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Aerotel, Ltd. v. Radiant Telecom Inc.

August 8, 2008

AEROTEL, LTD., AEROTEL U.S.A., INC., AND AEROTEL U.S.A., LLC, PLAINTIFFS,
v.
RADIANT TELECOM INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard J. Holwell, Usdj

MEMORANDUM OPINION AND ORDER

This is an action for patent infringement brought by plaintiffs Aerotel Ltd., Aerotel U.S.A., Inc. ("USA Inc."), and Aerotel U.S.A., LLC ("USA LLC") (collectively, "Plaintiffs"). All defendants ("Defendants") have joined two motions to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. These motions were originally filed by the defendants in Aerotel Ltd. v. IDT Corp., 03 Civ. 6496 (the "IDT litigation"), an action previously before this Court that had been consolidated for pretrial purposes with the instant action.*fn1 Defendants' first motion seeks dismissal of the complaint on the grounds that Aerotel Ltd. does not have legal ownership of the patent-in-suit and therefore lacks standing to sue for infringement. The second motion seeks dismissal of USA Inc. and USA LLC as plaintiffs on the grounds that these subsidiaries of Aerotel Ltd. do not have standing to sue in this action because they lack sufficient proprietary interest in the patent-in-suit.

The subject matter of this litigation is U.S. Patent No. 4,706,275 ("the '275 patent"), entitled "Telephone System." The '275 patent is directed to "[a] telephone system enabling prepayment for telephone calls," which allows a caller to make calls using any telephone by dialing a "special exchange" and inputting a code that provides access to that caller's prepaid amount. The cost of the phone call is deducted from the prepaid amount and the updated prepaid balance is stored in memory by the "special exchange" for future use. The sole inventor listed on the '275 patent is an Israeli citizen, Zvi Kamil.

Kamil filed an Israeli patent application for his invention in January 1985. The '275 patent was issued in the United States on November 10, 1987; it listed plaintiff Aerotel, Ltd. as the assignee of the patent. (Burling Decl. Ex. 13, Sept. 25, 2006.) Kamil had assigned all his rights in the '275 patent to Aerotel Ltd. in July 1987. (Id. Ex. 12.)

I. Defendants' Motion to Dismiss the Complaint Based on the Alleged Divestiture of Kamil's Patent Rights Under Israeli Law

Defendants contend that Aerotel Ltd. does not have legal ownership of the '275 patent and thus lacks standing to bring this action due to the operation of Section 132(a) of Israeli patent law, under which an employer takes ownership of an invention "arrived at in consequence of . . . and during" an employee's service. Israeli Patents Law § 132(a) (Isr.). According to Defendants, Kamil was divested of ownership by Israeli patent law when he conceived of the invention described in the '275 patent while working for either Beta Engineering and Development Ltd. ("Beta") in 1977 or Elscint, Ltd. ("Elscint") in 1984. Defendants also argue that Kamil was divested of ownership by the terms of an employment agreement which required him to assign inventions to Elscint.

Plaintiffs argue that Defendants' motion improperly asserts the equitable rights of third parties as a defense in a patent infringement action. The Court has already held that though "a third party's equitable rights in a patent may not be asserted as a defense" to patent infringement, a defendant may challenge a plaintiff's standing in a patent infringement action based on a "statute or contract [that] constitutes a present assignment of future legal title," as opposed to "merely creat[ing] an equitable interest." Aerotel Ltd. v. IDT Corp., 486 F. Supp. 2d 277, 281-- 82 (S.D.N.Y. 2007). While there is little evidence regarding the alleged employment agreement between Kamil and Elscint, the available evidence indicates that, if an agreement regarding ownership of inventions existed, it was not "a present assignment of future legal title," but merely obligated Kamil to assign certain inventions to Elscint. To the extent Defendants seek to challenge Plaintiffs' standing based on Kamil's failure to assign inventions pursuant to this agreement, Defendants are merely asserting the equitable rights of the third-party Elscint. Therefore, Defendants do not have standing to challenge Plaintiffs' ownership of the '275 patent based on Kamil's alleged employment agreement with Elscint.

