High Court Leaves the Doctrine of Assignor Estoppel Intact, with Limits

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Contrary to some predictions, assignor estoppel did not suffer the same fate in the hands of the Supreme Court as licensee estoppel in Lear v. Adkins. In fact, the doctrine, which essentially boils down to limiting an assignor’s ability to assign a patent and then later challenges the validity of it in litigation, was narrowed but certainly not eviscerated as some had hoped.  Indeed, in its recent decision in Minerva Surgical, Inc. v. Hologic, Inc., the Supreme Court maintained that the patent holder’s equities “were far more compelling than those presented in the typical licensing arrangement” and refused to do away with assignor estoppel provided certain contractual obligations exist. In other words, assignor estoppel survives, but it is not the sweeping prohibition on invalidity challenges that it was once thought to be. 

By way of background, the Supreme Court had before it a Federal Circuit ruling that assignor estoppel barred Minerva’s invalidity defense against infringement claims brought by Hologic for U.S. Patent No. 9,095,348. Further background and the details of the Federal Circuit’s decision can be reviewed here. Minerva asked the high court to do away with the doctrine of assignor estoppel altogether arguing that a defendant in a patent infringement action who assigned the patent, or is in privity with an assignor of the patent, should be allowed to have a defense of invalidity heard on the merits based on the important public interest in removing invalid patents. 

The Court disagreed with Minerva and held that an inventor who assigns a patent or patent application cannot later challenge the validity of the patent, so long as the inventor made express or implied representations about the validity of the patent at the time of assignment. Essentially, the Court held that assignor estoppel should still apply when principles of fair dealing are at issue. As explained by the Court,

[w]hen a person sells his patent rights, he makes an (at least) implicit representation to the buyer that the patent at issue is valid. In later raising an invalidity defense, the assignor disavows that implied warranty. By saying one thing and then saying another, the assignor wants to profit doubly—by gaining both the price of assigning the patent and the continued right to use the invention it covers. That course of conduct by the assignor is unfair dealing. The need to prevent such unfairness outweighs any loss to the public from leaving an invalidity defense to someone other than the assignor.

However, the Supreme Court cautioned that assignor estoppel is not a blanket ban on invalidity challenges by assignors. Instead, assignor estoppel should not limit the assignor from later challenging the validity of the very patent he assigned when the assignor has not made any representations that conflict with his invalidity defense. For example, this modified version of assignor estoppel would not likely bar a later invalidity challenge if representations or warranties were made by the inventor when signing an employment agreement requiring assignment of inventions at the commencement of employment, prior to the creation of any invention. Likewise, later legal developments may neutralize the assignor/inventor’s warranty such that the doctrine of assignor estoppel would not bar a later invalidity challenge. And, changes in the claims that enlarge the patent scope (either through prosecution or subsequent continuations) after assignment may prevent the application of assignor estoppel. Indeed,

… a post-assignment change in patent claims can remove the rationale for applying assignor estoppel. The last situation arises most often when an inventor assigns a patent application, rather than an issued patent. There, the assignee may return to the PTO to enlarge the patent’s claims. Assuming that the new claims are materially broader than the old ones, the assignor did not warrant to the new claims’ validity. And if he made no such representation, then he can challenge the new claims in litigation: Because there is no inconsistency in his positions, there is no estoppel.

With this last example in mind, the Court remands the case to the Federal Circuit to address whether Hologic’s asserted (new) claim in the ʼ348 patent is materially broader than the ones Truckai (Minera’s predecessor) assigned. In doing so, it chastised the Federal Circuit for deeming this part of the analysis irrelevant in arriving at its decision. In fact, the Court explained that, if Hologic’s asserted claim is materially broader than the ones that Truckai assigned,  Truckai simply could not have warranted the validity of that claim when it assigned the patent.  We will have to wait and see what side of the coin that the Federal Circuit lands on with respect to this hotly contested issue between the parties. If the asserted claim of the ʼ348 patent is broader, then assignor estoppel would not apply and Minerva would be free to challenge the validity of the asserted claim. 

Key Takeaways

Even with assignor estoppel (albeit limited in application) still available to purchasers of patents, an assignee should still try to negotiate for contractual safeguards in the purchase agreement that prevent/dissuade the assignor from making such a validity challenge. Or, at the very least, the assignee should factor into the purchase price the assignor’s potential ability to seek to eliminate the very patent rights it is selling. Moreover, if possible, inventor assignments should include a warranty from the inventor coupled with broad claims in the first application in an attempt to preserve a later position that the inventor’s warranty applied to the broad claim scope and, thus, prevent the inventor from eluding the application of assignor estoppel.

On the assignor side, digging into the particulars of the assignment documents and, more particularly, the warranties and scope of claims at the time of the assignment, may help to advance arguments as to why the doctrine of assignor estoppel should not apply. Also, keep in mind that the portion of the Federal Circuit decision that was not touched by the Supreme Court makes it clear that an assignor is free to challenge a previously assigned patent in an inter partes review (IPR) before the USPTO and to rely on a prior invalidity decision. As such, assignors would be well served to file their IPR early in an attempt to win the “finality race” and have the invalidity finding from the IPR final before the district court case is considered final.