Discovery needed to determine effect of employment agreement on patent ownership, but no jury trial

In a decision yesterday, the Federal Circuit remanded a case for further discovery, finding that the district court abused its discretion by denying jurisdictional discovery regarding patent ownership due to the "central relevance" of the information.  The patent ownership dispute arose from an employment contract between one of the two inventors and his employer that purportedly assigned all inventions "which relate in any way to" the business of the employer.  The infringement defendant seized upon this, and obtained an assignment and retroactive license from the employer of any rights it had in the inventions, and then moved to dismiss the case after the close of discovery on the grounds that it was now properly a co-owner of the patent.  Jurisdiction therefore depended on whether or not the inventor or the employer owned the patents in question.  

The district court, after allowing extremely limited discovery on the issue, found that the employer owned an interest the patents and dismissed the case for lack of subject matter jurisdiction.  The Federal Circuit held that the district court had abused its discretion as further discovery was required to fully evaluate the ownership issue, and remanded the case for jurisdictional discovery.  However, the court held that because it characterized the issue as jurisdictional, there was no right to a jury trial on the issue.

Judge Newman dissented in part, finding errors in several aspects of the majority's reasoning, including the conclusion that no jury trial on the underlying jurisdictional issues was necessary, what law applied to whether the contract at issue produced a duty to assign or resulted in an automatic assignment, and the availability of equitable defenses.

More detail of DDB Techs., L.L.C. v. MLB Advanced Media, L.P. after the jump.



This case began as a patent infringement suit between DDB Technologies (DDB) and MLB Advanced Media (MLBAM) over several patents for generating a computer simulation of a live event for display on a viewer's computer as well as one patent for a method allowing a viewer to search for certain information about a live event.  The technology at issue was being used for simulation of baseball and other sporting activities.  MLBAM provides several internet services related to baseball that allegedly infringed the patents.

After discovery concluded, MLBAM entered into an agreement where Schlumberger, the former employer of one of the two inventors of the patents in question, assigned all rights and interest it had in the patents to MLBAM, and also granted a retroactive license.  MLBAM then moved for dismissal for lack of subject matter jurisdiction on the grounds that it was a co-owner of the patent.

The resolution of the motion to dismiss depended on the ownership of the patents, which in turn depended on the employment agreement between the inventor and Schlumberger.  The inventor worked as a computer scientist for Schlumberger developing computer software to control and record data measured by sensors in oil wells.  The employment agreement stated that the inventors assigned their "entire right, title, and interest in and to . . . any and all domestic and foreign patent rights in such ideas, inventions and improvements" provided that they "related in any way to the business or activities of [the employer]" or they were "suggested by or resulted from any task or work of employee for [the employer]."

This agreement gave rise to several issues:  1) whether the agreement automatically assigned the patent rights or whether the inventor was obliged to assign the rights at a later date, 2) whether there was a right to a jury trial over the jurisdictional issues, and 3) whether the district court erred in limiting the jurisdictional discovery regarding the relatedness (hence ownership) of the patented inventions to the inventor's employment.

Regarding the assignment issue, DDB argued that any claim of ownership in the patents by Schlumberger was barred by laches, estoppel, or the applicable statute of limitations, as more than 10 years had passed since the patents issued.  However, if the inventions were assigned when they were made, these defenses would not be in play, as Schlumberger would be the owner of one of the inventor's interest in the patent by operation of law.  The court determined that the question of automatic assignment was an issue of federal, rather than state law.  This was because it was "intimately bound up with the question of standing in patent cases."  Applying Federal Circuit law, the court then determined that an express grant of rights in future inventions results in a transfer of title by operation of law, rather than an obligation to assign in the future.  Interpreting the language of the contract the court found that the language "agrees to and does hereby grant and assign" was and express grant of future patent rights.  As a result, if the inventions fell under the agreement, they were automatically assigned to Schlumberger notwithstanding the fact that no additional assignment document was ever executed and more than 10 years had passed since the patents issued.

Next, the court turned to the right to have a jury trial on the contract issues the jurisdictional issues of standing.  The court held that Federal Circuit law applied and that the appropriate analysis was to consider the "degree of intertwinement between the jurisdictional facts and the facts underlying the merits."  Addressing the issue, the court stated "the interpretation of the employment agreement, which depends in part on state contract law and in part on this circuit's law regarding patent assignment clauses, is not so intertwined with the substantive federal patent law governing DDB's infringement claims and MLBAM's invalidity counterclaims that dismissal on jurisdictional grounds would be inappropriate."  As a result, a DBB was not entitled to have a jury decide the underlying issues relevant to the jurisdictional conclusion.

Finally, turning to the denial of jurisdictional discovery, the court found that the employment agreement was "ambiguous as to what is 'related to' or 'suggested by' [the inventor's] work for [the employer]."  Because both Texas contract law and general contract law instruct a court to consider the "conduct of the parties which indicates the construction that the parties themselves placed on the contract" to clarify ambiguous contracts the court found that the information was of "central relevance" to the resolution of the conflict and should have been allowed.  As a result, it was an abuse of the district court's discretion to deny discovery, and the court remanded the case to conduct the discovery.

Judge Newman filed a partial dissent on this case.  She took issue with the majority's treatment of the issues of waiver, estoppel, and laches that had been raised by the inventors regarding the contract issue.  She also felt that the use of federal, rather than Texas law to evaluate the assignment was a "grievous overreaching, as well as contrary to law and precedent."  Next, she addressed some joinder issues raised by the majority, noting the expansive ability that courts have to join necessary parties under the Federal Rules of Civil Procedure.  She also objected to the denial of a jury trial on the underlying factual issues relating to the employment agreement, disagreeing with the characterization of the issue of ownership as a jurisdictional one.  She argued that under applicable Supreme Court precedent, there was properly subject matter jurisdiction and the real issue was on the merits of the underlying dispute.  Characterizing the issue as a jurisdictional one would result in what the Court has called "drive-by jurisdiction" that is inappropriate, and results in "unrefined" decisions.  Finally, she turned to the jurisdictional discovery issue, finding that further discovery was not only warranted but that it should be available for "consideration with respect to any issue that may be relevant" rather then being limited to ownership issues.

To read the full decision in DDB Techs., L.L.C. v. MLB Advanced Media, L.P., click here.

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