American Intellectual Property Law Association
Someone Else’s Assignor Can Estop You:
When Consultants Prevent
Patent Validity Challenges
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Jeffrey I. D. Lewis
Patterson Belknap Webb & Tyler, LLP
March 2014
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© 2014
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Hypothetical
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Consultant designs a process
Process infringes a patent
invented by the same consultant
For someone else
– Involvement of this consultant-inventor = cannot challenge validity
of that patent
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Consultants
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Hired to do again what he or she previously did
Hire someone who has “been there, done that”
That’s concern.
If consultant was too close, assignor estoppel bars arguing
the consultant’s prior patents are invalid
• Disclaimer: Author litigated in a recent case
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ASSIGNOR ESTOPPEL
• Assignor estoppel “is an equitable doctrine that prevents
one who has assigned the rights to a patent (or patent
application) from later contending that what was assigned
is a nullity.” Diamond Scientific Co. v. Ambico, Inc., 848
F.2d 1220, 1224 (Fed. Cir. 1988).
• “an assignor should not be permitted to sell something and
later to assert that what was sold is worthless, all to the
detriment of the assignee.” Id.
• The doctrine “operates to bar other parties in privity with the
assignor, such as a corporation founded by the assignor”
(id.) from challenging the assigned patent
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“Typical” situations
• Highly-integrated employee, something more than a “mere
employee”
“an inventor assigns his invention to his employer company A and leaves
to join company B, whether company B is in privity and thus bound by the
doctrine will depend on the equities dictated by the relationship between
the inventor and company B in light of the act of infringement. The closer
that relationship, the more the equities will favor applying the doctrine to
company B.” Shamrock Technologies, Inc. v. Medical Sterilization, Inc.,
903 F.2d 789, 793 (Fed. Cir. 1990).
• “[F]or a finding of privity, what is significant is whether the
ultimate infringer availed itself of the inventor’s knowledge
and assistance to conduct infringement.” HWB, Inc. v.
Braner, Inc., 869 F. Supp. 579, 581 (N.D. Ill. 1994), citing
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Intel Corp.
v. U.S. Int’l Trade Comm’n, 946 F.2d 821, 839
(Fed. Cir. 1991).
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Privity
• A fact-specific inquiry derived from both the “direct and
indirect” contacts between the inventor and the accused
infringer. Intel, 946 F.2d at 838
• “[L]ike the doctrine of assignor estoppel itself, [privity] is
determined upon a balance of the equities.” Shamrock,
903 F.2d at 793
• Decisions focused on the traditional, paid employee
• Can include employees that have a heightened interest in
the success of an infringing product (such as by earning
royalties or profit sharing) or even have an
ownership/shareholder interest in the accused infringer
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Privity - Examples
• Diamond Scientific, 848 F.2d at 1224 (inventor-assignor left
plaintiff to form defendant)
• Shamrock, 903 F.2d at 794 (inventor-assignor worked for
defendant at Vice President for operations, owned 50,000
shares in defendant, defendant hired him specifically for
the infringement and he oversaw the building of new
facilities for the infringement, and he participated in
decisions to infringe)
• Intel, 946 F.2d at 837-38 (assignor-inventor was president
and chief executive of defendant and owned 40% of shares
making him largest single shareholder)
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Privity – Examples (2)
• Carroll Touch, Inc. v. Electro Mech. Sys., Inc., 15 F.3d
1573, 1579 (Fed. Cir. 1993) (inventor-assignor was the
founder, president, principal executive officer, and owned
stock in the defendant corporation)
• Mentor Graphics Corp. v. Quickturn Design Systems, Inc.,
150 F.3d 1374, 1377 (Fed. Cir. 1998) (applying privity to
find inventor estoppel even as to a later-acquired
subsidiary where corporate assignor owns stock, shares
personnel and has control over party)
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Privity – Counter Examples
• HWB, Inc., 869 F. Supp. at 582 (inventor-assignor “was not
hired … to initiate the alleged infringement operations, to
oversee the construction of facilities … and [defendant] did
not avail itself of [his] knowledge and assistance in order to
manufacture the infringing product”)
• Earth Resources Corp. v. United States, 44 Fed. Cl. 274,
52 U.S.P.Q.2d 1545 (Fed. Cir. 1999) (no financial interest
in infringement nor “significant influence or control over”
defendant)
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Privity Standard
• “‘If the estopped assignor enters into business [with] others,
who derive from him their knowledge of the patented
process or machine[, and,] availing themselves of this
knowledge and assistance, enter with him upon a
manufacture infringing the patent which he has assigned,
they are bound by his estoppel.’” HWB, 869 F. Supp. at
581 (quoting Mellor v. Carroll, 141 F. 992, 993-994 (C.C.D.
Mass. 1905))
• However, cases are extending doctrine to more informal
business relationships, particularly consultants
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Consultant-Assignor With An Interest
• Designing Health, Inc. v. Erasmus, 2001 U.S. Dist. LEXIS
25951 (C.D. Cal. Apr. 24, 2001)
• Erasmus worked with plaintiffs, formulated pet food
supplement, designed manufacturing process, and
participated in promotional activities for product. *5.
