FilmTec Corp. v. Allied-Signal Inc.

• Decision Date: 22 July 1991
• Docket Number: ALLIED-SIGNAL,No. 90-1228,90-1228
• Citation: 939 F.2d 1568,19 USPQ2d 1508
• Parties: FILMTEC CORPORATION, Plaintiff-Appellee, v.INC., and UOP Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1568

939 F.2d 1568

19 U.S.P.Q.2d 1508

FILMTEC CORPORATION, Plaintiff-Appellee, v. ALLIED-SIGNAL INC., and UOP Inc., Defendants-Appellants.

No. 90-1228.

United States Court of Appeals, Federal Circuit.

July 22, 1991.

Rehearing Denied Sept. 24, 1991.

Neal A. Waldrop, Neal A. Waldrop & Associates, P.C., Troy, Mich., argued, for plaintiff-appellee. With him on the brief were Douglas E. Whitney, Mary B. Graham and Matthew B. Lehr, Morris, Nichols, Arsht & Tunnell, Wilmington, Del. Also on the brief were Bernd W. Sandt and Philip D. Shepherd, The Dow Chemical Co., Midland, Mich., of counsel.

Eric C. Woglom, Fish & Neave, New York City, argued, for defendants-appellants. With him on the brief were Thomas J. Vetter, Roberta J. Morris and Marta E. Gross. Also on the brief was William J. Gilbreth, Fish & Neave, New York City.

Before PLAGER and LOURIE, Circuit Judges, and FRIEDMAN, Senior Circuit Judge.

PLAGER, Circuit Judge.

Allied-Signal Inc. and UOP Inc. (Allied), defendants-appellants, appeal from the preliminary injunction issued by the district court in FilmTec Corp. v. Allied-Signal, Inc., C.A. No. 89-0919-GT(M) (S.D. Cal. Mar. 1, 1990). The trial court enjoined Allied from "making, using or selling, and actively inducing others to make use or sell TFCL membrane in the United States, and from otherwise infringing claim 7 of United States Patent No. 4,277,344 ['344]." The injunction issued following the findings and conclusions of the district court reported in FilmTec Corp. v. Allied-Signal, Inc., C.A. No. 89-0919-GT(IEG) (S.D.Cal. Feb. 22, 1990) (FilmTec ). Because of serious doubts on the record before us as to who has title to the invention and the ensuing patent, we vacate the grant of the injunction and remand for further proceedings.

I. BACKGROUND

The application which ultimately issued as the '344 patent was filed by John E. Cadotte on February 22, 1979. The patent claims a reverse osmosis membrane and a method for using the membrane to reduce the concentration of solute molecules and ions in solution. ¹ Cadotte assigned his rights in the application and any subsequently issuing patent to plaintiff-appellee FilmTec Corp. (FilmTec). This assignment was duly recorded in the United States Patent and Trademark Office. Defendant-appellant Allied manufactured a reverse osmosis membrane and FilmTec sued Allied for infringing certain claims of the '344 patent.

John Cadotte was one of the four founders of FilmTec. Prior to founding FilmTec, Cadotte and the other founders were employed in various responsible positions at the North Star Division of Midwest Research Institute (MRI), a not-for-profit research organization. MRI was principally engaged in contract research, much of it for the United States (Government), and much of it involving work in the field of reverse osmosis membranes.

The evidence indicates that the work at MRI in which Cadotte and the other founders were engaged was being carried out under contract (the contract) to the Government "to provide research on In Situ-Formed Condensation Polymers for Reverse Osmosis Membranes." The contract provided that MRI

agrees to grant and does hereby grant to the Government the full and entire domestic right, title and interest in [any invention, discovery, improvement or development (whether or not patentable) made in the course of or under this contract or any subcontract (of any tier) thereunder].

It appears that sometime between the time FilmTec came into being in 1977 (there is evidence that it was organized in the summer of 1977, and incorporated in September of that year) and the time Cadotte submitted his patent application in February of 1979, he made the invention that led to the '344 patent. As we will explain, just when in that period the invention was made is critical.

Cadotte left MRI in January of 1978. Cadotte testified that he conceived his invention the month after he left MRI. Allied disputes this, and alleges that Cadotte conceived his invention and formed the reverse osmosis membrane of the '344 patent earlier--in July of 1977 or at least by November of 1977 when he allegedly produced an improved membrane. Allied bases this on certain entries in the notebooks which Cadotte kept during this period. The trial judge found that "Cadotte's 1977 North Star notebook entries establish that he did [while still at MRI] combine the two chemicals which are claimed in the '344 patent." FilmTec at 3.

