There is an old patent assignor estoppel principle in American law, which prohibits assignor from challenging the validity of the assignment in a lawsuit after assigning the patent to the assignee for a price.
Behind the principle of patent assignor estoppel is the legal protection of fair trade. A grantee is said to transfer a patent with an implied guarantee that the patent is valid. The law forbids the grantor from making a warranty on the validity of the patent at the time of transfer, and later claims the patent invalid after the transfer, which damages the fairness of the transaction.
Although it is generally believed that the principle of patent assignor estoppel exists, it is not without controversy on how to apply the principle in judicial practice. In the recent case Minerva Surgical, Inc v. Hologic, Inc, the U.S. Supreme Court further clarified how this ancient principle should be applied.
The patent involved a device for treating abnormal uterine bleeding that uses an applicator to destroy target cells in the endometrium. In order to avoid accidental burning or cutting, the contact is permeable, that is, fluid can be removed from the uterine cavity during treatment. Truckai, the inventor of the patent, assigns to Novacept all rights to the patent application and the right to "file a continuation application" after the patent application is filed, which was later further transferred to Hologic, Inc.
Truckai then set up its own company, Minerva Surgical, Inc. The company developed an improved version of the device to treat abnormal uterine bleeding that was watertight compared to the patent in question and also got patented.
In 2013, Hologic filed a continuation of the patent in question, expanding the patent to include a claim that covers both impervious and impervious devices, thus covering Minerva's impervious products. Hologic sued Minerva for patent infringement.
Minerva claims patent invalidity in the lawsuit, but Hologic argues that its claim of patent invalidity is limited by estoppel because Minerva was established by Truckai and the patent in question was assigned by Truckai to Minerva, which shall be subject to the estoppel principle and cannot challenge the validity of the patent in question.
Minerva argues that Hologic expanded the scope of its claims after the patent was granted, making the patent in question different from Truckai's patent, and that it would be unfair for Minerva to continue to apply estoppel.
The Federal District Court upheld Hologic's estoppel claim and found that Minerva infringed. The Court of Appeals for the Federal Circuit upheld the district court's decision. The U.S. Supreme Court reversed the appellate court's decision and remanded it for a new trial.
The U.S. Supreme Court reaffirms the existence of the doctrine of patent assignment estoppel, but holds that its application should be limited. Estoppel attaches only if fair deal and trade security is jeopardized otherwise. The Supreme Court prescribes several circumstances where estoppel does not apply.
For example, an employee represents in the employment contract to transfer his or her possible service invention to the employer. Since the invention does not exist when the employment contract was made, it is impossible for the employee (potential patent assignor in future) to make the warranty of patent validity, explicitly or implicitly, and thus there is no way for the estoppel to apply.
As another example, in the present case, after the assignment of the patent, the patent scope was expanded by the assignee beyond the original scope at the time of assignment when the assignor made the warranty of patent validity, so that challenging the changed patent with expanded scope by the assignor later on will not make his representations inconsistent, and therefore estoppel shall not apply.
The Supreme Court found that the appellate court did not consider the boundaries of estoppel principle, and should determine in the retrial proceedings whether the scope of the patent at issue was substantially larger than that of the patent assigned by Truckai in the first place.
The Supreme Court raised several other questions relating to patent infringement in its decision, but did not provide answers to any of them.
Regarding the subjects estoppel may apply to, for example, can the principle reach subjects beyond patent assignors? In this case, Minerva is not the assignor of the patent at issue, but rather a company set up by the assignor. Can estoppel still apply? Is there any eligibility requirement on the additional subjects, if the estoppel does apply.
Moreover, does application of estoppel require price of the underlying patent assignment transaction? What if the patent was assigned for free, or as a gift, or for a nominal fee? Would estoppel still be applicable?
Also, as in this case, what if the assignment is not an issued patent but a patent application?
These issues are closely related to patent assignment and estoppel, some of which are actually relevant to the current dispute. Although no decisive answers are provided in the decision, the U.S. Supreme Court seems to be exploring a new body of rules governing the application of patent assignment estoppel.
Besides patent assignor's estoppel, there is also patent licensee's estoppel system in US patent practice, that is, the licensee shall not challenge the validity of the licensed patent.
Compared with patent assignor’s estoppel, patent licensee's estoppel is weaker and more restricted in terms of application. Especially after the U.S. Supreme Court's Lear v. Adkins and MedImmune v. Genentech decisions, any explicit no-challenge clause in a patent license contract is likely to be held non-enforceable.
The estoppel principles arising from patent transactions in the United States apply only to court proceedings or ITC proceedings rather than PTAB proceedings such as inter partes review proceedings. AIA clearly prescribes that anyone other than the patentee himself may request initiation of an inter partes review proceeding.
Unlike United States, validity of a Chinese patent can only be challenged in a patent invalidation proceeding. As per Article 45 of Chinese Patent Law, any subject, the patentee itself included, may request a patent to be invalidated in a patent invalidation proceeding, with no escapes by law or agreement. Accordingly, a patent assignor may initiate an invalidation proceeding of a patent after the patent has been assigned. Even if a warranty is made in the patent transfer agreement regarding the patent invalidity, that cannot prevent the assignor from initiating an invalidation proceeding.
Undoubtedly, it is unethical for the assignor to do so, whether in China or the United States. It hurts both patent assignees and trade security that a patent assignor benefits from one single deal both ways, first selling it for price and then invalidating it for free technology.
As said, it does not work for both parties to contract anything that defies Article 45 of Chinese patent law. It remains further deliberation on how to regulate and balance the interests of both parties in a patent assignment by contract or other schemes in terms of patent validity warranty and assignor estoppel.
Sign up to our email digest