Friday, April 20, 2018

CAFC examines inventor rights, "hired to invent" doctrine in James case

The CAFC reversed CD Cal in the James case, which involved correction of inventorship:

In this action against j2 Cloud Services, LLC and Advanced
Messaging Technologies, Inc. (AMT), Gregory
James asserts a claim for correction of inventorship under
35 U.S.C. § 256, as well as various state-law claims. The
district court dismissed the correction-of-inventorship
claim for lack of jurisdiction and, consequently, dismissed
the state-law claims. We reverse the jurisdictional dismissal
and remand for further proceedings.

The district court ruled on standing:

On August 3, 2016, Mr. James brought the present
action. The operative (first amended) complaint asserts a
claim for correction of inventorship under 35 U.S.C. § 256,
along with state-law claims for unjust enrichment, conversion,
misappropriation, and unfair competition. In
October 2016, j2 and AMT filed a motion requesting,
among other things, that the case be dismissed on the
ground that the court lacks jurisdiction because Mr.
James has no Article III standing to bring the action.2
On December 19, 2016, the district court agreed with
the Article III standing argument and granted the motion
under Rule 12(b)(1) of the Federal Rules of Civil Procedure.
It concluded that Mr. James lacks a stake in the
controversy because he “fail[ed] to allege facts sufficient to
show that he has an ownership or financial interest in the
’638 patent.” James v. j2 Cloud Servs. Inc., No. 2:16-cv05769,
2016 WL 9450470, at *5 (C.D. Cal. Dec. 19, 2016).
Accordingly, the court also dismissed the state-law claims.
Id. The dismissal was entered on December 22, 2016.

Chou vs. The University of Chicago is cited:

We review without deference the ruling before us: the
district court’s Rule 12(b)(1) dismissal for lack of standing.
See Chou v. Univ. of Chicago, 254 F.3d 1347, 1357
(Fed. Cir. 2001); Cedars-Sinai Medical Ctr. v. Watkins, 11
F.3d 1573, 1580 (Fed. Cir. 1993) (citing Love v. United
States, 915 F.2d 1242, 1245 (9th Cir. 1989)).

As to standing:

To have Article III standing, the “plaintiff must have
(1) suffered an injury in fact, (2) that is fairly traceable to
the challenged conduct of the defendant, and (3) that is
likely to be redressed by a favorable judicial decision.”
Spokeo, 136 S. Ct. at 1547 (citing Defenders of Wildlife,
504 U.S. at 560–61); see Chou, 254 F.3d at 1357. “The
benefit of the suit to the plaintiff must relate to the alleged
injury.” Huster v. j2 Cloud Servs., Inc., 682 F. App’x
910, 914 (Fed. Cir. 2017) (citing Vermont Agency of Natural
Resources v. United States ex rel. Stevens, 529 U.S.
765, 772–73 (2000)). In conducting the standing analysis,
we “assume[] the merits of a litigant’s claim and determine[]
whether even though the claim may be correct the
litigant advancing it is not properly situated to be entitled
to its judicial determination.” Rocky Mountain Helium,
LLC v. United States, 841 F.3d 1320, 1325 (Fed. Cir.
2016) (internal quotation marks omitted); see 13A Charles
Alan Wright & Arthur R. Miller, Federal Practice and
Procedure §§ 3531, 3531.4 (3d ed. 2008 & Supp. 2016).

The error of the district court:

The district court held specifically that, even if Mr.
James was an inventor (even the sole inventor), he had
assigned, or obligated himself to assign, his patent rights
to JFAX. James, 2016 WL 9450470, at *3–5. The court
relied on two related sources for that conclusion: (1) the
SDA; and (2) the “hired-to-invent doctrine.” Neither
source, we conclude, properly supports the conclusion of
assignment or obligation to assign at this stage of the
The district court concluded that “the SDA necessarily
precludes plaintiff from retaining ownership of the patent
rights.” James, 2016 WL 9450470, at *5. We disagree.
Under the standards appropriate at this stage of the
proceedings, which require that “the court construe[] all
factual disputes in favor of” Mr. James, id. at *3, we
cannot conclude that the SDA precludes Mr. James from
retaining ownership rights in patents on his inventions—
either as itself an assignment or as a contract to assign.
The Patent Act provides that patents and patent applications
are “assignable in law by an instrument in
writing.” 35 U.S.C. § 261. “Although state law governs
the interpretation of contracts generally,” whether a
contract “creates an automatic assignment or merely an
obligation to assign” is a matter of federal law. DDB
Techs., L.L.C. v. MLB Advanced Media, L.P., 517 F.3d
1284, 1290 (Fed. Cir. 2008); see Abraxis Bioscience, Inc. v.
Navinta LLC, 625 F.3d 1359, 1364 (Fed. Cir. 2010);
Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed.
Cir. 2000). On the automatic-assignment side of the line
is a “contract [that] expressly conveys rights in future
inventions.” Abraxis, 625 F.3d at 1364. On the other side
of the line is a “mere promise to assign rights in the
future.” Id. at 1365. “In construing the substance of [an
alleged] assignment, a court must carefully consider the
intention of the parties and the language of the grant.”
Israel Bio-Eng’g Project v. Amgen, Inc., 475 F.3d 1256,
1265 (Fed. Cir. 2007) (citing Vaupel Textilmaschinen KG
v. Meccanica Euro Italia SPA, 944 F.2d 870, 874 (Fed.
Cir. 1991)).
The SDA is amenable to the construction that it does
not assign, or promise to assign, patent rights that would
otherwise accrue to Mr. James as an inventor. The dis-
trict court relied in its ultimate analysis on the SDA’s
preamble, which states that the contract set the terms on
which GSP “will develop software solutions for the exclusive
use of JFAX Communications.” J.A. 53; see James,
2016 WL 9450470, at *5 (rejecting Mr. James’s position
because it “would, for example, enable plaintiff to license
the rights in contravention of JFAX’s exclusive use”). But
that language is not itself a conveyance of any rights and,
in any event, does not clearly go beyond GSP-developed
specific software products to encompass also any underlying
patentable methods embodied in the specific code. It
can be read as indicating that it is only the specific code
that will be for JFAX’s exclusive use.

