“Assignor Estoppel” May Have a Big Impact on Your Patent Assignments
Minerva Surgical, Inc. v. Hologic, Inc., No. 20–440 (S. Ct. 6/29/2021)
This case pertains to a legal doctrine called “assignor estoppel,” which may have important implications generally for patent assignments and ownership, so reviewing the holding and implications is of value to inventors, patent owners, and patent practitioners.
The general idea of assignor estoppel is that a patent owner (who may be the inventor initially), who assigns a patent for value, may not later challenge the patent validity. Such a challenge is contrary to assurances, either explicit or implicit, that the patent sold for value is valid at the time of sale. In other words, a seller cannot argue later that what they sold was, in reality, junk. The legal doctrine is that the assignor (the party assigning the patent) is prevented (or “estopped”) from asserting such a challenge against an assignee (the party purchasing the patent). This doctrine is grounded on a principle of fairness.
This is an issue that has come up periodically in litigation, and in the case here, assignor estoppel was invoked when then the assignor developed an improved product based on the original patents and was sued for patent infringement by the assignee. The original patentee then tried to argue that the assigned patents were invalid. The courts, including the Supreme Court in this decision, held that the original assignee could not make these arguments but there are limits to the doctrine.
Facts of this caseCsabo Truckai invented a medical device called the “Novasure System” to treat abnormal uterine bleeding. Truckai started a company, Novacept Inc. to develop and market the product. Truckai filed a patent application and assigned his interest in the application—as well as in any future continuation applications—to Novacept. Truckai was awarded a patent on the invention (US 6,872,183, issued Mar. 29, 2005). The Novasure System was approved by the FDA in 2001.
In 2004, Novacept sold itself to Cytyc and Hologic bought Cytyc in 2007. All patents were assigned to the new owners. Novacept was said to have received $325 million from Cytyc, and Truckai personally earned $8 million in this transaction. Hologic now sells the Novasure system in the US.
However, after this series of transactions, Truckai developed an allegedly improved version of the Novasure device and formed Minerva Surgical in 2008 to develop and market the new device. Minerva’s device was approved by the FDA in 2015.
Hologic was aware of Truckai’s activities and filed a continuation from Truckai’s original patent application (that apparently had been kept alive) with a broad claim that captured Minerva’s new device. The new Hologic patent, U.S. 9,095,348 was granted in Aug. 4, 2015. Truckai was listed as an inventor on the ‘348 patent.
Legal ArgumentsHologic sued Minerva for patent infringement. Minerva defended that it did not infringe and counterclaimed that the Hologic patent was invalid.
Hologic defended against the invalidity claims by invoking assignor estoppel, arguing that because Truckai assigned the original patent application, he and Minerva (essentially, his alter-ego) could not impeach the patent’s validity.
Minerva raised two defenses the assignor estoppel argument. First, Minerva argued that assignor estoppel should be abandoned. Second, Minerva argued that the ‘348 patent exceeded the scope of the originally assigned patent, and so was outside of any warranty given at the time of the original assignments from Novacept. Hologic’s positions were upheld at the District Court and at the Federal Circuit.
Supreme Court ReviewRegarding Minerva’s first argument, assignor estoppel was invoked in several court cases in the 19th Century and was the subject of a Supreme Court decision in 1924, Westinghouse v. Formica. One of Minerva’s arguments was that the 1952 Patent Act did not codify the holding in Westinghouse, so the doctrine was effectively abolished. Minerva asserts that 35 USC § 282 permits invalidity arguments in any patent challenge, and that bad patents need to be weeded out as a matter of public policy. Without getting into the details of the decision, the Court held that Westinghouse was good law, and rejected the Minerva position.
However, the Court found that Minerva’s argument that Hologic’s patents exceeded the scope of the original assignment had merit. The Court emphasized that courts must consider what was “warranted” at the time of an assignment. Later developments that exceed the scope of an assignment may exceed the limits of assignor estoppel. The Court holds that assignor estoppel has an equitable basis,to prevent an assignor from warranting one thing and later alleging another. Assignor estoppel applies when an invalidity defense in an infringement suit conflicts with an explicit or implicit representation made in assigning patent rights. But absent that kind of inconsistency, an invalidity defense raises no concern of fair dealing—so assignor estoppel has no place.
Here, the Court agrees that the Novacept representations made at the time of the original assignment may be narrower than the later assertions by Hologic, so the case is remanded.
ConclusionAssignor estoppel is a good law, but it has limits based on the representations in the assignment. Later developments that exceed the scope of an original assignment may be outside the scope of assignor estoppel.
LessonsParties should consider the implications of assignor estoppel in patent assignments. Assignors, including original inventors, may want to preserve the right to challenge a broadened invention even if it relies on an assigned invention. Assignees will want to limit the scope of assignor estoppel so they can develop an invention without fear of a challenge from an assignor or the need for an infringement suit. However, these can be tricky issues in that they involve promises about future events which are unknown.
In employment agreements, employers may wish to include language expressly prohibiting employees from later challenging the validity of an assigned patent. However, there are enforceability concerns about this especially if overly broad.
An employee assignment to an employer should include a representation of the validity of any pending patent claim. Ideally, an employer would have employees execute a new assignment after allowance to represent the validity of any allowed claim, but it may be difficult to find an inventor by the time a patent is allowed. However, an employer can condition any payment to the inventor on an agreement not to challenge the patent later. Any such payment would likely have to be more than a token payment.
In assignment agreements, an assignee would want to see an explicit representation that the assignor warrants that the claims are valid and will not be challenged. An assignee may also want a representation that the assignor will not infringe the claims.
The PTAB apparently does not recognize assignor estoppel, so an assignee might want explicit language barring an assignor from challenging an assigned patent at the PTAB. It’s not clear if this kind of provision would be enforceable, but until that is decided, it could be a leg to stand on in the event an assignor challenges a patent they assigned at the PTAB.
When acquiring a patent portfolio, an acquiror would want to assess any claims broadened from an original assignment, and any potential validity challenges. Consider adding indemnification language against this possibility.
For further information, contact:
Gallet Dreyer & Berkey, LLP
845 Third Avenue, 5th Floor
New York, New York 10022
Telephone (212) 935-3131 (Ext. 326)
Written By: Andrew Berks
GDB Firm Blog