IP Law Daily, PATENT—N.D. Cal.: Foreign court’s determination of patent ownership established lack of standing in infringement case, (Jan 9, 2024)

By WK Editorial Staff

The doctrine of comity prescribes that a court recognize the judgment of a foreign court when that court had proper jurisdiction and enforcement and does not prejudice the rights of United States citizens.

A Finnish inventor trying to bring a patent infringement claim in the United States failed when the finding of two Finnish courts that he did not actually have ownership in the patent in question was honored by the federal district court in San Francisco, which held that he had no standing to bring the claim (Valjakka v. Netflix, Inc., January 8, 2024, Tigar, J.).

The action centered on United States Patent No. 8,495,167 (’167 Patent) and the underlying Patent Application No. 10/208,685 (’685 Application) filed on July 30, 2002. The ’167 Patent “provides improved data communications networks, methods of operating data communications networks, network servers, network terminals and computer programs.”

The invention described in the ’167 Patent was co-invented by Lauri Valjakka and Iiro Karesniemi. Valjakka was the CEO of e-3 Solutions Oy (e-3 Solutions), a Finnish Company, and Karesniemi was its employee. In 2001, Karesniemi assigned his rights in the ’685 Application to e-3 Solutions pursuant to his employment contract. Valjakka did not assign his rights in the ’685 Application to e-3 Solutions at that time.

In 2003, Valjakka reorganized e-3 Solutions into e-3 Systems. On November 16, 2005, Valjakka sold all the assets held by e-3 Systems (which included rights to the ’685 Application) to Suomen Biisi Oy (SBO), another Finnish Company. SBO was owned by Valjakka and two other persons. On December 20, 2005, Valjakka entered into an agreement with SBO governing his personal rights to the ’685 Application (the “Utilization Agreement” or “DMTS Agreement”). The Agreement provided that the rights of utilization of DMTS would be reassigned to Valjakka and his partners if (1) the company ceased to utilize the invention commercially; (2) the company went out of business or was declared bankrupt; or (3) if the company did not continue the patent application.

Valjakka then corrected the title chain for the ’685 Application using three nunc pro tunc assignments signed on September 21, 2007, transferring his personal interest in the ’685 Application to e-3 Solutions, effective October 2, 2002; from e-3 Solutions to e-3 Systems effective June 4, 2003; and finally, from e-3 Systems to SBO effective November 16, 2005. He recorded the assignments with the United States Patent and Trademark Office (USPTO).

SBO ceased using the ’685 Application by August 15, 2007, and was formally declared bankrupt on May 27, 2008, at which time Valjakka filed suit in the Helsinki District Court asking the court to confirm that pursuant to the Utilization Agreement, and upon the bankruptcy of SBO, the rights to the European Union Patent “EP 1421759” and the related United States ’685 Application reverted to him and SBO’s two other co-owners.

Decision of the Helsinki court. Valjakka represented to the Helsinki District Court that “in a patent case concerning the same invention pending in the United States, he had actively taken care of the restriction of the transfer chain with his rights with the nunc pro tunc documents of 8/28/2007.

In reviewing the evidence, including the deed of transfer of E-3 DMTS Rights, the supplemental agreements to the Utilization Agreement, SBO meeting minutes, and an SBO shareholder’s proposal, the Helsinki District Court found that all rights had been transferred to SBO as of November 16, 2005. Therefore, the Utilization Agreement, dated December 20, 2005, had no effect or significance in the assessment of who owns the rights to the DMTS invention. The District Court’s opinion was affirmed by the Helsinki Court of Appeals on March 24, 2010. In essence, and as Valjakka admits, “two Finnish courts under Finnish contract law concluded that the 2005 DMTS Agreement was ineffective” and that “SBO owned all rights to the ’685 Application at the time of abandonment under Finnish law.”

On December 23, 2009, the USPTO mailed a non-final rejection letter to SBO. On July 9, 2010, SBO confirmed its intentional abandonment of the patent. In December 2010, Valjakka filed a petition for revival with the USPTO under 37 C.F.R § 1.137, stating that he had unintentionally abandoned the ’685 Application. In January 2013, Valjakka recorded the Utilization Agreement as an assignment from SBO to himself and to SBO’s two other co-owners with the USPTO. Valjakka relied on a provision of the Agreement that stated that SBO’s rights to the patent would be reassigned to the inventor (Valjakka) and the other two owners if SBO did not continue the patent application. Valjakka therefore claimed that ownership of the application reverted to him “on at least June 23, 2010.”

