Muzzling Transferors of Intellectual Property: Assignor Estoppel in Canada

David Vaver headshotProfessor David Vaver is a Member of IP Osgoode’s Advisory Board and a Professor of Intellectual Property Law at Osgoode Hall Law School.

 

The U.S. Supreme Court recently decided that the doctrine of assignor estoppel—the judge-made law that prevents an assignor, if sued for IP infringement by the assignee, from contesting the title or validity of the IP it transferred—applies to the assignments of patents in Minerva Surgical, Inc. v Hologic, Inc., et al. 594 US  (2021). The assignor had hoped, wrongly as it turned out, that the Court’s previous ditching of estoppel for patent licensees for public policy reasons, seen in Lear Inc. v Adkins 395 US 693 (1969), would carry over to patent assignments.  

Many contracts assigning IP have detailed provisions dealing with the incidents of the assignment. Other contracts are brief, but all are written against the background of default rules such as those on estoppel. Some understanding of these rules, and where they differ between countries, is therefore desirable.

I am working on the revised 3rd edition of my book on Intellectual Property Law (Irwin Law 2011, 2nd edition), and with Professor Pina D’Agostino as co-author on the revision of the 2nd edition on Copyright Law (Irwin Law 2000). Since some of Minerva’s comments parallel Canadian law and some do not, it may be necessary to expand the discussion on assignor estoppel a little in the new editions beyond my previously passing comments, in the hope that the bits of Minerva that are inconsistent with Canadian law do not inadvertently creep in. The discussion will be concise rather than discursive, as befits two relatively compact treatises.

A version of the following draft text (with more or less footnotes) will likely find its way into both new editions—depending on what happens between now and publication. Meanwhile, any comments from readers are welcome.

Assignor Estoppel

An assignor of IP who is sued for infringement cannot contest the validity or title of the IP. This rule of “assignor estoppel” overrides any public interest in such matters.[1] The U.S. Supreme Court too recently declared that assignors of U.S. patents (and presumably any other intellectual property right) are similarly barred, giving as its reasons (i) “fair dealing” and (ii) assignors impliedly represent that the transferred right is valid.[2] One may accept (i) without accepting (ii), and indeed in Canada the rule for IP assignments is “buyer beware,” following English law.[3] An assignor may expressly promise or represent it has good title and the IP is valid; but no such promise or representation is implied unless the assignor does or says something the assignee would reasonably take as such a promise or representation, or there is fraud. Everyone knows that IP rights are volatile, some more than others; and an assignor’s silence on the point simply means that the assignee gets only such interest (if any) as the assignor had. Assignees still benefit from the elimination of the assignor’s right to sue them or anyone else for infringement. But they cannot claim rescission, damages, or a refund after acting on the right: that burden accompanies the benefits assignment confers.[4]

At least two reasons exist for imposing assignor estoppel. First, assignors usually have better means of knowledge than assignees about their IP’s title and validity. To take the case of patents: at least the first patent holder should have superior knowledge about such matters as whether the inventor or co-inventors are correctly identified, the disclosure of the invention meets the Patent Act’s requirements, the best means of working the invention are stated, and the inventor’s intent is fully reflected in the patent (a critical matter if the patent’s coverage turns out to be defective and reissue is later sought on grounds of mistake). Second, grantors cannot derogate from their grant by undermining whatever they have transferred. An assignee is entitled to its hopes on title and validity, and the assignor should not dash them: it cannot blow hot and cold.[5] Assignors are otherwise no worse off than anybody else. They cannot be held to IP rights broader than those foreshadowed at the time of assignment; they can say the law has relevantly changed since the assignment; they can say the right has expired or does not catch their activities; and (unless subject to duties of confidentiality) they can tell anyone else they like of the IP’s infirmities.[6]

Employees may not be subject to assignor estoppel if the U.S. view is accepted that the doctrine does not apply to future inventions (or, in Canada, also designs) that an employee promises to assign as a condition of employment.[7] Nor may it apply where an employer applies for a patent simply indicating its entitlement, as it may, because of such an express or implied condition, or simply applies for a design registration claiming proprietorship without more. But imposing an estoppel where the employee is made to sign an assignment before the employer applies for a patent or design registration seems more controversial, unless inventing or designing was indeed the employee’s job and she benefited through raises or royalties. Suppose, however, that the employee doubted the validity of what the employer applied for? What if they got nothing extra from patenting or design registration? An employer makes its own assessment of validity when applying for a patent, without banking on anything the employee may have told it. Barring them then from contesting validity is then not self-evidently fair or in the public interest. Ex-employees who form or join a company that is later sued for infringement may also not always escape scot-free. The company, being a separate legal entity, may initially avoid the estoppel but may perhaps become subject to it if the employees are found to induce infringement or otherwise become jointly liable with the company.[8]

Assignors therefore ignore estoppel at their peril. Its effects may apparently even be intensified by agreement. For example, in the U.K., an assignor had to refund the entire purchase price of an IP-rich business he had sold to the assignee because that was his contract—and the assignee apparently kept the IP![9] Extraordinary cases can produce extraordinary results, and how such a case would likely fare in Canada is unclear in light of the developing doctrines of good faith and unconscionability.


[1] Cheerio Toys & Games Ltd v Dubiner [1966] SCR 206 [Cheerio]; compare Judson J’s dissent, ibid at 228.

[2] Minerva Surgical Inc v Hologic Inc — US — (2021), majority slip opinion at 12 [Minerva].

[3] Hall v Conder (1856) 2 CB (NS) 22, 53-5 (Ex Ch). Compare Minerva, ibid at 5-6, which correctly holds that the old English authorities imposed an estoppel but wrongly implies, contrary to Hall v Conder, they also imposed a representation of validity.

[4] Electric Fireproofing Co of Canada v Electric Fireproofing Co (1910) 43 SCR 182; Bingham v McMurray (1899) 30 SCR 159.

[5] Cheerio, n 1 at 220; Minerva, n 2 at 5-7.

[6] Franklin Hocking & Co Ltd v Hocking (1888) 6 RPC 69 (HL); Minerva, ibid at 6ff

[7] Minerva, ibid at 15.

[8] Compare Glenko Enterprises Ltd v Keller 2008 MBCA 24 at [49]-[50] (non-IP: no estoppel) with Minerva, ibid (applying estoppel where inventor netted $8m from an assignment by the company he founded, and where the allegedly infringing company was also founded by him and effectively his alter ego).

[9] Permavent Ltd v Makin [2021] EWHC 467 (Ch).

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