Patent license assignment: Preemption, gap filling, and default rules

Boston University Law Review

Volumn 77, Issue 4, 1997, Pages 895-922

  Wilson, Daniel A ^a  

^a NONE

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EID: 0031319713     PISSN: 00068047     EISSN: None     Source Type: Journal    
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References (180)

1. See Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 677 (9th Cir. 1996) ("The statutes governing patents are basically silent on the issue of licenses.").
2. See, e.g., Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 227-28 (1964) (initiating the Supreme Court's consideration of federal preemption over some forms of state intellectual property law); Unarco Indus., Inc. v. Kelley Co., 465 F.2d 1303, 1306 (7th Cir. 1972) (preempting a state law that allowed patent license assignment).
3. See infra Part I.B (discussing the general principals of patent license assignment).
4. See infra Part II.B (discussing preemption in patent license assignment cases).
5. See infra Part III. A.3 (explaining why state laws that allow assignment do not conflict with federal patent policy).
6. See, e.g., Troy Iron & Nail Factory v. Corning, 55 U.S. (14 How.) 193, 216 (1852) (laying down the general rule of patent license assignment for the first time).
7. See infra Part I.B (discussing patent license assignment when the license permits assignment, when the license passes by succession, and when the licensor ratifies the assignment).
8. See infra Part III.A.2 (analyzing early patent license assignment case law in the light of economic efficiency).
9. 55 U.S. (14 How.) 193 (1852).
10. See id. at 216 ("A mere license to a party . . . is not transferable by him to another."). See generally Annotation, Assignability of Licensee's Rights Under Patent Licensing Contract, 66 A.L.R.2d 606 (1959 & Supp. 1994) (collecting the body of patent license assignment law).
11. See Troy Iron, 55 U.S. (14 How.) at 216 ("A mere license to a party, without having his assigns or equivalent words to them, showing that it was meant to be assignable, is only the grant of a personal power to the licensees, and is not transferable by him to another." (emphasis added)).
12. See id. (noting that the agreement between the parties was ambiguous as to whether the license was assignable).
13. 109 U.S. 75 (1883).
14. See id. at 81 (explaining that the plaintiff conferred the privilege on February 1, 1869, and the individual passed away on April 19, 1869).
15. See id. at 82 ("[T]he instrument of license is not one which will carry the right conferred to any one but the licensee personally, unless there are express words to show an intent to extend the right to an executor, administrator or assignee, voluntary or involuntary.").
16. See id. at 83 (noting that even though the term of the license had not yet expired when the licensee died, this circumstance "cannot have the effect to impart assignability to the privilege, or to prolong its duration beyond that of his life").
17. 119 U.S. 226 (1886).
18. See id. at 233 (holding that "the corporation was to have a license or right to use the inventions in making ploughs").
19. See id. at 234 ("Whatever license resulted to the Missouri corporation, from the facts of the case, to use the invention, was one confined to that corporation, and not assignable by it." (citing Troy Iron & Nail Factory v. Corning, 55 U.S. (14 How.) 193, 216 (1852)).
20. See Oliver, 109 U.S. at 83 (suggesting that if the inventor were concerned with extending the license past his death, he could have explicitly provided for it in the agreement).
21. See infra note 138 and accompanying text (discussing the choice between secrecy and patent that a small inventor must make).
22. See infra Part I.B.2-3 (discussing cases in which courts have allowed patent license assignment in the absence of an express agreement to do so in the license agreement). Part III of this Note provides a more detailed analysis of the policies at play in these situations.
23. 15 F. Cas. 514 (D. Mass. 1869) (No. 8343).
24. See id. at 515.
25. See id. ("Upon consideration of these contracts, I hold that they are transmissible by succession to a corporation formed of a union of the two licenses, and succeeding to the rights, duties, and obligations of both.").
26. See id.
27. 150 U.S. 193 (1893).
