University’s Inventor Assignment Provision Was Not Automatic, Rules Federal Circuit

August 8, 2021

The Federal Circuit has affirmed the denial of a patent ownership challenge in litigation filed by inventor-controlled Omni MedSci, Inc. against Apple. At issue was an employment agreement between the inventor behind that NPE and his former employer, the University of Michigan (“UM”, or the “university”), stating that he “shall” assign patent rights to the university for inventions developed with its support. On August 2, a panel majority ruled in a precedential decision that this language amounted to a future agreement to assign the patents, meaning that the inventor owned the preceding applications at the time he assigned them to Omni MedSci—as a result, affirming the denial of the defendant’s related motion to dismiss for lack of standing. However, Circuit Judge Pauline Newman dissented, arguing that the intent behind the contract dictated the opposite conclusion.

The underlying ownership dispute began in 2012, when Dr. Mohammed Islam—the named inventor of the patents-in-campaign—developed and filed provisional applications for the claimed technology while on sabbatical from the university. Islam returned to work in 2013 and sought a release letter from the university confirming his ownership of the applications. However, the university refused that request, arguing that it owned them because it had spent money providing Islam with office space and administrative support. Nonetheless, Islam asserted that he owned the applications and assigned them to Omni MedSci, to which the resulting patents issued starting in 2017. The entity then filed its first litigation, a pair of Eastern District of Texas lawsuits against Apple, in April and October 2018 (2:18-cv-00134, 2:18-cv-00429).

Apple subsequently filed a motion to dismiss, arguing that the university owned the patents at the time of their invention—thereby depriving Omni MedSci of standing to sue. The issue turned on the interpretation of an employment agreement between Islam and the university as well as one of the university’s bylaws (Bylaw 3.10), both of which include language stating that patents developed with the university’s direct or indirect funding “shall be the property of the University”. Apple asserted that this language amounted to an automatic assignment of the patents-in-suit to the university.

The District Court Denies the Motion to Dismiss

District Judge Robert W. Schroeder III denied the motion in August 2019, explaining first that agreements purporting to operate as automatic assignments generally fall into two categories: those that contain language establishing an “agreement to assign” a patent (e.g., by stating that rights “will be assigned”, as contemplated by the Federal Circuit in Arachnid v. Merit Industries), and those that include language of “present conveyance” (e.g., by stating that the employee “does hereby grant”, as addressed by that same court in FilmTec v. Allied Signal). Although Judge Schroeder noted that the language at issue does not fall cleanly into either category, he held that “[n]onetheless, Bylaw 3.10, as a whole, is clear that the agreement between Dr. Islam and UM is more like that in Arachnid and reflects a future agreement to assign rather than a present assignment”.

Rather, since that bylaw states that “activities which have received no support [from UM] shall be the property of the inventor . . . free of any limitation”, the court found that this provision “establish[es] ‘the conditions governing the assignment’ which may obligate a professor to assign an invention to the University”. However, Judge Schroeder held that this language does “not set forth ‘an immediate transfer of expectant interests’”. Such a conclusion is further underscored, the court continued, by language stating that the provision applies to “[p]atents and copyrights issued or acquired”: by referring to “presently issued intellectual property”, the bylaw “contemplate[s] a future assignment based on the criteria set forth therein”.

In November 2019, after the cases had been transferred to the Northern District of California, and after Omni MedSci filed a third case there (4:20-cv-00563), District Judge Yvonne Gonzalez Rogers declined to reconsider the Texas court’s order. Upon review, Judge Gonzalez Rogers found no error in Judge Schroeder’s determination that the relevant language “represented a future agreement to assign, rather than a present assignment of future interest”. The court certified Apple’s request for interlocutory review of that decision in February 2020.

A Federal Circuit Panel Majority Affirms the Dismissal

On August 2, a panel majority of the Federal Circuit affirmed the denial of Apple’s motion to dismiss, concluding “that paragraph 1 of bylaw 3.10 is most naturally read as a statement of intended disposition and a promise of a potential future assignment, not as a present automatic transfer” (2020-1715, 2020-1716)

Referring next to the same language as repeated in another paragraph of the bylaw, the majority held that “[t]he only reasonable reading of this operative language is as a statement of an intended outcome rather than a present assignment”. The majority additionally noted that other language contemplating a subsequent written agreement “explicitly calls for a future determination of ownership after a negotiation between UM and the inventor”. This further supports the conclusion that “the same language in paragraph 1 also should not be read as a present automatic assignment”, held the majority, as does the fact that the same paragraph “does not use present tense words of execution” (as in Arachnid).

The majority then reviewed the parties’ other arguments, in part rejecting caselaw cited by Apple as solely related to certain ownership disputes involving the US government and not between private parties. Moreover, both parties cited the university’s Technology Transfer Policy concerning “Granting Rights Back to Inventors” in support of their respective positions. Here, the majority found in Omni MedSci’s favor, concluding that while the relevant language states that the university “‘will retain ownership of Intellectual Property produced by Employees while participating in sabbaticals,’ . . . it says nothing about how the University obtains its intellectual property” and does not “effectuate any transfer of any intellectual property rights”. The majority further declined to rely on various evidence presented about the parties’ past conduct, holding that the cited conduct “does not change [its] interpretation of the language of the bylaws”.

Judge Newman’s Dissent: The University Owns the Patents

Circuit Judge Pauline Newman dissented, arguing that the patents are the property of the university. The majority’s ruling, she continued, “is not correct as a matter of contract interpretation, and overturns decades of unchallenged understanding and implementation of the University’s employment agreement and policy documents”.

In particular, Judge Newman argued that the majority incorrectly interpreted the relevant provisions’ use of the future tense through the verb “shall”. Judge Newman argues that the future tense is necessary here because the impacted employment contracts are executed at the start of employment, and thus inherently concern inventions to be conceived in the future. Interpreting this language as effecting an automatic assignment is further bolstered by evidence from the university showing that “long-established implementation of Bylaw 3.10 and the Technology Transfer Policy” (TTP), found Judge Newman. In particular, the TTP establishes that the university may, at its discretion, assign or license patent rights back to inventors upon request. This language is “necessary because the University has automatic ownership of employee inventions”, Judge Newman notes (and as argued by the university).

Moreover, Apple and the university both argue that the employment agreement “has a long history of understanding and performance by the University and its employees, including Professor Islam”—who himself received rights assigned back from the university as to another invention under the TTP as cited above. As a result, Judge Newman argues, the “undisputed intent and purpose” of the relevant provisions establish an automatic assignment. Under Michigan contract and property law, Judge Newman asserted that such intent should govern the interpretation of this language, as here establishing “an unambiguous statement of intended and agreed ownership”.

More details on the prior history of this campaign, including the ownership and standing dispute, can be found here.