The Software IP Report

Vague Development Agreement Allows Inventorship Challenge

Can vagueness in a development agreement allow standing to question inventorship of subsequently filed patents?  The Federal Circuit held in Gregory C. James v. j2 Cloud Services, LLC, No. 2017-1506 (Fed. Cir. 2018) that an agreement vague on IP assignment could confer standing for a party to challenge inventorship of a patent.

              Plaintiff George James asserted a claim for correction of inventorship for U.S. Patent No. 6,208,638, claiming that he was the sole inventor of the patent. The ‘638 patent was filed listing two inventors, neither of whom are the Plaintiff, and Plaintiff alleged that the listed inventors asked the Plaintiff to develop the technology that would eventually become the ‘638 patent. A partnership entity, which included the Plaintiff, and one of the named inventors signed a Software Development Agreement (“SDA”) to develop software for JFAX, a company owned by the named inventors, that included assignment of copyright but did not mention patent rights. If Plaintiff succeeded at showing that he was the sole inventor (and thus sole owner), he could be entitled to damages for previous infringements, such as those sought by Defendant in a previous patent infringement lawsuit. The district court granted a FRCP 12(b)(1) motion to dismiss on the pleadings for lack of standing, noting that Plaintiff failed to show a controversy by failing to allege an ownership or financial interest in the ‘638 patent because either (1) the SDA had assigned patent rights to Defendant or (2) Plaintiff was “hired-to-invent” the subject matter of the ‘628 patent.

              Reviewing de novo, the Court reversed the dismissal, noting that neither of the district court’s theories showed an assignment or an obligation to assign the ‘628 patent to Defendant. The SDA did not assign or promise to assign patent rights because it merely stated that Plaintiff would “develop software solutions” for JFAX. The Court read this as granting exclusive use of the developed code for Defendant, but not an assignment of any underlying patent rights.

              On the hired-to-invent argument, the Court looked to the employment relationship between Plaintiff and JFAX to determine if an implied contract to assign patent rights existed. Because Plaintiff did not personally sign the SDA, but rather the partnership entity, the Court held that the SDA did not consider Plaintiff an employee of JFAX. The SDA could be read not to assign patent rights to JFAX, and the Court found that there was a factual dispute on the employment status of the Plaintiff relative to JFAX. Thus, the Court held that Plaintiff had standing sufficient to survive the motion to dismiss.

Lessons for Practice

              Defendants lost because the SDA did not clearly establish that Plaintiff assigned the patent rights, so such agreements should explicitly assign rights to the correct parties. Furthermore, questions of inventorship and ownership should be clarified before starting infringement litigation to prevent subsequent challenges.