Fed Circuit Watch: District Court Bungles Inventorship Issue, Holds Federal Circuit

256 fed circuit watch inventorship patent standing

In a blend of jurisdictional and patent formality law, James v. J2 Cloud Services, LLC,[1] deals with the question of whether the inventor retained ownership over a patent so he had standing to sue for correction-of-inventorship under 35 U.S.C. §256. The vehicle used was an agreement, so much of the analysis is an understanding of contract law.

The facts are as follows.

Gregory James was contacted by Jack Rieley and Jaye Muller to develop software with three specific functionalities: fax-to-email, email-to-fax, and voicemail-to-email. He agreed and provided the deliverables according to a software development agreement (SDA) that was signed between JFAX Communications, Inc., Rieley and Muller’s company, and GSP Software, of which James belonged, a consortium of professional software developers. The patent at-issue is U.S. Patent No. 6,208,638 (‘638), for methods “for accepting incoming messages over a circuit switched network and transmitting over a packet switched network.” The application was filed April 1, 1997, and expired on April 1, 2017. The SDA required assignment of “all copyright interests” and “code and compiled software” but did not include patents or mention inventorship. The ‘638 patent application originally listed JFAX as the assignee; this was changed to Advanced Messaging Technologies, Inc. later during prosecution. The first time James was made aware of the ‘638 patent was when opposing counsel contacted him in 2013 after JFAX asserted against several other companies based on the ‘638 patent.

James filed his suit in a district court sitting in the Central District of California, alleging a number of causes of action, including correction of inventorship, and state law claims for unjust enrichment, conversion, misappropriation, and unfair competition. j2 and AMT moved to dismiss based on lack of jurisdiction, since James was not the inventor of the ‘638 patent, and therefore, lacked Article III standing[2] to bring the action. The district court agreed that James lacked standing to pursue his claim in federal court and dismissed the action. James then appealed to the Fed Circuit.

The Fed Circuit panel, composed of Judges Reyna, Taranto, and Hughes, with Judge Taranto writing for the court, immediately had issues with the district court’s interpretation of inventorship.

Article III standing requires a plaintiff to 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.[3] Judge Taranto noted that:

Mr. James alleges that he is the sole inventor of the inventions claimed in the ‘638 patent, that sole inventorship entails sole ownership, and that 35 U.S.C. §256 gives him a cause of action to establish sole inventorship and therefore sole ownership. Subject to an important qualification, if Mr. James were to prevail on those allegations in this case, he would stand to gain concretely, whether through securing an entitlement to seek damages for past acts of infringement or otherwise. Such a gain would be directly related to the merits of the claim and would redress the asserted injury of being deprived of allegedly rightly ownership.[4]

He continued with a rather pointed critique of the district court’s analysis:

[T]he [district] court found the straightforward logic recited [about inventorship of the ‘638 patent] to be inapplicable in this matter because of the important qualification that “[w]hen the owner of a patent assigns away all rights to the patent, neither he nor his later assignee has a ‘concrete financial interest in the patent’ that would support standing in a correction of inventorship action.”[5]

Judge Taranto noted that the SDA provided:

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 (emphasis added).[6]

Copyrights were implicated by the SDA, but not patents. As a result, the SDA did not eviscerate James’ patent rights in the ‘638 patent. The district court was wrong in its holding. The Fed Circuit reversed the jurisdiction issue, and remanded for further proceedings.

It may be that the district court judge was not familiar with intellectual property law, especially since copyright law and patent law are two different areas of property jurisprudence. However, to take James’ perspective, it means little, especially that his inventive endeavor was stripped from him (unbeknownst to him), issued by the government by another party, and asserted against a third party in a lawsuit without his input or even knowledge. Any inventor would be infuriated. This decision by the Fed Circuit was the correct one, especially when dealing with the issue of inventor misappropriation. Notwithstanding his lawsuit against j2, James may also have had an ethical claim before the USPTO’s Office of Enrollment and Discipline with the patent practitioner that filed the ‘638 patent with only Rieley and Muller as inventors. 37 C.F.R. §11.401 requires patent practitioners to not knowingly make false statements of, or fail to disclose, material fact to third parties. Certainly, filing a patent application knowing that the inventors are not correct would undermine the truthfulness of the prosecution. This, of course, assumes that the patent practitioner of the ‘638 patent had conducted his due diligence on the inventorship and had known that Rieley and Muller were not, in fact, the actual inventors.

[1] ___F.3d___ (Fed. Cir. 2018), rev’g and remanding James v. j2 Cloud Servs. Inc., No. 2:16-cv-05769, 2016 WL 9450470 (C.D. Cal. Dec. 19, 2016) (slip op.).

[2] U.S. Const., Art. III, Sec. 2: “The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made . . . to all cases affecting . . . between citizens of different states . . . . . “

[3] See Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016); see also Huster v. j2 Cloud Servs., Inc., 682 F. App’x 910, 914 (Fed. Cir. 2017).

[4] See James, supra (slip op. at 6).

[5] Id. (slip op. at 7), citing Trireme Medical, LLC v. AngioScore, Inc., 812 F.3d 1050, 1053 (Fed. Cir. 2016).

[6] Id. (slip op. at 9).