Valjakka did not disclose to the USPTO that the Finnish courts had decided that SBO had ownership and that the Utilization Agreement was ineffective. Valjakka admits that he “did not think the Finnish court decisions were relevant to the revival of the ’685 Application as both Finnish common law and the assignment history provided ownership.”

The ’167 Patent issued on July 23, 2013.

Infringement claim. Valjakka originally filed the patent infringement complaint in September 2021 in the Western District of Texas. The case was transferred to this court in March 2022. On September 15, 2023, Netflix filed a motion for summary judgment based in part on Valjakka’s lack of standing. Based on the Utilization Agreement, recorded as an assignment with the USPTO, Valjakka asserted that he was the “exclusive owner” of the ’167 Patent and has standing to bring the suit. In response, Netflix offered the Finnish courts’ decisions finding that the Utilization Agreement did not transfer or revert any patent rights to Valjakka. Valjakka asked the Court to disregard the Finnish courts’ decisions because they did not consider his nunc pro tunc assignments, and then to either (1) apply a combination of federal and California law to find that the Utilization Agreement automatically assigned ownership rights to Valjakka, or (2) apply Finnish common law to an abandoned U.S. patent to find that he has legal title through appropriation.

Comity. Because the Utilization Agreement was an agreement between a Finnish citizen (Valjakka) and a Finnish company (SBO), signed in Finland, the court applied Finnish law in interpreting the assignment chain. In California, the doctrine of comity prescribes that a court recognize the judgment of a court of a foreign nation when the foreign court had proper jurisdiction and enforcement does not prejudice the rights of United States citizens or violate domestic public policy. The court may also consult the Restatement (Third) of the Foreign Relations Law of the United States, which also provides that an American court should enforce a foreign judgment unless “the cause of action on which the judgment was based, or the judgment itself, is repugnant to the public policy of the United States or of the state where recognition is sought.”

Here, the issue of ownership of the ’685 Application had been previously litigated and decided. Further, the parties agreed that “two Finnish courts under Finnish contract law concluded that the 2005 DMTS Agreement was ineffective” and that “SBO owned all rights to the ’685 Application at the time of abandonment under Finnish law.” Valjakka also conceded that the Finnish courts held that “SBO was already the assignee of the application from November 16, 2005, and therefore SBO and Valjakka could not agree on IP ownership in the DMTS Agreement signed one month later on December 22, 2005.”

Deferring to the Finnish court’s decision, the court found that Valjakka was not the legal title holder to the ’685 Application—or, by extension, the ’167 Patent.

USPTO assignment record. Notwithstanding the decision of the Finnish courts, Valjakka also asserted ownership based on the Utilization Agreement, which he recorded as an assignment with the USPTO. However, merely recording an assignment at the USPTO does not establish that the assignment is valid; it merely creates a rebuttable presumption. Because the court gives effect to the Finnish courts’ decision invalidating a patent assignment under the law of the jurisdiction governing patent ownership, the court found that Netflix met its burden of rebutting the presumption of correctness of the USPTO assignment record.

Nunc Pro Tunc assignments. Valjakka also contended that the Finnish courts’ decisions were incomplete because they allegedly did not consider the nunc pro tunc assignments. The court found the contention irrelevant—the question for this court was whether the Finnish courts entered a binding judgment on the question of patent ownership, not what evidence was presented to those tribunals.

Revival of the ’685 Application. Valjakka argued that even if the court were to give effect to the Finnish courts’ decision, it should find that Valjakka regained ownership of the ’685 Application under Finnish common law through appropriation of an abandoned patent application. The court held, however, that Finnish common law does not matter here. While state or foreign law governs issues relating to patent ownership, patent abandonment and revival are decided under federal patent law, and under that law, SBO abandoned the ’685 Application. Whether Finnish common law might hold otherwise was irrelevant.

Accordingly, the court found that Valjakka did not have title to the ’167 Patent and therefore lacked standing to bring this lawsuit. Netflix’s motion for summary judgment was therefore granted.

The Case is No. 4:22-cv-01490-JST.

Attorneys: Erick Scott Robinson (Collins, Edmonds, Pogorzelski, Schlather & Tower, PLLC) for Lauri Valjakka. Sarah E. Piepmeier (Perkins Coie LLP) for Netflix, Inc.

Companies: Netflix, Inc.

Cases: Patent CaliforniaNews