EVE/Inc. and Synopsis, Inc. et al. recently filed a petition for certiorari in the U.S. Supreme Court seeking eradication of the judicially-created doctrine of assignor estoppel. Docket No. 17-804, November 30, 2017. Assignor estoppel is an equitable remedy that prevents an inventor, or one in privity with the assignor, who has assigned his or her patent, from contesting the validity of the patent if s/he or one in privity is sued for infringement of the patent. Recall, in Lear v. Adkins, 395 U.S. 653 (1969), the Supreme Court overruled a similar judge-made rule that precluded licensees from challenging the validity of a patent, because of the strong public interest in free use of ideas in the public domain and eliminating invalid patents.
The Synopsis case stemmed from a patent infringement action filed by Mentor Graphics in Oregon. The inventors of the asserted Mentor patent had left Mentor and formed their own company, EVE. The same inventors developed competing products, but took a license to their former patent, assigned to Mentor, when Mentor sued for infringement. The license terminated when Synopsys, a competitor of Mentor, merged with EVE. Synopsys filed a declaratory judgment action asserting invalidity and non-infringement of the patent. Prior to the trial, the district court barred Synopsys from challenging the validity of the patent because of assignor estoppel. The jury found infringement, and awarded damages of $36 million. Synopsys appealed the decision, asserting that Lear v. Adkins should be extended to overrule assignor estoppel.
The Federal Circuit disagreed with Synopsys, citing its own precedent upholding the validity of the doctrine of assignor estoppel. 851 F.3d 1275, 1282, 1283 (2017). Specifically, the panel cited a 2016 case, MAG Aerospace Indus., Inc. v. B/E Aerospace, Inc., 816 F.3d 1374, 1380-81 (Fed. Cir. 2016), in which it found that B/E was precluded from attacking the validity of the patent because the inventor of the patent was a current employee of B/E, and there was evidence the employee was hired specifically to develop the infringing products. Thus, it affirmed that B/E was in privity with the inventor and was precluded from asserting the patent.
The Federal Circuit then denied en banc review sought by Synopsys on the issue of assignor estoppel (per curiam), with two of the three judges on the original panel concurring in the denial. 870 F.3d 1298 (Fed. Cir. 2017). The concurrence stated that, although the Court “may be inclined to reconsider the breadth of the doctrine of assignor estoppel… this case is not a proper vehicle to do so.” The judges chided Synopsys for devoting only about two pages of its brief to assignor estoppel, asking for a blanket abolishment of the doctrine without explaining how assignor estoppel should not apply under the specific facts at issue. Id. at 1304. [1] The concurring opinion also rejected the arguments made in an amicus brief by law professors, who argued that the Federal Circuit improperly expanded the doctrine but also did not apply the facts at issue to the arguments. Id. at 1304-05. Moreover, the judges opined that they were bound by a 1924 Supreme Court case, Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342, 353 (1924), which held that an assignor could be estopped from challenging the validity of a patent in certain situations.[2] The opinion also distinguished licensees from inventors on the basis that a licensee does not make the same implicit representations that inventor makes regarding the value of patent sold.
Synopsys’ petition for certiorari argues that the inventor’s representations at the crux of assignor estoppel doctrine “invoke[] private contractual interests to override both explicit statutory language and clear public policy favoring the elimination of invalid patents that inhibit free competition.” Synopsys also points out that, in the modern era where assignments are required by employers, the doctrine no longer serves its equitable purpose. Employees typically agree to assign future inventions on the first day of employment and therefore do not make any representations as to the value or validity of any particular invention. Moreover, Synopsys argues that assignor estoppel unduly jeopardizes use of the defense where an employee switches jobs and moves to a competitor, even years later, and points out that continued use of the doctrine could impede employees’ freedom to change jobs. Synopsys also explains that 35 U.S.C. § 282(b)(2) authorizes an accused infringer to raise invalidity as a defense in any action involving the validity or infringement of a patent, without exception for inventors or any other plaintiff.
In an unusual twist, an assignor may still challenge the validity of a patent using patent office proceedings, including IPRs, because the Federal Circuit has no jurisdiction to review institution decisions by the USPTO, and because the patent could just as well have been challenged by a third-party petitioner (although it overlooked that this is also possible in district court litigation). Husky Injection Molding Systems, Ltd. v. Athena Automation Ltd., 838 F. 3d 1236, 1247 (Fed. Cir. 2016).
While it seems unlikely that the Supreme Court will grant Synopsys’ cert petition because of the defects noted by the Federal Circuit, the case highlights the often overlooked doctrine of assignor estoppel in U.S. patent law, and the risks of asserting invalidity a patent invented by a current employee but assigned to a competitor.
[1] The remainder of the appeal was whether apportionment of damages was required for lost profits.
[2] Notably, the Westinghouse case relied on principles of real property in finding assignor estoppel for patents. The issue of to what extent patents are private property rights is currently before the Supreme Court in Oil States Energy Services, LLC v. Greene’s Energy Group, No. 16-712 (2017), argued on November 27, 2017.
