Magazine Article | June 28, 2012

Three Words That Can Determine Patent Ownership

Source: Life Science Leader

By Cathy Yarbrough, Contributing Editor
Follow Me On Twitter @sciencematter

Three words — “and hereby assigns” — could determine whether a patent is owned by the company at which the invention occurred or by the employee or consultant responsible for the invention, said Philip Strassburger, VP of intellectual property counsel at Purdue Pharma. In a presentation at the Drug Delivery Partnerships conference, Strassburger noted that these words too often are missing from the agreements that life sciences companies require staff and consultants to sign as a condition of employment.

Strassburger said that the employer-employee/consultant agreement should include text similar to the following:

“All ideas, discoveries and inventions (‘Inventions’) discovered by employee in the course of its employment shall be and remain the exclusive property of Employer. Employee agrees to assign and hereby assigns all right, title, and interest in such Inventions to Employer.”

“It’s surprising how many companies do not have this language,” Strassburger said, referring to “and hereby assigns,” which is known as “present assignment” terminology. In a contract calling for a “present assignment” of inventions, the employee’s or consultant’s signature shows that they agree that the company owns any invention that they make during their employment.

Without the inclusion of a “present assignment,” the contract may be legally interpreted to mean the employee promised that at a future date they will assign ownership of the invention to the company. Strassburger refers to the promise-to-assign as “future assignment.” An agreement that includes “present assignment” as well as “future assignment” terminology “gives companies rights that otherwise that they may not have,” Strassburger said.

The inclusion of “present assignment” terminology strengthens the company’s ability to successfully assert its ownership of the IP, as illustrated by several court cases. For example, in DDB Tech v. MLB Advances Media, even though an employee had assigned his rights to the IP to his employer, he filed his own patent application and then assigned the patent to another company (DDB). Subsequently, DDB sued a third company for infringement of the patent, but the third company had acquired all rights to the IP as well as a retroactive license from the employee’s employer. The case was dismissed because the third company, not DDB, legally owned the rights to the patent. “DDB had paid for the patent application but ended up with no rights,” said Strassburger.

Ensure A Solid Chain Of Title Exists For Your Invention
In determining ownership, IP and real estate are very similar. “When people buy real estate, a lot of attention is paid to ownership,” said Strassburger. “They obtain a chain of title to make sure they’re getting what they think they’re paying for and because a bank is not going to lend money to purchase the real estate unless a clear chain of title exists on the property. “However, even with a clear chain of title, the bank will require that buyer to obtain title insurance,” Strassburger explained.

Because title insurance is generally not available to protect owners of IP, companies must be very vigilant to ensure that a solid chain of title exists for each invention and that they have the constitutional standing needed to effectively assert ownership if challenged. “We’ve learned from several court cases regarding IP that a company must get this right. It affects a company’s standing in court and the damages and injunctive relief that it may seek,” he said.

If a company sues, its failure to have standing may result in dismissal of the case, which may result in a pharmaceutical company losing the 30-month stay that is granted in patent infringement suits.  “This is not rocket science, but it is complicated,” added Strassburger, who recommends that life sciences companies:

  • Conduct due diligence investigations to confirm IP chain of title prior to purchase and prior to filing suit. For a company’s most important IP, due diligence should be periodically conducted to confirm that the chain of title remains intact.
  • Structure agreements to address business needs and objectives, including potential future litigation and the business needs for that litigation. For example, will the company need to be able to sue under the patent or is freedom-to-operate sufficient?
  • Review all employee and consultant agreements to ensure they include both a “present assignment” and a “future assignment” of ownership of inventions to the company.
  • Confirm that the company’s IP has a clear chain of title before mergers, acquisitions, and new affiliations, including those with affiliates, prior to the transfer of patents.

“A company must be sure that the ownership of patents is being passed through from one company to another so that the IP can be asserted effectively,” said Strassburger. “At the time of any transfer, a company should ensure that all necessary assignments are made at that time and do not rely on future transactions.”