• Erasmus entered into agreements with plaintiffs, including
assignments for patent applications, and received inter alia
40,000 shares of stock. *5-7
• Erasmus also involved with designing infringing pet foods
for the defendants and received an 8% royalty on the sale
of those infringing products. *5, *9-10
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Designing Health analysis
• “Having received value in exchange for his inventions and
for the patent applications already pending, Erasmus and
those in privity cannot now challenge the validity of the
patents issued on those same inventions.” *18
• Defendants alleged inequitable conduct
• Normally bar patentee from relying on an equitable defense
like assignor estoppel, if proven
• But accused inequitable actors include Erasmus, so
Erasmus would profit from any involvement in inequitable
conduct, so still applied. *20-21
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Designing Health privity
• Erasmus’ direct involvement in making accused pet foods,
royalties to Erasmus, etc. extended privity to remaining
defendants as well
• “[T]he Defendants availed themselves of Erasmus’
knowledge and assistance in making those products and
that Erasmus played a direct role in the creation of the
allegedly infringing products.” *22-23
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The Consultant-Assignor Without An Interest
• BASF Corp. v. Aristo, Inc., 872 F. Supp. 2d 758, 775 (N.D.
Ind. 2012) (argued by author)
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Retired employee, who had worked in coatings
Became consultant to defendant Aristo
Designed a coating process and machine for defendant
BASF asserted patent where consultant was first named inventor
Consultant did not have an ownership or managerial interest in the
defendants
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BASF v Aristo
• Aristo asserted inventor was a “mere consultant”
• Undisputed facts showed Aristo “availed itself” of inventor’s
“knowledge and assistance.” Id. at 776, 775
• Consultant developed the infringing coater, developed the
specifications of the infringing machine, oversaw its
fabrication, drafted the operating procedures, and taught
operators how to use the coater
• Tasks “directed towards the allegedly infringing conduct,”
thus Aristo fully “availed itself” to the inventor. Id. at 775
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BASF analysis
• Did not consider the lack of royalties or ownership
impediment to assignor estoppel
• Court looked to inventor’s participation “in the design,
manufacture, and operation” of the allegedly infringing
machine and process. Id. at 776
• Consultant was instrumental to the infringement
• Although Aristo “had some of the know-how” to create the
coating machine, “[i]t needed [the consultant] to fill in the
gaps to build the machine.” Id. at 775
• In light of his “significant role,” id. at 776, privity was
warranted since the consultant operated as more than a
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“mere” participant or advisor
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Developing Expansion of the Doctrine
• Brocade Communications Systems v. A10 Networks, Inc.,
2012 U.S. Dist. LEXIS 84879 (N.D. Cal. June 18, 2012).
• Relied on BASF
• Inventor was “initially a part-time consultant” to defendant,
but was “immaterial”
• “An inventor/assignor need not be a full-time employee for
privity to apply.” Id. at *30
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Brocade Facts
• One of the co-founders of the plaintiff corporation, Foundry,
secretly began a competing venture while still employed by
Foundry. Id. at *10
• He eventually left Foundry to new venture, A10 Networks
• Took several Foundry’s employees to A10 Networks, who
brought with them Foundry’s intellectual property. Id.
• Jalan one of those who moved to A10 Networks, although
initially “a part-time, unpaid consultant.” Id. at *8, *20
• Foundry sued A10 Networks on three patents assigned by
Jalan. Id. at *10-11
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Brocade Analysis
• Court looked to the relevant factors set out in Shamrock for
“useful, although not dispositive guidance”:
“(1) the assignor/inventor was a high level employee at his new employer;
(2) the assignor/inventor owned shares in his new employer; (3) as soon
as the assignor/inventor was hired, the new employer built facilities for
performing the infringing activity; (4) the assignor/inventor oversaw the
design and construction of those facilities; (5) the assignor/inventor was
hired in part to start up the infringing operations; (6) the decision to begin
the infringing operation was made jointly by the assignor/inventor and the
president of his new employer; (7) the infringing product reached the
market with reasonable speed after hiring the assignor/inventor; and (8)
the assignor/inventor was in charge of his new employer’s infringing
operations.” Id. at *19
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Brocade Analysis (2)
• Inventor had “leadership role” in developing the infringing
product
• Overall “close relationship” between inventor and
defendant. *20
• Issue was whether “‘the ultimate infringer availed itself of
the inventor’s knowledge and assistance to conduct
infringement.’” *30 (citing BASF)
• “[A]s a part-time consultant Jalan participated in ‘design
discussions’ and ‘code reviews’ and ‘provided some input
on the design framework’ of the AX series device.” *31
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Practical Take Away
• Ask questions
• Be aware of potential conflicts before they develop,
including consultant’s patent history
• Review the consultant’s patents when clearing commercial
developments
• Have someone oversee consultant’s work
– Inventor/consultant should assist and advise
– not control or make decisions (BASF)
• Maintain boundaries – consultant ≠ employee
• Look out for a competitor's “rogue” employees (Brocade)
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Thanks for your attention! Questions?
Jeffrey I. D. Lewis, Esq.
Patterson Belknap Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036-6710
Tel. (212) 336-2549
Fax (212) 336-2544
jidlewis@pbwt.com
www.pbwt.com
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