• Patents and Divorce

    by  • May 6, 2013 • patent • 5 Comments

    It’s divorce week here at Property, Intangible. I just reported on a case before the Supreme Court of Hawai’i that decided the relative ownership interest of divorcing spouses in copyrights created during the marriage. Now we have a case about patents, this time a federal district court case deciding standing.

    The statutory sections involved are not similar, but nevertheless the district court should take a lesson from the Hawai’i court on the distinction between the legal ownership of an intangible asset and an interest in the income stream from it. The Hawai’i Supreme Court compared a copyright to a paycheck:

    A paycheck issued by the employer in the name of the employee-spouse alone can be cashed, deposited, or otherwise negotiated only by that spouse; yet, the proceeds of the paycheck, representing earnings of one spouse in community, belong to the community.

    The district court started out well enough, noting that, according to Enovsys LLC v. Nextel Communications, Inc., 614 F.3d 1333 (Fed. Cir. 2010), a federal court must give full faith and credit to a state’s division of assets in a divorce. It therefore held that:

    the Patent was obtained while the Plaintiff and Ms. Taylor were married, and the Divorce Settlement confirms Ms. Taylor’s ownership interest in the Patent. Since Ms. Taylor has legal title to the Patent under Florida law, and has not been made a party to the action at hand, the Plaintiff lacks standing to sue for infringement.

    But hold on a second, what exactly did the divorce decree say?

    Excerpt from divorce decree In re Marriage of Taylor

    click for larger version

    If you can’t read the image, it says

    The Court finds that the proceeds from the production of the patents shall be split 60% to the Wife and 40% to the Husband after the fees of the Special Master are paid should her services be necessary. If the parties cannot agree on the distribution of royalties by the Court, all disputes will be brought before the Special Master for resolution. The reason for the unequal distribution of the patent income is based upon the Husband’s current inability to pay alimony and taking into consideration of the lifestyle and standard of living of the parties during the marriage.

    I don’t know how the divorce court could have stated more clearly that the former Mrs. Taylor has only an income interest, not legal ownership, of the patents: “proceeds from the production of the patents,” “distribution of the royalties,” “patent income.” It was error on the part of the district court to confuse an award of income from the patent with legal ownership of it.

    The good news is that the case is closed so the decision is immediately appealable.

    Taylor v. Taylor Made Plastics, Inc., No. 8:12-CV-746-T-EAK-AEL (S.D. Fla. April 29, 2013).

    5 Responses to Patents and Divorce

    1. Dan Ballard
      May 6, 2013 at 11:19 am

      I think that a patent procured by an inventor when married in a community property state is presumptively owned the community and that, upon dissolution, the state court can:
      (1) award full title of the patent to either spouse,
      (2) deem both spouses owners of the patent as joint tenants, each having an equal, undivided interest in the patent [which continues the parties’ pre-dissolution interests in the patent],
      (3) deem both spouses owners of the patent as tenants in common, each having an ownership interest in whatever percentage the court believes just, AND, regardless of the parties’ ownership interest in the patent,
      (4) allocate between the spouses a just distribution of the proceeds earned by the patent post-dissolution.

      I read the divorce decree in this case as [implicitly] awarding both spouses ownership of the patent as joint tenants AND [expressly] allocating a distribution of the proceeds earned by the patent 60% to the wife and 40% to the husband [see paragraphs 13(D), 14, 16(B), 17(B)(4), 17(C)]. I don’t think the two awards are incompatible. As a consequence, both of these former spouses, as joint owners of the patent, must be named plaintiffs in any case seeking to enforce the patent.

      There is a good argument, however, that under Hisquierdo v. Hisquierdo, 439 US 572, 581-82 (1979) a patent procured by an inventor when married in a community property state is NOT owned by the community but rather by the inventor. The rationale being that state community property law as applied to patents conflicts with the federal patent law principle that the first inventor to file an application to patent an invention is the person entitled to own that patent [not the artificial, state-law-created “community” that arises when two people marry].

    2. Pamela Chestek
      May 6, 2013 at 11:51 am

      You may be right, but that wasn’t how the court decided the question. The ownership of a patent can only be transferred by an instrument in writing or by operation of law. The court stated that in Florida, a patent is personal property that may be subject to equitable distribution when the inventor and his or her spouse dissolve the marriage and based its decision on a writing, the divorce settlement. I don’t see that the document clearly expresses a transfer of the legal ownership of the patent; in fact I see just the opposite, whether intentional or not. Your basis is that the patent would be co-owned by by virtue of the operation of community property law, which may be a good theory but not one the court relied on.

      I didn’t note in the post that the reason the problem case to the defendant’s attention was that the wife filed a lawsuit in state court alleging that her ex-husband violated the divorce decree by filing the patent infringement lawsuit. So now no lawsuit and therefore no money for her, but perhaps there’s a bigger move in play. There was no discussion of why the defendant company just happened to have the same surname as the plaintiff; I imagine there’s more of a story here.

    3. Pamela Chestek
      May 6, 2013 at 12:02 pm

      Incidentally, too, the preemption theory in Hisquierdo v. Hisquierdo was discussed at length in the copyright case I previously covered.

    4. Dan Ballard
      May 6, 2013 at 12:52 pm

      I must be missing something.

      The patents procured by the inventor husband while married were owned right from the get-go by the community [not the husband] that was formed by the parties’ marriage [by operation of the Florida community property law cited by the district court and supported by the holding in Enovsys]. See also para. 13(D) of the state court divorce decree [“The Court finds that the primary assets of the marriage are certain patents.”]. When the state court divvied up the community’s assets I agree it did not expressly transfer to either spouse full title to those patents. Absent an express award to the husband of the wife’s ownership interest in the patents, she retained her interest after the community was dissolved. As the district court put it, “the Divorce Settlement reinforces Ms. Taylor’s ownership interest in the Patent.” Her ownership interest in the patents, once the community was dissolved, became – automatically – a joint tenancy [which is the same interest she owned while married]. Again, the state court did not award title to the patents to either spouse [so there never was ANY ownership transfer of the patents] but, instead, made clear that it “is in the best interest of the parties to put the patents into production as soon as possible to ensure a steady viable income stream.” See para. 17(B)(4)(d). All the state court did, properly, was to re-allocate the revenue earned from the patents from the joint tenancy, default 50-50 split rule to a 60-40 split in favor of the wife. The state court did not take away the wife’s ownership interest in the patents. And because it didn’t she must join her patent co-owner in any lawsuit to enforce their jointly owned patent.

      It would have been better for the two courts, or at least one, to expressly note that the wife’s ownership in the patents was not changed when the community dissolved. But my reading of both rulings is that both took that fact as granted.

    5. Pamela Chestek
      May 6, 2013 at 1:34 pm

      I would agree with your reasoning except you’re making a leap I’m not willing to make (perhaps because I’m not a divorce lawyer), which is that in Florida an asset that is acquired during a marriage is co-owned in title, too. We all own a lot of assets and liabilities individually that we acquired during a marriage, like cars and retirement accounts and trust funds and credit card debts. They are subject to equitable distribution in a divorce but that doesn’t mean that the spouse also had legal title to (or responsibility for) them.

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