Community Property and Patent Ownership

By David Hricik, Mercer Law School

Judge Payne in Mobile Equity Corp. v. Walmart (Case No. 2:21-cv-00126-JRG-RSP) (not available on line for free from what I can see) addressed an accused infringer’s argument that the assignment of the patent-in-suit from the sole inventor (Afana) to the plaintiff, Mobile Equity, was ineffective, and so the patentee lacked standing. The basis for the argument was that the application that led to the patent-in-suit had been filed while Afana had been married (to Kassam) and, by operation of Texas’ community property law, Kassam had an ownership interest in the issued patent that had not been assigned to Mobile Equity and had not been joined as a co-plaintiff.

The facts did not support that result here, it seems, and the motion to dismiss for lack of standing was denied.  The basis was that, ownership of the application had been held only in Afana’s name, as sole inventor), and as a result it had been properly conveyed to Mobile Equity.  Here is the key part (with citations and some quotations omitted):

Section 3.104, 4 entitled “Protection of Third Persons,” provides “where community property is held in one spouse’s name only, there is a presumption that the property is sole- management community property. Absent a showing of fraud or notice on the part of persons dealing with the named spouse, this sole-management presumption protects third parties who rely on the spouse’s authority to deal with the property.” If the requirements of § 3.104 are met, the other spouse has no claim of ownership over the disposed property and the third party takes ownership of the property.

Here, Mobile Equity argues that it is allowed to rely on Afana’s authority to transfer the property and thus take ownership of the Asserted Patents clear of any interest Kassem may have. To earn the right to rely on the presumption, a third party must show three things: (1) the property conveyed was presumed to be subject to the named spouse’s sole management; (2) the grantee was not party to a fraud on the unnamed spouse; and (3) the grantee had no notice of any lack of authority of the named spouse to convey the property. If the third party offers evidence supporting these three facts, the burden shifts to the unnamed spouse to rebut the third party’s presumption of entitlement.

For the first element, all of the patent applications, provisional and non-provisional, filed during the marriage are properly presumed to be sole management community property. Afana was the only listed inventor, thus the community property was held only in Afana’s name. Walmart offers no evidence to rebut this presumption; therefore, Mobile Equity satisfies the first element.

For the next two elements, Mobile Equity offers testimony from Kassem that she was aware that Afana was an inventor of several U.S. Patents. Additionally, Mobile Equity offers two agreements that when read together show Kassem consented to the transfer of any patent rights Afana may have had to the Asserted Patents to Mobile Equity.  The Court finds that this evidence is sufficient to satisfy the remaining two elements of § 3.104, and therefore, the burden shifts to Walmart to rebut Mobile Equity’s presumption of entitlement….

Walmart’s only argument in response is that there is no evidence of Kassem’s consent to transfer the Asserted Patents because the documents cited by Mobile Equity do not specifically identify the Asserted Patents. This argument fails for two reasons: first, Mobile Equity would not have needed to specifically list the ’989 Application, or the ’236 Patent which had issued by November 2014, by name because Afana had already assigned his entire interest in the ’989 Application. Thus, there would have been no reason to list something Mobile Equity already owned. Second, assuming that Mobile Equity did not own the Asserted Patents, the language in the Invention Assignment Agreement is broad enough to have effected the assignment of the Asserted Patents upon execution of the Invention Assignment Agreement. Thus, by incorporating the Invention Assignment Agreement into the “Founder’s Restricted Stock Purchase Agreement”, which Kassem provided written consent to, the Court finds unpersuasive Walmart’s attempt to rebut Mobile Equity’s presumption of entitlement. Therefore, the Court finds that Kassem has no ownership interest in the Asserted Patents and Mobile Equity is the sole owner of the Asserted Patents.

I have no clue if the result is correct under Texas law under these facts, but the “first element” — that because Afana ws the sole inventor he was the sole owner — may not be correct under every state’s law. For example, applying Florida law, the court in Taylor v. Taylor Made Plastics, Inc., 2013 WL 1798964 (M.D. Fl. Apr. 29, 2013), the court dismissed a patent infringement suit because the plaintiff-inventor had not joined his former spouse. The court recognized that, apparently unlike Texas law, under Florida law any property acquired during marriage is a marital asset subject subject to equitable distribution and, in that case, the divorce decree had not awarded legal title to the inventor. The Federal Circuit affirmed dismissal for lack of standing. Taylor v. Taylor Made Plastics, Inc., 565 Fed. Appx. 888 (Fed. Cir. 2014). See also OptoLum, Inc. v. Cree, Inc., 490 F. Supp.3d 916 (M.D. N.C. 2020) (applying Arizona law and holding that, although the patents had been community property, as in Mobile Equity under Texas law, the inventor-spouse had properly assigned it in compliance with Arizona law).

In another Federal Circuit case, the spouses had divorced and in that process the non-inventor spouse had not listed the patent applications as an asset on a “short form” divorce filing. The defendant got a license from the non-inventor, now-ex, spouse and argued as a result it could not infringe.  The Federal Circuit held, however, that because the non-inventor spouse had not listed the patent applications as marital property, she was estopped to claim an interest in the patents and, as a result, the license she had given to the accused infringer was of no effect.  Enovsys LLC v. Nextel Commun., Inc., 614 F.3d 1333, 1341 (Fed. Cir. 2010).

This issue has popped up a few times over the years and the lesson, of course, is that not only is standing always a fundamental requirement, making that determination may require extra due diligence in community property states.