What Every Transactional Counsel Should Know
by Pamela Chestek • September 20, 2009 • patent
Intellectual property specialists may not be involved in the preparation of merger and acquisition documents, and a couple of recent cases show what can go wrong when the form is missing something important. In one case the patentee won, but in the other the patentee didn’t.
In Carotek, Inc. v. Kobayashi Ventures, LLC, the missing provision was an assignment of the right to sue for past infringement. There had been a three-way transaction: on September 28, 2007 Jacklin Associates, Inc. agreed on behalf of Kobayashi Ventures, LLC to buy patents from International Paper. On October 19, 2007, International Paper sold the patents to Jacklin and on December 10, 2007 Jacklin transferred the patents to Kobayashi.
Of course, conveyance of the patent itself doesn’t necessarily include the right to sue for past infringement, doing so only where the agreement “manifests an intent to transfer this right.” Declaratory judgment plaintiff Carotek won the battle over which state’s law controlled, which was Virginia. Virginia does not look to the “surrounding circumstances” when determining whether a patent transfer includes the right to sue for past infringement, so, since the agreement itself didn’t expressly assign it, Kobayashi’s claim of infringement only accrued as of December 10, 2007. An effort by Jacklin and Kobayashi to patch the mistake after the lawsuit was filed by “confirm[ing] and reaffirm[ing] that” the December assignment included past claims was ineffective; it was parol evidence that was inadmissible because there was no ambiguity in the original agreement.
In Gerber Scientific International, Inc. v. Satisloh AG, the missing term was “continuation-in-part.” Inventors assigned a patent application and “all divisions, continuations, and continuations-in-part of said application, and reissues and extensions of said Letters Patent or Patents” to Pilkington Visioncare, Inc. Pilkington assigned the application to Coburn Optical Industries, a predecessor of the plaintiff. The transactional document assigned “all its right, title and interest in, to and under said Letters Patent and patent applications and the inventions covered thereby and any divisions, reissues, continuations and extensions thereof.” Note that it didn’t assign “continuations-in-part.”
The patent-in-suit was a later-filed CIP (grandchild) of the assigned application. Shortly after the CIP was filed, the inventors executed a separate assignment transferring the CIP to Coburn. Defendants argued that the CIP was never assigned to Coburn, either by Pilkington (because of the missing term in the agreement) or by the inventors (because they had already assigned any CIPs to Pilkington, so couldn’t assign them again to Coburn).
The court was left to decided whether the Pilkington assignment included the later CIP application. It found that the assignment was broad, transferring “all right, title and interest in” 27 patents and 13 pending patent applications, which would logically include CIPs. It was an entire business that was transferred, not just the patents themselves, evidencing an intent for a broad transfer. Pilkington had also assigned all “continuations and extensions,” which indicated an intent to include in the assignment future changes to the parent patent application. Altogether, the document showed that the parties clearly intended that the assignment include CIPs. Since Coburn’s ownership traced through Pilkington, the court didn’t need to consider the effectiveness of the inventors’ subsequent assignment to Coburn or other nunc pro tunc efforts to fix the problem.
There was another challenge in the chain of title, more easily disposed of. At one point J.P. Morgan had taken a “Patent Collateral Assignment” of the parent patent application. The document indeed stated that “assignor hereby grants, assigns and conveys to Lender the entire, right, title and interest of Assignor in and to the Patents.” Nevertheless, the court noted that “as a general rule, ‘an assignment made as collateral security for a debt gives the assignee only a qualified interest in the assigned chose, commensurate with the debt or liabilities secured.'” Further, the bank had filed a UCC-1, used to evidence a lien on collateral for a debt, something that wouldn’t be necessary if J.P. Morgan had actually been assigned the patents. Regardless, even if J.P. Morgan had ownership of the patents at some point, the debt had long ago been satisfied and the patent ownership transferred back by the terms of the agreement. There was no documentation of the transfer-back, but none was required. The icing on the cake was J.P. Morgan’s declaration that it had no right, title or interest in the collateral any longer.
The two missing provisions – causes of action for past infringement and CIPs – are patent-specific, so not something that a general M&A practitioner would necessarily spot. A reasonably attentive intellectual property specialist probably would have caught the problems when reviewing the documents. Use one if you got one, don’t assume the forms are right.
Carotek, Inc. v. Kobayashi Ventures, LLC, Nos. 07 Civ 11163(NRB), 08 Civ 5706(NRB), 2009 WL 2850760 (S.D.N.Y. Aug. 31, 2009).
Gerber Scientific Int’l, Inc. v. Satisloh AG, No. 3:07CV1382 (PCD), 2009 WL 2869705 (D. Conn. Sept. 2, 2009).
© 2009 Pamela Chestek