Of note:

Further support for Mr. James’s view of the SDA is
found in the SDA’s express reference to copyrights and
complete silence about patents. As already noted, SDA
Section 3, after stating that JFAX will become the owner
of “all code and compiled software solutions,” adds that
“GSP shall assign to JFAX all copyright interests in such
code and compiled software.” Copyright extends only to
the expression in source code or its compiled version, i.e.,
object code, not to the underlying (potentially patentable)
methods. See, e.g., Oracle America, Inc. v. Google Inc.,
750 F.3d 1339, 1354–55 (Fed. Cir. 2014); Sony Computer
Entertainment, Inc. v. Connectix Corp., 203 F.3d 596, 599,
602, 605 (9th Cir. 2000); Atari Games Corp. v. Nintendo of
Am. Inc., 975 F.2d 832, 839–40 (Fed. Cir. 1992). Moreover,
the operative complaint alleges, with support from
documents attached to the complaint, that Mr. James
actually executed assignments of copyrights in the specific
software for the three systems furnished to JFAX. There
is nothing comparable for patents, which are not mentioned
at all in the SDA.

Of the "hired to invent" argument

The district court’s second basis for its decision, which
is related to the first, likewise does not support the Rule
12(b)(1) dismissal for lack of standing. The court invoked
the “hired to invent” doctrine of United States v. Dubilier
Condenser Corp., 289 U.S. 178, 187 (1933), and Standard
Parts Co. v. Peck, 264 U.S. 52, 59–60 (1924). In accordance
with those decisions, we have summarized the
doctrine as recognizing that an employer may “claim an
employee’s inventive work where the employer specifically
hires or directs the employee to exercise inventive faculties.”
Teets, 83 F.3d at 407 (citing Dubilier, 289 U.S. at
187, and Standard Parts, 264 U.S. at 59–60). In certain
circumstances involving employment, we have explained,
“the employee has received full compensation for his or
her inventive work.” Id.
Because this “hired-to-invent” rule is “firmly grounded
in the principles of contract law,” Banks v. Unisys
Corp., 228 F.3d 1357, 1359 (Fed. Cir. 2000), its applicability
depends on the particular relationship between the
“employee” and “employer” in a given case where the rule
is invoked.


The problem with this argument is essentially the same
as the problem we have already identified as defeating
the SDA-contract argument for Rule 12(b)(1) dismissal.
Based on the provisions and arguments presented to us,
the SDA is readily capable of being read not to assign or
to promise to assign the patent rights at issue. Because
the SDA largely or even wholly defines the terms of
JFAX’s alleged “hiring” of Mr. James (actually of GSP),
there is at least a factual dispute about any implied
assignment or promise to assign. And that conclusion,
though sufficient on its own case-specific terms, may be
further supported by cases recognizing a general legal
principle that tightly limits the finding of an implied-infact
contract where an express contract governs the
parties’ relationship. See Atlas Corp. v. United States,
895 F.2d 745, 754 (Fed. Cir. 1990); Chase Manhattan
Bank v. Iridium Afr. Corp., 239 F. Supp. 2d 402, 409 (D.
Del. 2002) (citing Atlas, 895 F.2d at 754). Accordingly, it
was improper to dismiss the case under Rule 12(b)(1) for
lack of standing based on the hired-to-invent principle.

One notes, that at the bottom of all this, the only thing mentioned
in the assignment was copyright rights, not patent rights.


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