Boynton v. Headwaters, Inc., Slip op. 2014 WL 1674082 (6th Cir. Apr. 28, 2014)

In a rare decision discussing patent law, the U.S. Court of Appeals for the Sixth Circuit recently held that 35 U.S.C. § 262, which provides that each co-inventor of a patent has the right to license or assign his or her rights without the consent of other co-inventors, does not preempt state law claims related to patent-related transactions.

In this case, Davidson was an inventor of a patent covering coal agglomeration process. Davidson allegedly convinced investors in a company, Adtech I, that he had assigned the patent to it. In fact, the company had been dissolved. Davidson later assigned the patent to Headwaters, Inc. Davidson finally revealed to the Adtech I investors that that company was dissolved and the patent had been assigned to Headwaters. The investors sued Davidson and Headwaters for patent infringement, fraud and civil conspiracy, breach of constructive trust, breach of fiduciary duty, conversions, and other claims under Tennessee state law. After 10 years of litigation, including a Federal Circuit appeal, a jury found in favor of the plaintiffs. See Boynton v. Headwaters, Inc., 243 F. App’x 610 (Fed. Cir. 2007).

Headwaters argued, among other issues, that the district court erred because the verdict ran afoul of 35 U.S.C. § 262. That provision states that, “In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.” Headwaters argued that, because the Patent Act permits a patentee to alienate their interest in a patent without responsibility to other owners, the Act foreclosed the plaintiffs’ claims based on the assignment of Davidson’s patent to Headwaters.

In a decision written by Circuit Judge Martha Craig Daughtrey, the Sixth Circuit rejected Headwaters’ argument. First, the Court noted that it had “long interpreted this statutory provision to mean that patent ‘co-owners are at the mercy of each other.’ Willingham v.. Star Cutter Co., 555 F.2d 1340, 1344 (6th Cir.1977). The power of one co-owner is such that ‘a co-owner of a patent can even grant a license to a third party without consent of the other owners and neither the co-owner-licensor nor the third-party-licensee is liable to the other owners.’ Id. In addition, §282 does not contain an exception for fraudulent conduct by the patentee.

The Court further held, however, that the absence of a fraud exception was immaterial because the plaintiffs’ claims were not based on the patent assignment per se, but by a conspiracy to defraud the plaintiffs. “The predicate tort at issue here is not the sale of the patent from Davidson to Headwaters; it is the fraudulent misrepresentation or concealment that occurred when Davidson pretended that Adtech I still existed. The predicate fraud, in other words, was separate from the sale of the patent.” Slip op. at *8.

Finally, the Court ruled that § 262 also does not preempt state-law claims arising from a patentee’s transfer of rights:

As a result, 35 U.S.C. § 262 can shield Headwaters from state-law tort liability only if that federal statute preempts the state-law claims. But there is good reason to believe that the statute does not preempt state-law claims of civil conspiracy. In Massachusetts Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215 (1st Cir.2005), for example, the First Circuit held that 35 U.S.C. § 262 did not preempt an unjust-enrichment claim that resulted from behavior that was not governed by patent law. “[I]f the tort action is based on conduct that is not ‘protected or governed by federal patent law,’ then ‘the remedy is not preempted.” ’ Id. at 234 (quoting Hunter Douglas, Inc. v. Harmonic Design, 153 F.3d 1318, 1335 (Fed.Cir.1998)).

As in Massachusetts Eye & Ear, this case involves a tort action arising out of conduct that is not “protected or governed by federal law.” Thus, the provisions of 35 U.S.C. § 262 will not preempt the state-law claim. Headwaters’s invocation of 35 U.S.C. § 262 as a defense against liability in this case is unavailing. 

Slip op. at *8. Thus, the Court rejected Headwaters’ attempt to use § 262 as a shield to defend the state-law claims.

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USPTORoundtable1On April 24. 2014, the he U.S. Patent and Trademark Office  hosted a public roundtable at the Thomas M. Cooley Law School’s Auburn Hills Campus. The program attracted patent practitioners from as far away as North Carolina, including U.S. District Judge Avern Cohn and leading patent practitioners from Michigan.  Judge Cohn summed up in one word the effect new IPR administrative proceedings are likely to have on patent litigation, including parallel actions pending in federal court: “Wow!”

Janet Gongola, Special Advisor, USPTO moderated the program which included:

  • James Donald Smith, Chief Administrative Patent Judge, USPTO, who lead a discussion of the PTAB’s status report of IPR proceedings after just over one full year of activity.
  • PTAB Administrative Patent Judges Michelle Osinski, Jennifer S. Bisk,  Miriam L. Quinn, and David McKone. The PTAB judges presented mock telephone conferences for a motion to amend and a motion to take non-routine discovery.
  • A panel of practitioners familiar with IPR proceedings: Jon H. Beaupre (Brinks Gilson & Lione, Ann Arbor); Brad D. Pedersen (Patterson Thuente Pedersen, Minneapolis), Kara F. Stoll (Finnegan Henderson, Washington DC), and W. Karl Renner (Fish & Richardson, Washington DC).

