In today’s case, the facts and the timeline are everything, and they are far from straightforward, so bear with me.
- Flex Elektrowerkzeuge (“Flex”) is a German company marketing electrical appliances and tools such as sanders.
- In 1990 a French company called Flex Electroportatif Machines et Accessoires (“FEMA”) was set up to distribute Flex’ products in France.
- In 1992, a Mr. B (remember his name! I mean, his initial) became the CEO of FEMA.
- In 1995, Mr. B founded another company, Accessa.
- In 1999, yet another company, MBH Développement (“MBH”) was founded by Mr. B and a Mrs. H.
- In 2005, a first dispute arose between the German company Flex and Mr. B. Flex discovered the existence of MBH and learned that MBH had registered several trademarks (such as “Asflex”) covering products typically marketed by Flex. The dispute ended with a transaction signed in 2007, per which the trademarks at stake were assigned to Flex.
- In 2007, Flex discovered that MBH had filed two patent applications on sanders, listing Mr. B as an inventor. Flex was again (unsurprisingly) quite unhappy. The matter was however resolved with MBH granting a free, exclusive license agreement to Flex in 2008. Another license agreement was executed between MBH and FEMA in 2009.
- In 2011, Flex agreed to the acquisition by MBH of part of the shares of FEMA. Further to this acquisition, the major shareholders of FEMA were Flex and MBH.
- In 2014, an exclusive distribution agreement was signed between FEMA and Accessa, while MBH took control of Accessa.
- Later in the same year, Flex acquired most of the shares of FEMA, took full control of the subsidiary and replaced Mr. B as the CEO.
- In 2016, FEMA filed a complaint against Mr. B, MBH and Accessa in front of the Paris TGI.
- In 2018, both Accessa and MBH went into liquidation.
- In November 2019, the Paris TGI issued its judgment.
- MBH appealed and FEMA counter-appealed, which leads us to the appeal decision dated September 22, 2020 and discussed today.
The first instance lawsuit had several prongs: infringement and invalidity claims on the one hand, and an ownership claim on the other hand.
I have almost no information to share on the infringement and invalidity aspect, as this part was not challenged on appeal – and as the first instance judgment is not readily accessible online (yes, the outrageous unavailability of first instance judgments in France still persists to this day). I will thus focus on the ownership part of the litigation, which is addressed in the appeal ruling.
The dispute on appeal centered on a number of patents and patent applications filed from 2005 to 2014. Here is the full list: FR 3026668, FR 3025447, FR 3024063, FR 3021889, FR 2980502, FR 2980501, EP 2572828, EP 2314422, FR 2936439, EP 2113338, FR 2882913, EP 1632311, EP 1570932.
All of them, it seems, were filed by MBH, with Mr. B as the inventor. FEMA claimed full ownership of this portfolio.
The first instance judges granted this request, which is why MBH (or rather the administrator in charge of its liquidation) appealed.
The Cour d’appel essentially confirmed the first instance ruling. In its reasoning, the court relied on a whole body of evidence rather than a single fact.
First, they noted that FEMA had an R&D department, in which a Mr. B was employed – not the same Mr. B as defendant-Mr. B, mind you, but since the judgment has been extensively redacted, it is not always easy to get your bearings. This was evidenced, inter alia, by the employment agreement of this second Mr. B (shall we say Mr. B’?), an organization chart as well as industrial drawings (one of which was quite similar to the figure of one of the patents in suit).
Second, looking at MBH’s management reports, they were not persuaded that MBH had any actual R&D activity. As from 2008, the reports started mentioning an R&D activity justifying a tax rebate, but the court was of the opinion that this only corresponded to patent costs. An accounting report dated 2019 mentioned the existence of R&D costs and tools, but the court did not trust this report as it was issued by Mrs. H, who is none other than Mr. B’s former partner at MBH and who happens to be currently involved in another lawsuit against FEMA.
The court was thus convinced that the inventions can only have been developed using FEMA’s resources.
The appellant emphasized that the mother company Flex was aware of the existence of MBH as well as of its patent filing activity as early as 2006. However, the court deemed that this did not amount to a consent to MBH’s filings.
The license agreements signed in 2008 and 2009 did not imply any consent to MBH’s filings either. Indeed, FEMA was headed by Mr. B at that time, and he thus signed the MBH / FEMA contract on behalf of both parties. As to the MBH / Flex contract, it was analyzed by the court as an attempt by MBH to avoid litigation. More importantly, the agreements only covered one patent filed in 2005, and cannot be interpreted as a consent by FEMA concerning the later filings that took place from 2008 to 2014.
