Contracts for Future Patent Rights: Israel Bio-Engineering Project v. Amgen

Under the first contract ('Sub-R&D agreement'), IBEP would fund the research projects and Inter-Yeda would, in its discretion, 'apply for and obtain patents in [Inter-Yeda's] and/or Yeda's name(s) on all inventions resulting from the R&D Programs ' provided, however, that the beneficial ownership of all rights, title and interest in and to such patents and patent applications … shall be … assigned to [IBEP].' The Sub-R&D Agreement further specified that 'any and all of the Proprietary Information shall become the sole property of [IBEP]' subject to the terms of a second contract, the Technology Option and Sale Agreement (the 'TOS agreement'). Proprietary Information was defined to include the technology 'developed in the R&D programs.' The R&D programs were in effect during and set to expire on the same date ' Dec. 27, 1987 ' as the two 1982 contracts.

The TOS agreement reiterated that '[a]ny and all of the Proprietary Information developed during the term of the Sub-R&D Agreement shall become the sole property of [IBEP] subject to [Inter-Yeda's option rights].'

During the term of the 1982 contracts, three researchers discovered and partially purified a protein shown to be effective against rheumatoid arthritis. A fourth researcher, Dr. Menachem Rubinstein, was added in 1988 ' after the expiration of the 1982 contracts ' to complete the purification of the protein. A patent application was subsequently filed and issued as U.S. Patent 5,981,701 ('the '701 patent'), listing all four researchers as inventors. The '701 patent contained three claims, of which claims 2 and 3 were directed to the 'substantially purified protein.' In July 1988, all four named inventors assigned their rights in the invention to Yeda.

In 2002, IBEP brought an infringement suit against Amgen, Inc., Immunex Corporation, Wyeth, and Wyeth Pharmaceuticals, Inc. in the U.S. District Court for the Central District of California. IBEP asserted only claim 1 of the '701 patent. Yeda, after prevailing on a motion to intervene, moved for summary judgment against IBEP on the ground that IBEP did not have full title to the '701 patent. Yeda's motion turned on its argument that IBEP could not claim full title to the '701 patent because the inventors were not Inter-Yeda employees at the time of the agreement and therefore, in accordance with Israeli law, did not pass ownership of the invention to Inter-Yeda, which was contractually required to assign title to IBEP. The district court granted Yeda's motion but was overturned by the Federal Circuit, which found genuine issues of material fact regarding whether at the time of the agreements the inventors were Inter-Yeda employees according to Israeli law. See Israel Bio-Eng'g Project v. Amgen, Inc., 401 F.3d 1299 (Fed. Cir. 2005).

On remand, Yeda filed another motion for summary judgment, asserting lack of standing ' an issue the district court did not address in its ruling on the previous motion. Yeda reasoned that the Sub-R&D agreement could not pass total ownership of the entire patent to IBEP because claims 2 and 3 of the '701 patent were based on activities beginning in 1988 ' after the 1987 expiration of the Sub-R&D agreement. As such, according to Yeda, IBEP would be entitled to, at most, an undivided pro rata share of the entire patent. The district court accepted Yeda's reasoning and granted the motion based on lack of standing. IBEP again appealed.

Federal Circuit: No Standing to Sue Alone

The Federal Circuit addressed the issue of ownership, noting that when multiple inventors are named on the face of an issued patent, each 'presumptively owns a pro rata undivided interest in the entire patent, no matter what their respective contributions,' and that 'a joint inventor as to even one claim enjoys a presumption of ownership in the entire patent' (quoting Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1460 (Fed. Cir. 1998)). It further noted that the 'interplay between inventorship and ownership creates the anomalous situation that a co-inventor of even a single claim can then assert a right of joint ownership over an entire patent with multiple claims.' As noted by the Federal Circuit panel, the district court accordingly held that 'IBEP had no standing to press its patent infringement action because Menachem Rubinstein was a co-inventor of the subject matter of claims 2 and 3, which was not discovered until after the conclusion of the R&D program, and therefore, IBEP did not have sole ownership of the patent.'

In order to prevail on appeal, IBEP had the burden of 'establish[ing] that Inter-Yeda was contractually required to assign all [Menachem] Rubinstein's ownership rights in the '701 patent to it.' To analyze this claim, the court looked to the substance of the Sub-R&D agreement, which gave IBEP the right to have assigned 'all rights, title and interest [to] all inventions resulting from the R&D programs.' Applying Israeli contract law, the court focused on the intention of the parties.

IBEP argued that the phrase 'resulting from' conveyed the right to assignment of patent rights stemming from the research that occurred after the expiration of the R&D programs and that formed the basis of claims 2 and 3. In rejecting this argument, the court noted that the provision, read as a whole, limited IBEP's entitlement to only the Proprietary Information developed during the R&D program, which was of 'finite duration' and that IBEP's proposed construction was not in line with the other agreements between the parties.

