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Schroeder v. Tracor

United States Court of Appeals for the Federal Circuit

November 5, 1999


Before Newman, Circuit Judge, Archer, Senior Circuit Judge, and Clevenger, Circuit Judge.

The opinion of the court was delivered by: Clevenger, Circuit Judge

NOTE: Pursuant to Fed. Cir., R. 47.6, this Disposition is not citable as precedent. It is a public record. The Disposition will appear in tables published periodically.

Dr. Klaus G. Schroeder (Schroeder) appeals from the grant of summary judgment in favor of Tracor, Inc. (Tracor) and AEL Industries, Inc. (AEL) on the grounds that AEL enjoyed a shop right in Schroeder's patented inventions. Schroeder v. AEL, No. 96-0142 (C.D. Cal., July 24, 1998). We affirm the district court's ruling.


Schroeder is the owner of U.S. Patent Nos. 4,750,000 (the `000 patent) and 4,958,167 (the `167 patent), directed to "ultra-broadband impedance matched electronically small self-complementary pair antennas." Schroeder asserts that these patents were infringed by AEL in its production of the "Piranha II" jam-on-the-move mobile electronic countermeasure system and the "TACJAM-A" mobile communication countermeasure system. Tracor and AEL do not deny that these systems incorporate designs protected under the `000 and `167 patents; however, they claim a shop right in these designs based on Schroeder's employment relationship with AEL.

Schroeder was employed by AEL between 1983 and 1988 in AEL's Antenna Division, located in Lansdale, Pennsylvania. AEL was acquired by Tracor in 1996.*fn1 On May 2, 1983, Schroeder signed an employment agreement with AEL in which he agreed to "assign, transfer and set over . . . all my right, title and interest in and to any and all Inventions and Improvements." The Inventions and Improvements clause covered all inventions conceived by Schroeder, whether or not in the scope of his employment with AEL, except those inventions specifically identified and exempted by the agreement. Schroeder represented in the agreement that, prior to employment with AEL, he had conceived "10 non-patented inventions to be supplied later." Subsequently, he submitted a memorandum briefly describing nine "pre-employment proprietary techniques," including complementary pair antennas for low-profile, wide-band applications.

During the course of his employment, Schroeder offered his complementary pair antenna design to AEL as an improvement to its Piranha countermeasures product line. The parties dispute whether Schroeder demanded royalties at that time.

Schroeder applied for the `000 and `167 patents on September 16, 1987, and June 7, 1988, respectively, while employed by AEL. The `000 patent issued on June 7, 1988, while Schroeder was still employed by AEL. The `167 patent issued on September 18, 1990, after his termination. Schroeder did not inform AEL that he had applied for any patents on his complementary pair antenna design until after the `000 patent issued in 1988. Upon learning that Schroeder had independently filed two patent applications in violation of his employment agreement, AEL discharged Schroeder in September 1988.

Schroeder filed suit against Tracor and AEL in January 1997, alleging infringement of the `000 and `167 patents. AEL and Tracor moved for summary judgment based on the existence of a shop right. The district court found that Schroeder failed to raise a genuine issue of material fact sufficient to rebut AEL's shop right defense and, therefore, granted the motion for summary judgment. Schroeder appeals that decision. AEL and Tracor move for sanctions under Fed. R. App. P. 38. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1295(a)(1) (1994).


Summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c) (1999). We review a grant of summary judgment de novo. See Spectrum Int'l., Inc. v. Sterilite Corp., 164 F.3d 1372, 1378, 49 USPQ2d 1065, 1068 (Fed. Cir. 1998). In doing so, we must draw all reasonable factual inferences in favor of the non-movant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

The "shop right" rule is an equitable doctrine controlled by state law. We follow California's choice of law rules in this case. See Klaxon Co. v. Stentor Electric Mfg. Co, Inc., 313 U.S. 487, 495 (1941); A.I. Trade Finance, Inc. v. Petra Int'l Banking Corp., 62 F.3d 1454, 1464-65 (D.C. Cir. 1995) (applying Klaxon to federal question jurisdiction). California applies a "relative interest" test for determining choice of law. See Bernhard v. Harra's Club, 16 Cal.3d 313, 316 (1976) (requiring "an analysis of the respective interests of the states involved"). Because Schroeder's employment with AEL took place in Pennsylvania and was governed by a Pennsylvania contract, we follow Pennsylvania law on the issue of shop rights.

