Spring 2006Newsletter

Witness Estoppel?

Intellectual Property Update

A resonance label is a device that is attached to merchandise in retail stores and other places in order to prevent theft of the merchandise. Checkpoint Systems contracted to supply resonance labels to a corporation called Actron. Franz Pichl was a managing director and an owner of Actron, and also was a part owner of another company, Durgo AG. Durgo filed a patent application for a resonance label invention, which ultimately issued as a U.S. patent.

The application was assigned to Durgo, and named Paul Jorgensen, an independent technical consultant, as the sole inventor. Actron subsequently acquired Durgo, thereby also acquiring the patent. Thereafter, Checkpoint acquired Actron, and in turn became the owner of the patent.

At some point Pichl formed All-Tag Security S.A. Checkpoint eventually brought suit under the Jorgenson patent against All-Tag and another defendant, Sensormatic Electronics Corporation, which purchases the accused the products from All-Tag.

All-Tag moved for summary judgment that the patent was invalid for failure to properly list all inventors. It argued that Jorgensen and Pichl were co-inventors. In support of the motion, All-Tag proffered declarations from Jorgensen, Pichl, and another man, Geiges, swearing that Pichl had been a co-inventor of the patent, but his name had been intentionally left out for strategic reasons, in violation of U.S. patent law. The Geiges declaration said:

Contrary to the indication on the [Jorgenson] patent, Mr. Jorgensen was not the sole inventor of this subject matter. We intentionally did not include Mr. Pichl's name on the [patent application] filed in the United States because of our competitive relationship with [Checkpoint]. We were concerned that [Checkpoint] might try and claim ownership in the technology based on [Actron's] and Mr. Pichl's prior supply agreement with [Checkpoint].

Checkpoint argued in rebuttal that, under the doctrine of assignor estoppel, All-Tag was barred from challenging the patent's validity. The doctrine of assignor estoppel prevents a party that assigns a patent from later challenging the validity of the assigned patent. This prevents the unfairness and injustice of permitting a party to sell something and later to assert that what it sold is worthless. Parties in privity with the assignor are also barred from challenging validity. Privity may be established where there is a close relationship.

Checkpoint recognized that All-Tag was not an assignor of the patent, but it urged that All-Tag's relationship with Jorgenson made the doctrine applicable to All-Tag. Checkpoint claimed, in effect, that the previous owners of the patent, Jorgenson and Durgo, were estopped to contest the patent’s validity, and that All-Tag was in privity with them because Pichl had been both a part-owner of Durgo and a founder of All-Tag; therefore All-Tag was also estopped to contest validity.

But in Checkpoint Systems Inc. v. All-Tag Security S.A., 75 U.S.P.Q.2D 1200 (Fed. Cir. 2005), the court rejected this argument. The court did not decide whether Jorgenson, as the first owner of the patent, and Pichl and Geiges as his associates, would be barred from contesting validity if they had been defendants accused of infringement. It did not even decide whether All-Tag was in privity with Jorgenson and the other witnesses for purposes of the assignor estoppel doctrine.

But the court did treat their role as witnesses differently from the role they might have had if they had been defendants. Furthermore, the other defendant in the case, Sensormatic, was not considered to be in privity with any of the witnesses, because it had no history with them. Therefore, even if All-Tag was barred from using their testimony to invalidate the patent, Sensormatic was not so barred, and was entitled to the benefit of their testimony, even if the witnesses themselves (and their privies) could not have benefited from it. The court said:

A party, such as Sensormatic, that is not barred by assignor estoppel from challenging the validity of the patent, should be able to at least proffer all otherwise admissible evidence in support of its case.

But if Sensormatic buys the accused devices from All-Tag, shouldn’t it take these devices subject to all the disabilities that All-Tag suffered from? In other words, isn’t Sensormatic in privity with All-Tag for the purposes of the assignor estoppel doctrine?

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