The Magic of IP Assignments – Court decides that transfer of intellectual property rights is ineffective due to missing “magic words”

October 12, 2021
By Victor Krichker and William Audet

The United States Court of Appeals for the Federal Circuit recently confirmed the importance of using precise language in contracts assigning intellectual property (IP) rights. The ruling was made by the Court in Omni Medsci, Inc. v. Apple Inc., where it affirmed the District Court’s decision to refuse a motion by Apple to dismiss a patent infringement lawsuit against it by Omni MedSci (“Omni”) for lack of standing. Omni was suing Apple for patent infringement of certain patents of which Omni’s founder, Dr. Mohammad Islam, was the inventor. In addition to being the founder of Omni, Dr. Islam was previously employed by the University of Michigan (“UM”). The basis of Apple’s argument was that Omni did not own the patents it was asserting because they were assigned by Dr. Islam to UM.

When Dr. Islam was hired by UM in 1992, he executed an employment agreement that included a provision agreeing to abide by UM’s bylaws. Those bylaws provided that patents issued as a result of or in connection with administration, research, or other educational activities conducted by UM staff and through the use of UM resources or facilities “shall be the property of the University”.

In 2012, Dr. Islam took an unpaid leave-of-absence from UM during which time he filed multiple patent applications. He then assigned these patents to Omni, a company formed by Dr. Islam for the purpose of exploiting these inventions.

In 2018, Omni brought a patent infringement action against Apple. Apple moved to dismiss the Complaint arguing that Omni lacked standing. Apple contended that Dr. Islam’s employment agreement with UM together with the UM bylaws operated to automatically transfer legal title in the patents to UM, making the university, and not Omni, the true owner of the patents.

The majority of the Federal Circuit disagreed and affirmed the District Court’s denial of Apple’s motion to dismiss.

Writing for the majority, Judge Linn noted that “a patent assignment clause may presently assign a to-be-issued patent automatically—in which case no further acts to effectuate the assignment are necessary—or may merely promise to assign the patent in the future”. The latter type of clause is not sufficient by itself to effectuate the transfer of patent rights (i.e. would require a further agreement in the future).

The Court found that the relevant section of the bylaws did not constitute a present automatic assignment. Rather, the language “shall be the property of the University” was a mere promise of a potential future assignment. The Court emphasized that, given the importance of patent rights, “the inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights”. Judge Linn noted that the UM bylaws did not use present tense words of execution that have previously been found to constitute a present automatic assignment of a future interest, such as “will assign”, “agrees to grant” or “does hereby grant title to the patent”. Apple argued that, to disregard the language of the bylaws would be to focus on “magic words” over the substance of identifying the intent of the parties. The Court rejected this argument.

In reaching its decision, the Court employed contract interpretation principles. This included contrasting the bylaws against unambiguous language of present automatic assignment used in other UM documents, such as its Invention Report form which stated: “As required, I/we hereby assign our rights in this invention and all resulting patents…”.  

This decision is yet another indication of the importance of careful drafting of IP assignment clauses. The “shall be the property of” language is a very common drafting convention for assigning IP rights, which appears in many commercial and technology agreements with IP assignment clauses. The drafters of these clauses would be very surprised to learn that, in the event of a dispute, a court may find this language insufficient to actually transfer ownership of the IP rights in question. Given: (i) the importance of the effect of this clause (i.e. transfer of ownership); and (ii) perhaps the power imbalance between an individual inventor and an employer, it appears that courts may require grammatical precision (including what appear to be “magic words” of explicit assignment) to find that an effective assignment of IP rights has been made.

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