignment for the inventors to sign, and have them all sign the same assignment document (rather than rely on an employment agreement).[9] Additionally, the assignment document should indicate 1) a present intent to assign the patent rights; 2) no trust is created, as this is extraneous to patent prosecution; and 3) no other contractual requirements, like quitclaim or conveyance, is included. AVT has apparently learned the hard way
[1] 879 F.3d 1314 (Fed. Cir. 2018).
[2] See MPEP 409.03; see also 37 C.F.R. 1.47.
[3] See Advanced Video Techs., LLC v. HTC Corp., 103 F. Supp. 3d 409 (S.D.N.Y. 2015).
[4] See Advanced. Video Techs., supra (slip op. at 2-3).
[5] Id. (slip op. at 5).
[6] Id.
[7] Id. (slip op. at 6).
[8] Id. (slip op. at 7); citing Saks v. Damon Raike & Co., 8 Ca. Rptr. 2d 869, 874-75 (Cal. Ct. App. 1992).