On August 2 the Federal Circuit issued its opinion in Omni Medsci, Inc. v. Apple Inc., a case we have been following because it attracted an amicus brief. The case was argued before Judges Newman, Linn, and Chen. Judge Linn authored the majority opinion affirming the district court, and Judge Newman dissented. The opinions relate to the doctrine of standing and the proper interpretation of the bylaws of the University of Michigan as they relate to ownership of intellectual property. This is our opinion summary.
This case is a interlocutory appeal where “Apple seeks to overturn the denial of its motion to dismiss Omni MedSci’s (‘Omni’) patent infringement complaint for lack of standing.” The Federal Circuit panel “affirm[ed] the district court’s holding that the University of Michigan (“UM”) bylaws did not effectuate a present automatic assignment of Dr. Islam’s patent rights and therefore affirm the district court’s denial of Apple’s motion to dismiss.” Judge Linn provided a background on the case:
When Dr. Islam joined the UM faculty, he executed an employment agreement that included a provision agreeing to abide by UM’s bylaws. UM Bylaw 3.10, the focus of the issues in this appeal, “stipulates the conditions governing the assignment of property rights to members of the University Faculty and Staff.” It provides the disposition of intellectual property under three distinct conditions:
1) Patents and copyrights issued or acquired as a result of or in connection with administration, research, or other educational activities conducted by members of the University staff and supported directly or indirectly (e.g., through the use of University resources or facilities) by funds administered by the University regardless of the source of such funds, and all royalties or other revenues derived therefrom shall be the property of the University.
* * *
4) Patents, copyrights, and property rights in computer software resulting from activities which have received no support, direct or indirect, from the University shall be the property of the inventor, author, or creator thereof, free of any limitation which might otherwise arise by virtue of University employment.
5) In cases which involve both University-supported activity and independent activity by a University staff member, patents, copyrights, or other property right in resulting work products shall be owned as agreed upon in writing and in advance of an exploitation thereof by the affected staff member and the Vice-Provost for Research in consultation with the Committee on Patents and Copyrights and with the approval of the University’s Office of the General Counsel. It is understood that such agreements shall continue to recognize the traditional faculty and staff prerogatives and property rights concerning intellectual work products.
In 2012, Dr. Islam took an unpaid leave-of-absence from UM to “start a new Biomedical Laser Company.” . . . During his leave, Dr. Islam filed multiple provisional patent applications. . . . After those applications issued as patents, Dr. Islam assigned the patent rights to Omni on December 17, 2013 and recorded their assignment with the Patent and Trademark Office. One of those patents is an ancestor of the patents-in-suit here.
In 2018, Omni sued Apple in the Eastern District of Texas, asserting infringement. . . . Apple filed a motion to dismiss for lack of standing under Fed. R. Civ. P. 12(b)(1), alleging that UM, not Omni, owned the asserted patents. Apple argued that Dr. Islam agreed “to abide by all University rules and regulations” including UM bylaw 3.10 when he joined the UM faculty. Apple specifically argued that paragraph 1 of bylaw 3.10 automatically transferred legal title to the patents at issue to UM, leaving Dr. Islam with no rights in the invention to assign to Omni. Apple thus contended that Omni lacked standing to assert the patents against Apple.
The Eastern District of Texas concluded that paragraph 1 of bylaw 3.10 was not a present automatic assignment of title, but, at most, a statement of a future intention to assign. . . . The district court thus concluded that dismissal was improper. . . . The case was thereafter transferred to the Northern District of California. Apple filed for reconsideration, which the district court denied, finding “no manifest error” in the Eastern District’s decision. . . . Apple filed an unopposed motion for certification of the standing question to this court, which the Northern District granted. Apple appeals the denial of dismissal.
Judge Linn first highlighted that the court reviews “the district court’s determination regarding patent ownership based on the interpretation of an employment contract de novo.” The Federal Circuit in this case, he explained, will “apply federal law to determine whether the contract here created an automatic assignment or created an obligation to assign, because that question is ‘intimately bound up with the question of standing in patent cases.’” In this case, the court agreed with “the Eastern District of Texas that paragraph 1 of bylaw 3.10 does not presently automatically assign Dr. Islam’s rights to the patent but rather, at most, ‘reflects a future agreement to assign rather than a present assignment.’”
Judge Linn first stated “that paragraph 1 of bylaw 3.10 is most naturally read as a statement of intended disposition and a promise of a potential future assignment, not as a present automatic transfer,” as evidenced by “both the text of bylaw 3.10 taken as a whole and a comparison of the language therein to language interpreted in our precedent.” Second, the court explained that “paragraph 4 of bylaw 3.10 shares the same operative language, ‘shall be the property of’, as paragraph 1, but cannot logically be read as a present automatic assignment.” The court noted that the employment contract doesn’t automatically assign itself when it provides patents “‘resulting from activities which have received no support, direct or indirect, from the University, shall be the property of the inventor.’” Third, the court explained, “the language of paragraph 1 of bylaw 3.10 does not use present tense words of execution” meaning it lacks present action and is assignable in the future. Fourth, the Federal Circuit noted that the University of Michigan Invention report appeared to be a future assignment because the “form notes that the assignment is ‘required’ rather than previously executed under bylaw 3.10.”
Judge Linn, for the majority, went on to explain that “Apple presents several arguments in favor of interpreting the contract as a present automatic assignment, but they are unconvincing.” Apple claimed “that two of this court’s cases also interpreted ‘shall’ as effectuating a present automatic conveyance.” The court, however, found that the “cases are inapposite” because “none of these statutes concerns assignments between private parties.” Apple next argued “that bylaw 3.10 is meant to effectuate a present automatic transfer.” The court, however, maintained that the bylaw “says nothing about how the University obtains its intellectual property.” And Apple lastly contended “Dr. Islam’s and the University of Michigan’s prior conduct demonstrate a joint understanding that paragraph 1 of bylaw 3.10 executed a present assignment rather than a mere promise to assign.” The court, though, disagreed, stating that “the parties’ past conduct does not change our interpretation of the language of the bylaws.” The court therefore concluded “that paragraph 1 of bylaw 3.10 is, at most, a statement of a future intention to assign the patents at issue” and this meant that the “the district court’s denial of Apple’s motion to dismiss for lack of standing is affirmed.”
As mentioned, Judge Newman authored a dissent. She contended that “these patents are the property of the University” as a “matter of contract interpretation.” Judge Newman first noted that not assigning the patent immediately to the University “contravenes these documents’ plain meaning and long-understood interpretation.” Second, she explained, the future tense argument of the majority is incorrect as the University “policy of automatic vesting of employee inventions facilitates University administration of patent and licensing activity and fulfillment of Bayh-Dole obligations.” Third, Judge Newman cited numerous situations that “illustrate varied usages for this purpose.” As such, she argued, “Omni does not have standing to bring these infringement suits.”