Sunday, January 15, 2012

Employee consulting agreement analyzed by CAFC in Abbott v Epocal

The Abbott Point of Care case concerns the issue of standing to sue and relates to the absence of an assignment clause in a consulting agreement made by a former employee. The conclusion of the case was adverse to Abbott: Because Abbott lacks standing, the district court properly dismissed its claim.

As to basic law on assignments, the CAFC noted:

Transfers of title, otherwise known as assignments, are controlled by 35 U.S.C. § 261:

Applications for patent, patents, or any in- terest therein, shall be assignable in law by an instrument in writing. The appli- cant, patentee, or his assigns or legal rep- resentatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

Accordingly, a patentee or successor in title to the patentee may bring an action for patent infringement. See Mentor H/S, Inc. v. Med. Device Alliance, Inc., 240 F.3d 1016, 1017 (Fed.Cir. 2001).

This court also reviews contract interpretations without deference. See Spring Creek Holding Co. v. Shinnihon U.S.A. Co., 943 A.2d 881, 900 (N.J. Super. Ct. App. Div. 2008). Finally, this court reviews "the district court's denial of discovery, an issue not unique to patent law, for abuse of discretion, applying the law of the regional circuit," here the United States Court of Appeals for the Eleventh Circuit. Patent Rights Prot. Group, LLC v. Video Gaming Techs., Inc., 603 F.3d 1364, 1371 (Fed. Cir. 2010).
Abbott has the burden to show necessary ownership rights to support standing to sue. See Fieldturf, Inc. v. Southwest Recreational Indus., Inc., 357 F.3d 1266, 1269 (Fed. Cir. 2004). Abbot asserts that the 1984 Agreement, as carried forward by the 1999 Consulting Agreement, gave it ownership of the ’328 and ’772 patents.

State law governs the interpretation of contracts. Here, the relevant state law was that of New Jersey:

Thus, the law of the state of New Jersey governs these Agreements. In interpreting a contract, it is “well-settled . . . that when the terms of a contract are clear, ‘it is the function of a court to enforce it as written and not to make a better contract for either of the parties.’” CSFB 2001-CP-4 Princeton Park Corporate Ctr., LLC v. SB Rental L LLC, 980 A.2d 1, 4 (N.J. Super. Ct. App. Div. 2009) (quoting Kampf v. Franklin Life Ins., Co., 161 A.2d 717 (N.J. 1960); see also Borough of Princeton v. Bd. of Chosen Freeholders of Cnty. of Mercer, 755 A.2d 637, 645 (N.J. Super. Ct. App. Div. 2000) (“The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them.”). Therefore, “[a]bsent ambiguity, the intention of the parties is to be ascertained by the lan- guage of the contract.” CSFB 2001-CP-4, 980 A.2d at 4.

A consulting/confidentiality agreement was involved in the case:

Lauks’ resignation from i-STAT terminated his employment. Accordingly, the 1984 and 1992 Agreements ended when he ceased to be an employee in 1999. The 1999 Agreement echoes this termination, stating that Lauks “resigns from all his positions” at i-STAT. Further, the 1999 Consulting Agreement labels Lauks as a “Senior Consultant.”
The 1999 Consulting Agreement did not specify that the entire 1984 Agreement remains in effect for the duration of Lauks’ consulting period. The confidentiality provision of the 1999 Consulting Agreement, entitled “Continuation of Employee Confidentiality, Non- Solicitation and Non-Competition Covenants,” simply retains the existing confidentiality agreement in place. That provision is explicitly limited to confidentiality, non- solicitation, and non-competition, without any reference to any obligation to assign inventions:

An important point about the consulting agreement:

While the 1984 Agreement contained a Disclosure and Assignment Covenant, the 1999 Consulting Agreement does not contain any obligation that Lauks must assign rights in inventions, improvements, or discoveries made or conceived during the consultation period. Rather, the 1999 Consulting Agreement recognized and allowed Lauks to pursue other, non-conflicting interests. It also explicitly excluded work on new products, regardless of the subject matter, including point-of-care blood analysis applications.

The CAFC noted the absence of assignment language in the consulting agreement:

Abbott’s proposed interpretation of the Agreements as containing a continued assignment obligation finds no support in the documents themselves. An automatic assignment of “inventions, improvements or discoveries” conceived while pursuing other interests directly conflicts with the agreement’s allowance that Lauks may work on his own behalf. Moreover, the plain language of the 1999 Consulting Agreement is unambigu- ous and does not continue the 1984 Agreement’s Disclosure and Assignment Covenant. See Borough of Princeton, 755 A.2d at 645 (N.J. Super. App. Div. 2000) ("The document, moreover, must be read as a whole, without artificial emphasis on one section, with a consequent disregard for others.”).

The bottom line:

Because the 1999 Consulta- tion Agreement is silent with respect to any assignment of Lauks’ rights in inventions, improvements, or discoveries made or conceived during the consultation period, Lauks had no obligation to assign inventions from the consulting period to i-STAT. Thus, as the district court correctly concluded, the contract does not convey all substantial interest in the ’328 or ’772 patents.

As to contract law in New Jersey:

New Jersey law explains that extrinsic evidence is admissible to aid in contract interpretation, but it is “not for the purpose of modifying or enlarging or curtailing its terms” Conway v. 287 Corporate Ctr. Assocs., 901 A.2d 341, 346-47 (N.J. 2006); see also Dontzin v. Myer, 694 A.2d 264, 267 (N.J. Super. Ct. App. Div. 1997) (“Extrinsic evidence is admissible as an aid to understand the significance of the contract language, but not to give effect to an intent at variance with that language.”). Because the agreements contain no ambiguity, Abbott’s request is unavailing. Extrinsic evidence simply cannot change or contradict the contract’s language. As such, the district court properly evaluated all of the agreements between Lauks and Abbott’s predecessors, considered the entirety of the contracts, and reasoned the contract language unambiguously conveyed the parties’ intention.

The dissent by Judge Bryson noted:

The question in this case is whether the assignment-of-invention clause from the 1984 and 1992 agreements was incorporated by reference in the 1999 agreement. The majority states that the 1999 Consulting Agreement “does not contain any obligation that Lauks must assign rights in inventions, improvements, or dis- coveries made or conceived during the consultation period,” and that the 1999 agreement “is unambiguous and does not continue the 1984 Agreement’s Disclosure and Assignment Covenant.” I disagree with that conclusion. I believe that the 1999 Consulting Agreement is at least ambiguous as to whether it incorporated the assignment covenant of the 1984 agreement. I would therefore vacate the judgment of the district court and remand this case for discovery and consideration of extrinsic evidence regarding whether, and to what extent, the 1999 Consult- ing Agreement incorporated the assignment-of-invention clause that was first found in the 1984 agreement.

IPBiz would be concerned that Lauks ceased being an employee in 1999; the dissent stated

It is true that the 1992 agreement was an employment agreement whereas the 1999 agreement was a consultancy agreement. However, the change in the nature of Dr. Lauks’s relationship with i-STAT does not suggest that the parties intended to deviate from their established practice of identifying the entirety of the 1984 agreement with a shorthand name consisting of a refer- ence to some, but not all, of the covenants contained in that 1984 document.


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