FiberCore Case Illustrates Ownership and Transferability of “Shop Rights” to Patented Inventions

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 An employer may have rights in a patent on its employee’s invention in three situations:

(1)  if there is an express agreement to assign or license the patent to the employer,

(2)  if the employee was “hired to invent” and the employer can show an implied contract to assign the patent rights in the invention, or

(3)  if there was no express or implied agreement but the employee used the employer’s facilities to conceive of the invention.  In this last case, the employer will have a “shop right,” an irrevocable, non-exclusive, non-transferable, royalty-free license to practice the invention.

A recent decision by a judge of the U.S. District Court in the District of Massachusetts nicely illustrates aspects of these three situations, and also demonstrates the intellectual property complexities that can arise when the assets of a corporate group are distributed among different buyers as a result of bankruptcy.

The case, US SolarTech, Inc. v. J-Fiber, GmbH, involved the purchasers of certain assets of the bankrupt FiberCore group, an optical fiber manufacturer and developer.  After FiberCore went into bankruptcy in 2003, US SolarTech, Inc. (“SolarTech”) purchased the patent assets of the parent company in the group, FiberCore, Inc. (“FiberCore”).  J-Fiber, GmbH (“J-Fiber”) purchased the patent assets of FiberCore’s German subsidiary, FiberCore Jena GmbH (“FC Jena”).  The District Court was required to decide whether J-Fiber, as successor to FC Jena, had any ownership or license rights in certain patents that had been assigned to FiberCore and subsequently purchased by SolarTech.

The issue arose because the inventors of the patents in issue included two Russian scientists who had been formally employed by FiberCore and had signed invention assignment agreements with FiberCore, but who had worked at FC Jena facilities and been paid by FC Jena.  J-Fiber argued that it had a co-ownership right in the patents because the Russian scientists were de facto employees of FC Jena.  In deciding summary judgment motions by both parties, the Court held that J-Fiber had not established co-ownership rights.  The patents had been validly assigned to FiberCore and the assignments had been recorded with the U.S. Patent & Trademark Office.  As such, they were presumptively valid and so J-Fiber bore the burden of showing the assignments were invalid.  J-Fiber was unable to show that FiberCore’s paying of the Russian employees through the FC Jena subsidiary created an implied employment agreement between the employees and the subsidiary.  The explicit documentary evidence that showed the scientists as employees of FiberCore trumped any such argument.  As such, SolarTech as successor to FiberCore was the sole owner of the patents.

In the alternative, J-Fiber had argued that it was entitled to shop rights in the patents because the Russian scientists had used FC Jena’s resources to develop the subject inventions.  J-Fiber failed in this argument as well.  Shop rights are generally non-transferable.  However, the successor to a shop rights licensee’s entire business can claim the valid transfer of the shop right to the successor entity to the business, and so J-Fiber argued that any shop rights should be transferable because it was a successor to FC Jena’s business.  The Court held that J-Fiber had not purchased FC Jena’s entire business but only certain intellectual property rights.  Although J-Fiber was leasing FC Jena’s tangible assets from a third party who had acquired them and thus the J-Fiber business did resemble the FC Jena business in many respects, J-Fiber was nevertheless not FC Jena’s corporate successor.  For this reason, any shop right that FC Jena may have had was not transferable to J-Fiber.

As this case demonstrates, an employer’s rights in patents on an invention created by an employee may be very different than its rights in its employee’s copyrights.  A copyrightable work created by an employee in the scope of employment is considered a “work for hire” under the US Copyright Act, and the employer automatically owns the copyright without any need for a written assignment.  In the case of patents, the employer has much weaker rights in the absence of a written agreement.  Employers who anticipate that their employees may create or contribute to patentable inventions should arrange for written assignments at the earliest opportunity, or otherwise protect themselves by contract.  Otherwise, unless they can establish an implied contract under the “hired to invent” doctrine, their rights might be limited to mere shop rights which cannot be transferred.

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