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IP: Patent in suit doomed by simple transfer of ownership

Patent owners must ensure that patents that are supposed to stay together under common ownership remain together

Any business with a patent portfolio is likely used to the assignment and reassignment of patents and patent applications on a regular basis. While this is often viewed as a trivial, “boilerplate” task, its importance should not be underestimated. Not only can mistakes frustrate patent and corporate transaction attorneys during asset transfers, but they can also spell disaster for the unsuspecting litigant and litigation counsel. This frustrating scenario recently unfolded against a patentee in a patent infringement case; the makings of a true patent horror story.

Most patent attorneys and attorneys who handle corporate and technology transactions are well versed in conducting due diligence and identifying issues that may arise in chains of title for patent assets, such as missing written assignments, misspelled or wrongly identified entities, misidentified entity types, transfers to nonexistent entities, or even incomplete transfer of rights. Because ownership and corporate entity status is dynamic, these attorneys must assess such issues temporally and in the context of the deal. To add complexity, there are potential patent transactions between the patentee and the U.S. Patent and Trademark Office (USPTO) that may have occurred during pendency of the patent application that may be affected by later transfers of ownership or changes in entity status. Unfortunately, not all litigation counsel understand or appreciate these aspects of patent prosecution that can affect patent ownership and standing issues in litigation.  

The most recent example is illustrated in the case of Email Link Corp. v. Treasure Island, LLC et al. in the U.S. District Court of Nevada. In that case, the court ruled that the patent in suit was unenforceable because the ownership of the patent was incompatible with a terminal disclaimer filed during its application process at the USPTO. A terminal disclaimer is a tactic that a patent applicant can use to avoid a “double patenting” rejection during examination of a patent application based on a previously issued commonly owned patent. The disclaimer essentially shortens the term of the patent issuing on the application so that it matches the term of the previously issued patent, thereby technically avoiding the double patenting. The important point here is that the patents subject to the disclaimer must be commonly owned.

In the patent suit, the plaintiff, a subsidiary of a well-known patent troll, owned one of the terminally disclaimed patents and a different subsidiary owned the other patent subject to the disclaimer. The court ruled that patents owned by subsidiaries of the same company are not commonly owned under a terminal disclaimer and therefore held that because of this ownership incompatibility with the terminal disclaimer, the patents were unenforceable. This is the first such ruling by a court.

This decision, if not overturned by an appellate court, significantly impacts corporate entities that leverage multi-subsidiary structures with their patent assets and places even more emphasis on patent portfolio management amongst such entities. Patent owners need to ensure that patents that are supposed to stay together under common ownership remain together. This case exemplifies the nuances of patent procurement that are often overlooked by unsuspecting litigation counsel and is a stern reminder to carefully maintain and manage such portfolios, especially when the assets of such portfolios will be used in enforcement proceedings. 

Contributing Author

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William Lenz

William J. Lenz is a partner at Neal, Gerber & Eisenberg LLP and represents clients in a wide variety of intellectual...

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