Property, intangible

a blog about ownership of intellectual property rights and its licensing

Were the Patent Rights Assigned? The Federal Circuit Says No

I asked whether a software development agreement assigned the patent rights in the software. The district court held “yes” but the Federal Circuit disagreed.

Here again is the evidence in a letter agreement between plaintiff James (through his company GSP Solutions) and defendant J2 Cloud, known as JFAX at the time:

This letter shall serve to confirm our Agreement on the terms by which you … will develop software solutions for the exclusive use of JFAX Communications, Inc. ….

You agree to develop original software solutions, write original software routines, carry out testing and otherwise provide technological solutions for the JFAX system, and be responsible for the creation, execution and delivery to JFAX of a series of aspects of those solutions.…

JFAX shall become the sole owner of all code and compiled software solutions as described in this Agreement as soon as it is developed, and GSP shall assign to JFAX all copyright interests in such code and compiled software.

James also executed copyright assignment agreements for the software.

The main thing to understand is that, at this procedural posture, which is a motion to dismiss for lack of standing, all inferences must be construed in the developer’s favor. The district court construed the preamble to the agreement, “for the exclusive use,” as meaning that James retained no rights, but that’s not the only possible meaning:

The SDA [Software Development Agreement] is amenable to the construction that it does not assign, or promise to assign, patent rights that would otherwise accrue to Mr. James as an inventor.… [T]hat language is not itself a conveyance of any rights and, in any event, does not clearly go beyond GSP-developed specific software products to encompass also any underlying patentable methods embodied in the specific code. It can be read as indicating that it is only the specific code that will be for JFAX’s exclusive use.

The section stating that JFAX “shall become the sole owner of all code” and “shall assign to JFAX all copyright interests in such code and compiled software” can be understood as referring to the actual code, not the underlying patentable methods. This interpretation is reinforced by use of the word “copyright” but not patent, and executing copyright assignments but not any patent assignments.

There was also a “hired to invent” argument, which the Federal Circuit rejected too. James worked through a distinct legal entity. The Federal Circuit remarked that

we have been directed to no decision applying the hired-to-invent principle where the underlying agreement for engagement of services was between two artificial legal entities and to which the inventor was not personally a party. … Regardless, the SDA does not support a hired-to-invent inference so as to deny standing here. … Based on the provisions and arguments presented to us, the SDA is readily capable of being read not to assign or to promise to assign the patent rights at issue. Because the SDA largely or even wholly defines the terms of JFAX’s alleged “hiring” of Mr. James (actually of GSP), there is at least a factual dispute about any implied assignment or promise to assign.

James still has a long way to go. The “exclusive use” in the preamble of the letter does suggest that, even though he may be the inventor, he would not be allowed to license the rights to anyone else. So although he overcame the standing hurdle, he perhaps still suffered no harm. Interestingly, the patent in which he claims ownership, Patent No.6,208,638, is listed in Stanford Law School’s “NPE Database” as having been asserted 34 times in federal court. I’m guessing there’s money there.

James v. J2 Cloud Servs., No. 2:16-cv-05769 (C.D. Cal. Dec. 19, 2016). Docket.
James v. J2 Cloud Servs., No. 2017-1506 (Fed. Cir. Apr. 20, 2018).

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