Watch the Language of Your Consulting Agreements — Federal Circuit Holds That Consulting Agreement Did Not Convey Rights to Inventions Made During Consulting Term Abbott Point of Care Inc. v. Epocal, Inc.,

Watch the Language of Your Consulting Agreements — Federal Circuit Holds That Consulting Agreement Did Not Convey Rights to Inventions Made During Consulting Term

Patent and Technology trial lawyer Stan Gibson discusses the importance of drafting agreements to make sure intellectual property ownership is properly established.

Abbott Point of Care Inc. ("Abbott") filed a complaint against Epocal, Inc. ("Epocal") alleging that it owned two patents and that Epocal infringed the two patents. The patents cover systems and devices for testing blood samples, systems and devices in which Abbott and Epocal directly compete. Both parties claimed to own the two patents-in-suit and both patents were assigned to Epocal as reflected by assignment recorded in the Patent Office. Epocal moved to dismiss the lawsuit in the district court based on lack of standing, i.e., that Abbott did not own the patents. The district court granted Epocal’s motion to dismiss and Abbott appealed.

Abbott claimed that it owned the two patents on the basis of contracts between the named inventor (who was now the founder of Epocal) and Abbott’s predecessors. Abbott asserted that its predecessors had entered into three contracts with the named inventor, two employment agreements and one consulting agreement. Before founding Epocal, the named inventor, Dr. Imants Lauks, was an employee of Abbott’s predecessor, Integrated Ionics Incorporated (“Integrated Ionics”). As part of his employment, Dr. Lauks signed an employment agreement in 1984, which included confidentiality, non-competition, non-solicitation, disclosure and assignment provisions. Integrated Ionics subsequently changed its name to i-STAT and Dr. Lauks executed another employment agreement in 1992. The 1992 agreement included Dr Lauks’ employment duties, compensation, benefits, termination and severance payments.

In 1999, Dr. Lauks resigned his employment with i-STAT and he signed an eighteen-month consulting agreement with i-STAT at that time. The 1999 Consulting Agreement stated that Dr. Lauks "resigns from all his positions" at i-STAT. As the Federal Circuit stated, "[t]he confidentiality provision noted ‘the existing agreement between Lauks and [i-STAT] regarding confidentiality, non-solicitation and non-competition (the ‘Existing Confidentiality Agreement’) shall remain in place as if Lauks remained employed by [i-STAT], except that the covenants regarding non-competition shall run 18 months after the execution of the Consulting Agreement." The 1999 Consulting Agreement did not address invention assignments or obligations.
A few months after the Consulting Agreement expired, Dr. Lauks filed applications that led to the patents-in-suit, on which he identified himself as the sole inventor. After the applications issued as patents, Dr. Lauks assigned them to Epocal. A year after the assignment occurred Abbott acquired i-STAT.

Several years later, Abbott filed a complaint asserting infringement and legal title to the contested patents. Abbott relied upon the 1984 Agreement and the 1999 Consulting Agreement, contending that Dr. Lauks conceived the contested inventions before the Consulting Agreement expired, thus giving Abbott ownership of the patents. Epocal file a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim. The district court granted the motion to dismiss, finding Abbott lacked standing because the 1999 Consulting Agreement did not continue the 1984 Agreement’s Disclosure and Assignment Covenant and therefore Abbott did not own the patents-in-suit. Abbott appealed the decision to the Federal Circuit.

The Federal Circuit began its analysis by stating that for patents "[t]ransfers of title, otherwise known as assignments, are controlled by 35 U.S.C. § 261." Section 261 provides:

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to be whole or any specified part of the United States.

The Federal Circuit noted that Dr. Lauks’ resignation from i-STAT terminated his employment and that therefore the 1984 and 1992 Agreements ended when he ceased to be an employee in 1999. The Federal Circuit found that the 1999 Consulting Agreement did not specify that the entire 1984 Agreement remained in effect for the duration of Dr. Lauks’ consulting period. "The confidentiality provision of the 1999 Consulting Agreement, entitled ‘Continuation of Employee Confidentiality, Non-Solicitation and Non-Competition Covenants,’ simply retains the existing confidentiality agreement in place. That provision is explicitly limited to confidentiality, non-solicitation, and non-competition, without any reference to any obligation to assign inventions."

Notably, for the Federal Circuit, although the 1984 Agreement contained a Disclosure and Assignment covenant, the 1999 Consulting Agreement did not contain provisions obligating Dr. Lauks to assign rights in inventions, improvements or discoveries made or conceived during the consultation period. Instead, the 1999 Consulting Agreement allowed Dr. Lauks to pursue other, non-conflicting interests and excluded work on new products, regardless of the subject matter, including point-of-care blood analysis applications. The Federal Circuit stated that "[a]n automatic assignment of ‘inventions, improvements or discoveries’ conceived while pursuing other interests directly conflicts with the agreement’s allowance that Lauks may work on his own behalf." Accordingly, "[b]ecause the 1999 Consultation Agreement is silent with respect to any assignment of Lauks’ rights in inventions, improvements, or discoveries made or conceived during the consultation period, Lauks had no obligation to assign inventions from the consulting period to i-STAT."

Thus, the Federal Circuit affirmed that the district court properly dismissed Abbott’s claims for lack of standing.

In dissent, Judge Bryson disagreed with the majority’s decision that found the 1999 Consulting Agreement unambiguous. Judge Bryson instead would have found that the 1999 Consulting Agreement was ambiguous and would have reversed and directed the district court to permit discovery and allow extrinsic evidence to interpret the 1999 Consulting Agreement.

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The Abbott decision is yet another reminder of the importance of drafting agreements to make sure that intellectual property ownership is properly established. Here, the failure to include a few specific terms in the 1999 Consulting Agreement (or to specifically exclude them from Dr. Lauks’ and Epocal’s standpoint) led to costly and expensive litigation and ultimately caused a finding that Abbott had no rights to inventions created during the consulting period.

Abbott Point of Care Inc. v. Epocal, Inc., Case No. 2011-1024 (Fed. Cir. Jan. 13, 2012)