April 20, 2018

Neither Express Agreement, nor Implied Agreement, Clearly Deprived a Putative Inventor of Standing to Challenge Inventorship of a Patent Under 35 USC 256

In Gregory C. James v. J2 Cloud Services LLC, [2017-1506] (April 20, 2018), the Federal Circuit reversed the dismissal of James’ claim for correction of inventorship for lack of jurisdiction.

Gregory James alleged that he is the sole inventor of the subject matter claimed in U.S. Patent 6,208,638, on systems and methods for accepting an incoming message over a circuit switched network and transmitting it over a packet switched network, which names Rieley and Muller as the inventors.  On defendant’s motion, the district court dismissed the complaint for lack of Article III standing, concluding that James failed to allege facts sufficient to show that he has an ownership or financial interest in the patent.

To have Article III standing, a plaintiff must experience three distinct steps. He or she must have:

  1. Suffered an injury in fact
  2. That is fairly traceable to the challenged conduct of the defendant
  3. That is likely to be redressed by a favorable judicial decision

The Federal Circuit said that if Mr. James were to prevail on his allegations, he would stand to gain concretely whether through securing an entitlement to seek damages for past acts of infringement or otherwise.  Such a gain would be directly related to the merits of the claim and would redress the asserted injury of being deprived of allegedly rightful ownership.  The Federal Circuit said that in the absence of other facts, that is enough to give James Article III standing.

The district court, however, found that James assigned away, or entered into an enforceable agreement to assign away, any ownership rights he may have had in the patent.  The Federal Circuit, on the other hand, concluded that he did not.  The Federal Circuit could not conclude that the Software Development Agreement precludes James from retaining ownership rights in patents on his inventions, finding it “amenable to the construction that it does not assign, or promise to assign, patent rights that would otherwise accrue to Mr. James as an inventor.”  The Federal Circuit reviewed the sections addressed by the district court or argued by the parties, and when considered in the light favorable to James, as they must be on a motion to dismiss, do not deprive James of constitution standing.

The Federal Circuit then addressed the the “hired to invent” doctrine of United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933), and Standard Parts Co. v. Peck, 264 U.S. 52, 59–60 (1924), under which an employer may “claim an employee’s inventive work where the employer specifically hires or directs the employee to exercise inventive faculties.”

The “hired-to-invent” rule is “firmly grounded in the principles of contract law,” and “[t]o apply this contract principle, a court must examine the employment relationship at the time of the inventive work to determine if the parties entered an implied-in-fact contract to assign patent rights.”  Whether the doctrine is viewed as a matter of federal law or a matter of the state law of implied-in-fact contracts, its applicability in a given case depends on the terms of the contractual relationship of the parties.

The Federal Circuit noted that it found an important distinction: the agreement was not with James personally, but with GSP — a software development group for which James signed the Software Development Agreement (SDA).  Thus James was not himself an “employee” of, or personally hired by, defendant’s predecessor in interest.  Moreover, because the SDA largely or even wholly defines the terms of the alleged “hiring” of James (actually of GSP), there is at least a factual dispute about any implied assignment or promise to assign.

Accordingly, the Federal Circuit found that it was improper to dismiss the case under Rule 12(b)(1) for lack of standing based on the hired-to-invent principle.