Last November, a split panel of judges on the U.S. Court of Appeals for the Federal Circuit vacated a district court finding of infringement by generic drug maker Navinta on the grounds that the plaintiff Abraxis had not properly transferred ownership of the asserted patents prior to the filing of the complaint. Abraxis Bioscience v. Navinta LLC, Case No. 09-1539 (Fed. Cir., Nov. 9, 2010) (Gajarsa, Linn for the Court) (Gajarsa, opinion) (Newman, dissenting). The recent per curiam denial of petition for rehearing by the Court en banc was occasion for the delivery of spirited opinions concurring (Gajarsa, Linn, and Dyk) (Gajarsa, opinion) and dissenting (O'Malley, Newman) (O'Malley opinion). Abraxis Bioscience v. Navinta LLC, Case No. 09-1539 (Fed. Cir., Mar. 14, 2011). Although without consequence to the original panel decision, the concurrence and dissent from rehearing en banc expose a subtle, but potentially momentous difference in opinion on the choice of law for interpretation of patent assignments.
The problem with title arose from a series of mergers and asset acquisitions carried out in relatively quick succession. In chronological order, the inventors assigned ownership to Astra Lakemedel Aktieboag ("Astra L") and AB Astra. AB Astra then merged into AstraZeneca AB ("AZ-AB"). Astra L and AZ-AB later (in late 2007) assigned ownership to their parent, AstraZeneca ("AZ-UK"), but not before plaintiff Abraxis had entered (on April 26, 2006) into an Asset Purchase Agreement ("APA") with AZ-UK. Thus, even at closing on June 28, 2006, when AZ-UK made a present assignment of its ownership to Abraxis in an IP Assignment Agreement included in the closing documents, AZ-UK did not have legal title to the patents, which had not yet been assigned to AZ-UK by its subsidiaries Astra L and AZ-AB. When the oversight was corrected in late 2007, Abraxis had already filed its complaint against Navinta.
Although patent law is often thought to be exclusively federal, in fact many disputes over patent ownership turn on common law rules of contract and property that, at least since Erie v. Tompkins, have been considered state rather than federal. Notwithstanding that history, the panel majority at least have recognized limited federal preemption of state law in interpreting contracts of assignment. Unfortunately for Abraxis, the APA provided only that AZ-UK "shall cause" the assignment of ownership to Abraxis. In accordance with the precedent of DDB v. Techs. (Fed. Cir. 2008), Federal Circuit law applies to the interpretation of such an assignment, and Federal Circuit law holds that such an assignment does not operate as a present assignment of rights, but rather as a promise to assign in the future. The dissent from the panel opinion by Judge Newman, and the dissent from rehearing en banc by Judge O'Malley (joined by Judge Newman), argue that the application of New York state law by the district court (which upheld Abraxis's claim to ownership) was correct, and that the majority was overextending the reach of federal jurisdiction.
Interestingly, the precise rule of law invoked by the panel majority is now under consideration by the Supreme Court in Stanford v. Roche. In that case, the Federal Circuit vacated a judgment against Roche because the inventor had made only a promise to assign to Stanford. The Supreme Court agreed to review the decision because of the questions it raised about whether the Bayh-Dole Act (which permits transfer of title of federally funded inventions to universities) trumped common law rules of property. The Federal Circuit decision applied the rule of DDB without comment on the preemption of state by federal law. The Supreme Court decision in Stanford v. Roche could, therefore, have a substantial impact on the advice given clients in transactions requiring assignment of ownership, even in non-Bayh-Dole settings.
Practice Note: In advising buyers in a merger, lawyers should make closing contingent upon clear documentation of chain of title from any subsidiaries to the seller, so that a present assignment at closing includes all the bargained-for rights. Stay tuned for the Supreme Court opinion in Stanford v. Roche.