United States: Divorced From Reality: Eastern District Of Texas Calls Out "Frivolous" Arguments In Motion For Summary Judgment

Holding:

In Mobile Equity Corp. v. Walmart Inc., the District Court for the Eastern District of Texas denied Walmart's Motion for Summary Judgment Regarding Standing. Case No. 2:21-cv-00126-JRG-RSP, at *1 (E.D. Tex. Aug. 23, 2022). The court held that: (1) a challenge under 35 U.S.C. § 281 can be brought on summary judgment, (2) Mobile Equity was a patentee under Section 281 and had a right to bring this suit, and (3) Mobile Equity was the sole owner of the asserted patents in this case.

Background:

Mobile Equity Corp. alleged infringement of U.S. Patent No. 8,589,236 ("the '236 patent") and U.S. Patent No. 10,535,058 ("the '058 patent"), which is a continuation of the '236 patent. Both patents list Marwan Monir Afana as the sole inventor and claim priority to a provisional application. Id. at *1. During prosecution of the '236 patent, Afana executed an assignment agreement to Faber Financial. Faber Financial later changed its name to Mobile Equity Corp and recorded this information with the USPTO for both asserted patents. Id. at *1–2.

When the initial provisional application was filed, Afana was married to Aziza Kassem, however, Kassem initiated divorce proceedings that were finalized after the '236 patent issued, but before the '058 patent issued. Id. at *2.

Walmart asked the district court to dismiss the suit, arguing that Mobile Equity did not have a right to bring the suit under 35 U.S.C. § 281, and that Kassem was a co-owner of the asserted patents and was not properly joined in the suit. Id. T

Statutory Standing and Timing of Walmart's Motion

Under 35 U.S.C.§ 281, a "patentee" may bring a civil action for patent infringement. A patentee includes the original patentee (whether the inventor or original assignee) and his successor in title. If there are multiple owners, all co-owners must be joined in the action.

The Federal Circuit held in Lone Star that compliance with § 281 is not a jurisdictional requirement and that a Rule 12(b)(6) motion is a proper vehicle to challenge compliance with the statute. Id. at *3–4 (citing Lone StarSilicon Innovations LLC v. Nanya Tech. Co., 925 F.3d 1225, 1235–36 (Fed. Cir. 2019)).

Mobile Equity argued Walmart's Motion was not timely raised and that a motion for summary judgment would not be a proper vehicle to challenge compliance of Section 281. Id. at *4. However, the court held that the motion was timely raised, and summary judgment was a proper vehicle for challenging § 281. The court noted that a Rule 12(b)(6) motion can be brought "at any point up to and at a trial." Id. The court also noted that if "matters outside the pleadings are presented" in a Rule 12(b)(6) motion and "not excluded by the court, the motion must be treated as one for summary judgment under Rule 56." Id. (citing Fed. R. Civ. P. 12(d)). The Court thus found no issue with a Section 281 challenge on summary judgment. Id.

Bringing Suit Under Section 281

Mobile Equity produced an agreement recorded with the USPTO in which Afana assigned his interest in the application that gave rise to the '236 patent and all continuation applications to Faber Financial. Id. Mobile Equity also produced documents relating to the conversion of Faber Financial to Mobile Equity that were recorded with the USPTO, creating a "'presumption of validity as to the assignment and places the burden to rebut such a showing' on Walmart." Id. *4–*5 (citing SiRF Tech., Inc. v. I.T.C., 601 F.3d 1319, 1327–28 (Fed. Cir. 2010)).

Walmart argued the documents produced by Equity Mobile were only "USPTO recordation documents" which were not sufficient to show standing. Id. at *5. The court held this to be a "frivolous argument" as the "document is clearly entitled 'Assignment'; it is signed by Afana; and the body of the agreement explicitly assigns Afana's entire interest to Faber Financial." Id. Essentially, if it looks like a duck, walks like a duck, and quacks like a duck, then it may just be a duck or, put differently, a rose is a rose is a rose.

Walmart further argued that the document titled "ASSIGNMENT" was void for lack of consideration under Texas law because it requires that "consideration must be recited in detail in the contract itself." Id. (citing Sandel v. ATP Oil & Gas Corp., 242 S.W.3d 749, 752 (Tex. App. 2007)). The court held (1) Walmart "grossly misstate[d] Texas law," (2) Sandel was irrelevant to the present case, and (3) in Texas "the existence of a written contract presumes consideration for its execution." Id. at *5–*6 (citing Burges v. Mosley, 304 S.W.3d 623, 628 (Tex. App. 2010)). Furthermore, the court noted that the assignment agreement recites "[f]or good and valuable consideration, the receipt of which is hereby acknowledged," which presumptively imports consideration under Texas law. Id. at *6.

Because the assignment agreement was presumed to have consideration, and Walmart failed to produce any evidence to rebut this presumption, Mobile Equity was a patentee under §281 and had a right to bring this suit. Id.

Whether Kassem Must Be Joined in This Suit

Under Texas law, "property other than separate property, acquired by either spouse during marriage" is considered community property. Id. at *6 (citing Tex. Fam. Code § 3.002). Walmart argued that Kassem has an ownership interest in the asserted patents because Afana conceived of the invention and filed the provisional application to which the asserted patents claimed priority while Afana and Kassem were married. Id. at *7.

The court found Walmart's argument to be borderline frivolous and held that Mobile Equity was entitled to protections as a third party under Texas Family Code § 3.104. Under this code, where community property is held under one spouse's name, there is a presumption the "property is sole-management community property" absent any showing of fraud, protecting third parties who rely on the spouse's authority when dealing with the property. Id. at *8 (citing Jean v. Tyson-Jean, 118 S.W.3d 1, 5 (Tex. App. 2003)). Here, the patent applications were properly presumed to be sole management community property. Id. Mobile Equity offered testimony that Kassem was aware that Afana was the inventor of the U.S. Patents and consented to the transfer of any patent rights. Id. at *8-9. Walmart failed to offer any credible argument to rebut Mobile Equity's presumption of entitlement; therefore, Kassem had no ownership interest in the asserted patents, and Mobile Equity was the sole owner of the patents. Id. at *9.

Key Takeaways

This case highlights the importance of how local laws can affect the outcome of your patent case, and how they can be a useful tool to keep in your back pocket if the local laws of the jurisdiction are favorable to your client. Perhaps more importantly, it also highlights the importance of knowing the local laws and knowing them well. Furthermore, this case highlights the importance of providing credible evidence to support your arguments.

This case also serves as a reminder of how ownership, often implicating inventorship, may play a determinative role in patent cases. According to 35 U.S.C. § 262, co-owners of a United States patent may make, use, offer to sell, and sell the patented invention without regard to the wishes of any other co-owner. As we see in this case, ownership may also have standing implications for enforcing the patent. For more on ownership and assignment disputes in patent cases, see:

• https://www.finnegan.com/en/insights/blogs/prosecution-first/how-two-recent-court-decisions-show-ownership-can-be-everything-and-standing-must-be-takeninto-account.html
• https://www.finnegan.com/en/insights/blogs/prosecution-first/all-substantial-rights-and-right-to-prosecute-may-be-informative-for-assessing-obviousness-type-double-patenting-common-ownership-but-was-not-found-where-assignee.html
• https://www.finnegan.com/en/insights/blogs/federal-circuit-ip/shall-be-language-may-not-effectuate-a-present-automatic-assignment-of-rights.
• htmlhttps://www.finnegan.com/en/insights/blogs/prosecution-first/a-forgiving-response-to-a-candidly-admitted-error-but-still-costly.html

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