The fact that MBH became a shareholder of FEMA in 2011 cannot be interpreted as proof of consent to the patent filings either.
Another interesting defense raised by MBH was that FEMA’s action was time-barred. As a reminder, the patents / applications were filed from 2005 to 2014. The first patent in the portfolio was granted in 2007, and FEMA filed its complaint only in 2016.
According to article L. 611-8 Code de la propriété intellectuelle, the limitation period applicable to claims for ownership is in principle five years from the grant of a patent. But, “in case of bad faith at the time of grant or acquisition of the right, the limitation period is five years from the expiry of the right“. Depending on which starting point is used (grant or expiry of the patent), FEMA’s action would be time-barred with respect to at least part of MBH’s portfolio.
The court analyzed Mr. B’s behavior and concluded that he acted in bad faith. Said the court, Mr. B consistently concealed his activities, as evidenced by the successive discovery by Flex of the existence of Mr. B’s other companies, of his trademarks filings, and then of his patent filings. He was thus dishonest with FEMA. The court went on to consider that Mr. B’s bad faith also meant that MBH acted in bad faith, since Mr. B was the CEO and almost sole owner of MBH.
Therefore, MBH’s defense based on the statute of limitations also failed.
The court further noted that, until 2014, Mr. B remained FEMA’s CEO, so that FEMA was in practice not able to file suit before his departure.
The court concluded:
Mr. B, owing to his position as CEO of FEMA, used the financial, material and human resources of this company to develop inventions for the company MBH Développement that he created and headed, although they should have benefited FEMA, which should have been their owner, since the inventions related to products within its business perimeter. Therefore, the appealed judgment must be confirmed in that the ownership of the following patents and patent applications to FEMA was ordered: [….].
The court also ordered that all agreements on the patents between MBH, Accessa and FEMA be canceled. Besides, since the transfer of ownership is ex tunc, MBH must pay back FEMA any money earned through the exploitation of the patents. The court awarded provisional damages of EUR. 100,000 and ordered the communication of accounting information to enable a full assessment of damages.
MBH argued that the costs of patent filing and prosecution should be deduced from the damages, based on the general provision on unjust enrichment (article 1303 Code civil). The court disagreed, since MBH acted for its own profit and can thus not benefit from the unjust enrichment provision.
FEMA further requested that Mr. B be held personally liable in addition to MBH. However, the court deemed that this claim was time-barred, since FEMA was aware of Mr. B’s actions as early as 2006 (more than three years before the writ of summons filed in 2016). At first sight, this may seem contradictory with the finding that the claim for ownership of the older patents / applications was not time-barred, but the difference seems to be that the statute of limitations for an ownership claim explicitly contains a provision extending the limitation period in case of bad faith.
So, why is this case unusual? Well, first off, I think everyone will agree that the facts appear to be quite colorful, to say the least. But maybe this is always so in an ownership dispute.
Other than that, I do find the court’s reasoning unorthodox, to some extent.
Let’s go back to article L. 611-8:
If an IP right was filed on an invention either stolen from the inventor or their beneficiary, or in breach of a statutory or contractual obligation, the harmed party may claim ownership of the application or of the granted right.
As a basic principle, an invention belongs to the inventor or his/her beneficiary. In order to know to whom a patent portfolio should belong, we must thus in principle 1) determine who the inventors are for each invention, and 2) establish whether there is an entity that holds the rights on the invention as a result of employment agreements signed by the inventors or as a result of any other statutory or contractual obligation.
But the court did not carry out this analysis. Assuming that Mr. B was the true inventor of the inventions at stake (which the judgment does not say), it should be borne in mind that inventions made by the head of a company who is not an employee do not necessarily and automatically (i.e. by way of the patent statute itself) belong to the company. The same applies for instance to an intern, who is not an employee either. So, did FEMA hold the rights on Mr. B’s inventions by way of an employment agreement? If not, what is the exact statutory or contractual obligation assigning his (presumed) inventor’s rights to FEMA and which was breached?
The court broadly stated that “Mr. B, owing to his CEO position at FEMA, used the financial, material and human resources of this company to develop inventions”. While this of course sounds wrong and actionable, I am not sure it is in itself sufficient to conclude that FEMA was the true owner of the inventions. In particular, financial and material resources do not characterize ownership, I would venture. Human resources are an entirely different story, but again this aspect is not really addressed in the decision.
CASE REFERENCE: Cour d’appel de Paris, pôle 5 chambre 1, September 22, 2020, SAS MBH Développement et al. v. Flex Electroportatif Machines & Accessoires FEMA, RG No. 20/00471.