IP Law Daily Company never obtained full ownership of codec patent; lacked standing to sue
Thursday, January 11, 2018

Company never obtained full ownership of codec patent; lacked standing to sue

By Thomas Long, J.D.

A split panel of the U.S. Court of Appeals for the Federal Circuit has affirmed a decision of the federal district court in New York City that Advanced Video Technologies (AVT) lacked standing to sue Motorola Mobility and four other wireless companies for the infringement of a patent on codecs that supported video conferencing for long-distance telephone calls because ATV did not fully own the patent. The district court correctly based its decision on the ground that a co-owner of the patent was not a party to the actions, and the co-owner’s ownership interests in the patent were not transferred to AVT. Circuit Judge Newman dissented and wrote separately to express her view that the co-inventor never had an ownership interest in the patent, which was owned from the start by her employer under the terms of an employment agreement (Advanced Video Technologies LLC v. HTC Corp., January 11, 2018, Reyna, J.).

The patent-in-suit was U.S. Patent No. 5,781,788 ("the ’788 patent"), entitled "Full Duplex Single Clip Video Codec." The only issue on appeal was whether a non-party co-inventor transferred her ownership interests in the patent under the terms of an employment agreement. The ’788 patent lists three co-inventors: Beng-Yu "Benny" Woo, Xiaoming Li, and Vivian Hsiun. The co-inventors were employed by Infochips Systems Inc. when they created the invention. Woo and Li assigned their interests in the patent to AVT. AVT asserted that it obtained Hsiun’s interests in the invention through a series of transfers. First, AVT alleged that Hsiun entered into an employment agreement with Infochips that transferred her ownership interest to that company. Second, AVT alleged that Infochips’ "receivables," which had been pledged as security in a financing agreement between Infochips and an entity called Lease Management Services, were seized by Lease Management when Infochips went out of business. A third purported transfer took place when Lease Management sold the Infochips assets to Woo. Finally, Woo assigned his ownership interest in the invention to an entity called AVC Technology, Inc.

In 1995, AVC filed the parent application of the ’788 patent. Woo and Li executed assignments of their ownership interest in the invention to AVC at that time. Hsiun, however, refused to assign her interests. The USPTO granted a petition by AVC to prosecute the application without an assignment from Hsiun, based on documentary evidence of the series of transfers. The ’788 patent was issued to AVC. AVC later was dissolved; before its dissolution, it purported to transfer its assets to a successor, and ultimately to AVT.

In 2011, AVT sued Motorola Mobility, Blackberry Ltd., Blackberry Corp., HTC Corp., and HTC America, Inc., alleging infringement of the ’788 patent. The court dismissed that case for lack of standing, finding that AVC had failed to comply with Delaware statutory law governing the distribution of assets for dissolved corporations, and that no patent rights had transferred from AVC to Advanced Video. In 2015, the Delaware Court of Chancery appointed a receiver to transfer to AVT any patent rights held by AVC. AVT then filed three new patent infringement suits against the same defendants.

AVT contended that it had acquired Hsiun’s ownership rights because Hsiun had transferred her rights to Infochips under the terms of the employment agreement. According to AVT, three provisions of the agreement effected the transfer: a "will assign" provision, a trust provision, and a quitclaim provision. The district court concluded that these provisions did not effect a transfer of Hsiun’s ownership rights to AVT. The district court dismissed the case for lack of standing, and AVT appealed.

"Will assign." AVT argued that Hsiun’s ownership rights transferred immediately upon execution of the employment agreement under a provision stating that Hsiun "will assign to the Company" all of her rights, title, and interest in any inventions. The district court found that the word "will" indicated a promise to do something in the future and did not effect a present assignment. The appellate court agreed, holding that the "will assign" language did not create an immediate assignment of Hsiun’s right in the invention to Infochips.

Trust assignment. Second, AVT argued that language in the employment agreement, "will hold in trust" created an immediate trust under California law in favor of Infochips. However, even if Hsiun’s interests in the invention were immediately placed in trust, it did not follow that these interests were automatically, or ever, transferred out of the trust to Infochips, the court said. Without such a transfer, Hsiun would continue to hold her invention rights as a trustee. This arrangement did not confer standing to sue for infringement on AVT.

Quitclaim assignment. Finally, AVT contended that it had standing because it eventually acquired Hsiun’s ownership interest in the invention when she quitclaimed her interest to Infochips in rights regarding patents assigned to the company. However, the language of the agreement did not cover patent rights that could have been assigned, but were never actually assigned. Because Hsiun never assigned patent rights to Infochips, the quitclaim provision did not apply.

Therefore, AVT did not have full ownership of the ’788 patent, the court concluded. Hsiun was not a party to the infringement suits, nor did she consent to the suits. Hsiun could not be compelled to join as a party, except in certain limited circumstances that did not apply here, the court explained. AVT, therefore, had no standing to maintain its suit, and dismissal of the cases was affirmed.

Concurring opinion. Circuit Judge Kathleen O’Malley wrote a separate opinion concurring in the result reached by the majority. Judge O’Malley opined that Federal Circuit precedent that a non-consenting co-owner or co-inventor can never be involuntarily joined in an infringement action pursuant to Rule 19 of the Federal Rules of Civil Procedure—while binding—was incorrect. Despite the court’s precedent, Rule 19(a) provided for the involuntary joinder of a necessary party if the court cannot accord complete relief among existing parties, Judge O’Malley stated. Further, if joinder of a required party was not feasible, Rule 19(b) provided that "the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed." According to Judge O’Malley, the court should either: (1) clarify the basis for its imposition of a "substantive right" against involuntary joinder in patent infringement cases and explain why it could be squared with Rule 19 or (2) hold that Rule 19, including the provisions for involuntary joinder set forth therein, applied to cases such as this one. "For these reasons, I respectfully suggest that our Rule 19 precedent should be reconsidered en banc by this court," Judge O’Malley wrote. "Because I must abide by that precedent in deciding this case, however, I concur in the judgment."

Dissenting opinion. Circuit Judge Pauline Newman dissented, arguing that Hsiun never had co-ownership of the ’788 patent. "By her Employment Agreement, her invention was the property of her employer; she was not the owner, and she could not acquire ownership simply by refusing to sign a separate ‘assignment’ document," Judge Newman said. According to Judge Newman, the agreement’s terms and conditions included ownership by Infochips of all inventions made by the employee during her employment. Therefore, she would have reversed the decision finding lack of standing.

The case is Nos. 2016-2309, 2016-2310, and 2016-2311.

Attorneys: Robert William Morris (Eckert Seamans Cherin & Mellott, LLC) for Advanced Video Technologies LLC. Heidi Lyn Keefe (Cooley LLP) for HTC Corp., HTC America, Inc., Blackberry Ltd., Blackberry Corp., and Motorola Mobility LLC.

Companies: Advanced Video Technologies LLC; HTC Corp.; HTC America, Inc.; Blackberry Ltd.; Blackberry Corp.; Motorola Mobility LLC

MainStory: TopStory Patent FedCirNews

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