To Be Fair, the Supreme Court Grants Assignor Estoppel a Reprieve but Limits Its Scope
The Supreme Court of the United States upheld the validity of doctrine of assignor estoppel but concluded that the US Court of Appeals for the Federal Circuit failed to recognize the boundaries of the doctrine. Minerva Surgical, Inc. v. Hologic, Inc. Case No. 20-440 (Supr. Ct., June 29, 2021)(Kagan, Justice)(Barrett, Justice, dissenting)(Alito, Justice, dissenting). With the Court’s concern to maintain the underlying principle of fairness and the limits of doctrine of assignor estoppel in Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., the Court vacated the Federal Circuit’s decision and remanded. In a 5-4 decision, Justice Elena Kagan delivered the opinion of the Court with dissenting opinions from Justices Samuel Alito and Amy Coney Barrett.
Csaba Truckai filed a patent application for a device that was designed with a moisture permeable head in order to treat abnormal uterine bleeding while avoiding unintended burning or ablation. Truckai assigned the pending patent application to his company, Novacept, which was later acquired by Hologic. Truckai then founded a new company, Minerva Surgical, and developed a new device that used moisture impermeability to avoid the unwanted ablation. Hologic subsequently filed a continuation application to expand the scope of its claims to encompass applicator heads in general, regardless of moisture permeability. The Patent and Trademark Office (PTO) issued a patent on the expanded claims in 2015, and Hologic subsequently sued Minerva for patent infringement.
Minerva argued that Hologic’s patent was invalid, as the new, broader claims did not match the invention’s description. However, the district court agreed with Hologic that assignor estoppel barred Minerva’s invalidity defense and ruled that Minerva infringed Hologic’s patent. The Federal Circuit upheld the district court’s decision, noting that it was “irrelevant that, at the time of the assignment, the inventor’s patent application w[as] still pending,” even if the assignee “may have later amended the claims” without the inventor’s input.
Minerva appealed the Federal Circuit’s decision to the Supreme Court. The issue on appeal was whether the doctrine of assignor estoppel remained valid and, if so, the appropriate scope of the doctrine.
THE DOCTRINE OF ASSIGNOR ESTOPPEL LIVES
At the outset of Justice Kagan’s opinion, which was joined by Chief Justice John Roberts and Justices Stephen Breyer, Sonia Sotomayor and Brett Kavanaugh, she explained that assignor estoppel was a “well settled rule” that had been accepted by a unanimous Court in Westinghouse.
The doctrine of assignor estoppel is rooted in the idea of fairness in that an “inventor’s ability to assign a patent to another for value” should limit their ability to “later contend in litigation that the patent is invalid.” When the inventor assigns his patent rights, there is an implicit representation to a buyer that the patent is valid, which “give[s] the buyer his sought-for monopoly.” If that assignor later raises an invalidity defense, “the assignor disavows that implied warranty. And he does so in service of regaining access to the invention he has just sold.” Therefore, an inventor could unfairly profit from both the price of assignment and the continued right to use the invention.
In challenging the doctrine, Minerva set forth three main arguments. In the first two arguments, Minerva contended that Congress’s repudiation of the doctrine in the Patent Act of 1952 and the Court’s post-Westinghouse rulings left “no room for the doctrine to continue.” In the third argument, Minerva claimed assignor estoppel keeps bad patents alive by “impos[ing] too high a barrier to invalidity challenges.”
Ultimately, the Court was unpersuaded by Minerva’s challenges to the continued validity of assignor estoppel. First, the Court pointed out that Minerva’s position of congressional repudiation of the doctrine in the Patent Act of 1952 was overly broad and untenable, as Minerva’s interpretation would “foreclose applying . . . a whole host of common-law preclusion doctrines” including equitable estoppel, collateral estoppel, res judicata and law of the case. The Court found that assignor estoppel was “just such a background principle of patent adjudication, and Congress gave no indication of wanting to terminate it or disturb its development.”
Regarding Minerva’s second argument that the Court’s rulings in Scott Paper Co. v. Marcalus Mfg. Co. and Lear, Inc. v. Adkins left no room for the continued existence of assignor estoppel, the Court pointed out that neither case abolished the Westinghouse holding. These cases were distinct from Westinghouse and did not apply to the case at hand. In Scott Paper, the Court declined to carry the doctrine “too far” by extending assignor estoppel to the novel and extreme circumstance—invalidating based on a patent’s expiration.