28. See id. at 197-98.
29. See id.
30. See id.
31. See id. at 196-97 (citing Lightner, 15 F. Cas. at 515, with approval).
32. In Hartford-Empire Co. v. Demuth Glass Works, Inc., 19 F. Supp. 626 (E.D.N.Y. 1937), the court held that New York Stock Corporation Law allowed conveyance of all corporate assets, including patent licenses, to a corporation formed as the result of a merger. See id. at 627 ("This merger conveyed to the new corporation all the assets of the old company, including equitable rigths, such as licenses under the patents, owned by the old corporation."). This result was fairly straightforward because the license provided that it was "exclusive, assignable, and divisible." Id. The outcome, however, is indicative of a policy in favor of the free flow of assets in the merger context.
33. See infra notes 122-123 and accompanying text (explaining how allowing a license to pass by succession promotes effeciency).
34. 149 F. 983 (8th Cir. 1906).
35. See id. at 985-87; see also id. at 987 ("[I]t is . . . clear that after [the licensee's] death both [the licensor] and the executrix regarded the license as having passed to the latter.").
36. Id. at 988 (quoting the license agreement).
37. See id.
38. See id. (rationalizing assignment of the license by pointing out that the defendant could otherwise escape both tort and contract liability).
39. See id. (describing how the executrix assigned the license to the defendant and the licensor acquiesced to the assignment and subsequently demanded payment from the defendant).
40. See infra note 133 (describing how freedom to contract would allow the licensor to maximize its royalties); infra note 135 (suggesting some methods of protecting the license through contract).
41. U.S. CONST. art. I, § 8, cl. 8.
42. U.S. CONST. art. VI, cl. 2.
43. See, e.g., Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 230-31 (1964) (explaining that state law cannot "encroach upon federal patent laws directly" or "give protection of a kind that clashes with the objectives of the federal patent laws" under the Supremacy Clause of the Constitution).
44. 376 U.S. 225 (1964).
45. See id. at 231 ("An unpatentable article, like an article on which the patent has expired, is in the public domain and may be made and sold by whoever chooses to do so.").
46. See id. at 230-31 (explaining that "the patent system is one in which uniform federal standards are carefully used to promote invention while at the same time preserving free competition").
47. 376 U.S. 234 (1964).
48. See id. at 239 (reversing the injunction on grounds that it violated federal patent policy).
49. See id. at 238 (noting that "the federal patent laws prevent a State from prohibiting the copying and selling of unpatented articles").
50. 416 U.S. 470 (1974).
51. See id. at 473.
52. See id. at 473-74 (noting that the employees executed agreements "as a condition of employment, . . . requiring them not to disclose confidential information or trade secrets").
53. See id. at 493.
54. See id. at 480 (referring to the constitutional objective of "promot[ing] the Progress of Science and the useful Arts," U.S. CONST. art 1, § 8, cl. 8, and stating that "[t]he patent laws promote this progress by offering a right of exclusion for a limited period as an incentive to inventors to risk the often enormous costs in terms of time, research, and development").
55. See id. at 480-81 ("In return for the right of exclusion . . . the patent laws impose upon the inventor a burden of disclosure. . . . [The] disclosure, it is assumed, will stimulate ideas and the eventual development of further significant advances in the art.").
56. See id. at 481 (stating that information "which is in the public domain cannot be removed therefrom by action of the States").
57. See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 232-33 (1964). The Sears Court remarked: Doubtless a State may, in appropriate circumstances, require that goods, whether patented or unpatented, be labeled or that other precautionary steps be taken to prevent customers from being misled as to the source . . . . But because of the federal patent laws a State may not, when the article is unpatented and uncopyrighted, prohibit the copying of the article itself or award damages for such copying. Id.
58. 489 U.S. 141 (1989).
