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Federal Circuit Continues Expansion of "Federal common law"

Shortly after its inception, the Federal Circuit made the first in a series of ruling that certain legal consequences of patent assignment and of contracts promising to assign patent rights, are matters are governed by "Federal common law." This Federal common law is created by their decisions, and then it is applied to cases throughout the United States.  The cases claim this is authorized by Congress in 35 USC §261, a statute stating among other things that patents can be assigned and setting up a system for recording assignments.  

A recent expansion of the Federal common law is discussed in a dissent from the Federal Circuit decision refusing rehearing of an earlier panel decision.  Abraxis Bioscience Inc. v. Navinta LLC, 97 USPQ2d 2011 (Fed. Cir. 2011). The plaintiffs had executed a contract to acquire the patents which called for assignments to be effective on a stated future closing date, which was before the patent infringement suit was filed.  The acquisition apparently closed on schedule but without executing a  written patent assignment.  The contract explicitly stated its terms were to be governed by New York law.  Precedents under New York state law would have recognized ownership in all of the property acquired in  the transaction to be effective from closing date.    

The Federal Circuit panel nevertheless held that Federal common law governed the effectiveness of the acquisition to contract to transfer title in the patent on the closing date, and that under their precedent it did not.  Since the written assignment confirming the transfer was not signed until after the infringement suit was filed the case was dismissed.  

VAS Comment

The majority of the Federal Circuit is correct that Congress can legislate to preempt state law in the area of patent assignments.  But they are very wrong in saying §261 gives them authorization to create a Federal common law for assignments. 

The statute says "patents shall have the attributes of personal property."  This statute was enacted after the US Supreme Court decision of Erie v. Tompkins, a case well known to every law school student.  Erie held  there is no general body of Federal common law.  After Erie,  federal courts deciding questions relating to other kinds of personal property law (for instance a dispute over ownership of a car), must apply the relevant state law on the issue. 

Because of the Erie decision, one of the most obvious attributes of personal property is that it is governed by state law. Therefore, instead of giving federal courts authority to create a common law of assignments, the literal language of §261 requires that patent assignment questions be decided according to the same law that applies to other personal property.  Curiously, although in the Abraxis case discusses the law of New York extensively on the issue of a contract's effective date, and argues that the New York law should govern the decision, there is no mention of Erie or its impact on the proper interpretation of §261.  

Someday we expect the US Supreme Court will grant review of one of these "Federal common law " assignment cases and reverse the whole series.  Just because Congress chose to legislate on a patent law issue doesn't mean that they have chosen to preempt state law.  What Congress actually said in 35 USC §261 was "don't create Federal common law."  

This update was prepared by Walter Steinkraus. Walter is a shareholder at Vidas, Arrett & Steinkraus. For more information about this update, please contact Walter at 952-563-3004 or via email.

This update should not be considered legal advice. Your receipt of this update does not establish an Attorney-Client Relationship. We do, however, invite you to contact us if you would like us to represent you.




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