Similarly, the Court distinguished in Lear that the estoppel in question was licensee estoppel, not assignor estoppel. The Court distinguished these two doctrines, explaining that in assignor estoppel, an assignor makes a representation about a patent’s validity and receives some payment in return. In contrast, a licensee purchases the right to use a patented device without the same assurance of the patent’s worth. If the patent is invalid, they would not have needed the license. Thus, the Court concluded that its rulings in Scott Paper and Lear did not “eviscerate” the Westinghouse rule as Minerva contended but rather showed “only the kind of doctrinal evolution typical of common-law rules.”
Finally, the Court addressed Minerva’s contention that contemporary patent policy to weed out bad patents supported overthrowing assignor estoppel. In dismissing the argument, the Court rested its decision on the fundamental premise that assignor estoppel is based on fairness and fair dealing. As the Court noted, in raising an invalidity defense, “the assignor disavows [the] implied warranty” they granted in the assignment, and “he does so in service of regaining access to the invention he has just sold” to “profit doubly.” The Court found that preventing such unfair dealing was “enough to outweigh any loss to the public from leaving an invalidity defense to someone other than the assignor.”
LIMITATIONS TO THE SCOPE OF ASSIGNOR ESTOPPEL
The Court then turned to the question of the appropriate scope of the doctrine, particularly when the assignment occurs before a patent issue. While Westinghouse solidified the validity of assignor estoppel, it left open the question of whether the doctrine should operate differently if the assignment was not of a granted patent but of a patent application. This doctrine applies “when, but only when, the assignor’s claim of invalidity contradicts explicit or implicit representations he made in assigning the patent.”
The Court explained that assignor estoppel should apply “only when its underlying principle of fair dealing comes into play,” which “demands consistency in representations about a patent’s validity.” Contradiction would create unfairness. Because the assignment of a patent carries an implied assurance of validity with it, an assignor who later denies the patent’s validity (contradicting their earlier assertion) has “breache[d] norms of equitable dealing.” Conversely, as the Court noted, “when the assignor has made neither explicit nor implicit representations in conflict with an invalidity defense, then there is no unfairness in its assertion.”
The Court provided several examples where the warranty implied by assignment might not contradict with an invalidity defense. The first was where the assignment occurs before the inventor could make a warranty of validity (i.e., in a common employment arrangement). The second related to later legal developments that would render the warranty given at the time of assignment irrelevant. However, third and most relevant to the case at hand, is when the assignee changes the patent claims after an assignment. As the Court explained, “the new claims resulting from that process may go beyond what ‘the assignor intended’ to claim as patentable.” When the claims are “materially broader than the old claims, the assignor did not warrant to the new claims’ validity.” If no such representation was made, the assignor can challenge the new claims; there is no estoppel “because there is no inconsistency in his position.”
Justice Barrett’s dissent, in which Justices Clarence Thomas and Neil Gorsuch joined, disagreed with the Court’s decision to uphold the doctrine. She also disagreed with the Court that assignor estoppel was already part of well settled common law, writing that the issue was whether the Patent Act of 1952 incorporated the assignor estoppel doctrine.
In deciding if Congress ratified this judicial interpretation in the Patent Act of 1952, Justice Barrett analyzed if (1) the interpretation was so well settled that they could presume Congress knew and endorsed it at the time of reenactment and (2) the statute was reenacted without material change. First, Justice Barrett explained that in 1952, assignor estoppel was “far from well settled–if anything it was on life support,” and she could not presume Congress knew about the doctrine. Second, she considered a change from Westinghouse material. Under Westinghouse, patents were akin to real property, although when Congress reenacted the assignment provision, patents had the attributes of personal property.
Justice Alito alone wrote a dissent explaining that there was a baseline question that remained unanswered by both the Court and the principal dissent, which was whether the Court should overrule Westinghouse. This consequently meant that one could not answer if the doctrine of assignor estoppel bars petitioner from challenging the validity of a patent indirectly assigned to respondents.
Practice Note: Patent assignees should be aware when expanding the scope of assigned patents that are still pending before the PTO that the assignors could invalidate the broader claims. Assignees may want to consider confirmatory assignments at issuance when appropriate and possible. Patent assignors, in turn, should continue to be aware that after they assign their patents, they may be barred from attempting to invalidate them under the doctrine of assignor estoppel when the basis for invalidity contradicts explicit or implicit representations made in assigning the patent.
Rodney Swartz, a summer associate in the San Francisco office, also contributed to this article.