59. See id. at 144-45.
60. See id. (discussing the history and scope of the Florida direct molding statute).
61. See id. at 145.
62. See id. at 168 (concluding that "the Florida statute is preempted by the Supremacy Clause").
63. Id. at 154 (quoting Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 232 (1964)).
64. Id. at 156-57.
65. See id. at 155-56 (citing Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 487 (1974), for the proposition that "a most fundamental human right, that of privacy is threatened when industrial espionage is condoned or is made profitable," and stating that "[t]here was no indication that Congress had considered this interest in the balance struck by the patent laws, or that state protection for it would interfere with the policies behind the patent system").
66. See id. at 167 ("The Florida statute is aimed directly at the promotion of intellectual creation by substantially restricting the public's ability to exploit ideas that the patent system mandates shall be free for all to use. . . . It thus enters a field of regulation which the patent laws have reserved to Congress.").
67. See id. at 165-66 (discussing both Sears and Kewanee and concluding that, "[i]n both situations, state protection was not aimed exclusively at the promotion of invention itself, and the state restrictions on the use of unpatented ideas were limited to those necessary to promote goals outside the contemplation of the federal patent scheme").
68. See supra notes 54-56 and accompanying text (identifying the three federal patent policies enumerated in Kewanee).
69. See Bonito, 489 U.S. at 166-67.
70. 317 U.S. 173 (1942).
71. See id. at 174.
72. See id.
73. See id. at 173-74.
74. See id. at 175.
75. See id. at 177. The Sola Court stated: Local rules of estoppel which would fasten upon the public as well as the petitioner the burden of an agreement in violation of the Sherman Act must yield to the Act's declaration that such agreements are unlawful, and to the public policy of the Act which in the public interest precludes the enforcement of such unlawful agreements. Id.
76. 465 F.2d 1303 (7th Cir. 1972).
77. See id. at 1304. More specifically, the license agreement authorized Unarco to manufacture a small number of licensed goods without paying a royalty fee. See id.
78. See id. at 1305.
79. See id.
80. See id.
81. Id. (citation omitted).
82. Id. at 1306.
83. See id. at 1307 ("This rule of non-assignability absent consent has been adhered to by state and federal courts. We therefore hold the District Court was in error in departing from this well established rule." (footnote omitted)).
84. 597 F.2d 1090 (6th Cir. 1979).
85. See id. at 1091.
86. See id. at 1093 ("Questions with respect to the assignability of a patent license are controlled by federal law. It has long been held by federal courts that agreements granting patent licenses are personal and not assignable unless expressly made so." (citing Unarco, 465 F.2d at 1306)).
87. See id. at 1094-95 (rejecting both lines of cases and concluding that "the law treats a license as if it contained [nonassignable and nontransferable] restrictions in the absence of express provisions to the contrary"); see also supra Part I.B.2 (discussing the federal common law of patent license assignment with respect to new business formations).
88. 89 F.3d 673 (9th Cir. 1996).
89. See id. at 674-75.
90. See id. at 674.
91. See id. at 675. Cadtrak's objection gave rise to a difficult issue under bankruptcy law. The circuits are split on the issue of whether 11 U.S.C. § 365 (1994) either (1) prevents assignment of executory contracts against the wishes of the licensor where local statutes so allow, or (2) forces an assignment under federal law without regard to local assignment statutes. Compare In re Pioneer Ford Sales, Inc., 729 F.2d 27, 29 (1st Cir. 1984) (holding that federal courts should only apply state law regarding an assignment prohibition when the contract is silent with respect to assignment), with Rieser v. Dayton Country Club (In re Magness), 972 F.2d 689, 695 (6th Cir. 1992) ("Neither Pioneer Ford nor any other decision to date provides a defensible explication of the parameters of the § 365(c) exception.").
92. See Farmland Irrigation Co. v. Dopplmaier, 308 P.2d 732, 740 (Cal. 1957) (Traynor, J.) ("The statutes in this state clearly manifest a policy in favor of the free transferability of all types of property, including rights under contracts."). Farmland Irrigation contains a substantial analysis of the issue of federal patent law preemption of state laws that allow patent license assignment. Interestingly, the California Supreme Court found that federal law did not preempt state common law. See id. at 738-40 (criticizing the federal courts for mechanically applying the Troy Iron rule without first deciding whether the incentives to invent had been destroyed by the state law).
