Property, intangible

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For the Want of an Assignment Agreement

What we have in Anderson v. TOL, Inc. is the kind of case that makes lawyers’ heads hurt. In 2003, while Plaintiff Lloyd Anderson was in Chapter 13 bankruptcy, he formed PhoenixArts LLC, of which he was the President and sole owner. A few days later, he filed his first of three patent applications for rigid helium balloons. He didn’t assign the application (or the subsequent two) to PhoenixArts.

Shortly thereafter PhoenixArts licensed the patent application and any related applications to Overbreak, LLC for a toy called a “HoverDisc” (the link is to a Wayback Machine page; the link from defendant TOL’s website wasn’t live at the time of this writing). At first Overbreak paid royalties, but by 2007 the relationship had soured. There were various acts that could have terminated the license agreement: Overbreak filed foreign patent applications but let them lapse without notice to Anderson, which was a breach, and the parties disputed whether a letter from Anderson’s lawyer terminated the agreement. Overbreak then assigned the license to defendant TOL, who also produced small quantities of the HoverDisc product.

In 2012 Anderson decided to revive the HoverDisc product. Anderson and TOL negotiated, but Anderson backed out. TOL then took the position that it had a valid and subsisting license to the patents and was going to relaunch in early 2013. Anderson sued.

So who owns the patents, and does TOL have a license?

TOL didn’t have a license. Overbreak’s assignment to TOL didn’t satisfy the conditions for assignment: specifically, Overbreak did not seek Anderson’s consent; if it assigned the license it also had to assign any obligations under the license (i.e., the shortfall in royalties) to any successor and it did not; and there was an increased royalty rate for any assignee that Overbreak didn’t impose on TOL. Therefore TOL couldn’t assert that it had any rights to the patents by virtue of a license.

But that’s only half of it, did Anderson even own the patents? PhoenixArts had represented in the license agreement that it was the owner of the patents.

But, a patent assignment must be in writing, 35 U.S.C. § 261, and there was no written assignment from Anderson to PhoenixArts. Here is the court’s take on it:

Having reviewed the License Agreement closely, it is not clear to the court whether the parties to that agreement engaged in sloppy drafting, whether PhoenixArts made an affirmative misrepresentation, or whether the agreement simply incorporates some form of mutual mistake. For example, the “Background” section on the first page of the agreement defines PhoenixArts as the “Licensor” and states that “Licensor filed on February 14, 2003 for a United States utility patent, attached hereto as Schedule A, with respect to Rigid Helium Balloons.” However, the attached “Schedule A” is a copy of the 838 Patent Application filed by Anderson in his own name. Accordingly, unless the court construes “Anderson” and “Licensor” synonymously in this particular context, it is difficult to understand how the language of the License Agreement can be reconciled with the 838 Patent Application attached as Schedule A, which on its face was not filed by PhoenixArts. At any rate, however the parties intended the License Agreement to be construed, its language would not have overridden the requirements of federal statutory law, which does not appear to recognize oral assignments of patent ownership.

Therefore, based on the existing record, the court is satisfied that Anderson currently owns the Patents, regardless of the language in the License Agreement.

Ah, but what about that bankruptcy? Weren’t the patents part of the bankrupt estate and therefore not Anderson’s?

Under the Chapter 13 rules in effect when Anderson filed his petition, Anderson was required to file a schedule containing all of this assets and liabilities, including all of his legal or equitable interests in property (including intellectual property) at the commencement of the case. See 11 U.S.C. § 521(a)(1). While his Chapter 13 Plan was being administered, Anderson was also statutorily required to declare all property acquired after the commencement of the case. See id. § 1306(a)(1); In re Seafort, 669 F.3d 662, 667 (6th Cir. 2012). The Patent Applications, Patents, and Foreign Patents at issue here each were filed and/or issued in Anderson’s name during the five-year pendency of his Chapter 13 Plan, yet Anderson never declared them as assets or revealed them to the Chapter 13 Trustee. It appears that they should have been, particularly where Anderson takes the position here that he always owned those assets and had merely licensed them to PhoenixArts until its dissolution.


However, … [t]here is no bankruptcy trustee at the moment and TOL has not established that PhoenixArts has a present claim of exclusive ownership over the Patents. Therefore, the court is not persuaded by TOL’s argument that Anderson lacks standing to enforce the Patents at this point. Thus, at least at this stage, the court is satisfied that Anderson owns the Patents and can sue to protect against their infringement.

TOL gets some small comfort, though–it can make the argument that Overbreak’s unpaid royalties are part of the bankrupt estate:

Had Anderson disclosed these assets, his plan would have been modified, and his creditors would have received more money through his Chapter 13 Plan. Indeed, by failing to disclose the royalty stream, Anderson may have defrauded his creditors. As a consequence, he may lack standing to pursue those claims [for Overbreak’s unpaid royalties] here.

What a mess, all for the lack of an assignment agreement.

Anderson v. TOL, Inc., No. 3:12-v-01312 (M.D. Tenn. Feb. 28, 2013).

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One response to “For the Want of an Assignment Agreement”

  1. Reading this while watching Ramsay’s Kitchen Nightmares on TV. Not sure which is more frightening. Some deep cleaning required.

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