Roku, Inc. v. International Trade Commission – The Power of Words in Patent Assignments

February 9, 2024

The U.S. Court of Appeals for the Federal Circuit (“CAFC”) issued its most recent precedential decision on patent assignments and satisfying the “domestic industry” requirement at the International Trade Commission (“ITC”) in Roku, Inc. v. International Trade Commission, 2024 WL 202033, –F.4th– (Fed. Cir. 2024).  The Roku appeal involved a challenge of three aspects of the Commission’s final determination finding that (1) Universal satisfied the economic prong of the domestic industry requirement under subparagraph (a)(3)(C) of Section 337; (2) Roku failed to establish a prima facie case of unpatentability of the patents for obviousness; and (3) Universal Electronics, Inc. (“Universal”) had ownership rights in U.S. Patent No. 10,593,196 (“’196 Patent”) and had the right to assert the Patent in the investigation.  The CAFC concluded the Commission did not err in making its determinations and therefore affirmed the final determination on all three aspects in favor of the Patent holder Universal.

Universal’s asserted Patent, the ’196 Patent, claims compatibility for a “universal control engine” allowing compatibility of communication protocols for devices using both wired and wireless communication by translating between the different types of devices.  Roku,  2024 WL 202033 at *1.  The control engine receives wireless signals from a remote control or a tablet computer and then issue commands to various controllable devices including a TV or DVR.  Id.  Universal filed a complaint with the ITC against Roku for importing certain TV products for infringing the ’196 Patent.

In determining Universal satisfied the economic prong of the domestic industry requirement of Section 337, the Commission determined Universal proved “a substantial investment in engineering and research and development to exploit the ’196 Patent pursuant to subparagraph (a)(3)(C) of Section 337.”  Id. at *3.  Subparagraph (a)(3) requires a complainant to possess a domestic industry in the United States with respect to the patented product, and subparagraph (a)(3)(C) provides that such a domestic industry exists if the complainant shows “a substantial investment in [a patent’s] exploitation including engineering, research and development, or licensing.”  19 U.S.C. §1337(a)(3)(C).  The Commission, in determining Universal satisfied the economic prong of the domestic industry, found Universal “made substantial investments in domestic engineering and R&D related to the QuickSet platform” and that those “investments in domestic R&D accounted for a substantial portion of its total investments in engineering and R&D.”  Roku,  2024 WL 202033 at *3.  The Commission also concluded there was a “nexus between [Universal’s] engineering and R&D investments, the ’196 Patent, and the Samsung TVs that constituted Universal’s domestic industry products.”  Id.

On appeal, Roku argues that Universal had to allocate expenses to specific domestic industry products, such as a smart TV.  Id. at *4.  The CAFC, however, determined that investments in the domestic industry products need only be tied to the scope of the patents, and not necessarily the whole products that are the subject of the exclusion order.  In making this determination, the CAFC stated that “[Federal Circuit] precedent does not require expenditures in whole products themselves, but rather, ‘sufficiently substantial investment in the exploitation of the intellectual property.”  Id. at *4 (citing InterDigital Commc’ns, LLC v. ITC, 707 F.3d 1295, 1303–04 (Fed, Cir. 2013)).  In other words, a complainant need only to invest in a subset of a product, so long as the patent(s) at issue only relate to and involve such subset.  Id.  The CAFC determined that there was “no dispute that the ‘intellectual property’ at issue [in this case] is practiced by the QuickSet” and this technology is only a subset of the entire television.  Id.  Universal, therefore, was only required to invest in its technology used in the TVs and not all components that constitute a complete TV.

Next, Roku argued that the ITC erred in finding the claims of the ’196 Patent were not obvious based upon the combination of two prior art references.  The CAFC determined that Roku did not directly dispute the Commission’s actual  finding that neither reference disclosed the limitation for first media device to select between different control devices.  Id. at *5.  Roku’s argument that the Commission erred in finding a nexus between secondary considerations of non-obviousness were also meritless.  Id.  In fact, Roku did not dispute the Commission’s determination regarding secondary considerations was supported by substantial evidence.  Id.  Because Roku did not directly address or dispute the Commission’s findings on obviousness, the CAFC declined to disturb the ITC’s non-obviousness ruling.

The most intriguing aspect of this decision, however, is the issue of Universal’s ownership of the ’196 Patent—and, ultimately, the issue of the assignment of rights to the Patent by employee inventors.  The assignment issue boiled down to whether there was a promise to assign rights or an actual, automatic assignment of rights.  In affirming the Commission, the CAFC found that a “hereby assigns” transfer of rights encompasses future continuations of patents, following Circuit precedent.

