Assignor Estoppel Bars an Invalidity Challenge in District Court but is Not Available as a Defense in an Inter Partes Review Proceeding

On March 23, 2016, the United States Court of Appeals for the Federal Circuit issued a decision in MAG Aerospace Industries, Inc., NKA MAG Aerospace Industries, LLC v. B/E Aerospace, Inc., No. 2015-1370. One of the issues decided by the Federal Circuit was whether the doctrine of assignor estoppel barred B/E from arguing that the asserted patents are invalid even though the defendant, B/E, was not the assignor of the patents. The Federal Circuit affirmed the district court’s ruling that the doctrine of assignor estoppel barred B/E from arguing that the asserted patents are invalid.

Assignor estoppel is an equitable remedy that prohibits an assignor of a patent, or one in privity with an assignor, from attacking the validity of that patent when they are sued for infringement by the assignee. Diamond Sci.Co. v. Ambico, Inc., 848 F.2d 1220, 1224 (Fed. Cir. 1988).

Mark Pondelick, a co-inventor on all three patents at issue in the lawsuit, worked for Evac International Oy at the time of the invention. Mr. Pondelick assigned the patents to Evac International Oy, who in turn assigned them to MAG Aerospace Industries, LLC (MAG). He now works for B/E.

The plaintiff-appellant, MAG, sued B/E Aerospace, Inc. (B/E) alleging infringement of the Pondelick patents. B/E counterclaimed on the basis of noninfringement and invalidity, and in response, MAG asserted the affirmative defense of assignor estoppel. The district court concluded that Mr. Pondelick was in privity with B/E, and consequently, that assignor estoppel applies to bar B/E from attacking the validity of the patents. The district court therefore granted MAG’s motion for summary judgment of no invalidity due to assignor estoppel.

On appeal, B/E argued that the district court erred by improperly applying assignor estoppel to bar them from asserting that the three patents are invalid. Assignor estoppel is an equitable doctrine that is mainly concerned with the balance of the equities between parties. When considering the balance of the equities, a court should also take into consideration those in privity with the parties. "Privity, like the doctrine of assignor estoppel itself, is determined upon a balance of the equities." Shamrock Techs., Inc. v. Med. Sterilization, Inc., 903 F.2d 789, 793 (Fed. Cir. 1990). The Federal Circuit agreed that Mr. Pondelick was in privity with B/E, and that, as a result, the doctrine of assignor estoppel applied to B/E, even though B/E is not the assignor of the patents.

The Federal Circuit explained in Shamrock Technologies that:

If 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.

In the present case, the Federal Circuit held that the district court did not clearly err in its determination. In order to determine whether there was privity between Mr. Pondelick and B/E, the district court looked at the following factors identified in Shamrock Technologies:

1. The assignor’s leadership role at the new employer, i.e., the defendant company;
2. The assignor’s ownership stake in the defendant company;
3. Whether the defendant company changed course from manufacturing non-infringing goods to infringing activity after the inventor was hired;
4. The assignor’s role in the infringing activities;
5. Whether the inventor was hired to start the infringing operations;
6. Whether the decision to manufacture the infringing product was made partly by the inventor;
7. Whether the defendant company began manufacturing the accused product shortly after hiring the assignor; and
8. Whether the inventor was in charge of the infringing operation.

B/E argued that many of the above factors support its position that assignor estoppel should not apply. For example, B/E noted that Mr. Pondelick joined B/E after the decision to develop the accused product, a toilet, was made, and that there was never a plan to conduct infringing activities. In fact, B/E stated that Mr. Pondelick was hired in order to avoid infringement. B/E also argued that this case is unlike others where privity was found, because Mr. Pondelick has a negligible financial interest in B/E. In addition, B/E argued that the district court should not have disregarded the fact that Mr. Pondelick was making good faith efforts to avoid infringement. The district court considered these arguments, but found on balance that assignor estoppel was appropriate. The Federal Circuit found that the district court’s conclusion based on the Shamrock factors was not clearly erroneous as many of the factors weigh in favor of finding privity and explained that:

The district court noted that B/E used Mr. Pondelick’s knowledge to conduct the activities that are now alleged to be infringing; that he was hired specifically to develop the toilets that are accused of infringement; and that he was the Director of Engineering for B/E during his time as a consultant and later became Vice President and General Manager of B/E EcoSystems, the division that manufactured the accused toilets. Based on the extent of Mr. Pondelick’s involvement in the alleged infringing activity and the fact that B/E "availed itself of [Mr. Pondelick’s] knowledge and assistance" to conduct the alleged infringement, Intel Corp. v. U.S. Int’l Trade Comm’n, 946 F.2d 821, 839 (Fed. Cir. 1991), we cannot say that the district court abused its discretion in finding that assignor estoppel applies.

Accordingly, the Federal Circuit held that the district court did not abuse its discretion in finding that assignor estoppel applies and affirmed the district court’s ruling that B/E is barred under the doctrine of assignor estoppel from arguing that the three patents at issue are invalid.

To review a copy of the opinion, please click here.

An interesting note is that B/E had challenged the validity of several claims in the three patents in AIA post-grant review proceedings before the United States Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB), and they were not prevented from arguing invalidity in those proceedings. The PTAB has maintained consistently that assignor estoppel is not applicable to inter partes reviews. Inst. Dec. 11 (citing Athena Automation Ltd. v. Husky Injection Molding Sys. Ltd., Case IPR2013-00290, slip op. at 12–13 (PTAB Oct. 25, 2013) (Paper 18);22 Redline Detection, LLC, v. Star Envirotech, Inc., Case IPR2013-00106, slip op. at 12˗13 (PTAB June 30, 2014) (Paper 66); Synopsys, Inc. v. Mentor Graphics Corp., Case IPR2012-00042, slip op. 16–17 (PTAB Feb. 19, 2014) (Paper 60)).

Thus, the PTAB did not bar B/E from arguing invalidity due to assignor estoppel. The PTAB ruled that each of the challenged claims in the three patents were invalid due to obviousness.

A key takeaway from this case is that while assignor estoppel can be a valuable affirmative defense in District Court litigation under the right circumstances where the invalidity of a patent is asserted, it will not be helpful in a PTAB post-grant review proceeding.