Careful consideration required when scoping assignments of future IP

Commercialisation of patents, particularly in the biotech sector, can be fraught with difficulties.  So much is apparent from a recent NSW Supreme Court decision: Fermiscan v James.  Fermiscan is listed on the ASX, and aims to commercialise a diagnostic test for breast cancer based on research originally conducted by Dr Veronica James.

Dr James obtained a patent to protect a process that used a method of x-ray diffraction of samples of human hair to detect breast cancer.  Dr James assigned the patent to Fiberscan.  In 2004 Dr James, Fiberscan and Fermiscan entered into a transaction under which: 

  • Dr James was retained as a consultant to Fermiscan;
  • Fermiscan acquired shares in Fiberscan held by Dr James; and
  • Dr James and Fiberscan assigned the patent together with all “Registered Rights” and “Improvements”.  

The Agreement widely defined “Improvement” as: 

“any invention, discovery, modification, adaptation or improvement, whether patentable or not, which can be used to reduce manufacturing or assembly costs of the products of the exercise of the Invention or improve the performance of any product or process… devised by or for the Assignor and/or the Inventor, or vested in the Assignor and/or the Inventor…”

A dispute arose between the parties in 2006, which was settled later that year.  Dr James was no longer a consultant to Fermiscan, and it was a term of the settlement that she undertook not to disparage the business or reputation of Fermiscan. 

Dr James continued her research, and in 2007-08 filed Australian and PCT patent applications for a process that used x-ray diffraction of samples of human nails and skin to detect the presence of other pathological conditions such as colon and prostate cancer and Alzheimer’s disease.  Fermiscan claimed that this second invention was an “Improvement” within the terms of the Agreement and should be assigned to Fermiscan.  In addition, Fermiscan claimed that Dr James had breached the ‘non-disparagement’ undertaking in the settlement agreement as a result of various communications made in the process of publishing the results of her scientific research in a peer-reviewed journal. 

To determine whether or not the second invention was an “Improvement” on the first, McDougall J turned first to the terms of the original patent assignment and then, in turn to the claims in the original patent and the claims in the patent application for the second invention.  While the steps of the “method of analysis” (i.e. x-ray diffraction ) were the same for each target material type, the “process” for detecting illness from human hair was different to that of nails or skin.  Despite the wide definition of “Improvement”, the only way the second process could be considered an “Improvement” to the first was if the subject matter of the first patent was defined in extremely wide terms.  His Honour found no support in the language in the Australian patent for such a wide interpretation, therefore the first invention did not extend from human hair to all biological material.  Also, the two processes involved in the first and second inventions required a different supporting “database”.  Furthermore, such an interpretation would run contrary to Dr James’ continued research in the area which was explicitly allowed by the terms of the consultancy agreement entered into as part of the original transaction.

This case illustrates that a new invention, which would not have been made without knowledge of the same inventor’s prior art, is not automatically an “improvement” upon the inventor’s earlier inventions.  Those drafting assignments of future IP rights face a difficult task of predicting the likely path of research.

It seems that cases of this kind are being litigated more frequently.  In England we have seen the Oxonica decisions (first instance 2008 here , and Court of Appeal 2009 here).  And Mallesons is presently acting for the University of Sydney in a similar case against Resmed, in which there have been some interlocutory decisions, the most recent of which is published here.  Perhaps inventors are becoming more inventive over time, and their later inventions have greater commercial promise than those of their early careers.

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