Diamond Scientific Co. v. Ambico, Inc.

• Decision Date: 03 June 1988
• Docket Number: No. 88-1042,88-1042
• Parties: , 6 U.S.P.Q.2d 2028 DIAMOND SCIENTIFIC CO., Plaintiff-Appellee, v. AMBICO, INC. and Clarence Joseph Welter, Defendants-Appellants. Appeal Federal Circuit
• Court: U.S. Court of Appeals — Federal Circuit

Page 1220

848 F.2d 1220

57 USLW 2012, 6 U.S.P.Q.2d 2028

DIAMOND SCIENTIFIC CO., Plaintiff-Appellee, v. AMBICO, INC. and Clarence Joseph Welter, Defendants-Appellants.

Appeal No. 88-1042.

United States Court of Appeals,Federal Circuit.

June 3, 1988.

Edmund J. Sease, Zarley, McKee, Thomte, Voorhees & Sease, Des Moines, Iowa, argued for plaintiff-appellee.

Iver P. Cooper, Mackler, Cooper & Gibbs, Washington, D.C., argued for defendants-appellants. With him on the brief was Dick L. Jensen, Dreher, Wilson, Simpson, Jensen, Sellers, Adams & Kaiser, of Des Moines, Iowa.

Before FRIEDMAN, DAVIS and NEWMAN, Circuit Judges.

DAVIS, Circuit Judge.

This appeal from an order of the United States District Court for the Southern District of Iowa granting plaintiff's motion to strike three affirmative defenses is before us by permission, to decide whether the doctrine of assignor estoppel prevents this assignor-inventor and his company, who are sued for infringement, from challenging the validity of the patents previously assigned by him to the assignee. We affirm.

Appellee Diamond Scientific Co. (Diamond) employed Dr. Clarence Welter from 1959 until 1974. During that time, Dr. Welter invented a vaccine against gastroenteritis in swine, and filed a patent application for "Transmissible Gastroenteritis Vaccines and Methods of Producing the Same." While making this patent application, Dr. Welter assigned all of the rights in the patents to Diamond Laboratories, Inc. (the predecessor of Diamond). Eventually, Diamond's predecessor was awarded the following patents from this application: No. 3,479,430; No. 3,585,108; and No. 3,704,203.

In 1974 Dr. Welter left Diamond, where he had become a vice-president, and formed his own company, appellant Ambico, Inc. (Ambico). Ambico began manufacturing and selling a gastroenteritis vaccine for swine. Diamond began this patent infringement suit against Ambico and Dr. Welter, claiming infringement of the three patents that Dr. Welter had assigned to Diamond. The defendants' answer raised, among other defenses, three grounds for patent invalidity: 35 U.S.C. Sec. 112 (inadequate disclosure); 35 U.S.C. Sec. 102 (lack of novelty); and 35 U.S.C. Sec. 103 (obviousness). Diamond's motion to strike these three defenses asserted the doctrine of assignor estoppel. The district court granted Diamond's motion, 666 F.Supp. 163 (S.D.Iowa 1987), and this appeal followed.

The central issue to be decided is whether in this case the assignor-inventor of the patents (or a company in privity with him) can defend the infringement suit brought by the assignee by challenging the validity of the patents previously assigned, or whether the equitable doctrine of assignor estoppel prevents the assignor from claiming that the patents are invalid.

I.

This is the first opportunity presented to this court to examine the doctrine of assignor estoppel. Although the Supreme Court has examined this doctrine or a related doctrine--licensee estoppel--several times this century, its opinions have hardly been definite or definitive.

Beginning with Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342, 45 S.Ct. 117, 69 L.Ed. 316 (1924), the Supreme Court endorsed the rule that an assignor can be estopped from challenging the validity of the assigned patent when the assignor is sued by the assignee for infringement of the assigned patent. This estoppel bars only the assignor (and those in privity with the assignor), leaving everyone else free to try to invalidate the patent. The Court did, however, limit the estoppel by allowing the assignor to present evidence of the state of the art for the sole purpose of construing and narrowing the claims of the patent. Id. at 350, 45 S.Ct. at 120. This accommodation permitted the assignor to defend against the infringement suit by attempting to show that the accused device fell outside the proper scope of the claims of the patent in suit, yet prevented the assignor from attacking the patent's validity.

In Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 66 S.Ct. 101, 90 L.Ed. 47 (1945), the Court sidestepped a reexamination Scott Paper is the most recent word from the Supreme Court on assignor estoppel. However, in Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), the Court addressed the somewhat analogous doctrine of licensee estoppel. Reasoning that "the equities of the licensor do not weigh very heavily when they are balanced against the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain[,]" the Court explicitly abolished licensee estoppel. Although Lear involved the licensing, rather than the assignment, of a patent, the opinion reviewed the history of "patent estoppel" in general, and indicated that the Court's previous decisions had sapped much of the vitality, if not the logic, from the assignment estoppel doctrine as well. Recalling Scott Paper, the Court asked, "If patent policy forbids estoppel when the old owner attempts to show that he did no more than copy an expired patent, why should not the old owner also be permitted to show that the invention lacked novelty because it could be found in a technical journal or because it was obvious to one knowledgeable in the art? ... The Scott exception had undermined the very basis of the 'general rule.' " Lear, 395 U.S. at 666, 89 S.Ct. at 1909.

                of the merits of the assignor estoppel doctrine by once more carving an exception from the general rule.  In that case, the defendant-assignor contended that the patent claimed to be infringed represented the same invention as a previously expired patent found in the prior art.  The Court held that the doctrine of assignor estoppel was not available to the assignee "to foreclose the assignor of a patent from asserting the right to make use of the prior art invention of an expired patent, which anticipates that of the assigned patent...."  Id. at 257, 66 S.Ct. at 105.  The Court found that the application of the doctrine in that instance was incompatible "with the patent laws which dedicate to public use the invention of an expired patent."   Id. at 258, 66 S.Ct. at 105.    Scott Paper was a less-than-enthusiastic acknowledgement of assignor estoppel, but the Court was careful to distinguish its decision from previous applications of the doctrine:  "To whatever extent that doctrine may be deemed to have survived the Formica decision or to be restricted by it, we think that case is not controlling here."    Id. at 254, 66 S.Ct. at 103
                

Lear resolved the issue of licensee estoppel by writing its obituary; but for courts wrestling with assignor estoppel it was less clear whether Lear had also sounded the death knell for that doctrine. Certainly, there was nothing in its holding that eliminated the doctrine. Beyond the questioning dicta in Lear, the Court has left assignment estoppel untouched for the past nineteen years.

II.

The federal court cases, decided either shortly before Lear or since then, that discuss the doctrine of assignor estoppel reveal some uncertainty about the continued vitality of the doctrine. At least two courts have acknowledged the doctrine, although rejecting on the facts its application to the cases before them. Nationwide Chemical Corp. v. Wright, 458 F.Supp. 828, 840, 192 USPQ 95, 105 (M.D.Fla.1976), aff'd 584 F.2d 714 (5th Cir.1978); Brand Plastics Co. v. Dow Chemical Co., 267 F.Supp. 1010, 1013, 154 USPQ 140, 142-43 (C.D.Cal.1967). At least five other courts have indicated their belief that assignor estoppel is no longer the prevailing rule of law. See Coastal Dynamics Corp. v. Symbolic Displays, Inc., 469 F.2d 79, 175 USPQ 81 (9th Cir.1972) (per curiam); Contour Chair Lounge Co. v. True-Fit Chair, Inc., 648 F.Supp. 704, 1 USPQ2d 1353 (E.D.Mo.1986); Interconnect Planning Corp. v. Feil, 543 F.Supp. 610, 215 USPQ 734 (S.D.N.Y.1982); Marvacon Industries v. Thermacon Industries, 209 USPQ 932 (D.N.J.1980); National Welding Equip. Co. v. Hammon Precision Equip. Co., 165 F.Supp. 788, 119 USPQ 13 (N.D.Cal.1958). None of these courts provided much analysis of the doctrine or the reasons supporting its application in the specific circumstances, preferring instead to view the general rationale of the Scott Paper and Lear

                decisions as rejecting any further use of assignor estoppel.  Two other courts have held that an assignee may be estopped from challenging the validity of the assigned patent.   Roberts v. Sears, Roebuck & Co., 573 F.2d 976, 197 USPQ 516 (7th Cir.1978);  Coast Metals, Inc. v. Cape, 205 USPQ 154 (D.N.J.1979).  However, the distinction between an assignor and an assignee of a patent gives those cases a distinctly different, but equally apparent, reason for application of estoppel.  If an assignee of a patent were allowed to challenge the patent, it could be placed in the legally awkward position of simultaneously attacking and defending the validity of the same patent
                

III.

In examining Lear, one important distinction between assignors and licensees becomes apparent--a distinction that cautions against the automatic application to assignment cases of the rationale underlying Lear and licensees. The public policy favoring allowing a licensee to contest the validity of the patent is not present in the assignment situation. Unlike the licensee, who, without Lear might be forced to continue to pay for a potentially invalid patent, the assignor who would challenge the patent has already been fully paid for the patent rights.

Assignor estoppel is an equitable doctrine that prevents one who has assigned the rights to a patent (or patent application) from later contending that what was assigned is a nullity. The estoppel also operates to bar other parties in privity with the assignor, such as a corporation founded by the assignor. See, e.g., Stubnitz-Greene Spring Corp. v. Fort Pitt Bedding Co., 110 F.2d 192, 195-96 (6th Cir.1940...