Updated: Jul 3
On June 29, 2021, in Minerva Surgical, Inc. v. Hologic Inc., the U.S. Supreme Court issued a decision setting a new standard for applying the doctrine of Assignor Estoppel in patent litigation. The Court set forth a standard that leaves many questions to be answered.
Assignor Estoppel (AE) is a judicially created doctrine in U.S. patent law that precludes assignors and their privies from challenging the validity of the patent rights they assign. Simply put, AE is an equitable doctrine that prevents one who has assigned the rights to a U.S. patent from later contending that the patent is invalid in certain situations.
Consider a scenario where a patent owner assigns all rights under the patent to a purchaser for a fee. Among the rights the purchaser (the assignee) expects to enjoy under the assigned patent is the right to exclude others from practicing the patented invention, including the former patent owner (the assignor). If the assignor practices the patented invention after having conveyed all rights under the patent to the assignee, the assignee may seek to enforce the acquired patent rights by suing the assignor for patent infringement. In defense, the assignor may assert that the patent claims are invalid and therefore unenforceable. The notion of fair dealing leads us to believe it would be unfair and unjust to allow a patent assignor to challenge the validity of an assigned patent when the assignor is sued by the assignee for infringement of the assigned patent. This is where the doctrine of AE comes in.
As early as 1880, U.S. courts have recognized that the rights of the patent assignee “must operate so that the [assignees] may have what they bought, and so that the [assignors] shall not both sell and keep the same thing.” Faulks v. Kamp, 3 F. 898 (C.C.S.D.N.Y. 1880). The U.S. Supreme Court endorsed the doctrine of AE in Westinghouse Elec. & Mfg. Co. v. Formica Ins. Co., 266 U.S. 342, 349 (1924).
AE Reaches Those in Privity with the Assignor
AE operates to bar those in privity with the assignor from challenging the assigned patent's validity. The U.S. Court of Appeals for the Federal Circuit reaffirmed the premise that as an equitable doctrine, AE “is mainly concerned with the balance of equities between the parties.” Diamond Sci. Co. v. Ambico, Inc., 848 F.2d 1220, 125 (Fed. Cir. 1988). “Those in privity with the assignor partake of that balance; hence, extension of the estoppel to those in privity is justified.” Shamrock Tech. v. Med. Sterilization, Inc., 903 F.2d 789, 793 (Fed. Cir. 1990).
What constitutes “privity” in an AE assessment? Privity depends on the nature and extent of the relationship between the assignor and the other party. The Federal Circuit considers privity as determined upon a balance of the equities. “If an inventor assigns his invention to his employer company A and leaves to join company B, whether company B is in privity and thus bound by the doctrine will depend on the equities dictated by the relationship between the inventor and company B in light of the act of infringement. The closer that relationship, the more the equities will favor applying the doctrine to company B.” Id.
Case Background: Minerva Surgical v. Hologic
Csaba Truckai developed a system to treat Abnormal Uterine Bleeding (AUB). Truckai filed a patent application (U.S. Pat. App. 09/103,072) for the system. Truckai assigned his interest in the patent application to NovaCept Inc. Cytyc Corporation later acquired NovaCept, and then Hologic Inc. acquired Cytyc. Thus, Hologic was the final holder of the patent rights relating to Truckai's original ‘072 patent application.
Truckai subsequently left NovaCept and founded Minerva Surgical Inc., where he developed an endometrial ablation system to treat AUB. In the interim, Hologic filed a new continuation patent application for its AUB treatment system, claiming priority to the ‘072 application. The new continuation application claims were drafted broadly to encompass Minerva’s endometrial ablation system. The USPTO issued Hologic U.S. Patent 9,095,348 off its continuation application. Hologic then sued Minerva for infringement of its ‘348 patent. Minerva asserted a defense of non-infringement and invalidity. Minerva’s contention is that the broad claims allowed in the ‘348 patent do not match the invention’s description as conveyed in the assignment of the ‘072 application from Truckai to NovaCept, and are therefore invalid. In response, Hologic invoked the doctrine of AE, arguing that since Truckai assigned the original ‘072 patent application, he and Minerva could not attack the ‘348 patent’s validity.
The District Court agreed that AE barred Minerva’s invalidity defense, and also ruled that Minerva had infringed Hologic’s ‘348 patent. A jury awarded Hologic nearly $5 million in damages. The Court of Appeals for the Federal Circuit upheld the judgment of AE, barring Truckai and Minerva from raising an invalidity defense. The Supreme Court granted certiorari to consider “whether a defendant in a patent infringement action who assigned the patent, or is in privity with an assignor of the patent, may have a defense of invalidity heard on the merits.”
The Supreme Court’s Decision
The Supreme Court affirmed the vitality of the doctrine of AE. Citing Westinghouse Elec. & Mfg. Co. v. Formica Ins. Co., the Court reiterated its endorsement of the “well settled” patent-law doctrine of “assignor estoppel.” The Court also stated its approval of the Federal Circuit’s ruling to uphold the doctrine of AE in the case. However, the opinion noted that the Federal Circuit “failed to recognize the doctrine’s proper limits.”