93. See Everex, 89 F.3d at 680. The Everex court's decision avoided choosing between the two positions with respect to the 11 U.S.C. § 365 controversy. See supra note 91 (discussing the debate on assignment of executory contracts in bankruptcy proceedings). At various points in its opinion, the Everex court recognized the arguments in favor of patent license assignment. See Everex, 89 F.3d at 677, 678 n.4 (noting Everex's reliance on Farmland Irrigation); id. at 678 (addressing Everex's argument that the Court in Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173 (1942), "applied federal law to [a] particular question of licensee estoppel because of the sweep of federal antitrust policy, not federal patent policy"); id. at 678-79 (noting that the broad holding of Unarco Industries, Inc. v. Kelley Co., 465 F.2d 1303 (7th Cir. 1972), was "less firm than might be wished"). Perhaps the court would have been more willing to entertain those arguments had the underlying bankruptcy complexities not been present. See id. at 677 ("Because [we hold that] a nonexclusive patent license is personal and nondelegable under federal law, § 365(c) bars the assumption and assignment of the license in this case under either test and we need not attempt to resolve whatever conflict exists between the [Pioneer Ford and Rieser] decisions.").
94. See Everex, 89 F.3d at 678-79.
95. See id. (stating that Sola involves federal antitrust law, not patent law, and that the assertion in Unarco that all patent licensing issues are governed by federal law "seems insupportably broad").
96. See id. at 679.
97. See id. at 678-79; see also id. at 679 ("[A]ny license a patent holder granted . . . would be fraught with the danger that the licensee would assign it to the patent holder's most serious competitor, a party whom the patent holder itself might be absolutely unwilling to license.").
98. See id. at 679 (holdig that "federal law governs the assignability of patent licenses because of the conflict between federal patent policy and state laws, such as California's, that would allow assignability").
99. See id. 679-80.
100. Id. at 680. In reaching its deceision, the Everex court remarked that Justice Traynor's decision in Farmland Irrigation Co. v. Dopplmaier, 308 P.2d 732 (Cal. 1957), "raises not insignificant questions about the actual holdings, relevance, and continued vitality of the nineteenth-century Supreme Court decisions which are cited for the origins of the federal rule." Id. at 679-80; see also supra note 92 (discussing Farmland Irrigation).
101. See LARRY L. TEPLY & RALPH U. WHITTEN, CIVIL PROCEDURE 363-71 (1991) (presenting an excellent summary of federal common law and gap filling); John P. Ludington, Annotation, The Supreme Court and the Post-Erie Federal Common Law, 31 L. Ed. 2d 1006, 1010-11 (1972) (describing how federal courts can use state law to address unanswered questions of federal law).
102. See LARRY L. TEPLY & RALPH U. WHITTEN, CIVIL PROCEDURE 363-71 (1991) (presenting an excellent summary of federal common law and gap filling); John P. Ludington, Annotation, The Supreme Court and the Post-Erie Federal Common Law, 31 L. Ed. 2d 1006, 1010-11 (1972) (describing how federal courts can use state law to address unanswered questions of federal law).
103. See TEPLY & WHITTEN, supra note 101, at 363-71.
104. 327 U.S. 392 (1946).
105. See id. at 393-94.
106. See id. at 397 (choosing a federal equitable doctrine of laches rather than a state statute of limitations).
107. See TEPLY & WHITTEN, supra note 101, at 370-71 (indicating that federal courts adopt state law "not because of any compulsion to do so under the Constitution or under Erie - but because federal interests would not be impaired, state law is 'already there,' people are used to it, and it is not inimical to 'federal interests'").
