USPTO Designates Assignor Estoppel Case as Precedential Authority

On August 1, 2017, the USPTO designated a Patent Trial and Appeal Board case as precedential authority.  This case was decided four years ago, on October 25, 2013.  That case, Athena Automation Ltd. v. Husky Injection Molding System Ltd.[1], held that the doctrine of assignor estoppel is not an exception to inter partes review (IPR).[2]

The issue of assignor estoppel arises in this case because the co-inventor of the patent-at-issue, Patent No. 7,670,536, for “Molding System Clamp,” is Robert Dietrich Schad, who is also the founder and former CEO of Husky Injection.  Schad then sold Husky to a private equity firm in 2007, and subsequently founded Athena in 2008.[3]  Husky is the original assignee of the ‘536 patent.  Husky argued that an IPR institution was improper because Schad and Athen were in privity with each other, i.e., both were parties-in-interest who owned the ‘536 patent, of which the interest was later acquired by Husky.

In the PTAB case, the PTAB noted that the AIA only allows “a person who is not the owner of a patent may file with the Office a petition to institute an inter partest review.”[4]  The PTAB determined that since an assignor, by its definition, is no longer an owner of the patent once it has been assigned to another party.  Therefore, the original assignor could file an IPR petition.[5]

The doctrine of assignor estoppel is one of those judicially-mandated equitable mechanisms that prevents the assignor, who in most cases is the inventor of a patent, who has already assigned the rights to a patent or patent application, from later asserting the patent or application has no value.[6]  Therefore, assignor estoppel is a defense to a patent infringement suit.[7]

The case found its way to the Court of Appeals for the Federal Circuit, and became the subject of a fairly recent Federal Circuit decision, Husky Injection Molding Sys. Ltd. v. Athena Automation Ltd.[8]  In that case, Husky appealed the PTAB decision to institute the IPR proceeding and invalidate the ‘536 claims.

As to procedural grounds, the Federal Circuit dismissed Husky’s appeal for lack of jurisdiction because no grounds for review could be established.  The Federal Circuit opinion spent a lot of time getting to how it lacked jurisdiction to hear the Husky appeal, but focused on the Cuozzo standard for determining whether the Federal Circuit could take up an appeal of a PTAB IPR institution decision.[9]  Under Cuozzo, the Federal Circuit could review a decision to institute an IPR if 1) there were constitutional issues presented; or 2) the IPR depended on less closely related statutes, or 3) presented other questions interpretation that go beyond the statute’s section.[10]  The Federal Circuit found that none of these three conditions applied, so it therefore had no jurisdiction to take up the case.

The case is helpful in illustrating a strategic tool for assignors (and inventors) who are hauled to court for infringement of a patent which the inventor conceived before assigning the rights away.  Although the inventor would not be able to question the patent’s validity in court under the doctrine of assignor estoppel, that inventor could still seek invalidation of the patent’s claims before the PTAB.

Outside of the substantive patent law issue of assignor estoppel, the other takeaway from this case is that it is an example of a much smaller company (Athena Automation) filing suit against a much larger one (Husky) and winning.[11]  Of course, the process was lengthy and expensive, but in the end, the small company could claim the victory.

The case will be useful precedent for patent practitioners because Athena Automation is a primer for how the Federal Circuit will deal with PTAB’s IPR decisions.  Further, although assignor estoppel is rarity, the idea of a founder/CEO of Company A who then sells that company and then creates Company B is very common among the startup world, and this issue may arise several more times in the future.

One further side note is that the IPR aspect in Athena Automation is moot, of course, if the Supreme Court rules in favor of the petitioner in Oil States.  The Supreme Court is expected to decide sometime in late 2017.

[1] IPR2013-00290, Paper 18 (PTAB Oct. 25, 2013), Sec. II.A.

[2] See 35 U.S.C. §311(a).

[3] See John Clark, Athena: Robert Schad returns to inejction molding, Plastics Today (June 4, 2013), available at: https://www.plasticstoday.com/content/athena-robert-schad-returns-injection-molding/10803763918936; see also Brian Mudge, Federal Circuit Declines Review of PTAB Assignor Estoppel Ruling, IPR Blog (Oct. 4, 2016), available at: http://interpartesreviewblog.com/federal-circuit-declines-review-ptab-assignor-estoppel-ruling/.

[4] Athena Automation, supra at 12 (quoting 35 U.S.C. §311(a)); see also 37 C.F.R. §42.101.

[5] Id.

[6] See Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220, 1224 (Fed. Cir. 1988).

[7] See Semiconductor Energy Laboratory Co., Ltd. v. Nagata, 706 F.3d 1365, 1369 (Fed. Cir. 2013).

[8] 838 F.3d 1236, 2016 WL 5335500 (Fed. Cir. Sept. 23, 2016).

[9] See Cuozzo Speed Technologies LLC v. Lee, 579 U.S.___, 136 S. Ct. 2131 (2016)

[10] See Husky (slip op. at 14 (quoting Cuozzo, supra, 136 S. Ct. at 2141)).

[11] According to their LinkedIn pages, Athena Automation is under 200 employees, while Husky has nearly 4,000.

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