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CAFC Affirms That Patent Ownership (and Standing) Can Vest Through Operation of Law

By Peter Zura

Sky Technologies, LLC v. SAP AG, No. 2008-1606 (August 20, 2009)

Sky's predecessor ("Ozro") executed an IP security agreement, where certain patents were used as collateral to secure loans. Ozro defaulted on the loan and the patents were foreclosed at public auction.

During foreclosure proceedings, one of Ozro's founders ("Conklin") started a new company ("Sky"), and entered into negotiations to transfer ownership of the patents. Conklin, as an individual, signed a settlement agreement to transfer ownership - at no point after foreclosure did Ozro execute a written agreement assigning all of its rights, title, or interests in the patents.

Sky subsequently filed suit on the patents against SAP, where SAP moved to dismiss Sky?s complaint for lack of standing. The district court held the patents-in-suit were transferred from Ozro through the foreclosure proceedings, but because the parties complied with the Massachusetts Uniform Commercial Code (?UCC?) foreclosure requirements by placing the patent collateral up for sale at a public auction and notifying Ozro of the sale, title was transferred as of the date of the foreclosure by operation of law.

On appeal, the Fed. Cir. affirmed that patent ownership is determined by state, not federal law. The Federal Patent Act requires that all assignments of patent interest be in writing. However, even though a transfer of patent ownership, if through an assignment, must be in writing, ?there is nothing that limits assignment as the only means for transferring patent ownership. . . . [O]wnership of a patent may be changed by operation of law.? Akazawa v. Link New Technology International, Inc., 520 F.3d 1354 (Fed. Cir. 2008).

We find that Akazawa controls in the instant case, and that the district court?s reliance on its reasoning was appropriate because transfer of patent ownership by operation of law is permissible without a writing. Akazawa says nothing about permitting assignments without a writing; rather, this court made it clear that if assignment is the method of transfer of patent ownership, it must be done in writing, pursuant to § 261. . . . However, assignment is not the only method by which to transfer patent ownership. As noted below, foreclosure under state law may transfer patent ownership. Here, XACP?s foreclosure on its security interest was in accordance with Massachusetts law; therefore, Sky received full title and ownership of the patents from XACP providing it with standing in the underlying case.

On the issue of preemption, the Fed. Cir. noted

Section 261 speaks only to assignments of patents; there exists no federal statute requiring a writing for all conveyances of patent ownership. Therefore, no federal law preempts the use of the Massachusetts UCC foreclosure provisions to transfer patent ownership by operation of law. Consequently, Appellants? preemption argument lacks merit.

Read/download the opinion here (link)

Full post as published by Two-Seventy-One Patent Blog on August 20, 2009 (boomark / email).