108. See Jim Greiner, Note, Federal Common Law and Gaps in Federal Statutes: The Case of ERISA Plan Limitation Periods for Section 502(a)(1)(B) Actions, 93 MICH. L. REV. 382, 407-16 (1994). The factors that courts use to determine whether federal or state law should fill a gap in a federal statute include: (1) traditional state governance; (2) magnitude and complexity of the interstitial lawmaking project; (3) limited information; (4) expectation interests of private parties; (5) interference in state regulation and regulatory judgments; (6) better match from federal law; (7) judicial legislation; (8) exclusive federal jurisdiction; (9) distrust of the states; (10) choice of state difficulties; (11) forum shopping; and (12) possible uniformity. See id.
109. See infra Part III.B (analyzing whether courts should fill the gap in federal patent law regarding patent license assignment with federal or state law).
110. See infra Part IV (arguing that free assignment of patent licenses is the optimal default rule).
111. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 4 (4th ed. 1992) ("The concept of man as a rational maximizer of his self-interest implies that people respond to incentives - that if a person's surroundings change in such a way that he could increase his satisfactions by altering his behavior, he will do so.").
112. See id. at 14-15 ("The transaction would not have taken place if both parties had not expected it to make them better off. This implies that the resources transferred are more valuable in their new owner's hands.").
113. See supra notes 54-56 and accompanying text (discussing the policy interests identified in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974)).
114. See supra notes 65-67 and accompanying text (discussing the test announced in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989)).
115. See supra notes 76-77 and accompanying text (recounting the facts of Unarco Industries, Inc. v. Kelley Co., 465 F.2d 1303 (7th Cir. 1972)).
116. See supra notes 84-85 and accompanying text (recounting the facts of PPG Industries, Inc. v. Guardian Industries Corp., 597 F.2d 1090 (6th Cir. 1979)).
117. See supra notes 88-91 and accompanying text (recounting the facts of Everex Systems, Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673 (9th Cir. 1996)).
118. See infra notes 124-26 and accompanying text (discussing the interests of both the licensor and the licensee).
119. When an individual validates its own interests in a license, both a monetary and utility value are increased. Any increase in value to an individual increases the overall value of the license to society in a competitive market because resources are allocated efficiently. The sale of a license would increase overall market wealth by maximizing the value of the license to both the licensor and the licensee. The free transfer of a license during a merger would increase overall wealth in a similar manner while also reducing the transaction costs of the merger. In the bankruptcy situation, the sale of a license would increase the overall wealth in a manner similar to sales and mergers while also increasing the amount that third party creditors would be paid because the license would be treated as yet another asset to be sold. Hence, in all three situations, the parties would maximize the overall societal value of the license merely by attempting to satisfy their individual interests.
120. See supra Part I.B (discussing the individual cases that fall into these three categories).
121. See infra note 133 (describing how both licensor and licensee can maximize the value of the license to themselves).
122. See supra note 111 and accompanying text.
123. Whether the license should be assigned ultimately is the choice of the parties involved. If this decision is available to the same extent as for other assets, the parties involved will be able to decide whether the transfer is beneficial. See POSNER, supra note 110, at 14-15 (describing transacting parties as rational value maximizers).
124. If the licensor did not want to extend its license to a more powerful merged entity, the licensor could protect its interests with a well-drafted license agreement. See infra note 133 (describing how carefully drafted licenses could maximize the licensor's return).
125. See infra Part III.A.3.a (questioning the probability for a monopoly to fall into unfriendly hands as well as the potential harm to the incentive to create).
126. See infra note 133 (arguing that a licensor can maximize its royalty payments with a carefully drafted licensing agreement).
127. The ongoing transactional and business costs would, of course, include the cost of setting up provisions to police the license in the future.
128. See supra note 118 and accompanying text (arguing that the courts' modern decisions should have relied on the value of the licensors' and the licensees' interests).
129. See Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.) 89 F.3d 673, 679 (9th Cir. 1996) (arguing that "allowing states to allow free assignability . . . of nonexclusive patent licenses would undermine the reward that encourages invention"). This analysis requires the assumption that the monopoly power is substantial and that close substitutes do not weaken the monopoly position. See Note, An Economic Analysis of Royalty Terms in Patent Licenses, 67 MINN. L. REV. 1198, 1198-99 n.5 (1983) (noting that, because of the close substitutes problem, licensors have a practical monopoly position only 27% of the time).