Strassburger noted that there are cases in which the lawyers failed to execute all the documents needed “to put everything in the right place,” during mergers and acquisitions.

Company officials who discover that their patents were not properly transferred can often rectify the mistake with amendments, he pointed out. But, such corrections should be completed before damages occur or before litigation.

Strassburger cited a “real world” example in Abraxis v. Navinta, a patent infringement lawsuit about a patent that was originally owned by affiliates of AstraZenica (AZ). The affiliates had not made a timely assignment of the patent to AZ for the company’s anesthetic Naropin when the company assigned the IP to Abraxis.  

Under the Hatch-Waxman Act, Abraxis filed a patent infringement lawsuit against Navinta, which had submitted an abbreviated new drug application (ANDA) for a generic version of Naropin. When AZ discovered it did not have the rights to transfer the IP to Abraxis,  the affiliated companies subsequently executed an assignment to the pharmaceutical company. However, since the assignment did not occur prior to the filing of the lawsuit, the case was dismissed for lack of standing.

“When the lawsuit was filed, Abraxis did not properly own the patents. It was a matter of timing,” explained Strassburger. If the assignments had occurred prior to filing suit, there would have been standing, and the litigation could have proceeded.

  • Before filing a lawsuit to assert  its IP, a company should conduct a due diligence investigation to confirm that it legally owns the IP and that it has been properly transferred to the company.

“The company also should make sure the patent has not been reassigned,” said Strassburger, who also recommends that an IP owner assign patents to the parties (i.e. affiliates) that are consistent with litigation strategy. For example, the affiliate that will be damaged should have an ownership interest in the IP, so it can seek to recover damages.

  • Understand the licensing rights that can be asserted in court.

A company that is the sole owner of the patent or is the exclusive licensee and has all substantial rights has the constitutional standing to sue and settle, said Strassburger. To have standing, the exclusive licensee legally does not need for the patentee to join the suit.

If a company has a nonexclusive license, in which the rights to the IP are shared, it lacks constitutional standing to sue without the involvement of the owner(s). The licensing agreement, however, can state whether owners must join a patent infringement suit. “The licensing agreement should stipulate that each owner will become a party to any suit that the other owner or licensee wishes to file,” said Strassburger.

Although the license acquired by a company may be exclusive, the licensee may not have all substantial rights. “Calling a license exclusive does not necessarily make it an exclusive license,” he explained. “The license agreement may not provide sufficient rights to be considered by the court as an exclusive license.”

Also, the existence of only one licensee does not necessarily make the license exclusive.

“When negotiating an exclusive license, a company should confirm that it will receive all substantial rights to assert the patent. And, before litigation, the licensee should confirm it again to be sure that the license has not been amended,” Strassburger said.
He also noted that often the licensee and patentee could amend the licensing agreement to improve the licensee’s standing before going to court. “Courts look to the substance of the license grant to determine whether all substantial rights have been granted,” said Strassburger, who added that courts consider the following factors:

  • Exclusive right to make, have made, use, sell, offer to sell, and import
  • Territory and field of use limitations
  • Term limits and termination rights
  • Rights to enforce against infringers
  • Right to grant sublicenses
  • Right to assign
  • Understand the implications for an owner or exclusive licensee, that it is not practicing, asserting a patent

If the owner or exclusive licensee of the patent is not practicing the invention, it may only be entitled to reasonable royalties and not lost profits. Also, to obtain injunctive relief, a company often must prove irreparable harm, Strassburger added. “And, for permanent injunction, patent owners must show irreparable harm. It usually is not enough to show irreparable harm to a nonparty licensee.”

Protecting IP is one of the most important issues that decision makers in the life sciences business can improve upon if they take a few disciplined measures in a timely fashion. Strassburger said that he hopes individuals who attend his presentations — or read this article — will dedicate time, effort, and resources to perfecting the status of their company’s IP, so valuable inventions can be protected by the courts.