The Court’s analysis is focused on an underpinning that “the equitable basis of assignor estoppel defines its scope: The doctrine applies only when an inventor says one thing (explicitly or implicitly) in assigning a patent and the opposite in litigating against the patent’s owner.”
The Court concluded that the Federal Circuit has applied the doctrine too expansively. Thus, the opinion aims to “clarify the scope of AE.” The Court’s approach is to first address the Petitioner’s (Minerva) arguments as to why the doctrine should be eliminated or at least constrained. After walking through relevant case law and citing to the Patent Act of 1952, the Court concluded: “And we continue to think the core of assignor estoppel justified on the fairness grounds that courts applying the doctrine have always given. Assignor estoppel, like many estoppel rules, reflects a demand for consistency in dealing with others.”
The opinion then establishes a new standard for determining when AE applies in patent litigation.
“The doctrine applies when, but only when, the assignor’s claim of invalidity contradicts explicit or implicit representations he made in assigning the patent.”
"Assignor estoppel should apply only when its underlying principle of fair dealing comes into play. That principle, as explained above, demands consistency in representations about a patent’s validity: What creates the unfairness is contradiction. When an assignor warrants that a patent is valid, his later denial of validity breaches norms of equitable dealing. And the original warranty need not be express; as we have explained, the assignment of specific patent claims carries with it an implied assurance. … But when the assignor has made neither explicit nor implicit representations in conflict with an invalidity defense, then there is no unfairness in its assertion. And so there is no ground for applying assignor estoppel." (emphasis added)
Applying this rationale, the Court found that the Federal Circuit failed to recognize these boundaries when it declined to consider Minerva’s argument that AE should not apply because it was challenging a patent claim that was materially broader than the ones Truckai had assigned.
The Court’s view is that assuming the new claims (in Hologic’s ‘348 patent) are materially broader than the claims in the original ‘072 application assigned by Truckai, Truckai 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. The limits of the assignor’s estoppel go only so far as, and not beyond, what he represented in assigning the patent application.” The Court remanded the case to the Federal Circuit to address whether Hologic’s new claim is materially broader than the ones Truckai assigned. “Resolution of that issue in light of all relevant evidence will determine whether Truckai’s representations in making the assignment conflict with his later invalidity defense - and so will determine whether assignor estoppel applies.”
Aspects of the Opinion
In rendering the opinion, the Court introduces the concept of assignor warranty. According to the Court, an assignor can make either explicit or implicit representations in assigning patent rights. “When a person sells his patent rights, he makes an (at least) implicit representation to the buyer that the patent at issue is valid - that it will actually give the buyer his sought-for monopoly.” Considering that the vast majority of inventors assign (typically to an employer) their patent rights to an invention at the initial stage when a patent application is prepared and filed, there can be no representation of “patent” validity upon such conveyance as the patent office examination cannot be guaranteed to result in a patent. Many an inventor would be surprised to learn he or she is making an implicit representation that a valid patent will issue when executing an assignment to a patent application.
The Court presented an example of an instance when there is no ground for applying AE - when a later legal development renders irrelevant the warranty given at the time of assignment. “Suppose an inventor conveys a patent for value, with the warranty of validity that act implies. But the governing law then changes, so that previously valid patents become invalid. The inventor may claim that the patent is invalid in light of that change in law without contradicting his earlier representation. What was valid before is invalid today, and no principle of consistency prevents the assignor from saying so.”
The Court pointed to Minerva’s contention in this case – a change in patent claims - as grounds that can remove the rationale for applying AE. The Court reasoned that new claims resulting from amendments made by the assignee at the patent office may go beyond what “the assignor intended” to claim as patentable. “Assuming that the new claims are materially broader than the old claims, 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. The limits of the assignor’s estoppel go only so far as, and not beyond, what he represented in assigning the patent application.” Here, the Court is injecting the assignor’s subjective intent into the analysis. Yet there is no discussion regarding the assignee’s reliance on the assignor’s representations at the time of assignment. Moreover, the Court’s analysis did not take into account key information regarding Truckai’s assignment of his patent rights.
The Court emphasizes the underlying principle of fair dealing, noting the demand for consistency in representations about a patent’s validity. The opinion expressly states that contradiction is what creates the unfairness. Therefore, evidence of contradiction between when an assignor executes an assignment and later attacks the patent validity is key to determining fair dealing, and so would determine whether grounds for applying AE exist according to the Court’s standard. The evidence in this case points to a clear contradiction between Truckai’s representation when he assigned patent application 09/103,072, from which the ‘348 patent claims priority, and his assertion of invalidity at trial.
