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Plaintiff Has No Standing Where Agreement to Assign Future Patent Rights Does Not Transfer Ownership

Friday, December 9, 2011

Gellman v. Telular Corp., No. 11-01196, 2011 BL 301393 (Fed. Cir. Nov. 30, 2011) The U.S. Court of Appeals for the Federal Circuit affirmed the dismissal of a plaintiff’s patent infringement action for lack of standing. The plaintiff asserted that her late husband's employee and co-inventor of the patent in suit had effectively assigned his patent rights through an employment agreement. The Federal Circuit ruled, however, that the plaintiff lacked full title, at most having equitable title that was insufficient to confer standing to maintain the action. Because Gellman failed to establish on appeal the sole ownership of the patent in suit, the Federal Circuit affirmed the district court’s ruling.

District Court Dismisses Plaintiff’s Complaint

Ms. Tobi Gellman brought this patent infringement action against Telular Corporation and two other defendants (together, "Telular") in the U.S. District Court for the Eastern District of Texas alleging infringement of U.S. Patent No. 6,075,451 (the '451 patent) on behalf of her late husband, Mayer Michael Lebowitz, in her capacity as trustee of her late husband's trust, which holds Lebowitz's patent rights. Lebowitz and James Seivert, also deceased, are named co-inventors of the '451 patent. Gellman did not join Seivert or any of his successors or assigns. When Telular moved to dismiss the action for lack of standing, Gellman contended that Seivert was an employee of Lebowitz’s company, Cellular Alarm, at the time of the invention and had effectively assigned his interest in the patent to Lebowitz through an "Agreement For Consulting Services." The Agreement provided, in part, that:
[A]ny and all ideas, discoveries, inventions, [etc.] . . . developed, prepared, conceived, made, discovered or suggested by [Seivert] when performing services pursuant to this Agreement . . . shall be and remain the exclusive property of Cellular Alarm. [Seivert] agrees to execute any and all assignments or other transfer documents which are necessary, in the sole opinion of Cellular Alarm, to vest in Cellular Alarm all right, title, and interest in such Work Products.
Gellman at 5. The district court ruled that Gellman, who could not produce a signed copy of the Agreement, did not establish title to the patent and dismissed the action without prejudice.

Federal Circuit Rules Agreement Is Not Effective to Transfer Title

The Federal Circuit ruled that Gellman failed to establish that the Lebowitz Trust was the sole owner of the '451 patent. The court noted that the failure to join Seivert deprived the plaintiff of standing to maintain the action. The Federal Circuit noted that only the patentee has standing to maintain a patent infringement claim, and in cases of multiple owners (including co-inventors) all owners must be joined as parties in the action. See Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24, 40-41 (1923). Thus, if Seivert retained any legal interest in the '451 patent, Gellman lacked standing. On appeal, Gellman did not establish that Seivert entered into the Agreement because she was unable to produce a signed copy, but instead presented circumstantial evidence. In addition, she argued that the part performance of the Agreement took it out of the statute of frauds. The Federal Circuit noted that patent assignments must be in writing, 35 U.S.C. § 261, but that some transfers of ownership are not required to be in written form. See, e.g., Sky Techs. LLC v. SAP AG, 576 F.3d 1374, 1382 (Fed. Cir. 2009) (title transferred to secured creditor under Uniform Commercial Code after patentee’s default); Akazawa v. Link New Technology International, Inc., 520 F.3d 1354, 1355 (Fed. Cir. 2008) (patentee’s interest transferred to heirs through intestate succession). Although the Federal Circuit expressed doubt as to the sufficiency of Gellman’s evidence that Seivert signed the Agreement, the court ultimately ruled that even if the Agreement was effective, it failed to transfer Seivert’s legal title to Lebowitz. The court noted that in order to transfer legal title, an instrument must be a present transfer of the transferor’s ownership interest. For example, in Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 841-42 (Fed. Cir. 2009), aff'd, 131 S. Ct. 2188 (2011), the Federal Circuit ruled that an agreement with the term, "I will assign and do hereby assign[,]" was an effective present assignment. In the same case, however, the court ruled that the term "I agree to assign or confirm in writing to [transferee] right, title and interest in . . . such inventions" created only a promise to assign in the future. See also, Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000)(finding effective present assignment where contract stated that patentee "hereby conveys, transfers, and assigns" rights). Following its precedent, the Federal Circuit found that "[r]ather than expressly undertake assignment at signing, [the Agreement] expressly delays assignment to some future date, when Mr. Seivert would ‘execute any and all assignments or other transfer documents’ necessary to convey his rights to Cellular Alarm." Gellman at 7. The court stated that at most, the Agreement created an equitable title in Lebowitz. Equitable interests, however, are insufficient to confer standing under Section 261. See Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579-80 (Fed. Cir. 1991).

"Hired To Invent" Doctrine Creates Only Equitable Title

Alternatively, Gellman argued that Lebowitz was the sole owner under the "hired to invent" doctrine, where an employer owns a patent covering an invention made by a person hired to make the invention. See Solomons v. United States, 137 U.S. 342, 346 (1890). The Federal Circuit noted, however, that the "hired to invent" doctrine only creates an equitable title in the employer because the employee has a legal obligation to assign his or her legal interest to the employer. Accordingly, the "hired to invent" doctrine could not confer legal title in Lebowitz. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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