• The Alter Ego Owns the Patent

    by  • April 15, 2013 • patent • 0 Comments

    It’s black-letter law, as black as it gets, that in the United States a patent is initially owned by the individual inventor. As stated by the Supreme Court: “Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor.” Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., No. 09-1159 (June 6, 2011). The Court elaborates:

    In accordance with these principles, we have recognized that unless there is an agreement to the contrary, an employer does not have rights in an invention “which is the original conception of the employee alone.” Dubilier Condenser Corp., 289 U. S., at 189. Such an invention “remains the property of him who conceived it.” Ibid. In most circumstances, an inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights. See id., at 187 (“The respective rights and obligations of employer and employee, touching an invention conceived by the latter, spring from the contract of employment”).

    Consistent with that principle, not too long ago I reported on Informatics Applications Group, Inc. v. Shkolnikov, No. 1:11cv726 (JCC/JFA) (Oct. 11, 2011 E.D. Va.), where the plaintiff sought to have its employee added as inventor to the defendant’s patent. The Informatics court held that, since the employer had nothing to gain if the employee was added, i.e., there was no duty on the employee’s part to thereafter assign the patent to the employer, the employer didn’t have standing for a claim for correction of inventorship.

    But the District Court for the Eastern District of California has added a new wrinkle. It’s held that where the employing company is the alter ego of the inventor, the employing company has standing to sue for correction of inventorship to add the inventor’s name to the patent, with no mention of the need for an assignment or any kind of writing.

    How did it get there?

    The answer is LeFiell v. United States, 162 Ct. Cl. 865 (1963), a decision that the Court of Appeals for the Federal Circuit holds as precedential. See S. Corp. v. United States, 690 F.2d 1368, 1370 (Fed. Cir. 1982) (en banc) (adopting the holdings of the Court of Claims and the Court of Customs and Patent Appeals as precedential). LeFiell held

    where the inventor is “more than a mere employee” and “occupie(s) such a relation to the corporation that he (is) its alter ego, in such a capacity that it is only consistent with good faith that he should recognize its ownership of the patent issued to him”, the entire right and interest in the patent—and not merely a shop right—belong to the company despite absence of a specific contract by the inventor to assign the invention. Dowse v. Federal Rubber Co., 254 Fed. 308, 310 (N.D. Ill. 1918).

    Which brings us to the present case, Gerawn Farming, Inc. v. Rehrig Pacific Co. Rehrig Pacific is a manufacturer of pastic-molded containers for industrial use. A marketing representative for Rehrig was researching and marketing a container for storing and transporting grapes, the “Grape Lug.” While the container was in development, the rep spoke with Ray Gerawan of plaintiff Gerawan Farming about the containers. It doesn’t look like this particular container was the source of the main conflict between the two parties, something called the “Harvest Tote” was, but it did provide federal jurisdiction for the suit.

    Gerawan Farming filed a claim for correction of inventorship, claiming that Ray Gerawan should be added as inventor for the patent to the Grape Lug. Rehrig Pacific responded that Gerawan Farming didn’t have standing to bring a claim for correction of inventorship, since it wouldn’t own the patent even if inventorship was corrected.

    But the court held that under the alter ego theory of LeFiell, Gerawan Farming did have standing.

    In this case, a trier of fact could reasonably conclude that Mr. Gerawan was the alter ego of Gerawan from 1993 to 1994, the time frame when the Grape Lug was allegedly invented. Critically, during this time frame Mr. Gerawan was the most senior officer at Gerawan, a company owned by his family. He was also one of its directors. There is some uncertainty as to how much actual managerial control Mr. Gerawan exercised, but there is evidence from which a trier of fact could conclude that Mr. Gerawan had primary responsibility for product development at the company, which included the designing of harvest containers. Moreover, Mr. Gerawan believed that his work, and any inventions derived therefrom, belonged to the company. In fact, the company, not Mr. Gerawan, received all the royalty payments generated from his work on the Harvest Tote.

    Because a trier of fact could reasonably conclude that Mr. Gerawan was the alter ego of the company, the Court cannot rule as a matter of law that Plaintiff does not have an expected ownership interest in the ‘293 Patent. Accordingly, Defendant is not entitled to summary adjudication on the basis that Plaintiff lacks standing.

    Rehrig Farming cited to the far more recent Stanford v. Roche , but it didn’t carry the day. The Gerwan Farming court noted that “Defendant has not provided, nor has the Court independently found, any cases showing that LeFiell is no longer good law.” Indeed, the Court of Appeals for the Federal Circuit is the only court that can ratify, clarify or reverse LeFiell, which I expect we will ultimately see.

    Gerawn Farming, Inc. v. Rehrig Pacific Co., No. 1:11-cv-01273 LJO BAM (N.D. Calif. Apr. 8, 2013).

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