130. See Everex, 89 F.3d at 679.
131. See Note, supra note 128, at 1200 ("Efficient exploitation of a patent often requires patentees to license users of their inventions.").
132. See id. at 1201 (reviewing royalty terms in license agreements).
133. See, eg., Unarco Indus., Inc. v. Kelley Co., 465 F.2d 1303, 1304-05 (7th Cir. 1972) (describing how Kelley maneuvered to gain control of the license).
134. The licensor's profits are partially dependent on its ability "to design a schedule of royalty payments . . . that fully captures the profits of the patent monopoly to which a patentee is entitled." Note, supra note 128, at 1201. Clearly, the licensor could attempt to draft a licensing agreement that would generate maximum revenue for the licensor when the license was in the hands of the licensee who most valued the license. How would this happen? The licensor would grant a license to a licensee that, at the outset, it determined would provide the best return on its license. As the market changed, another party could become interested in the license, with the expectation that it could profitably exploit the license. At this point two things might happen. First, the licensor might grant another license if the original license was nonexclusive. See Ramon A. Klitzke, Patent Licensing: Concerted Action by Licenses, 13 DEL. J. CORP. L. 459, 463 (1988) ("If the choice is nonexclusive licensing, the patent holder can select the group of licensees that will produce the maximum royalties possible."). Second, the potential licensee might approach the current licensee and attempt to purchase the license. This sale would only occur if (1) the current licensee believes that the value the potential licensee offers is greater than continuing on as the licensee, and (2) the potential licensee believes that it can recoup the purchase cost and carry on at a profit. Note that "[o]ccasionally a patent will protect an invention that represents a pioneer advance in an existing technology. Licenses for such a patent will be in great demand." Id. at 462 (footnote omitted). What does this sale mean from the outside looking in? The value of the license is maximized with respect to both the individual parties and to society. The licensor can take advantage of this maximized value through good contract negotiating and drafting by requiring royalty payments that reflect the increased value.
135. Once the license is out in the market, it will migrate to the party who values it most and who will presumably provide the greatest royalty payments. Thus, a licensor need not expend as much money to find an appropriate licensee in a situation where patent license assignment is permissible, as it would in a situation where patent license assignment is prohibited. This argument for efficiency in allocation is most powerful when the licensor is a small enterprise, because the licensor's resources are necessarily limited.
136. Freely assignable patent licenses also lead to lower transaction costs for subsequent business transactions involving the license. See supra notes 118, 124-26 and accompanying text (discussing the interests of licensors, licensees, and society).
137. For example, the license could contain provisions to prohibit the assignment of a license to a company that meets certain unfavorable criteria or require the licensee to post a bond that would revert to the licensor in the event of an assignment.
138. See supra Part III.A.2 (describing a licensor's risk analysis). Trade secret protection assumes the technology cannot readily be reverse engineered. See Gale R. Peterson, Trade Secrets in an Information Age, 32 HOUS. L. REV. 385, 450 & n.548 (1995) (indicating that trade secret protection may extend to mass-distributed software marketed with a shrinkwrap confidentiality agreement provided that the software cannot easily be reverse engineered).
139. This analysis requires the assumption that an entrepreneur would make this type of strategic decision. This sort of strategic planning is fairly likely to occur where the entrepreneur retains a patent attorney. A competent attorney will advise the client of the cost involved in applying for a patent, and the client will have to decide whether this cost is acceptable. Presumably, such a cost/benefit analysis would involve considering how to best exploit the commercial value of the patent. See, e.g., Note, supra note 128, at 1201-02 & n.24 (noting that "[i]f an effective plan for securing patent profits through royalty payments cannot be devised, patentees will tend to favor exclusive use instead of licensing").
140. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974).
