Except as Provided Elsewhere, or Trumped, I’ll Own all the IP.

An IP decision of the Delaware Chancery Court reminds of two risks – wholesale incorporation by reference between separate IP agreements, and judicial misreading of patent law. In Cepahlon v. Johns Hopkins, 2009 WL 4896227 (Del. Ch. 12/18/09), three forms of agreement dealt with the ultimate ownership of IP developed by a university researcher. Rather than reading these separately and, if possible, consistently, the Vice Chancellor ruled that the terms of one “trumps any contrary language” in the other. Also, instead of defining the agreed terms using the common and accepted meanings, the VC applied definitions unique to patent law.

The first lesson is to avoid having two provisions dealing with the same subject matter, because of the risk of inconsistency, or of inconsistent interpretations. A form of drafting simplicity, to be avoided in IP transactions, is simply referring to parts of separate agreements rather than making revisions so as to make it all consistent. What good can come in court from phrases like ‘except as otherwise provided in [other provisions or agreements],’ or that ‘the foregoing does [not] supersede provisions [else where] not inconsistent herewith.’ Those flaws were not found in this case, but the outcome on ownership was not what Cephalon expected.

Cephalon supported the research, and its agreement with JHU (A) required the JHU researcher to “disclose to Cephalon any discovery or invention, whether or not patentable, that is conceived or reduced to practice,” and (B) it granted to Cephalon “all rights in and title to …all Inventions that result from the …use of” its proprietary compounds, and to “all ..intellectual property rights related thereto.”

The first misstroke of the pen was having the duty to disclose provision end with a shorthand, collective term “Invention.” On that basis, the court took that “Invention” definition and applied it where it appeared in the grant provision. The effect was that Cephalon did not own “any discovery.” Rather its ownership was limited to any “Invention” that was “conceived or reduced to practice,” and limited to conception and reduction to practice as defined in patent caselaw. An alternative construction would recognize that “any discovery” is much broader than “invention”, and broadened still by the term “whether or not patentable.” A “discovery” implies no usage confined to any legal regime.  Discovery is just that, and is distinct from an “invention,” which flows from legally-cognizable “conception” and “reduction to practice.”  Indeed, the opinion suggest that the researcher made discoveries about what compounds met certain criteria, but that only after all the agreements had expired did the claimed invention reach the stage of being an invention.

The next pointer is not to introduce shorthand definitions, mid-sentence. It always is difficult to define known IP, and even harder to set metes and bounds on IP yet to be developed. “The possibilities of such circumstances cannot possibly be enumerated. If the inventor had merely a conception or was working towards development of that conception, it can be said there is not yet any ‘invention’.” UMC Electronics Co. v. U.S., 816 F.2d 647, 656-7 (Fed. Cir. 1987). Such definitional terms must be well-crafted, not shorthanded, and threshold definitions deserve to be set out early in the agreement, in or near the primary grant clause.

The crucial misstroke was a later-made amendment incorporating by reference the IP “policies” of Johns Hopkins, along with what the court called the “primacy” provision. Ostensibly, the amendment clarified that, although Cephalon was compensating the researcher, his primary duties were as a researcher in Hopkins’ employ. The incorporated “policies” gave Hopkins “the right to obtain [IP] developed as the result” of its supporting the research. The court ruled this was an outright grant of ownership to Hopkins, rather than an executory “right to obtain.” That conclusion hinged too on boilerplate that the “Hopkins’ policies” and the researcher’s “obligations to the University shall govern and be afforded primacy in the event a conflict arises with” the agreement granting all ownership to Cephalon.

It had to be unpleasant when that incorporation by reference provision was given primacy, so as to ‘trump’ an express grant of ownership; particularly, when fn. 94 points out that Cephalon never “received a copy of [the] JHU IP policy.” To that pain point, the court added the irritant that “Cephalon cannot rely on ignorance.”