Patent Litigation Against Ex-Employees Turned Competitors: The Benefits And Challenges Of Assignor Estoppel

Friday, July 1, 2011 - 01:00

When a former employee/inventor of one company joins the competition to launch a new product line, patent litigation typically ensues. The plaintiff often alleges that its former employee turned competitor has infringed the same patents that name him or her as an inventor. In the usual patent infringement case, the defendant has three principal defenses: 1) the asserted patent is not infringed; 2) the asserted patent is invalid; and 3) the asserted patent is unenforceable. Under the doctrine of assignor estoppel, however, the plaintiff's former employee/assignor and new employer may be precluded from asserting the second and third defenses. As a result, the plaintiff may believe that it holds a trump card - i.e., the assignor estoppel doctrine. Before jumping to conclusions, both sides should understand the strengths and often overlooked weaknesses of this doctrine. Given the stakes involved, this article explores the issues that can determine whether the assignor estoppel doctrine will apply in a given case and, if it does, whether defendants can nevertheless introduce damaging invalidity or unenforceability evidence.

Assignor Estoppel Can Be A Potent Weapon In Patent Litigation

Assignor estoppel is an equitable doctrine that prevents one who has assigned the rights to a patent from later contending that what was assigned is a nullity. Notably, the estoppel bars the assignor's new employer from attacking the validity of the asserted patent if the new employer is in privity with the assignor. The rationale underlying the doctrine of assignor estoppel is simple: a patent owner should not be able to sell the rights to his patent for value now and then later, when sued for infringement of that same patent, argue that the patent he sold is invalid and worthless.

Notably, there is a presumption that assignor estoppel applies when the assignee of a patent sues the assignor for patent infringement. As the Federal Circuit explained, "[d]ue to the intrinsic unfairness in allowing an assignor to challenge the validity of the patent it assigned, the implicit representation of validity contained in an assignment of a patent for value raises the presumption that an estoppel will apply." Mentor Graphics Corp. v. Quickturn Design Sys. , 150 F.3d 1374, 1379-1380 (Fed. Cir. 1998).

Parties Should Not Presume That The Assignor Estoppel Presumption Applies

Before a plaintiff can enjoy the benefits of the presumption announced by the Federal Circuit, however, it first must show that the former employee assigned rights to the patent-in-suit. When the employee assigned an issued patent, which is later asserted in litigation, the situation is relatively clear cut. But, it is relatively rare for an employee to assign an issued patent, as opposed to a mere patent application. In these more common situations, a plaintiff must show that an assignment made years before the asserted patent issued covers that patent.

A. The Issued Patent Must Fall Within the Scope of the Assignment

Showing that the assignment made by the defendant during his employment covers the same patent now being asserted against his new employer may present surprising challenges. Consider, for example, the very common situation of an employee who assigns a patent application to Company X in year 1. In year 3, he leaves Company X and starts a competing business. Between years 1 and 5, the assigned application - like many in the real world - makes its way through the patent office, during which time claims are modified, amended and even deleted before the patent finally issues, naming as an inventor the now former employee. Indeed, the claims of the issued patent may bear little resemblance to the original claims in the application describing the invention that the former employee thought he had created and assigned to his then employer. In year 6, Company X sues the former employee and his competing company for patent infringement and asserts that assignor estoppel should apply. The defendants argue that the application assigned five years ago covered a completely different invention than the final issued patent that is now being asserted, and hence that the defendants should be free to attack its validity and enforceability. The question is whether assignor estoppel should apply in this common situation.

The Federal Circuit has explained that where "a party assigns an 'invention' or application, and the equities advise application of estoppel, the analysis is more elaborate [than when the assignment is of an issued patent]. Unlike assignment of a patent, a party's representations upon assignment of an application are not as clearly bounded." Q.G. Prods., Inc. v. Shorty, Inc. , 992 F.2d 1211, 1212-1213 (Fed. Cir. 1993). "In other words, because the bounds of the invention are less certain, the [Supreme] Court recommended consideration of ample evidence to define the assignor's representations." Q.G. Prods. , 992 F.2d at 1213.

Based on the cases interpreting the assignor estoppel doctrine, "ample evidence" to determine whether the assignment covers the patent rights embodied in the patent-in-suit includes at least the language of the assignment, the inventor oath, the patent application, the file history before the patent office and the patent-in-suit itself.

B. Beware of Opaque Language in Many Assignment Provisions

Although a key source of evidence, assignment provisions may have been drafted hastily without considering the consequences in future litigation. For example, employees often collaborate on their inventions, with each contributing to some aspect of a single patent application that names multiple employees as joint inventors. Some employers prepare one assignment for all of the inventors, using opaque language to describe what each employee actually invented and assigned in the patent application.