However, because of its view of the issues, the trial court concluded it did not need to decide whether that combination resulted in the claimed invention. This was because in granting the preliminary injunction, the trial court concluded that as a matter of law even if the invention was made while Cadotte was employed at MRI, under the contract the Government could have no more than equitable title to the patent, which title cannot be raised as a defense by Allied. The district court stated

that the [G]overnment's rights in an invention discovered by an employee while under contract are equitable, and are not available as a defense by the alleged infringer against the legal titleholder.

Cited for this proposition was Sigma Eng'g Serv., Inc. v. Halm Instrument Co., Inc., 33 F.R.D. 129, 138 USPQ 297 (E.D.N.Y.1963). FilmTec at 3.

On the remaining issues raised, the trial judge ruled that: 1) Allied did not present clear and convincing evidence of Cadotte's intent to deceive the patent examiner; 2) Allied did not present clear and convincing evidence that the invention would have been obvious; 3) the Allied membrane is a literal infringement of claims 6 and 7 of the '344 patent; and 4) the issues of irreparable harm, balance of hardships, and public interest all weigh in favor of FilmTec.

II. ISSUES ON APPEAL

On appeal from the grant of the preliminary injunction, Allied argues that the trial court committed reversible error on each of five substantive issues. In Allied's view, the contract vested legal title to the invention in the Government and, therefore, FilmTec lacks standing to bring suit; Cadotte misled the patent examiner as to the Government's possible rights in the invention and the '344 patent is unenforceable; the '344 patent is invalid because the invention claimed would have been obvious; when the claims are properly read, the Allied membrane does not infringe the '344 patent; and finally, the district court misapplied the test for issuance of a preliminary injunction.

It is well settled in this court that a party seeking a preliminary injunction

must establish a right thereto in light of four factors: 1) a reasonable likelihood of success on the merits; 2) irreparable harm; 3) the balance of hardships tipping in favor of the requesting party; and 4) that the issuance of an injunction is in the public interest.

Chrysler Motors Corp. v. Auto Body Panels of Ohio, Inc., 908 F.2d 951, 952, 15 USPQ2d 1469, 1470 (Fed.Cir.1990). The district court must balance each of these factors against the others and against the magnitude of the relief requested to determine whether a preliminary injunction should be granted or denied. Id at 953, 15 USPQ2d at 1471. We review the decision of the district court to determine "if there was an abuse of discretion, an error of law, or a serious misjudgment of the evidence." Id.

III. DISCUSSION

A.

We address first the question of title to the '344 patent. Because of its central importance to the resolution of this case, we requested and received supplemental briefing from the parties with regard to this issue. It is important to keep in mind that the issue before us is not who should ultimately be held to have title to the patent, but whether, in view of the state of the title, it can be said that FilmTec has a reasonable likelihood of success on the merits of that issue, sufficient to warrant the grant of the preliminary injunction.

Allied alleges that the evidence establishes that the contract between MRI and the Government grants to the Government "all discoveries and inventions made within the scope of their [i.e., MRI's employees] employment," and that the invention claimed in the '344 patent was made by Cadotte while employed by MRI. From this Allied reasons that rights in the invention must be with the Government and therefore Cadotte had no rights to assign to FilmTec. If FilmTec lacks title to the patent, FilmTec has no standing to bring an infringement action under the '344 patent. FilmTec counters by arguing that the trial court was correct in concluding that the most the Government would have acquired was an equitable title to the '344 patent, which title would have been made void under 35 U.S.C. Sec. 261 (1988) ² by the subsequent assignment to FilmTec from Cadotte.

The parties agree that Cadotte was employed by MRI and that the contract between MRI and the Government contains a grant of rights to inventions made pursuant to the contract. However, the record does not reflect whether the employment agreement between Cadotte and MRI either granted or required Cadotte to grant to MRI the rights to inventions made by Cadotte. Allied argues that Cadotte's inventions were assigned nevertheless to MRI. Allied points to the provision in the contract between MRI and the Government in which MRI warrants that it will obligate inventors to assign their rights to MRI.

While this is not conclusive evidence of a grant of or a requirement to grant rights by Cadotte, it raises a serious question about the nature of the title, if any, in FilmTec. FilmTec apparently did not address this issue at the trial, and there is no indication in the opinion of the district court that this gap in the chain of ownership rights was considered by the court.

B.

Since property rights in an invention itself could not, under any conventional meaning of the term, be considered real property, ³ they are by definition personal property. ⁴ While early cases have pointed to the myriad ways in which patent rights--that...