Newsletter Article
An Equitable Interest in a Patent
Published: 02/02/2012
By John McKeown A recent decision of the Ontario Superior Court of Justice found that an unregistered interest in a patent was not binding on a purchaser for value without notice.
The Facts
The applicant was the inventor of an invention relating to a method of inhibiting green mould in mushrooms. The inventor asserted that he had reached an agreement with his corporate employer. Under the agreement, the employer would own the sole right to the patent in North America and the inventor would have the patent rights in the balance of the world.
The inventor’s evidence was that in late 2008 he told his employer that he intended to leave the company and return to the Netherlands. As a result, the agreement concerning patent ownership rights was negotiated which allowed the inventor to exploit the invention in Europe and other places.
The corporate employer applied for protection under the Companies’ Creditors Arrangement Act (CCAA) in late December of 2008. Subsequently, a sale process was commenced in the CCAA proceedings and a third party agreed to purchase the employer’s business including all of its intellectual property. The purchase was completed and a vesting order obtained from the court vesting all the purchased assets in the purchaser.
After the vesting order was issued, the inventor stepped forward and asserted his rights in the patent outside North America. The purchaser questioned the validity of the alleged agreement and said that it had acquired the patent rights in question in good faith for value without notice of any rights of the inventor.
It was clear that prior to the closing of the purchase, the purchaser and its advisors conducted due diligence regarding the business to be acquired, including a review of information relating to the patent. All of the information provided was consistent with the employer corporation owning the patent in question and at no time prior to closing was the purchaser aware of the inventor’s claims. Subsequent to the closing, an impasse arose relating to the continued prosecution of an international patent application filed under the Patent Cooperation Treaty by the employer corporation.
The Proceedings
The inventor brought an application for a declaration that he was the owner of the patent rights outside of North America for the invention in issue. The judge who heard the application said there were too many contested factual issues to determine, at that stage, whether or not there was a binding agreement between the inventor and his corporate employer. However, the judge determined, on the assumption there was a binding agreement as claimed by the inventor, whether there were any grounds available to support a declaration of the rights asserted.
The judge said that the inventor was asserting an equitable assignment of rights relating to the patent, since on his evidence there was only an agreement to assign rather than a completed assignment. In equity an assignee of a patent takes title subject to the equities. As a result, a subsequent purchaser of a patent who has knowledge of a prior equitable assignment takes title subject to that equitable interest. But an assignee who purchases a patent for valuable consideration without notice of a prior equitable assignment takes title free and clear of it.
The Canadian Patent Act makes provision for the registration of assignments of rights in patents and provides that every assignment affecting a patent is void against a subsequent assignee unless the assignment is registered before the registration of the instrument under which the subsequent assignee claims. However, the judge determined that this provision did not apply to patent rights outside North America.
As a result the court decided in favour of the purchaser since it had acquired the patent rights in good faith without notice of the inventor’s rights and free and clear of any interest the inventor might have.
Comment
The decision seems fair since on its facts only the inventor had the opportunity to bring his rights to the attention of the purchaser prior to the closing. Presumably this could have been done by seeking to have an assignment signed or making a claim in the CCAA proceedings. There was no evidence that this had been done.
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