Category Archives: Due Diligence

A new Federal Circuit opinion highlights the benefits of having a broadly worded assignment when acquiring a patent application from inventors.  In particular, the case confirms that an assignment of “inventions and discoveries” described in a patent application can cover claims that issue in unrelated patents if the claims are supported by the assigned application.

In MHL Tek, LLC v. Nissan Motor Co. (Fed. Cir. Aug. 10, 2011), the Court considered whether MHL Tek had standing to bring an infringement lawsuit for U.S. Patent 5,731,516, which related to a tire pressure sensor.  MHL Tek asserted that it acquired the ‘516 patent from the inventors pursuant to a 1997 assignment agreement.

The inventors were also named in several prior patent applications that were assigned to a different entity (Animatronics, Inc.)  in 1993.  The 1993 assignment document stated that the inventors Continue reading →

A recent court decision from the Southern District of New York dismissed a patent infringement lawsuit based on two issues with the patents’ chain of title.  In Picture Patents LLC v. Aeropostale Inc. (S.D.N.Y 4/15/11), the defendants won a motion to dismiss based on the plaintiff’s lack of standing to file suit. 

The inventor, Michelle Baker, was the founder and sole member of Picture Patents.  Baker applied for the three patents-in-suit between 1994 and 1999.  Prior to filing the patents, Baker was employed with IBM Corporation as a software analyst.  As part of her employment, Baker signed IBM’s intellectual property agreement, which stated:

I hereby assign to IBM my entire interest in any idea, invention, design . . . computer program and related documentation . . . hereafter made or conceived solely by me . . . [that] (a) relate to the actual or anticipated business  or research and development of IBM or its subsidiaries, or (b) are suggested by or result from any task assigned to me or work performed by me on for or on behalf of IBM and its subsidiaries.

Although Baker applied for the patents after she left IBM, the court found that she conceived the inventions while at IBM, and that the inventions related to IBM’s business.  Therefore, the court found that under IBM’s IP agreement she had assigned all of her rights to IBM, including rights to obtain patents in the future.

Even though this point alone would have been enough to win the day for the defendants, the court found another defect in the patents’ chain of title.  Baker also owned another company named Intellinet, and she assigned the patents to Intellinet in 2003.  In 2006, Baker signed another document assigning the patents to the plaintiff (Picture People LLC).   Baker signed both assignments naming herself as assignor; the second assignment made no mention of Intellinet.  Thus, the court found the assignment to Picture People invalid because in 2006 “Baker herself had no rights in the Patents to assign to Picture People.”

The assignment issues in this case illustrate the benefits that may arise from a strong IP assignment document (such as IBM’s), as well as the importance of thorough due diligence when acquiring patent rights.

In one of my early posts in this blog, I wrote about due diligence practices for a situation where a buyer wants to investigate the effect of a potentially-concerning patent on a seller’s business.  In the post, I noted that sellers sometimes cite a practice of not reviewing any patents in order to avoid risking liability for willful patent infringement.  However, my view is that it’s usually preferable to know about a patent — and design around it or take a license — early in the stage of a product or company, rather than risk liability for infringement after the a new product achieves market success.

I wrote my first post before last year’s Federal Circuit opinion in In re Seagate Technology, LLC , where the court stated that mere knowledge of a patent is not sufficient to find liability for willful patent infringement, but instead a showing of “objective recklesness” is required.  To establish willful patent infringement under Seagate, the patent holder must show that the infringer acted “despite an objectively high likelihood” that its actions constituted patent infringement.

In the due diligence context, a buyer will want to know whether there is an objectively high likelihood that the seller is infringing a patent.  Sellers should be prepared to address significant issues of concern to buyers, and a seller’s response of “I don’t want to see the patent” may be harder to defend after Seagate.

I recently ran across an IP due diligence issue that reminded me yet again of the importance of reviewing patent assignment documents and not simply relying on the USPTO’s assignment database.  In this situation, USPTO records indicated that the inventors assigned the patent to a corporate entity.  However, the assignment document actually stated that only certain claims of the patent were assigned to the corporation.

So what is the effect of such a document? Continue reading →

A technology purchaser, licensee or investor can obtain much less than expected if it fails to ask the right questions about patents. Essential questions to ask before entering into an IP transaction include:

Who is the owner?

A patent publication only identifies the owner at the time of first issue. Often, this is not the current owner. When a patent is assigned, the assignment is recorded with the U.S. Patent and Trademark Office.  Security interests, name changes, and other documents affecting title also may be recorded.  The buyer should obtain a complete chain of title from the original owner (which are the inventors, in the case of a patent).  The buyer also should check government records to ensure that the assignments were properly recorded.

Are the IP rights still in effect?

Most US utility patents have a term of 20 years from the effective filing date, so long as the patent owner pays maintenance fees at various time intervals.  If the owner failed to pay the fees, the IP rights may have lapsed.

Does the patent cover the relevant technology?

A patent includes a set of claims that define the patent’s coverage.  To infringe the patent, the infringer must practice all elements of at least one claim.  The patent also will include a background, detailed description and drawings.  The patent scope may not extend to this additional information.  When acquiring or licensing a patent, the buyer should review the claims to ensure that the patent covers the desired technology.

Will I infringe another patent by using this technology?

A patent grants a right to exclude others from making, using and selling an invention. However, a patent does not ensure a right to practice the invention, as the invention also may be covered by other patents.  The buyer may require the seller to warrant that it knows of no other necessary patents.  The buyer should also independently investigate whether other patent rights are required.

Are there relevant pending patent applications, and are they likely to result in patents?

A patent may not issue until several years after the filing date of an application, and patent rights have no effect unless and until a patent issues. When acquiring or licensing technology, the buyer should ask about pending patent applications and investigate the likelihood that the patent will issue.

Was the invention disclosed before a patent application was filed? In the U.S., a patent application must be filed within one year of the first offer for sale or public disclosure of an invention. If a patent application was not filed in that time period, the inventor waived patent rights. Most foreign countries are more stringent and require that an application be filed before any sale or public disclosure

(Adapted from an article originally published in TEQ Magazine.)