IBEP argued, in the alternative, that Inter-Yeda forfeited any rights in claims 2 and 3 by combining them with claim 1 in the same patent. The court rejected this argument because the Sub-R&D contract gave Inter-Yeda discretion in filing patents. The court noted that IBEP neither challenged inventorship nor claimed breach of contract.

IBEP next argued that patent assignments 'attach to patents as a whole, not individual claims.' Ethicon, 135 F.3d at 1466. While agreeing with this 'well-established' rule, the panel rejected the argument because the Sub-R&D agreement limited the subject matter to which IBEP was entitled.

IBEP's final argument was that the Sub-R&D agreement was a present assignment of future rights that cut off any rights flowing to Rubinstein. The panel was unpersuaded because IBEP had no future interest in Rubinstein's invention after the term of the agreements expired.

The Federal Circuit proceeded to affirm the district court's decision that IBEP lacked standing to bring suit without the voluntary joinder of Yeda, the co-owner of the '701 patent.

Conclusion

IBEP v. Amgen is a cautionary tale to parties entering contracts for future patent rights. Although the panel hinted that a breach of contract claim may have some merit under the facts of this case, IBEP could have avoided the problem altogether by taking more care in structuring its agreements. In particular, some form of control or oversight should be exercised with respect to patent prosecution to ensure that all inventors of all claims are bound to assign their rights in the invention. In this regard, any subject matter discovered outside the temporal scope of the agreement or in part by a co-inventor who is not bound by the agreement, should be claimed in a separate application, if at all. This case also illustrates the need to control who contributes during all phases of the invention, from conception to reduction to practice.

Daniel S. Matthews is an associate in the New York office of Kenyon & Kenyon LLP. He may be contacted by phone at 212-908-6865 or by e-mail at [email protected].

In Israel Bio-Engineering Project v. Amgen, Inc. , 475 F.3d 1256 (Fed. Cir. 2007), the Federal Circuit addressed whether a plaintiff had independent standing to sue on a single patent claim, where the patent-in-suit contained two additional claims directed to subject matter that was discovered in part by a co-inventor who had not assigned his ownership rights in the patent to the plaintiff.

Background

Yeda Research and Develop- ment Company ('Yeda') and Inter-Pharm, both Israeli companies, formed Inter-Yeda Ltd. as a joint venture in 1979 to fund and commercialize the results of research projects. In 1981, Yeda and Inter-Yeda entered into an agreement whereby Inter-Yeda would finance four research projects over the course of five years. In 1982, Inter-Yeda negotiated two agreements with Israel Bio-Engineering Project ('IBEP'), a New York limited partnership, to fund the four projects. These contracts, which provided that they were to be construed according to Israeli law, were signed on Dec. 30, 1982 and remained in force until their expiration on Dec. 27, 1987.

Under the first contract ('Sub-R&D agreement'), IBEP would fund the research projects and Inter-Yeda would, in its discretion, 'apply for and obtain patents in [Inter-Yeda's] and/or Yeda's name(s) on all inventions resulting from the R&D Programs ' provided, however, that the beneficial ownership of all rights, title and interest in and to such patents and patent applications … shall be … assigned to [IBEP].' The Sub-R&D Agreement further specified that 'any and all of the Proprietary Information shall become the sole property of [IBEP]' subject to the terms of a second contract, the Technology Option and Sale Agreement (the 'TOS agreement'). Proprietary Information was defined to include the technology 'developed in the R&D programs.' The R&D programs were in effect during and set to expire on the same date ' Dec. 27, 1987 ' as the two 1982 contracts.

The TOS agreement reiterated that '[a]ny and all of the Proprietary Information developed during the term of the Sub-R&D Agreement shall become the sole property of [IBEP] subject to [Inter-Yeda's option rights].'

During the term of the 1982 contracts, three researchers discovered and partially purified a protein shown to be effective against rheumatoid arthritis. A fourth researcher, Dr. Menachem Rubinstein, was added in 1988 ' after the expiration of the 1982 contracts ' to complete the purification of the protein. A patent application was subsequently filed and issued as U.S. Patent 5,981,701 ('the '701 patent'), listing all four researchers as inventors. The '701 patent contained three claims, of which claims 2 and 3 were directed to the 'substantially purified protein.' In July 1988, all four named inventors assigned their rights in the invention to Yeda.

