The equitable/legal title conundrum and claiming priority in patent applications

Does this ‘accord’ with your understanding?

Interestingly, the case considered both US Federal law, the law of the State of Texas, as well as English law and the approach to equitable and beneficial title to property (in this case intellectual property), and the legal title.

The case concerned the University of Houston, Texas, and the Defendant’s (RCT) predecessor.  In 1966 they entered into an agreement (the ‘FAA Project’) in which Houston would first offer RCT any inventions in respect of this project (‘FAA’ means ‘Functionalised Amino Acid’). In the present case, the compound in issue was lacosamide which in 2018 was expected to achieve worldwide sales of €1 billion.  Although the basic patent had recently expired (earlier in 2017), a Supplementary Protection Certificate (which gives protection to the basic patented compound, i.e. lacosamide) was not due to expire until 2022, hence the reason why the Claimant (‘Accord’, a generic drug company) sought to challenge the base patent (because if that fell, so did the SPC).

The inventor, Professor Kohn, and his group had been working on various amino acid compounds since the 1980s and the discovery that lacosamide was a highly effective anti-convulsant only became apparent in the mid-1990’s.  A patent application in the US was filed on March 15th 1996: the international application being filed on March 17th 1997 (i.e. within the year, the two-day discrepancy being accounted for by the weekend).

Between those two dates, a student (Mr. Choi – part of Professor Kohn’s team), published his PhD thesis in which the activity of lacosamide as an anti-convulsant was disclosed.  It was accepted that if the priority date of the US filing could be attacked, so that the accepted date for filing the invention was the later international application, the Choi thesis would disclose the invention (as a prior public disclosure which would be novelty-destroying).

‘Your assignment, should you choose to accept it…’

The central point of the case concerned the relationship between Professor Kohn, the University of Houston and the procedure adopted under the 1966 FAA agreement in order for an invention to be vested in RCT.  It was a question of fact that Professor Kohn was not an employee of the university, nor was he ‘paid to invent’: if he had been the university would be the first owner of any invention. There was, however, a contractual obligation upon faculty members to assign any inventions to the university (or any person they appoint, such as RCT). 

Arising out of the 1966 FAA agreement, the university had the right (but not the obligation) to offer inventions to RCT.  That required the university to make a decision whether or not to offer the invention.  Equally, RCT was not obliged to accept it, even if offered. It was accepted that how offer and acceptance were communicated was irrelevant, only that these acts were necessary.

In the case of lacosamide, Professor Kohn applied for the US priority filing in 1996 and then, before the international application was filed, executed an assignment of the invention to RCT. The issue was: what had he assigned to RCT?

The case heard evidence from eminent judges on Texan and US Federal law. Ultimately, it boiled down to matters of fact, and how those were to be interpreted.  The Professor’s obligation to assign all inventions, meant that the university was entitled to the equitable and beneficial interest in lacosamide. What the Professor held was simply the bare legal interest.  This is what he assigned to RCT.  That was not sufficient for the purposes of claiming priority, since that could only be claimed by the holder of the equitable or beneficial interest.  The consequence of that, therefore, was that absent any other legal reason, the earlier US priority date would not stand, and so the Choi thesis would invalidate the patent. 

‘But wait a moment….!’

Although the judge appeared unhappy with this outcome, there was a further possible saving argument, known as the ‘bona fide purchaser’ argument. This is a common law concept which in the US has been codified in Statute. It worked as follows: notwithstanding Houston was entitled to the equitable and beneficial interest, if a bona fide purchaser without notice of Houston’s interest entered into an assignment with the assignor (i.e. Professor Kohn), then that bona fide purchaser achieves full title (Houston’s only remedy being damages against the Professor).

On the facts, the judge concluded RCT did not have notice of Houston’s equitable title.  Therefore, the assignment from Professor Kohn to RCT was for both legal and equitable title, and so RCT were able to claim priority.  Accordingly, the Choi thesis did not invalidate the patent.

Accord’s other attacks on the patent’s validity also failed and so the SPC stood.

Justice?

This was a close call. The absence of any correspondence (or even witness recollection) about the proper workings of the relationship between Houston and RCT, on the one hand lost RCT the first ground, but worked the other way in terms of the bona fide purchaser without notice. Arising out of the ‘collaborative way’ that the Professor, the university and RCT all dealt with each other and kept each other informed, played into the judge’s hands.  On the one hand the judge could claim that Houston had not made any offer/received any acceptance (because there was nothing written or otherwise) and so not followed any procedure.  That enabled him to claim that the assignment from the Professor to RCT was what RCT would have expected to have received (and so not have notice of Houston’s interest).  It therefore ‘trumped’ the title Houston had.  Had the judge not dealt with it this way, even if Houston had subsequently assigned their equitable or beneficial title to RCT after the filing of the international application, and so ‘perfected’ the title, this would still be too late because the wrong person was claiming priority at the relevant time.

It is the case, perhaps even more so in the UK than in the US, that the arrangements between university professors, their academic institutions and industry is somewhat ‘loose’, to say the least.  In most cases, this will never matter and whatever inventions or patents that emanate from the professor/university will never be litigated. However, where something as successful as the lacosamide patent comes under the microscope, then no stone will be left unturned by those wishing to invalidate the patent.  If the priority date can be attacked, it is invariably the case that there is better prior art between the initial filing and the later international filing, which invalidates the patent. As with lacosamide, the sums at stake may make it well worthwhile litigating the point.  As can be seen in this instance, it very nearly worked. 

The message from this case is undoubtedly that industry should look more closely and carefully at the project they have in place with universities and their professors and particularly the procedures in place relating to assignments.  In that way, entitlement to priority arising out of who has claimed it should never be in doubt.