The assignor estoppel doctrine (“AED”) is an equitable doctrine based on the principle of fair dealing that prevents assignors of patents rights, and those in privity with them, from then challenging the validity of those patents under many circumstances. The classic fact pattern in which the AED is invoked involves an inventor or assignor assigning her patent rights for value to another party and then later seeking to invalidate such patent rights in order to compete with such assignee.

The Supreme Court has recognized this doctrine in the past on a number of occasions, but each time, it has done so reluctantly and has tightly constricted it and provided a variety of exceptions.[1] The Federal Circuit, on the other hand, has embraced this doctrine and has considerably broadened its application beyond that which the Supreme Court has recognized.[2] The fate of the AED is now again before the Supreme Court in Hologic.[3] Given the Supreme Court’s prior jurisprudence, including its elimination of the licensee estoppel doctrine in Lear, many expect that the Supreme Court will eliminate the AED in its entirety and, if not, severely restrict its application.

After the Decision

If the court does either of those things, the patent rights assigned in an asset purchase agreement or the like will now, in many or all instances, be subject to attack for invalidity by the very entity from which they were purchased or any other assignor, including, e.g., the inventor(s). To limit its exposure, the assignee may want to consider including protective provisions in the applicable agreement (similar in many respects to those that were adopted in license agreements following the Medimmune[4] decision allowing licensees to challenge licensed patent rights while retaining their license).

Such provisions may include the following:

• Deferred payouts

• Non-compete or exclusivity clause with an extended time period

• Representations & Warranties with an extended survival period

• Patent Challenge Provisions

• Scope to include court proceedings and Patent and Trademark Office (“PTO”) proceedings including an inter partes review (“IPR”)

• Advance notice with grounds or support for challenge

• Payment of any fees or costs incurred in defending a challenge

• Payments if the challenge is successful

An obvious provision not included above is one simply prohibiting a patent challenge, as such a provision has long been held to be unenforceable as being contrary to the important public policy of eliminating invalid patents.[5]

Existing Agreements

Assuming an existing agreement does not contain provisions such as those suggested above, some limited protection for the assignee/buyer may be found in the representations and warranties and exclusivity or non-compete clause (though likely of shorter duration than one would like) typically included in asset purchase agreement or similar transactions involving an assignment of patent rights.

Patent Office Proceedings

Contrary to its holdings with respect to the AED and the courts, the Federal Circuit held in Hologic that the AED does not apply in proceedings before the PTO such as an IPR. Thus, regardless of how the Supreme Court rules on the AED later this year, the above provisions should also be considered today for inclusion in any transaction involving an assignment of patent rights to deter challenges at the PTO.

Upstream Assignors

Even with protective provisions such as those suggested above, these patent challenge concerns will still be an issue in those instances where there is a chain of assignors/assignees particularly if an assignor, e.g., an inventor, in the chain is not employed by or otherwise affiliated with the last entity to assign the patent rights at issue. Short of entering into separate agreements with these individuals or entities, it appears there may be little an assignee could do to protect itself from a patent challenge by such an individual or entity.

For more information about Hologic, please see our prior viewpoints about the case here and here.
 

Endnotes

1 See Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342 (1924), Scott Paper Co. v. Marcalus Mfg. Co., Inc., 326 U.S. 249 (1945), and Lear, Inc. v. Adkins, 395 U.S. 653, 666 (1969).

2 See, e.g., MAG Aerospace Indus., Inc. v. B/E Aerospace, Inc., 816 F.3d 1374 (Fed. Cir. 2016), Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 150 F.3d 1374 (Fed. Cir. 1998), Carroll Touch, Inc. v. Electro Mech. Sys., Inc., 15 F.3d 1573 (Fed. Cir. 1993), Shamrock Techs., Inc. v. Med. Sterilization, Inc., 903 F.2d 789 (Fed. Cir. 1990), and Diamond Sci. Co. v. Ambico, Inc., 848 F.2d 1220 (Fed. Cir. 1988).

3 See Minerva Surgical, Inc. v. Hologic Inc., et al. (957 F.3rd 1256 Fed Cir 2020).

4 MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).

5 See, e.g., Kimble v. Marvel Entm’t, LLC, 135 S. Ct. 2401 (2015), Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313 (1971), and Edward Katzinger Co. v. Chi. Metallic Mfg. Co., 329 U.S. 394 (1947).