Distribution materials from the Roundtable are available on the USPTO PTAB microsite.  Thanks to the State Bar IP Section for hosting a post-program reception and all attendees for a successful event.

 

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Octane Fitness LLC v. ICON Health & Fitness, Inc., No. 12-1184 (U.S. April 29, 2014)

Highmark, Inc. v Allcare Health Management System, Inc., No. 12-1163 (U.S. April 29, 2014)

In two unanimous decisions, the U.S. Supreme Court repudiated a 2005 decision by the U.S. Court of Appeals for the Federal Circuit that restricted awards of attorneys fees to a prevailing party under 35 U.S.C. § 285. Calling the Federal Circuit’s requirements “unduly rigid,” the Court ruled that district court judges have broad discretion to award fees in cases that, based on the totality of the circumstances, “stand[] out from other [cases] with respect to the substantive strength of a party’s litigating position (considering both the governing law and the cases of the case) or the unreasonable manner in which the case was litigation.” In addition, the Court ruled that district court determinations under §285 are subject to review only for abuse of discretion.

The Octane and Highmark opinions give district courts more flexibility in deviating from the “American rule” governing attorneys fees in patent cases. In light of current Congressional interest in instituting a “loser pays” system in patent cases through amendments to the Patent Act, the decisions may give the courts some breathing room to attempt to combat the PAE epidemic through a more hands-on approach to case administration, rather than being subjected to statutory fixes imposed by Congress.

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The State Bar of Michigan Intellectual Property Law Section will host a USPTO AIA Roundtable program  at Cooley Law School in Auburn Hills, Michigan on April 24, 2014 beginning at 1:00 PM. The Section will host a reception for the PTAB judges and USPTO representatives from 5:00 to 7:00 PM at the Law School, 2630 Featherstone Road.

ptab_map_trial_roundtables

This year’s roundtable program will focus on the Patent Trial and Appeal Board’s Inter Partes Review and Covered Business Method administrative challenge proceedings. The program will include information about the new AIA trials including statistics, lessons learned, and techniques for successful motions practice. The PTAB is especially interested in receiving feedback about the trials and will feature a panel discussion to elicit public input. At each roundtable, at least five administrative patent judges will participate and be available for questions and conversation.

More information about the program is available on the USPTO PTAB microsite.

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INC. Magazine Lists Detroit in “Top 20″ Innovative Cities

April 19, 2014

INC. Magazine’s April 2014 issue identifies the 20 most innovative cities in the U.S., based on patents issued and presence of “innovation clusters” in specific technical fields.  The On-line version of the article is HERE. ShareTweet

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DJ Duggan Rules That L. R. 83.11(b) Does Not Allow Party To Move For Reassignment Of Cases To Promote More Efficient Case Administration

April 17, 2014

Choon’s Design LLC v. Zenacon, LLC, Case No. 13-13568 (2014 WL 1400104) (E.D. Mich. April 10, 2014). A plaintiff in five different patent infringement cases pending before different judges in the district moved to reassign the cases to a single judge under Local Rule 83.11(b), citing the evident docket and judicial efficiency that would result […]

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Howard, Masck Settle “Heisman Pose” Copyright Dispute

April 1, 2014

Last year we reported on a copyright suit filed by local photographer Brian Masck against former U-M Football great Desmond Howard, Sports Illustrated, and others for infringing the copyright to Masck’s iconic photograph of Howard striking a “Heisman” pose during a touchdown celebration.  The suit led to Howard’s tweet expressing disbelief that someone was suing […]

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MIPLA Considers Patent Damages For April Meeting

March 29, 2014

MIPLA’s April 8, 2014 meeting will feature Rick Bero of The Bero Group presenting on “Hot Topics in Patent Damages.”   More details below. ShareTweet

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State Bar IP Section Meeting Tomorrow

March 23, 2014

Just a quick reminder that the State Bar of Michigan Intellectual Property Law Section Spring IP Seminar is Monday, March 24 at the Kellogg Conference Center in East Lansing. Good speakers; Good networking. For those who cannot attend, I will be tweeting the highlights of the patent law track using the hashtag #IPLSSpring2014. You can […]

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Save The Date – World IP Day Returns to Detroit April 23

March 21, 2014

The 14th annual World Intellectual Property Day in Detroit, a celebration of IP rights and innovation sponsored by the World Intellectual Property Organization and the U.S. Patent and Trademark Office, will be Wednesday, April 23, 2014 from 4-7 P.M. at Stagecrafter’s Baldwin Theater, 415 S. Lafayette, in Royal Oak. The theme for this year’s event […]

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