Dec 9, 2020

Non-Disclosure Agreement Controls Ownership of Patents Arising From Confidential Information Received Thereunder

Before Lourie, Reyna, and Wallach. Appeal from the U.S. District Court for the District of Massachusetts.

Summary: A party who discloses confidential information pursuant to a NDA may be entitled to ownership of U.S. and foreign patents filed by the receiving party when the patents arise from confidential information provided by the disclosing party, and the terms of the NDA provide that any patents arising from confidential information are owned by the disclosing party, even if employees of the receiving party contribute to the patented invention.

SiOnyx LLC was founded to commercialize a patented process for making silicon with new electronic properties. Hamamatsu entered into a Non-Disclosure Agreement (“NDA”) with SiOnyx to discuss joint development of the technology and received confidential information. The NDA provided that ownership of all patent rights in or arising from confidential information resides in the disclosing party. Hamamatsu ultimately declined to use SiOnyx’s proprietary process. However, Hamamatsu continued to develop photodetector devices using SiOnyx’s confidential information, for which Hamamatsu applied for and obtained patents in the U.S. and several other countries.

After Hamamatsu started commercializing products, SiOnyx sued Hamamatsu for breach of contract, unjust enrichment, patent infringement, and correction of inventorship in Hamamatsu’s U.S. patents. After trial, a jury found for SiOnyx, and in particular, found that Hamamatsu breached the NDA by using SiOnyx’s confidential information and that one of SiOnyx’s founders was a co-inventor of Hamamatsu’s U.S. patents. In post-trial motions, SiOnyx sought, among other relief, a determination of sole-ownership of Hamamatsu’s U.S. and foreign patents. The district court granted SiOnyx’s motion regarding ownership of Hamamatsu’s U.S patents, but denied the motion with respect to the foreign patents.

On appeal, the Federal Circuit affirmed the district court’s decision transferring ownership of the U.S. patents, and reversed with respect to the foreign patents. The Court found that under the NDA, the disclosing party owned the patents arising from the disclosing party’s confidential information exchanged under the agreement. Hamamatsu failed to show any evidence that it contributed confidential information to the patents under the terms of the NDA, other than that which it appropriated from SiOnyx. Although the Court noted that the jury’s finding of co-inventorship may imply that Hamamatsu employees contributed to the claimed inventions, the Court distinguished inventorship from ownership. Further, the Court found that the employees’ rights transferred to Hamamatsu, which was the contracting party in the NDA. The Court held that modification of the claims founded upon SiOnyx’s confidential information by contribution from Hamamatsu employees did not warrant denial of the equitable remedy. Regarding Hamamatsu’s foreign patents, the Federal Circuit found that the evidence establishing SiOnyx’s sole ownership of the U.S. patents also applied to ownership of the foreign patents, and that the district court could compel transfer of ownership of the foreign patents as an exercise of the court’s authority over Hamamatsu.

Editor: Paul Stewart

Written by: Makoto Tsunozaki, Ph.D. & Nicole R. Townes