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Aerotel, Ltd v. IDT Corp.

May 4, 2007

AEROTEL, LTD., ET AL., PLAINTIFFS,
v.
IDT CORP., ET AL., DEFENDANTS.
AEROTEL, LTD., ET AL., PLAINTIFFS,
v.
PRIMUS TELECOMM. GROUP, INC., ET AL., DEFENDANTS.



MEMORANDUM OPINION AND ORDER

Aerotel, Ltd., Aerotel U.S.A., Inc., and Aerotel U.S.A., LLC ("Aerotel") bring this action against IDT Corp. and affiliates for the infringement of U.S. Patent No. 4,706,275 ("the '275 patent"). Currently outstanding are two motions to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, one motion to dismiss the domestic plaintiffs pursuant to Rule 12(b)(1), one motion by defendants for partial summary judgment, one motion by defendants to disqualify plaintiffs' counsel, and one motion by defendants to stay the current action. The two motions to dismiss the complaint pursuant to Rule 12(b)(1) allege that Aerotel is not the legal owner of the '275 patent and therefore lacks standing to sue for infringement. The motion to stay seeks to stay this action pending resolution of litigation now pending in Israel concerning ownership of the invention claimed by the '275 patent. For the reasons that follow, that motion is DENIED.

BACKGROUND

Zvi Kamil, an Israeli citizen and the individual listed as the sole inventor of the '275 patent, filed two patent applications in Israel in January and November of 1985. In November 1985, Kamil also filed an application with the United States Patent and Trademark Office ("the PTO") that resulted in the issuance of the '275 patent. Kamil assigned all his rights in the invention described in those applications to Aerotel in July 1987, which was listed as the sole owner of the '275 patent when it was issued by the PTO in November 1987.

Other than that it occurred in Israel, there is an endless amount of dispute between the parties as to the details surrounding the conception of Kamil's invention, essentially a calling card system, and Kamil's employment at the time. The questions of when the invention was conceived, who Kamil was working for at the time, whether the invention fell within the scope of his employer's business, and ultimately, whether Israeli patent law operated to divest Kamil of ownership of the invention, all were discussed in the briefing on the 12(b)(1) motions to dismiss. It is unnecessary to set out the disputed facts in order to resolve this motion to stay.

However, it is worthwhile to lay out the procedural history of this action and the Israeli litigation. On August 26, 2003, Aerotel brought the current action against IDT Corp. and affiliates. The action was stayed from December 2003 until October 2005 pending resolution of a reexamination of the '275 patent by the PTO. Shortly after the stay was lifted, defendants filed a Rule 12(b)(1) motion challenging Aerotel's ownership of the '275 patent. Specifically, the motion alleged that one of Kamil's former employers, Elscint, Ltd. ("Elscint"), acquired ownership of the invention claimed by the '275 patent. In November 2005, the transitional twenty-year term of the '275 patent expired. In July 2006, Aerotel filed an Amended Complaint adding additional defendants to the action. The new defendants filed a Rule 12(b)(1) motion to dismiss in August 2006, also alleging that Elscint was the owner of the '275 patent. Fact discovery, except for a single non-party deposition, was completed by November 2006. Finally, by a supplemental submission in December 2006, defendants moved to dismiss the complaint pursuant to Rule 12(b)(1) on the alternate grounds that another of Kamil's former employers, Beta Engineering and Development Ltd. ("Beta"), owned the '275 patent.

Meanwhile, in January 2005 in Israel, Aerotel filed suit against six Israeli companies for infringement of its Israeli patent. The defendants asserted as a defense that Aerotel did not own the patent, but instead it was owned by another of Kamil's former employers, the Israeli Ministry of Communications. Aerotel's motion to strike this defense was denied in September 2006 and this decision was affirmed in January 2007. (Valetta Decl. Ex. A.) On February 6, 2007, IDT Corp. filed a declaratory judgment action in Israel to determine the proper ownership of the invention claimed by the '275 patent and the Israeli patent, as well as legal ownership of the patents themselves. IDT Corp. named as defendants Aerotel, Kamil, the Ministry of Communications, Beta, Elscint, and the six defendants in the pending Israeli enforcement action brought by Aerotel. The following day, IDT Corp. moved to consolidate the two Israeli actions. Two days later, defendants filed the instant motion to stay.

DISCUSSION

Defendants argue in their Rule 12(b)(1) motions that Aerotel does not have legal ownership of the '275 patent, and thus lacks standing to bring this infringement action. In particular, defendants contend that the inventor of the patent, Zvi Kamil, was divested of ownership by Israeli patent law when he conceived of the invention either in 1977 while working for Beta or in 1984 while working for Elscint. Because Israeli patent law governs the question of ownership, and because there is now pending litigation in Israel concerning the ownership of the invention that is the subject of the '257 patent, defendants request that if the Court declines to grant the 12(b)(1) motions, it stay this proceeding and let the Israeli court resolve the issue of ownership.