The Pennsylvania courts, and the federal courts sitting in Pennsylvania, have long applied the Supreme Court's rules on employers' and employees' rights to inventions. See, e.g. Aetna-Standard Engineering Co. v. Rowland., 343 Pa. Super. 64, 71 (1985). Thus, we may follow United States v. Dublier Condenser Corp., 289 U.S. 178 (1933), and its progeny, in deciding this case. We may also apply our own case law on shop rights, to the extent that it interprets the Supreme Court's guidance on the issue.

In McElmurry v. Arkansas Power & Light Co., 995 F.2d 1576, 1582 (Fed. Cir. 1993), we stated that "the proper methodology for determining whether an employer has acquired a shop right in a patented invention is to look to the totality of the circumstances [to] determine whether the facts of a particular case demand, under principles of equity and fairness, a finding that a shop right exists." McElmurry did not endorse any particular theory of shop rights, but called for a "factually driven analysis" to ensure that "the principles of equity and fairness underlying the shop rights rule are considered." Id.

Among the factors considered relevant in McElmurry was that the inventor consented to his employer's use of the invention. See id. at 1583. Thus, an employer may establish a shop right defense based solely on equitable estoppel, provided that the facts of the case warrant recognition of the defense under the "principles of equity and fairness" explained in McElmurry. We hold that AEL has properly established such a defense. The only question that remains is whether Schroeder has come forth with sufficient facts to support a finding that AEL is not entitled to a shop right defense as a matter of law. We hold that Schroeder has failed to do so.

We agree with the district court that Schroeder has offered no admissible evidence to show that he did not consent to his employer's use of his invention. Although Schroeder asserts that he repeatedly demanded royalties from AEL for the use of his complementary pair antenna design, this assertion directly conflicts with statements he made in his Opposition to AEL's Motion to Dismiss. In the Opposition, Schroeder indicated that, as of April 1985, he specifically avoided demanding royalties from AEL for fear that he might be fired. See Notice of Opp'n at 6 (96-0142 RT) ("Had [I] specifically demanded royalties at that meeting or anytime thereafter for that matter, [I] would undoubtedly have been terminated right there and then."). Indeed, when Schroeder finally did reveal to AEL that he owned a patent on the complementary pair antenna design and expected royalties therefor, he was immediately terminated for breach of contract.

Based on the record before us, including statements made by Schroeder himself, it is clear that Schroeder allowed AEL to use his invention for several years without objecting or demanding royalties. Only in 1988, shortly after the `000 patent issued, did Schroeder demand royalties from AEL for the first time. For these reasons, we hold that AEL is entitled to a shop right defense covering the use of Schroeder's complementary pair antenna designs and that such use does not constitute infringement of the `000 and `167 patents.

On appeal, Schroeder does not dispute that Tracor is entitled to the benefit of AEL's shop right defense. However, in order to avoid any ambiguity as to the effect of our decision on Tracor's rights, we will briefly discuss the issue here. We note that in the proceedings below there was a dispute as to the nature of the corporate relationship between AEL and Tracor. However, for the purpose of this case, it does not matter whether Tracor and AEL have merged, as Schroeder suggested below, or whether they exist separately as parent and subsidiary. In either situation, AEL's enjoyment of a shop right (i.e., the noninfringing use of a patented invention) cannot make Tracor liable for patent infringement. If the companies are separate, then Tracor, as the parent corporation, cannot be held liable where AEL, itself, has not committed any acts of infringement. If Tracor and AEL have merged, then Tracor, as successor in interest to AEL's entire business, is entitled to assert AEL's shop right defense.

On June 2, 1999, AEL and Tracor moved for sanctions under Fed. R. App. P. 38 on the basis that Schroeder's appeal is frivolous. Schroeder opposed the motion for sanctions. In an order dated June 29, 1999, this court deferred the motion for consideration by the merits panel. The motion is hereby denied.


Because Schroeder has failed to establish a genuine issue of material fact in challenging AEL's shop right defense, we must affirm the district court's decision granting summary judgment of noninfringement as a matter of law.

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