Omni MedSci v. Apple: Royalty Theft—Preserving Employer Invention Rights

A recent US Court of Appeals case involving Michigan parties muddies the law on assignments and employer ownership rights. Omni MedSci v. Apple, Case Nos 2020-1715 & -1716 (Fed. Cir. August 2, 2021). The law on patent ownership and standing to sue for patent infringement is both clear and convoluted. Patent inventorship rights are governed by federal law. An automatic assignment (or present assignment) of an invention is typically necessary for an inventor to convey ownership rights to an assignee. Moreover, title to a patent is necessary for standing to sue for its infringement. Omni MedSci questions whether a professor-inventor should have been held to his promise to convey rights to inventions developed during his employment with a university?

Dr. Mohammed Islam is an electrical engineering professor at the University of Michigan (or “UMich” as I like to affectionately refer to it). Dr. Islam signed an employment agreement with UMich related to ownership of any subsequently invented or developed intellectual property. In relevant part, his employment contract included a provision agreeing to abide by Bylaw 3.10 established by the University. Paragraphs 1, 4 and 5 of Bylaw 3.10 respectively state that the inventor’s IP “shall be the property of” either the University, inventor or both depending upon support and investment circumstances.

In 2012, Dr. Islam went on a four-month sabbatical and engaged in a startup called Biomedical Laser Company. During his leave, he filed provisional patent applications related to his research there and those provisional applications were parents to the patents at issue. He eventually assigned rights to these creativities to Omni MedSci, not the University of Michigan. UMich contested Dr. Islam’s property rights, claiming that under their employment compact the University should own his inventions. The University argued that school funds were used to: (i) support research space, (ii) provide administrative backing to granting him a dual appointment in the Medical School and (iii) fund faculty who contributed to or “springboard[ed]” his ideas. at 4. Apple (and UMich) therefore argued that UMich was entitled to ownership under Bylaw 3.10.

After Omni MedSci filed an infringement action against Apple in the Eastern District of Texas, Apple filed a motion to dismiss for lack of standing. The district court denied the motion, however, finding that Omni MedSci was the proper owner of the inventions. The case was eventually transferred to the Northern District of California, where Apple requested the NDCA reconsider the EDTX decision, which was also denied. Apple filed an unopposed motion for certification of the standing question to the Court of Appeals, which acts similarly to an interlocutory appeal for review at the CAFC.

The Court of Appeals, agreeing with the ED of Texas, found that Bylaw 3.10 did not presently automatically assign Dr. Islam’s invention rights to the University. Looking at Paragraph 1 of the Bylaw’s language, Judge Linn first reasoned that the clause merely stipulated conditions for future transfer, rather than effectuated a present transfer. Those conditions, again, were support and investment circumstances, or research activity financing. Next, the Bylaws used the following language: that the inventions “shall be the property of” either the University or the inventor. “The only reasonable reading of this operative language is as a statement of an intended outcome rather than a present assignment.” at 8. The panel stated that under CAFC precedent, a present automatic assignment was found were the contracts included a “present tense executing verb” like “assigns”, “does hereby grant and assign” or “hereby conveys, transfers and assigns.” at 9 (also referred to as an “active verbal expression of present assignment” at 14). Conversely, UMich’s Bylaws included language like “shall”— what the jurists termed to be passive verbs in indefinite or future tense.

Further supporting the panel’s interpretation that the Bylaws were an obligation to assign, UMich’s Office of Technology Transfer has University employees later sign an Invention Report, specific to each invention, that uses present tense language, such as “hereby assign.” If no further acts were required to transfer proprietorship after execution of the employment agreement incorporating the Bylaws, why would the subsequently executed Invention Reports need to include assignment language?

It is not that using “shall” will ensure that the text constitutes an obligation to assign, rather than a present automatic assignment, however. In the context of government conveyances, shall used statutorily more often expresses a present assignment or immediate vesting of government ownership. For example, the court distinguished Stanford v. Roche—a recent SCOTUS opinion interpreting statutory provisions governing conveyances of inventorship rights for inventions resulting from federal contracts. The panel differentiated private party conveyances from statutory grants of ownership to the government.

Judge Newman opined that the obligation to assign from the employment agreement was enough to vest immediate possession in the University as well. In dissent, Judge Newman made an excellent point: why wouldn’t the employment agreement create an obligation to assign that the court should enforce? Judge Newman argued that the plain meaning of the word “shall” in the incorporated Bylaws created such indebtedness and that the lower court should have enforced it. Citing and drawing analogies to a line of precedent, the Dissent indicates that the “shall” language is “well understood and has long been applied to effect the automatic vesting of University ownership of employee inventions.” at 9-10. Instead of evaluating facts related to UMich’s support (a contingency of University ownership) the EDTX focused on whether the employment agreement made a present assignment of inventions… those not yet invented nonetheless. Think about it, how can an employer-client protect its interest in future innovation without using passive verbs in indefinite or future tense??????

So, Omni MedSci has its contradictions and is in keeping with the clear-yet-convoluted law on ownership-standing.