In 2002, IBEP brought an infringement suit against Amgen, Inc., Immunex Corporation, Wyeth, and Wyeth Pharmaceuticals, Inc. in the U.S. District Court for the Central District of California. IBEP asserted only claim 1 of the '701 patent. Yeda, after prevailing on a motion to intervene, moved for summary judgment against IBEP on the ground that IBEP did not have full title to the '701 patent. Yeda's motion turned on its argument that IBEP could not claim full title to the '701 patent because the inventors were not Inter-Yeda employees at the time of the agreement and therefore, in accordance with Israeli law, did not pass ownership of the invention to Inter-Yeda, which was contractually required to assign title to IBEP. The district court granted Yeda's motion but was overturned by the Federal Circuit, which found genuine issues of material fact regarding whether at the time of the agreements the inventors were Inter-Yeda employees according to Israeli law. See Israel Bio-Eng'g Project v. Amgen, Inc ., 401 F.3d 1299 (Fed. Cir. 2005).

On remand, Yeda filed another motion for summary judgment, asserting lack of standing ' an issue the district court did not address in its ruling on the previous motion. Yeda reasoned that the Sub-R&D agreement could not pass total ownership of the entire patent to IBEP because claims 2 and 3 of the '701 patent were based on activities beginning in 1988 ' after the 1987 expiration of the Sub-R&D agreement. As such, according to Yeda, IBEP would be entitled to, at most, an undivided pro rata share of the entire patent. The district court accepted Yeda's reasoning and granted the motion based on lack of standing. IBEP again appealed.

Federal Circuit: No Standing to Sue Alone

The Federal Circuit addressed the issue of ownership, noting that when multiple inventors are named on the face of an issued patent, each 'presumptively owns a pro rata undivided interest in the entire patent, no matter what their respective contributions,' and that 'a joint inventor as to even one claim enjoys a presumption of ownership in the entire patent' (quoting Ethicon, Inc. v. U.S. Surgical Corp ., 135 F.3d 1456, 1460 (Fed. Cir. 1998)). It further noted that the 'interplay between inventorship and ownership creates the anomalous situation that a co-inventor of even a single claim can then assert a right of joint ownership over an entire patent with multiple claims.' As noted by the Federal Circuit panel, the district court accordingly held that 'IBEP had no standing to press its patent infringement action because Menachem Rubinstein was a co-inventor of the subject matter of claims 2 and 3, which was not discovered until after the conclusion of the R&D program, and therefore, IBEP did not have sole ownership of the patent.'

In order to prevail on appeal, IBEP had the burden of 'establish[ing] that Inter-Yeda was contractually required to assign all [Menachem] Rubinstein's ownership rights in the '701 patent to it.' To analyze this claim, the court looked to the substance of the Sub-R&D agreement, which gave IBEP the right to have assigned 'all rights, title and interest [to] all inventions resulting from the R&D programs.' Applying Israeli contract law, the court focused on the intention of the parties.

IBEP argued that the phrase 'resulting from' conveyed the right to assignment of patent rights stemming from the research that occurred after the expiration of the R&D programs and that formed the basis of claims 2 and 3. In rejecting this argument, the court noted that the provision, read as a whole, limited IBEP's entitlement to only the Proprietary Information developed during the R&D program, which was of 'finite duration' and that IBEP's proposed construction was not in line with the other agreements between the parties.

IBEP argued, in the alternative, that Inter-Yeda forfeited any rights in claims 2 and 3 by combining them with claim 1 in the same patent. The court rejected this argument because the Sub-R&D contract gave Inter-Yeda discretion in filing patents. The court noted that IBEP neither challenged inventorship nor claimed breach of contract.

IBEP next argued that patent assignments 'attach to patents as a whole, not individual claims.' Ethicon, 135 F.3d at 1466. While agreeing with this 'well-established' rule, the panel rejected the argument because the Sub-R&D agreement limited the subject matter to which IBEP was entitled.

IBEP's final argument was that the Sub-R&D agreement was a present assignment of future rights that cut off any rights flowing to Rubinstein. The panel was unpersuaded because IBEP had no future interest in Rubinstein's invention after the term of the agreements expired.

The Federal Circuit proceeded to affirm the district court's decision that IBEP lacked standing to bring suit without the voluntary joinder of Yeda, the co-owner of the '701 patent.

Conclusion

IBEP v. Amgen is a cautionary tale to parties entering contracts for future patent rights. Although the panel hinted that a breach of contract claim may have some merit under the facts of this case, IBEP could have avoided the problem altogether by taking more care in structuring its agreements. In particular, some form of control or oversight should be exercised with respect to patent prosecution to ensure that all inventors of all claims are bound to assign their rights in the invention. In this regard, any subject matter discovered outside the temporal scope of the agreement or in part by a co-inventor who is not bound by the agreement, should be claimed in a separate application, if at all. This case also illustrates the need to control who contributes during all phases of the invention, from conception to reduction to practice.

Daniel S. Matthews is an associate in the New York office of Kenyon & Kenyon LLP. He may be contacted by phone at 212-908-6865 or by e-mail at [email protected].