Fed. Circuit: Consultant's Pre-Agreement Work Falls Outside Assignment Provision

Before the effective date, Dr. Lotan conducted a single-day study that tested AngioSculpt prototypes in pig arteries and identified a problem with the device's operation. He contributed to a memorandum summarizing the study, which highlighted the problem he identified and included a recommendation for addressing it. Dr. Lotan reiterated the recommendation in two follow-up meetings with AngioScore. The three AngioScore patents in question claimed a component structure similar to the one recommended by Dr. Lotan.

TriReme Medical is an AngioScore competitor that develops its own line of angioplasty balloon catheter devices. Concerned that AngioScore would bring a patent infringement suit against it, TriReme entered into a licensing agreement with Dr. Lotan in 2014. Under the agreement, Dr. Lotan granted an exclusive license to “any and all legal and equitable rights” he had in the three AngioScore patents. TriReme then brought suit for correction of inventorship seeking to add Dr. Lotan as an inventor on the patents. By making Dr. Lotan an inventor, and having acquired Dr. Lotan's rights in the patents, TriReme would have a defense to infringement.

Section 9(a): Prior Inventive Works

Section 9(a) of the consulting agreement, headed “Inventions Retained and Licensed,” focused on Dr. Lotan's work before the agreement's effective date. The agreement contemplated that Dr. Lotan would list on an exhibit “all inventions, original works of authorship, developments, improvements, and trade secrets” that: a) were made prior to the effective date; b) belonged to him solely or jointly; and c) “relate[d] to any of [AngioScore's] current or proposed businesses, products or research and development.” The agreement provided that the failure to attach a list of prior inventions constituted a representation that there no such prior inventions. If Dr. Lotan incorporated a prior invention into any AngioScore product, service or development while providing services under the consulting agreement, AngioScore was “hereby grant[ed]” a broad, but non-exclusive, license to that prior invention.

Dr. Lotan did not provide an exhibit of prior inventions as requested in Section 9(a). AngioScore argued that his failure to list a prior invention related to AngioScore's business resulted in an assignment of his rights in that invention. That is, it asserted that Dr. Lotan had assigned to AngioScore his inventive contributions in the pre-agreement study by not listing the contributions in an exhibit. Dr. Lotan testified that he did not list his work on the study because he did not consider his work an invention at the time.

The U.S. District Court for the Northern District of California, emphasizing the “purpose” of the consulting agreement, held that it was “ultimately immaterial” as to when Dr. Lotan had completed his work. The district court interpreted the consulting agreement as providing for the assignment to AngioScore of Dr. Lotan's interest in his inventive contributions regardless of when the work had occurred. It dismissed TriReme's case, finding that Dr. Lotan had assigned all his rights in the patents to AngioScore and that TriReme thus had no standing to bring its claim because its 2014 assignment agreement with Dr. Lotan did not actually transfer any rights.

The Federal Circuit's decision reversed the district court's reading of Section 9(a), finding that it did not actually assign rights in Dr. Lotan's pre-agreement work. The panel noted that California law requires that the consulting agreement be construed by the plain meaning of the language, rather than by the “purpose” of the agreement. Here, the court noted, the agreement provided that the absence of a list of pre-agreement inventions constituted a representation that there were no such inventions, but the agreement didn't actually assign rights to those inventions. Indeed, construing silence as resulting in an assignment would “make little sense,” the court said, because it could “theoretically” require the assignment of “independent inventions” dating back many years before the AngioScore relationship.

Based on the plain meaning of Section 9(a), the Federal Circuit held that Dr. Lotan granted AngioScore, at most, a non-exclusive license to his inventive contributions before the agreement's effective date. This non-exclusive license would not have prevented Dr. Lotan's 2014 transfer to TriReme of his rights in these inventive contributions.

Section 9(b): Inventions During the Term

AngioScore's alternative argument was that Dr. Lotan's inventive contributions were assigned to the company under Section 9(b), headed “Assignment of Inventions.” This section addressed inventions made during the agreement's term. Dr. Lotan agreed to promptly disclose to AngioScore and “hereby assign[ed]” to AngioScore “ all right, title, and interest in and to all inventions, original works of authorship, developments, concepts, know-how, improvements, or trade secrets . . . that [Dr. Lotan] may solely or jointly conceive or develop or reduce to practice” during the term of the consulting agreement.

While the parties disputed the significance of Dr. Lotan's contributions during the agreement's term, they did not dispute that his work during the term related to designing, implementing, and analyzing clinical trials. It was also undisputed that Dr. Lotan did not work on the physical design of the patented AngioSculpt device after the effective date of the agreement. AngioScore suggested, however, that Dr. Lotan's work relating to his inventive contributions continued after the effective date of the consulting agreement, and that this work amounted to “development” and “reduction to practice” under Section 9(b). AngioScoreargued that these inventive contributions were therefore assigned under Section 9(b) by Dr. Lotan.

The Federal Circuit was less willing to reach this far. The panel's decision left for the district court to answer on remand, as a question of fact, whether Dr. Lotan's work after the effective date amounted to “development” or “reduction to practice.” Thus, the Federal Circuit did not resolve the Section 9(b) question of whether Dr. Lotan assigned the patents to AngioScore.

TriReme 's Significance For Businesses

In TriReme, AngioScore had clear knowledge of the substantive nature of Dr. Lotan's work before he signed the consulting agreement, and had the opportunity to avoid this inventorship suit by explicitly addressing Dr. Lotan's pre-agreement work. Rather than having to rely on a court's willingness to construe the “purpose” of its consulting agreement, AngioScore would have had clear and exclusive ownership of the patents in question with a properly worded assignment provision.

It is prudent for businesses seeking to hire an employee or consultant to execute an employment or consulting agreement before the individual commences work, particularly where the relationship is expected to include development activity. Where it is not feasible to sign an agreement first, businesses should be careful to ensure that they address any inventive contributions by employees and contractors that might have been made before the start date. As a routine matter, a broad assignment of pre-employment or pre-contractor inventions may not make sense, as the Federal Circuit indicated in TriReme, because such an assignment may reach back many years. So, businesses will need to strike a balance ' for example, by having the assignment provision apply to pre-employment or pre-contractor work only if that work is part of a project that began before but continues into the period of the agreement.

In any event, if an employment or consulting agreement does seek to provide for ownership of pre-employment or pre-contractor contributions, it should do so with an assignment, not just a representation or warranty.

The TriReme decision also highlights the significance of particular contract language. Because the AngioScore consulting agreement's assignment provision applied to inventions that were “conceive[d] or develop[ed] or reduce[d] to practice” (emphasis added) during the term, it seems that AngioScore need satisfy only one of these three conditions to effectuate assignment.

Lincoln C. Lo is an Associate in the San Francisco office of Morrison & Foerster. He can be reached at [email protected].