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Volume X, Number 187

July 03, 2020

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A Party May Have Standing Even with Incorrect Patent Assignment

The US Court of Appeals for the Federal Circuit affirmed a district court’s decision that a reformation of an incorrect assignment supports Article III standing and affirmed the court’s prejudgment interest award. Schwendimann v. Arkwright Advanced Coating, Inc., Case Nos. 18-2416, 19-1012 (Fed. Cir. May 13, 2020) (Wallach, J.) (Reyna, J. dissenting).

Jodi Schwendimann was an inventor on three patent applications that she assigned to American Coating Technologies (ACT) during her tenure at ACT. When ACT ceased operations in 2001, it owed unpayable debts to Schwendimann. ACT agreed to assign to her its patent applications to satisfy these debts. ACT’s attorneys executed the assignment of the applications in 2002, but incorrectly filed the assignment for one of the applications.

Schwendimann sued Arkwright Advanced Coating in 2011 for patent infringement. Arkwright asserted a lack of standing because Schwendimann did not own the patents-in-suit due to the incorrect assignment, which ACT then corrected. The district court granted Schwendimann’s motion for summary judgment on standing, confirming by reformation the application assignment to Schwendimann in 2002. After a jury found Arkwright willfully infringed, the court awarded prejudgment interest of $1.9 million, which was a 10% interest rate per year between 2010 and 2017. Arkwright appealed.

The Federal Circuit concluded there was no standing issue to be decided. Relying on Lone Star Silicon Innovations v. Nanya Tech (IP Update, Vol. 22, No. 6), the Court explained that whether a party is a patentee under 35 U.S.C. § 281 does not implicate district court subject-matter jurisdiction. First, the Court found that Schwendimann was a patentee when she filed her action. An assignment must be documented in writing to confer patentee status to an assignee. The assignment of a patent’s legal title is interpreted under the state’s laws where the assignment took place. The Court concluded that the district court could reform a written contract to accurately reflect the parties’ intention. Here, Schwendimann accepted ACT’s offer to assign her application back to her in exchange for her agreement to not sue, and the patents-in-suit all listed Schwendimann as the assignee without challenge by ACT for almost a decade. Second, the Court found that the assignment was reflected in a “written instrument” under 35 U.S.C. § 261, as neither § 261 nor case law specified the type of writing necessary to convey an assignment of patent rights. The district court’s reformation corrected the written instrument retroactively to confirm that the instrument predated the filing of the lawsuit.

The Federal Circuit also affirmed the district court’s prejudgment interest award. The Court explained that district courts are given wide latitude in selecting interest rates, and the district court did not abuse its discretion because it used an interest rate set by state statute and correctly applied the interest from the dates of the infringement to the judgment on a jury-decided lump sum amount of damages.

Judge Reyna dissented with the view that Schwendimann did not have Article III standing at the time she filed suit. Citing Lone Star and the Federal Circuit’s 2011 decision in Abraxis v. Navinta, he explained that a party failing to satisfy the statutory standing requirements under the Patent Act could have constitutional standing, so long as the party holds some exclusionary rights in the patent. Without Article III initial standing, the suit must be dismissed and the jurisdictional defect cannot be cured retroactively. In Reyna’s view, Schwendimann did not hold any exclusionary rights to the patents-in-suit at the time she filed her infringement suit because the application was incorrectly assigned. The oral agreement between ACT and Schwendimann of the application assignment pre-suit was insufficient to give her exclusionary rights. Reyna suggested the panel decision risks burdening future defendant-infringers with multiple litigations against multiple parties without knowing who truly owned the patents.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 148

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