Split Within Federal Circuit On Preemption In Ownership Disputes

The U.S. Court of Appeals for the Federal Circuit has denied a petition for rehearing en banc of its panel decision in Abraxis Bioscience v. Navinta LLC (see IP Update, Vol. 13, No. 11>) regarding the applicable rule of law to apply in patent ownership dispute standing issues.  Concurring and dissenting opinions were filed by several members of the Court.  Abraxis Bioscience v. Navinta LLC, Case No. 09-1539 (Fed. Cir., Mar. 14, 2011) (per curiam) (concurring opinion by Gajarsa, J. joined by Linn, J. and Dyk, J.) (dissenting opinion by O’Malley, J. joined by Newman, J.).

The problem with title to the patent in suit 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 Aktiebolag (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 Railroad v. Tompkins, have been considered state rather than federal.  Last November, a split panel of 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 (seeIP Update, Vol. 13, No. 11).  In that decision, the panel majority 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 Federal Circuit precedent of DDB Techs. (2008) (which applies to the interpretation of assignment), the Court found 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 original 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.

Practice Note:  The concurring and dissenting opinions in connection with the rehearing en banc petition expose differences at the Court on the choice of law for interpretation of patent assignments. The precise rule of law (the issue of when an assignment is a present assignment or a promise of a future assignment) invoked by the panel majority is now under consideration by the Supreme Court in Stanford v. Roche (see IP Update, Vol. 13, No. 11).

In that case, the Federal Circuit vacated a judgment against Roche because the inventor had made only a promise to assign.  The Supreme Court agreed to review is directed to the issue of 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.

In advising buyers in a merger, counsel 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.