!: Consequences of Co-Ownership (Joint Ownership) of US Patents

Q. What are the consequences of co-ownership of U.S. patents?

A. Co-ownership has some disadvantages, which may be modified by properly drafted agreements between the co-owners.

Corporation A and Corporation B are co-owners of a U.S. patent. One of the two inventors assigned his rights to Corporation B, while the other inventor later assigned his rights to Corporation A. Both corporations disputed this latter assignment's validity. The dispute led to both corporations executing several agreements regarding co-ownership of the patent. One of the agreements addressed the issue of third-party infringement:

Upon discovery by any party of any infringement of the patent, such party shall notify the other diligently: if the parties agree to do so, appropriate legal action in connection therewith shall be undertaken by the parties jointly. In the event that such action is taken, each party shall contribute equally to the expenses of any such action. If any damages for infringement are awarded by a final decree or judgment, then after deducting all expenses arising from the litigation and reimbursing each party for its contributions, the remainder shall be divided equally among the contributing parties. If one party shall not wish to join or continue in any such action, but the other party shall wish to institute or continue such action, said one party shall render all reasonable assistance to said other party in connection therewith at said other party's expense and said other party shall be entitled to retain all recoveries obtained with respect to such action.

Later, Corporation Z approached B for a license to the patent. Around the same time, Corporation A approached B for an agreement to have all rights transferred to Corporation A. B did not tell either party of their discussions with the other party. Eventually, B decided to not sell the patent rights to Corporation A, but to negotiate a license to Corporation Z.

Before a license agreement was completed, Corporation Z began to market a product covered by the patent, before actual sales. After learning of this, Corporation A wrote B and proposed suing Corporation Z for patent infringement, once Z began to conduct sales. Later, Corporation A attorneys called B to seek assistance in the impending lawsuit. The person at B told the Corporation A attorneys that B was negotiating a license with Z. That same day, Corporation A filed a suit against Z. Still on the same day, Corporation A contacted B and invoked its rights under the quoted paragraph.

Two weeks later, B and Z signed a non-exclusive license agreement. The agreement included a license to all persons who bought or used the product provided by Z or authorized third parties.

In answer to Corporation A's lawsuit, Z asserted a complete defense due to the license agreement. The district court ruled in a summary judgment motion for Z.

Each co-owner of a U.S. patent is ordinarily free to exploit the patented invention regardless of the wishes of any other co-owner. Each co-owner may license to others, without another co-owner's consent. These general principles apply unless the parties have an agreement to the contrary. The Federal Circuit examined the quoted paragraph from the Corporation A-Corporation B agreement. Despite the paragraph's provision for unilateral suits against infringers, B was not prohibited from granting licenses. Also, the paragraph's requirement that Corporation B provide Corporation A with reasonable assistance during the litigation did not prohibit Corporation B from granting Z a license. B's license to Z did not preclude Corporation A from suing Z for infringement happening before receiving a license from B.

Without an agreement to the contrary, a co-owner of a patent has the right to prevent a lawsuit and may not force the other co-owner to appear as an involuntary plaintiff under Rule 19 of the Federal Rules of Civil Procedure. If a co-owner waives his right to prevent a lawsuit (e.g. an agreement providing unilateral lawsuit rights), then the other co-owner may force the first co-owner to appear as an involuntary plaintiff. Regarding "reasonable assistance" this term means providing litigation assistance, like copies of documents and witness testimony, not to matters such as the right to license.

One co-owner can stop another co-owner from suing infringers by refusing to voluntarily join in the lawsuit. If the co-owner waived his right to refuse to join a suit, then the other co-owners may force him to join a suit.