141. Rapidly advancing fields often have multiple concurrent inventors. See id. at 490 ("The ripeness-of-time concept of invention, developed from the study of the many independent multiple discoveries in history, predicts that if a particular individual had not made a particular discovery others would have, and in probably a relatively short period of time."); see also Donald S. Chisum & Michael A. Jacobs, Understanding Intellectual Property Law, ch. 2, § 2D(5) (1992) (discussing the patent law in place to deal with interference and priority of invention).
142. See, e.g., Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 168 (1989) (striking a state law that prevented one form of reverse engineering because the state law interfered with federal patent policy).
143. See supra Part III.A.3.a (arguing that free assignment of licenses does not decrease the incentive to create).
144. See supra note 133 (describing how royalties might be maximized); supra note 136 (suggesting some methods of protecting the license through contract).
145. See supra notes 65-67 and accompanying text (discussing the Bonito test).
146. See supra Part II.A (discussing the preemption issue in both Bonito and Kewanee).
147. See Kewanee, 416 U.S. at 487 ("A most fundamental human right, that of privacy, is threatened when industrial espionage is condoned or is made profitable; the state interest in denying profit to such illegal ventures is unchallengeable." (footnote omitted)).
148. See supra Part III.A.3 (analyzing patent license assignment in light of the three Kewanee policies).
149. See Farmland Irrigation Co. v. Dopplmaier, 308 P.2d 732, 740 (Cal. 1957) (Traynor, J.) (holding that, "[t]he statutes in this state clearly manifest a policy in favor of the free transferability of all types of property, including rights under contracts").
150. See, e.g., DEL. CODE ANN. tit. 8, § 259 (1974) (regulating the transfer of assets to new corporate formations). Delaware corporate law was chosen for this example because title 8 of the Delaware Code is the most comprehensive and widely used body of corporate law.
151. See, e.g., CAL. CIV. CODE §§ 954, 1044, 1458 (West 1982) (regulating the transfer and survivorship of things in action, property subject to transfer, and right arising from obligation, respectively). California law was chosen for this example because it was the focus of Justice Traynor's opinion in Farmland Irrigation, in which the California Supreme Court held that state law that allowed patent license assignment was not preempted by federal patent law. See Farmland Irrigation, 308 P.2d at 740 (discussing the three California statutes); see also supra notes 92, 100 (discussing the Farmland Irrigation court's decision). Section 954 was amended in 1990, see CAL. CIV. CODE § 954 (West Supp. 1997), but the amendment does not affect Justice Traynor's argument.
152. See Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 677 n.3 (9th Cir. 1996) ("The statutes governing patents are basically silent on the issue of licenses.").
153. See supra notes 101-02 and accompanying text (discussing the two options federal courts have to fill gaps in federal statutes).
154. See supra note 106 and accompanying text (noting that where state law is chosen to fill the gaps in federal statutes, the law must be consistent with federal policy).
155. The theoretical justification for creating federal common law in the patent license assignment cases is fairly weak. One view is that "the creation of federal common law decreases in justifiability as the judges move away from . . . interpreting the will of Congre or the framers and ratifiers of the Constitution toward the promulgation of rules of decision that have only the barest support in any articulated, nonjudicially created policy." TEPLY & WHITTEN, supra note 101, at 364. The case oa patent licenses assignment falls between these two extremes. Congress has neither explicitly mandated that the judiciary fill a gap in the federal law nor indicated that it completely lacks interest in the subject matter. Congress has promulgated many patent laws and, while Congress has been silent on the issue of patent license assignment, see Everex, 89 F. 3d at 677 (noting that [t]he statutes governing patents are basically silent on the issue of licenses" some weak justification does exist for courts to promulgate common law to ensure the goals of federal patent law are not foiled. See TEPLY & WHHTEN, supra note 101, at 365 (indicating that courts may choose to fill gaps in federal law to ensure legislative policy is not undermined).