A review of Truckai’s assignment agreement pertaining to U.S. patent application 09/103,072 (USPTO website, Reel 031512, Frame 0767) shows Truckai explicitly assigned:
"all right, title and interest in and to the said invention, said application for United States Letters Patent, and any Letters Patent which may hereafter be granted on the same in the United States and all countries throughout the world including any divisions, renewals, continuations in whole or in part, substitutions, conversions, reissues, prolongations or extensions thereof, said interest to be held and enjoyed by said Assignee as fully and exclusively as it would have been held and enjoyed by said Assignors had this assignment and transfer not been made, to the full end and term of any such Letters Patent.
Assignors further agree that they will, without charge to said Assignee, but at Assignee's expense, cooperate with Assignee in the prosecution of said application and/or applications, execute, verify, acknowledge and deliver all such further papers, including applications for Letters Patent and for the reissue thereof, and instruments of assignment and transfer thereof, and will perform such other acts as Assignee lawfully may request, to obtain or maintain Letters Patent for said invention and improvement in any and all countries, and to vest title thereto in said Assignee, or Assignee's successors and assigns." (emphasis added)
As noted by the Court, Hologic’s ‘348 patent was filed as a continuation application claiming priority to the 09/103,072 application. Truckai executed the assignment with explicit provisions covering any continuation applications arising from the ‘072 application, including the continuation leading to issuance of the ‘348 patent. The USPTO accepted Hologic’s filing of the continuation application. If the USPTO had found the application to introduce new matter, it would have been the patent examiner’s responsibility to reject the broadened claims on that basis. The USPTO did not deem Hologic’s continuation application to introduce new matter. Even if Hologic had filed a continuation in part application, permissibly introducing new matter, Truckai’s assignment explicitly covers such a conveyance. Thus, Truckai’s explicit representations in executing the assignment (covering continuation applications) conflict with his invalidity defense alleging that the continuation application filed by Hologic was impermissibly broadened.
Truckai was not the sole inventor named on the ‘348 patent. There were five co-inventors on the ‘348 patent. A review of the ‘348 patent file history shows that two of the named inventors executed declarations attesting to their original joint inventorship, two could not be found or reached after diligent effort, and Truckai refused to execute a declaration. This complicates the analysis. Questions now arise as to the inventive contribution of each co-inventor with respect to the new claims in the continuation application. If Truckai is not the sole inventor of the claim(s) in dispute, how is the Court’s contradiction analysis to be handled among multiple inventors? The opinion does not say.
Effects of the Decision
The Supreme Court’s establishment of a new standard for determining when AE applies will likely have significant impact. In defining the boundaries of the applicability of AE, the Court presented another example of an instance when there is no ground for applying AE - when the assignment occurs before an inventor can possibly make a warranty of validity as to specific patent claims. The Court considered a common employment arrangement where an employee assigns to his or her employer, patent rights in any future inventions developed during the employment term; with the employer then deciding which, if any, of those inventions to patent. In that scenario, the Court explains, the assignment contains no representation that a patent is valid, since no invention has come into being. Since the assignor has made neither explicit nor implicit representations, the employee’s transfer of rights cannot estop her from alleging a patent’s invalidity in later litigation.
A common method used by employers to capture and document their employees’ inventions is to have the employee complete and submit a document describing the invention. These documents, commonly referred to as “patent memos,” are typically logged by the employer and decisions whether to file patent applications based on particular memos are often deferred and made according to business plans. Employers have long relied on employment agreements where the employee assigns his or her patent rights in future inventions developed during the employment term, such as those inventions documented in patent memos. Will those employment agreements and the associated patent memos be sufficient to meet the Court’s new standard for the application of AE? Will employees need to execute a separate assignment each time they prepare and submit a patent memo in order for an employer to justify its reliance on such implicit representation? Will patent memos need to include explicit invention claims? When assigning a provisional patent application, will the application require recitation of explicit claims? How will the representations of multiple co-inventors be reconciled? These are questions with which patentees, patent applicants, the district courts, and the Federal Circuit will likely grapple as they navigate implementation of the new standard.
The opinion was silent regarding the dual-track system under which AE is currently applied. In Arista Networks, Inc. v. Cisco Sys., Inc., 908 F.3d 792, 804 (Fed. Cir. 2018), the Federal Circuit ruled that the doctrine of AE does not apply in the context of inter partes review proceedings before the USPTO. But as in the present case, AE is applied in district courts. The opinion was also silent regarding the scope of privity in application of the doctrine. To be fair, the Supreme Court granted the petition for certiorari based on the narrow question of whether a defendant in a patent infringement action, or one in privity with an assignor of the patent, may have a defense of invalidity heard on the merits.
Critics have argued that the doctrine of AE has produced intolerable inconsistencies and that it undermines the public policy behind the patent laws because it prohibits challenges to potentially invalid patents, placing roadblocks to the public's access to unpatentable inventions. Although the Court’s aim was to clarify the scope of Assignor Estoppel, this decision sets forth an unclear standard which will likely take some time and struggle before its legal contours are more clearly established.