Aerotel argues, as it did in its opposition to the Rule 12(b)(1) motions, that defendants may not assert the equitable rights of third parties in a patent as a defense in an infringement action. Even if defendants could do so, Aerotel again argues that Kamil retained all ownership rights in the invention, properly assigned those rights to Aerotel, and that the PTO correctly issued the patent in Aerotel's name. Finally, Aerotel argues that a stay of these proceedings is not warranted. Therefore, Aerotel requests that the Court deny both defendants' motion to stay and Rule 12(b)(1) motions. The resolution of this motion to stay requires the Court to answer two questions: (1) May the ownership of the '257 patent be examined as a threshold issue? (2) If so, should the Court stay this proceeding and allow the Israeli court to determine whether Israeli law divested Kamil of ownership of the patent?

I. May the Court Examine Aerotel's Ownership of the '257 Patent?

In order to sue for patent infringement, "the plaintiff must have held legal title to the patent during the time of infringement." Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579 (Fed. Cir. 1991) (citing Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24, 40--41 (1923); accord TM Patents, L.P. v. IBM Corp., 121 F. Supp. 2d 349, 358 (S.D.N.Y. 2000). Equitable interest in a patent, where legal title is vested in another, is insufficient to provide standing to sue for money damages based on infringement. Arachnid, Inc., 939 F.2d at 1580. The issuance of a patent by the PTO is prima facie proof of the patentee's legal title. See Astra Aktiebolag v. Andrx Pharms., Inc., 222 F. Supp. 2d 423, 514 (S.D.N.Y. 2002) (citing Electric Auto-Lite Co. v. P. & D. Mfg. Co., 78 F.2d 700, 704 (2d Cir. 1935)). The mere recording of an assignment in the PTO, on the other hand, does not establish a valid assignment, or legal title. TM Patents, 121 F. Supp. 2d at 365 (citing Gaia Techs., Inc. v. Reconversion Techs., Inc., 93 F.3d 774, 778 n.3 (Fed. Cir. 1996).

Defendants challenge Aerotel's ownership in the patent, and therefore its standing to bring this infringement action, asserting that ownership resides in a third-party. Aerotel argues that defendants are unable to challenge their ownership, whether in a Rule 12(b)(1) motion or a motion to stay, citing the proposition that "a third party's equitable rights in a patent may not be asserted as a defense in an action for infringement brought by the owner of title to the patent." Mercantile Nat'l Bank of Chicago v. Howmet Corp., 524 F.2d 1031, 1034 (7th Cir. 1975); accord Sigma Eng'g Serv., Inc. v. Halm Instrument Co., 33 F.R.D. 129, 130 (E.D.N.Y. 1963) ("[D]efendant infringer could not raise against the holder of the legal title of the patent, the defense of equitable ownership in others."); Kahn v. General Motors Corp., No. 88 Civ. 2982 (HB), 1994 U.S. Dist. LEXIS 18630, 1995 WL 2135, at *4 (S.D.N.Y. Jan. 3, 1995) ("It would be unfair to allow [infringer] to hide behind the putative rights of a non party.").

However, even an infringer may assert that a third party holds legal title to a patent in moving to dismiss a complaint, as legal title by the plaintiff is necessary to have standing to bring an infringement action. See, e.g., H.R. Techs., Inc. v. Astechnologies, Inc., 275 F.3d 1378 (Fed. Cir. 2002) (affirming dismissal of infringement action where assignment to plaintiff failed because assignor never had title to patent); RAD Data Comm'ns, Inc. v. Patton Elecs. Co., 882 F. Supp. 351 (S.D.N.Y. 1995) (dismissing infringement action where assignment to plaintiff occurred before assignor had title to patent). Particularly relevant here, challenges to ownership have been permitted where an inventor, by contract or under statute, had made a present assignment of future inventions to a third party before conceiving of the patented invention. See FilmTec Corp. v. Allied-Signal Inc., 939 F.2d 1568, 1573 (Fed. Cir. 1991); TM Patents, L.P., 121 F. Supp. 2d at 349, 358 (S.D.N.Y. 2000); Imatec, Ltd. v. Apple Computer, Inc., 81 F. Supp. 2d 471, 481 (S.D.N.Y. 2000). In such a case, the contract or statute "divests the inventor-assignor of ownership of the invention and automatically vests ownership of the invention, when invented, in the assignee." Imatec, Ltd., 81 F. Supp. 2d at 481 (citing FilmTec Corp., 939 F.2d at 1573 ("Ordinarily, no further act would be required once an invention came into being; the transfer of title would occur by operation of law.")). Therefore, the inventor has no legal title to assign at a future date, and his purported assignees have no standing to sue for infringement.

The cases cited by Aerotel can be distinguished by the fact that the third party whose rights are asserted by the defendant-infringer had at most had an equitable interest in the patent, not legal title. See Mercantile Nat'l Bank of Chicago, 524 F.2d at 1034 (not permitting defense that "one of the joint inventors breached an equitable duty to assign his interest in the patent to a third party"); Sigma Eng'g Serv., Inc., 33 F.R.D. at 129 (defendant concedes that third party is, at most, an equitable owner based on agreement to assign); Kahn, 1995 WL 2135, at *2 (third party holds "at most an equitable title" to the patent). Thus, the key distinction in whether a court allows the defendants ...


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