Many states in the western United States have community property laws. These laws are often overlooked when analyzing who may have an interest in a patent application or patent. Unknown or unrecognized interests can emerge suddenly to wreak havoc in unexpected ways — allowing an infringer to escape liability by purchasing a license from the interest-holder, for example, or to thwart an infringement lawsuit on “standing” grounds. An infringement suit can’t be maintained unless all co-owners join; a single co-owner lacks standing to proceed alone. Lack of standing is a question of law and may be raised at any time. The case of Enovsys LLC v. Nextel Communication Inc. et al., 614 F.3d 1333 (Fed. Cir. 2010) illustrates some potential risks involved. It also provides a wake-up call for those doing due diligence regarding ownership of patent rights.
California is a community property state and real and personal property (including patent rights) can be community property. California law provides that all property created during marriage is presumptively community property and that each spouse has an equal and undivided interest therein. In Enovsys the issue was whether a former spouse of a co-inventor of two patents had any rights in those patents.
While married in California, a co-inventor filed two patent applications which subsequently issued as United States patents. He and his wife later divorced. As of the effective date of their divorce, one of the patents had already issued from the U.S. Patent and Trademark Office and the other issued thereafter. The two co-inventors later formed Enovsys and assigned the two patents to the company. Enovsys then filed a patent infringement suit against Sprint.
Sprint moved to dismiss the case for lack of standing, claiming that the ex-wife held a community property interest in the patents. Sprint had obtained an assignment from the ex-wife of any interest that she might have, and asserted that since not all co-owners had joined in the suit Enovsys did not have standing to enforce the patent.
The district court found that the couple’s divorce proceedings had provided that the ex-wife did not have any interest in the patents because a summary dissolution form had stated that they had no community property. The jury then found that Sprint infringed both patents and awarded Enovsys $2.78 million in damages. Sprint appealed.
The Federal Circuit affirmed the district court’s ruling. In determining the issue of patent ownership and standing to sue, the court determined that the earlier divorce proceedings had determined the spouses’ ownership rights in the patents and should be respected. The court reasoned that the summary dissolution proceeding conferred ownership of the patent rights on the co-inventor and not his ex-wife. Thus, Enovsys had sole ownership of the patents and standing to sue.
This case raises many important issues for inventors and for companies acquiring patent rights. Inventors and owners need to consider whether and to what extent their spouses co-own their patent rights and how that issue may be resolved in a divorce proceeding. In addition, assignees and employers may also need to consider whether they need to have the spouse of an inventor or employee sign off on assignment or employment-related agreements that in any way transfer patent rights.
Likewise, defendants in infringement suits will want to take a close look at each prior title transfer of an asserted patent to see what interest, if any, a spouse or former spouse may have depending on applicable state law. Failure to do appropriate due diligence and understand applicable state law could lead to unfortunate surprises with serious adverse consequences.
For more information on this alert, please contact any of the lawyers listed below:
Steven J. Frank, Partner, Corporate, M&A and Securities Area
steven.frank@bingham.com
This article was originally published by Bingham McCutchen LLP.