From The Field

January 11, 2021

On December 7, 2020, the Federal Circuit issued a decision holding that a U.S. court can compel a party to transfer ownership over foreign patents and patent applications.  The decision is SiOnyx LLC v. Hamamatsu Photonics K.K. et al., Case Nos. 2019-2359 & 2020-1217 (Fed. Cir. Dec. 7, 2020).

The underlying dispute arose out of a January 2007 non-disclosure agreement into which the parties entered (the “NDA”).  Before that, the founders of plaintiff SiOnyx had discovered a process for creating “black silicon” by irradiating a silicon surface with ultra-short laser pulses and were looking for partners to develop and commercialize the technology.  The defendants (collectively, “Hamamatsu”) manufacture silicon-based photodetector devices.  SiOnyx and Hamamatsu entered into the NDA so they could share confidential information for the purposes of exploring joint development opportunities. 

The NDA obligated a party receiving confidential information to maintain that information in strict confidence for seven years after the expiration of the agreement (the “Confidentiality Period”).  Importantly, Paragraph 5 of the agreement also contained an acknowledgement by the party receiving confidential information that the disclosing party owned the confidential information and all intellectual property rights “in, or arising from” that confidential information.

Under the NDA, SiOnyx provided to Hamamatsu in confidence its proposed architecture and a manufacturing process for a photodetector device.  The parties also jointly developed a prototype.  However, Hamamatsu decided not to go forward with the joint project.  After the NDA was terminated, Hamamatsu continued to develop new photodetector devices.  Within the Confidentiality Period, Hamamatsu also filed patent applications relating to its new devices in Japan as well as counterparts in other countries, including the U.S.  (The U.S. counterparts are referred to hereinafter as “the U.S. Patents” and the Japanese originals and other foreign counterparts are referred to hereinafter as “the Foreign Patents.”) 

After SiOnyx found out about Hamamatsu’s patents, it tried to negotiate with Hamamatsu about patent ownership but the parties were not able to reach an agreement.  SiOnyx sued Hamamatsu in the District of Massachusetts for breach of the NDA.  SiOnyx sought to amend the inventorship of the US Patents, among other things.  After a jury trial, the jury found that Hamamatsu breached the NDA and that a SiOnyx co-founder should be named as a co-inventor of the U.S. Patents.       

In post-trial motions, in reliance on Paragraph 5 of the NDA discussed above, SiOnyx asked the district court to grant it sole ownership of both the U.S. Patents and the Foreign Patents.  The district court granted SiOnyx’s motion with respect to the US Patents.  The court based its decision on the jury’s findings that Hamamatsu breached the NDA by using SiOnyx’s confidential information, and that SiOnyx’s co-founder was a co-inventor of the U.S. Patents.  But the district court denied SiOnyx’s motion with respect to the Foreign Patents because it questioned its authority to do so.  Both sides appealed. 

Hamamatsu argued on appeal that SiOnyx should not have sole ownership of the U.S. Patents because the jury’s finding that SiOnyx’s co-founder was a co-inventor of the patents necessarily meant that Hamamatsu’s inventors also contributed to the patents.  The Federal Circuit, applying the abuse of discretion standard, affirmed the district court’s decision in this regard.  The Federal Circuit panel reasoned that inventorship and ownership are separate issues and ownership in this case is determined by the NDA.  In the court’s view, while Hamamatsu may have contributed something to the invention claimed in the patents, it had already disclaimed ownership of any patents that arose from SiOnyx’s confidential information.  In other words, the determination of patent ownership in this case turns on which party contributed confidential information within the meaning of the NDA that gave rise to the patents.  The panel concluded that because Hamamatsu had failed to establish that any of the patents arose from any of its own confidential information that it disclosed under the NDA, while the jury found that SiOnyx’s confidential information went into the patent, the district court did not abuse its discretion in granting sole ownership of the U.S. Patents to SiOnyx.

SiOnyx, on the other hand, cross-appealed the district court’s decision denying it sole ownership of the Foreign Patents.  SiOnyx argued that the same evidence underlying the lower court’s decision granting it sole ownership of the U.S. Patents likewise meant that SiOnyx should have sole ownership of the Foreign Patents.    

The Federal Circuit agreed with SiOnyx.  The panel found that because the Foreign Patents and the U.S. Patents embodied the same inventions, the Foreign Patents must also have arisen from the same SiOnyx confidential information and therefore SiOnyx should have sole ownership under the NDA.  The Federal Circuit disagreed with the district court’s opinion that it lacked authority to compel the transfer of ownership of the Foreign Patents.  The panel reasoned that the district court had the equitable power to order Hamamatsu – a party over which the court had jurisdiction – to transfer or assign its foreign patent ownership to SiOnyx, and that such an exercise of power would not implicate any authority over any foreign patent offices.       

This case serves as a reminder to parties to a non-disclosure agreement:  be wary of what you agree to in a non-disclosure agreement because certain provisions may have implications far beyond confidentiality restrictions. 

We note that, on January 6, 2021, Hamamatsu filed a petition for panel rehearing or en banc review in this case.  Hamamatsu’s petition does not challenge the panel’s decision on the ownership issues discussed above. 

Author: Hui Liu