Post-assignment validity challenges: limits to the doctrine of assignor estoppel and implications of Minerva

The principles of good faith and fair dealing are key tenets of contract law. These include not knowingly misleading a party and acting in a manner consistent with one’s representations and warranties.

Such principles include some of the broader concepts behind the doctrine of assignor estoppel, recently addressed by the US Supreme Court in Minerva Surgical, Inc v Hologic, Inc. As these contractual principles are applicable in many jurisdictions, the implications arising from Minerva on IP management, transactional due diligence and careful negotiation of agreements extend far beyond the United States.

In the patent context, the US doctrine of assignor estoppel reflects a demand for consistency in representations about a patent’s validity when dealing with others. Specifically, assignor estoppel prevents an inventor who had previously assigned their patent rights to another for value from later contesting the validity of the assigned patent. However, the doctrine even before  Minerva did not necessarily bar all patent challenges by an assignor, including challenging the scope or construction of a patent claim in an infringement action.

In Minerva, the inventor created a company and assigned his patent to it. The company was then sold for good value and the patent assigned accordingly (it was ultimately acquired by Hologic). The inventor subsequently founded a new company (Minerva), and developed a competing product, for which he obtained a patent. Minerva and Hologic discussed Hologic acquiring the new technology. Aware of the inventor’s activities, Hologic filed and obtained a continuation patent to acquire claims of broader scope than those originally granted, before suing Minerva for infringement. In response, Minerva challenged the validity of the patent; Hologic countered this by invoking the doctrine of assignor estoppel. Minerva argued that assignor estoppel should not apply because it was being used to challenge a claim that was materially broader in scope than the ones the inventor had originally assigned.

The court in Minerva clarified the limits to the doctrine of assignor estoppel, with the majority holding that assignor estoppel should apply only when its underlying principle of fair dealing comes into play, such as when the assignor makes a representation or warranty regarding the validity of a patent claim. When the assignor warrants that a patent claim is valid, a later denial of validity breaches norms of equitable dealing underlying the transaction.

However, if the assignor has not made explicit or implicit representations in assigning the patent, then fairness is not an issue and assignor estoppel will not apply. The court set out three examples of post-assignment developments where these types of situations could occur:

• Assignments for future inventions. Since the invention itself has not come into being at the time of assignment, the assignment cannot contain representations regarding the patent’s validity. This is a classic scenario in IP clauses of many employment agreements.
• A change in the law. When a later legal development renders the warranty given at the time of assignment irrelevant, for example when a change of law results in previously valid patents becoming invalid.
• When the assignee enlarges the assigned patent’s claims so that they are materially broader than the old claims. In this scenario, the limits of assignor estoppel “go only so far as, and not beyond, what he represented in assigning the patent application”. Since the assignor did not provide any representations or warranties regarding the validity of the broader scope of the invention, they can challenge the new claims in litigation.

The facts in Minerva most closely followed the last scenario. The court noted that the lower courts had failed to recognise the boundaries of assignor estoppel, before remanding the case back to the Court of Appeal.

Implications for patent transactions

How does one minimise the risk of a Minerva-type situation? To start with, parties should carefully negotiate terms, including representations and warranties, that may affect later validity challenges by an assignor and allocate risk accordingly, especially if there was assignment through multiple tiers. In this regard, we present the following considerations:

Know what is being assigned: consider careful review and documentation

Minerva highlights the importance of knowing what is being assigned and ensuring that there is common understanding among the parties. Procedurally, this may include a meeting with a patent professional to confirm an understanding of the four corners of the patent/application, including what is claimed and what could be claimed based on the description. To further solidify the process, attestations regarding the parties’ understanding of the scope of the patent could be obtained, especially when dealing directly with an inventor. If patent claims are broadened during prosecution, or materially changed after the original assignment, it would also be prudent to execute updated assignments.

Consider continued engagement with key personnel, non-competition clauses, waivers and other contractual restrictions

Non-competition clauses, waivers and other contractual restrictions are good to have but often difficult to enforce. Even with the best contractual clause, it is very difficult to require an employee or seller to assign rights in inventions they independently develop after they leave an employer or upon the closing of a transaction. Further, the enforceability of certain restrictive clauses (eg, non-compete provisions), vary across jurisdictions and cannot always be relied upon. As such, when the situation warrants, an assignee should consider how best to continue to engage with key employees and inventors, whether as an employee, advisor, board member, shareholder or via another arrangement, to reduce the risk of a Minerva-type situation.

Conduct due diligence on key employees and inventors

Finally, conducting a background check on the patent and business activities of current and former key personnel and/or inventors could reveal facts that may create a Minerva-type situation. Once identified, the matter can hopefully be addressed and resolved before a closing.