This raises yet another common situation that the courts have yet to explicitly address in the context of assignor estoppel. It is not unusual for the patent office to determine that there is more than one invention in an application and that it should be divided into at least two patents. When this happens, according to USPTO rules, each inventor should be named on only those new divisional applications that cover his inventions. The employer, however, might leave all of the original inventors on all of the new applications. Once the patents issue and litigation ensues, should an inventor turned competitor be estopped from attacking the validity of all the distinct patents - including those covering subject matter that he did not invent? Or, should the presiding court determine which inventor was responsible for which invention? The answer likely depends on the language of the assignment. Depending on the language used in the assignment documents, however, the inquiry may be fact intensive and involve a host of other issues, including an analysis of the scope of the "invention" that was conveyed and the intention of the parties regarding amendments during patent prosecution.

C. Implications of the Inventorship Declaration

Similarly, the meaning of a former employee's inventorship declaration may also become important. When a patent application is filed, the named inventors must swear that they are the true inventors of the application. Not surprisingly, courts have rejected in clear terms many attempts to contradict sworn inventorship oaths in order to avoid assignor estoppel. Yet, many inventorship declarations are ambiguous and raise many of the same issues as the assignment documents discussed above. For example, joint inventorship issues, imprecise descriptions of the assigned "invention" and amendments to an assigned application during prosecution may be used by defendants in an attempt to argue that assignor estoppel does not apply.

D. Ambiguous Contracts Are Typically Construed against Their Drafter

Finally, it is worth noting that the employer typically drafts the key documents underlying the assertion of assignor estoppel - the assignment, the patent application and the inventorship declaration. This raises a possible argument, yet to be addressed by any court in the context of assignor estoppel, that any ambiguities in these documents should be construed against their drafter, weighing against the application of estoppel.

Beyond Estoppel: Formidable Defenses Remain Available To An Estopped Former Employee

A company considering the strength of its patent litigation case against a former employee and new employer should be aware that even estopped defendants may have defenses aside from non-infringement in their arsenal. Most prominently, in situations where the company engaged in inequitable conduct during the prosecution of the patent without any involvement by the assignor/defendant, such conduct might still operate as a defense and render the patent unenforceable. Shamrock Technologies, Inc. v. Medical Sterilization, Inc. , 903 F.2d 789 (Fed. Cir. 1990).

Moreover, an accused assignor has additional means to defend himself beyond asserting invalidity or unenforceability defenses. First, "[a]n estopped party may ... argue for a narrow claim construction." Mentor Graphics Corp. , 150 F.3d at 1379-1380 (citing Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co. , 266 U.S. 342, 351 (1924)). Second, "assignor estoppel does not preclude the estopped party from arguing that the patentee is itself collaterally estopped from asserting a patent found invalid in a prior proceeding." Mentor Graphics Corp. , 150 F.3d at 1379-1380 (Fed. Cir. 1998) (citing Blonder-Tongue Lab., Inc. v. University of Illinois Found. , 402 U.S. 313 (1971)).

In addition, an estopped assignor may be able to argue "that the accused devices are within the prior art and therefore cannot infringe." Mentor Graphics Corp , 150 F.3d at 1379-1380 (Fed. Cir. 1998) (citing Scott Paper Co. v. Marcalus Mfg. Co. , 326 U.S. 249 (1945)). The Federal Circuit has held that practicing the prior art is generally not an available defense to literal infringement. See Tate Access Floors v. Interface Architectural Res. , 279 F.3d 1357, 1369 (Fed. Cir. 2002). Notwithstanding this well-known proposition, the Federal Circuit has continued to heed the Supreme Court's pronouncement that practicing the prior art is a defense to infringement in the context of assignor estoppel. Indeed, the Federal Circuit explicitly referred to the practicing the prior art defense in its Mentor Graphics opinion.

Finally, the damages phase of a patent trial can be used by a defendant otherwise precluded by assignor estoppel from presenting invalidity evidence to introduce evidence of key prior art. Reasonable royalty damages are governed by the factors set forth in Georgia-Pacific Corp. v. United States Plywood Corp. , 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), which include the advantages of the claimed invention over the prior art. A defendant precluded by assignor estoppel may be able to submit an expert report and adduce at trial expert testimony documenting the key prior art, showing that the differences between it and the asserted patent are non-existent or minimal. The defendant may even be able to get a prior art inventor before the jury on the damages issue. This evidence - while it can't be used to argue invalidity - can still have a meaningful impact on the jury.


Although the purpose of assignor estoppel is simple and understandable, its application is often laden with complexity. As a result, parties should be aware of the nuances early in the process, investigate and analyze the facts and then consider their respective strategies carefully before the press of litigation makes it difficult to do so.

Robert S. Berezin is a Litigation Partner in Weil's New York office and serves as trial counsel for clients in complex, high-stakes commercial litigation. Lucy E. Muzzy is an Associate in Weil's Patent Litigation Group.

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