Early in the investigation, Roku filed a motion for summary determination that Universal could not assert the ’196 Patent because it did not own all the rights to the Patent.  Id. at *2.  Roku argued because Universal filed a petition for correction of inventorship to add one of its employees as an inventor on the ’196 Patent “after it filed its complaint with Commission and that the agreements between this employee (Mr. Barnett) and Universal did not constitute an assignment of rights.”  Id.  The ALJ initially granted summary determination based on a 2004 agreement between Mr. Barnett and Universal; however, the Commission reversed the summary determination based on a separate 2012 agreement.  Id.  The 2004 agreement was found not to automatically assign Universal any of Mr. Barnett’s rights to the Provisional Applications or the ’196 Patent that eventually issued from the priority chain because it was a “‘mere promise to assign rights in the future, not an immediate transfer of expectant right.’”  Id.  The 2012 agreement, on the other hand, was determined to constitute a present conveyance of Mr. Barnett’s rights in the ’196 Patent and “Mr. Barnett did not contribute any new or inventive matter to the ’196 patent after filing the provisional applications.”  Id.  The Commission, therefore, determined Universal had ownership rights in the ’196 Patent and could assert it in the Investigation.

In looking at the 2012 agreement, the CAFC examined its language:  “Mr. Barnett ‘hereby sell[s] and assign[s] . . . [his] entire right, title, and interest in and to the invention,’ including ‘all divisions and continuations thereof, including the subject-matter of any and all claims which may be obtained in every such patent.’”  Id.  The CAFC found that the agreement language on its face constituted a present conveyance.  Id.  In making this determination, the Court relied upon FilmTec Corp v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991).  FilmTec was one of two cases on present assignment of future rights decided by the CAFC in 1991 in determining what agreement language constitutes such conveyance.  FilmTec, as described by the CAFC in reaching a decision on Universal’s ownership of the ’196 Patent in this case, stated that an agreement to “hereby grant” title to the Patent by an employee “expressly grant[s] . . . rights in any future invention.”  Id. (citing FilmTec, 939 F.2d at 1573).  The other case—decided only a week later—Arachnid, Inc. v. Merit Industries, Inc., 939 F.2d 1574 (Fed. Cir. 1991), held that an agreement stating “will be assigned” was an agreement to assign, not an assignment, and did not by itself vest legal title to patents on the inventions.  Arachnid, 939 F.2d at 1580–81.  The difference between the agreements in FilmTec and Arachnid was the addition of “hereby” and the CAFC in this decision reaffirmed that “hereby” must be present to constitute a present conveyance of future interest.  The CAFC has also clarified that “the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign” is “a matter of federal law.”  Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1364 (Fed. Cir. 2010) (citations omitted).

Roku highlights the importance of word choice when it comes to agreements that presently assign future interest in patent rights.  The Supreme Court of the United States questioned the principles adopted by the CAFC in FilmTec and Arachnid in Board of Trustees of Leland Standford Junior University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011).  As pointed out by Justice Sotomayor’s concurrence and Justice Breyer’s dissent, the Justices questioned the CAFC’s standard on interpreting agreements to assign patent rights.  As Justice Breyer noted, the CAFC determined that the use of the words “agree to assign” compared to the words “do hereby assign” make all the difference.  Roche, 563 U.S. at 799 (Breyer, J. dissenting).  Through the CAFC’s reasoning, “hereby assigns” operates upon a future invention automatically, while “will assign” does not.  Id.  Justice Breyer concluded that “given what seem[s] only slight linguistic differences in the contractual language, this reasoning seems to make too much of too little.”  Id. at 799–800.  In making this distinction, the CAFC provided no explanation for the what was considered a significant change in the law in FilmTec and ArachnidId. at 800.  While this rule makes it quite simple for agreements to meet the FilmTec rule by “copying the precise words blessed by the Federal Circuit, the rule nonetheless remains a technical drafting trap for the unwary.”  Id.  While Justice Breyer expressed his concern with the CAFC’s interpretation of such agreements, his views were merely tentative because the parties did not fully argue such matters, and he reiterated that the majority in this case did not foreclose a similarly situated party from raising such matters in a future case.  Id. at 803.  Because the assignment issue was squarely addressed in this case, Roku potentially has a strong basis to request that the Federal Circuit reevaluate the “present assignment of future rights” cases en banc, or to seek Supreme Court review.  If further review is granted, it seems likely that another issue for review would be whether the Federal Circuit has properly treated the question as one of federal law rather than state law.  See Abraxis Bioscience, Inc. v. Navinta LLC, 672 F.3d 1239 (Fed. Cir. 2011) (O’Malley, J., joined by Newman, J., dissenting from the denial of rehearing en banc) (concluding that the construction of patent-assignment language is a matter of state law, not federal law).