Property, intangible

a blog about ownership of intellectual property rights and its licensing

Too Many Transactions

Six inventors, four changes in ownership before the patent issued and four more after. That’s a recipe for a standing problem.

In Mayfair Wireless LLC v. Cellco Partnership d/b/a Verizon Wireless, Mayfair Wireless did a lot of due diligence and even some extra clean-up — it had the six original inventors assign any rights to it to the extent the rights were not previously assigned and it had two individuals who owned seven of the prior owning entities execute assignments too. It seems like there shouldn’t have been many holes left.

But the magistrate found some. Three changes in title were challenged and two failed.

Mayfair first argued that there was a presumption that the assignee listed on the patent, Technology Alternatives, properly held legal title. The defendants rebutted the presumption by showing, as it turns out, that there was no record of four of the six inventors assigning their rights at all. Thus, the court examined the pre-issue assignments.

The first challenged transaction was a sale pursuant to a security agreement. Hinsdale Bank & Trust Co. had extended financing to the first owner, Gooitech, and took a security interest in all existing and after-acquired assets, including “general intangibles.” Gooitech defaulted and Hinsdale foreclosed, then bought the secured assets itself. But there was no bill of sale of record in the litigation and no way of knowing whether the patent was one of the assets purchased. The court couldn’t know for sure what was sold and declined to assume that the rights to the application were included in the sale.

Next we have an assignment from a company called 3P Networks to Technology Alternatives. A document called a “Notice of Assignment” was of record, but not the actual assignment itself.

The court agreed with the plaintiff, though, that the Notice of Assignment was adequate to assign the patent even if there wasn’t an underlying agreement. This language was good enough to show there was an intent to transfer, and the past tense didn’t matter:

[O]wnership in the same was transferred to Technology Alternatives, Inc…. This includes the entire right, title and interest in the Pending Patent Application and in and to all Letters Patent, of the United States and foreign countries, including any divisionals, continuations, reissues and extensions thereof, that may be obtained therefor.

The third transaction was the most complicated: a company named TechAlt, by now Technology Alternative’s parent, pledged the patent as collateral to Services by Designwise, Ltd. (SBD), although the patent was still owned by Technology Alternatives. TechAlt defaulted, the state court entered an order of replevin in favor of SBD, and SBD took possession of the collateral and later resold it.

Under Illinois law, a debtor can pledge another’s property as collateral “if the true owner of the collateral has agreed to the debtor’s use of the collateral as security.” But, the court found that this provision was preempted by § 261 of the Patent Act, which only allows assignment of patents in writing:

[T]he court cannot overlook the absence of a written assignment between Technology Alternatives and TechAlt. The Federal Circuit has rejected the notion that common corporate structure can be used to overcome the writing requirement, holding that “even between a parent and a subsidiary, an appropriate written assignment is necessary to transfer legal title from one to the other.” Thus, TechAlt could not confer an interest in the ’441 patent to SBD because it did not possess legal title to the patent, and recognition of an indirect transfer between Technology Alternatives and SBD would thwart the congressional objective of requiring a writing to transfer ownership of patent rights…. Technology Alternatives’ alleged indirect transfer to SBD by operation of consent is preempted by the Patent Act….

Finally, Mayfair is not entitled to the bona fide purchaser in good faith defense; the defense only applies if one has acquired rights from a predecessor that held legal title. That wasn’t the case here.

This was a report and recommendation by the magistrate; the parties now have time to object.

What I find interesting about this case is, while Mayfair Wireless is a patent troll, it was not responsible for any of the transactional problems. They all appear to have occurred while various companies were trying to make a go of it.

And the next thought exercise will be to figure out who actually does own the patent.

Mayfair Wireless LLC v. Cellco Partnership d/b/a Verizon Wireless, No. 11-772-SLR-SRF (D. Del. Aug. 30, 2013).

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