The Court has held, however, that Defendants are permitted to challenge Plaintiffs' standing based on the operation of § 132(a) of Israeli patent law because this provision operates to automatically divest an inventor of legal ownership. Id. The Court will first review the factual underpinnings of Defendants' argument and then apply controlling principles of United States and Israeli patent law.

A. Factual Background

1. Elscint

In or around April 1978, Kamil began working for Elscint. (Valletta Decl. Ex. 1 ¶ 6, Dec. 21, 2006.) In an April 2006 declaration, Kamil characterized Elscint as "an Israeli medical imaging company involved in the production and development of CAT scanners and MRIs." (Johnson Decl. Ex. 3 ¶ 6, Jan. 10, 2007.) Plaintiffs have submitted statements from Sabbah Benjamin, Elscint's Chief Operating Officer from 1969 to 1987, and Dan Inbar, Elscint's Vice President for Research and Development from 1976 to 1986, and Avraham Suhami, Elscint's Chief Executive Officer from 1969 to 1985.*fn2 All of these individuals state that Kamil was not involved in any way in telecommunications and/or telephony while at Elscint. Mr. Suhami further stated that during the period of Kamil's employment, Elscint's "main line of business was Medical Imaging." Defendants claim that while medical imaging may have been Elscint's "primary business," it was also involved in the development of technology relating to telephony. Defendant's evidence in support of this claim consists of (1) a 1979 Israeli patent application submitted by Elscint, entitled "Public Telephone with Push-Button Vandal Proof Dialer," and second, a printout from the website of the Memorial University of Newfoundland medical school that describes a 1992 "telenuclear medicine trial" in which "an Elscint communications software package was used to transmit nuclear medicine images via telephone lines." (Reply 6, Nov. 22, 2005; Valletta Decl. Ex. 4, Aug. 14, 2006;*fn3 Valletta Decl. Ex. 7, Oct. 3, 2006.)

It is undisputed that Kamil, while employed at Elscint, first worked as the "plant manager of the radiological division" and later as the "chief developer of MRIs." (Valetta Decl. Ex. 1 ¶ 6, Dec. 21, 2006.) The parties dispute, however, the date when Kamil stopped providing services to Elscint. Plaintiffs contend that Kamil ended his service for Elscint in September 1984 but continued to receive payment from Elscint for unused vacation time until January 1985. Defendants contend that Kamil was an employee of Elscint until January 1985, that is, during the period in which Kamil claims to have conceived of the invention of the '275 patent. Kamil stated in an April 2006 declaration that he left the employ of Elscint in "September or October" of 1984 and that all of the income he received subsequently from Elscint constituted payment for unused vacation time. (Id. Ex. 1 ¶ 8.) Defendants argue that this assertion should not be credited in light of inconsistent prior statements regarding the period during which he was employed at Elscint, namely (1) a declaration filed by Kamil in the Aerotel v. National Applied Computer Technologies litigation in which Kamil states that he left Elscint in 1985 (Valletta Decl. Ex. 1 ¶ 4, Oct. 3, 2006); and (2) Plaintiffs' December 2005 Reply in the IDT litigation which states that Kamil "was employed by Elscint until in or around November 1984." The Court finds it unnecessary to resolve this dispute and assumes, arguendo, that Kamil conceived of the '275 patent while still employed by Elscint.

2. Beta

Kamil and two friends formed Beta in 1969. Kamil therefore contends that he was "not an employee" of Beta but a "co-founder[]" and "co-owner[]." (Kamil Decl. ΒΆ 2, Jan. 10, 2007.) Kamil left Beta in April or May of 1978. (Id.) Kamil describes Beta as a "development and manufacturing company to work on products and projects commissioned by external sources," that "never worked on any Beta-initiated products or projects" and "was never ...


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