156. See infra Part IV (recommending the adoption of a default rule in favor of the free assignment of patent licenses).
157. See supra note 107 (listing the twelve factors that courts have used to choose between filline a gap with state or federal law).
158. See Greiner, supra note 107, at 408-10 (discussing traditional state governance).
159. See id. at 411-12 (discussing interference in state regulation and regulatory judgments).
160. See id. at 410 (discussing the magnitude and complexity of the interstitial law-making process).
161. See id. at 415 (discussing forum shopping).
162. See, e.g., Rick Mullin, Know How Management Systems, CHEMICAL TIMES, Dec. 11, 1996, at 26 (describing how Dow Chemical has created a vice president of patent licensing to generate revenue with its portfolio of over thirty thousand patents); see also Edward Kahn, Leveraging Intellectual Property Proactively, ELECTRONIC NEWS, Oct. 21, 1996, at 38 (describing how companies have become more aware of the economic clout of licensing patents).
163. See, e.g., Rick Mullin, Know How Management Systems, CHEMICAL TIMES, Dec. 11, 1996, at 26 (describing how Dow Chemical has created a vice president of patent licensing to generate revenue with its portfolio of over thirty thousand patents); see also Edward Kahn, Leveraging Intellectual Property Proactively, ELECTRONIC NEWS, Oct. 21, 1996, at 38 (describing how companies have become more aware of the economic clout of licensing patents).
164. See supra Part III.A.2 (discussing wealth maximization as the proper policy consideration in patent license assignment cases); see also infra Part IV (discussing the choice between free assignment and no assignment).
165. See, e.g., Farmland Irrigation Co. v. Dopplmaier, 308 P.2d 732, 740 (Cal. 1957) (Traynor, J.) (describing California's contract assignment statutes).
166. Part IV begins with a discussion of the benefits of a free assignment default rule.
167. See supra note 118 and accompanying text (arguing that freely assignable patent licenses benefit licensors, licensees, and society as a whole).
168. See, e.g., Farmland Irrigation, 308 P.2d at 740 (discussing statutes in California that had long allowed free transfer of property rights, including licenses).
169. See supra Part III.A (arguing that the federal patent laws should not preempt state laws that allow free assignment of patent licenses). The fact that state law and federal patent policy do not conflict does not necessarily mean that they are consistent. The federal preemption analysis demonstrated, however, that free assignment of patent licenses would not have a negative impact on any of the policies of federal patent law. See supra Part III.A.3 (concluding that the state laws that allow the assignment of patent licenses do not conflict with federal patent policy). Furthermore, some policies might be enhanced, even though the purpose of the state free assignment law was not the same as federal patent law. See supra Part III.A.4 (asserting that the state laws that allow patent license assignment have at least one purpose that is distinct from the purposes underlying federal patent law).
170. The analysis in this Part flows from Part III.A. Patent license assignment does not violate federal patent policy, see supra Parts III.A.3-4 (illustrating why federal patent policy does not conflict with state law), and a policy analysis of the pre-existing case law suggests that federal patent policy and state law do not conflict with one another, see supra Part III.A.2 (using an economic analysis to examine prior cases). The case law analysis also suggests that the cases in which the court has allowed assignment have resulted in a more economically efficient outcome than in those cases that a court has not. See supra Part III.A.2 (discussing maximization of the social value of assignable patent licenses). Part IV suggests a way to ensure that courts will reach the economically efficient result shown in Part III.A.
171. See POSNER, supra note 110, at 81 ("The task for a court asked to interpret a contract to cover a contingency that the parties did not provide for is to imagine how the parties would have provided for the contingency if they had decided to do so.").
172. Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L.J. 87, 91 (1989).
173. Id.
174. See POSNER, supra note 110, at 14-15 ("The transaction would not have taken place if both parties had not expected it to make them better off. This implies that the resources transferred are more valuable in their new owner's hands.").
175. See supra Part III.A.3.a (discussing the risk of losing control of the patent license in connection with the Kewanee policy of maintaining incentives to invent).
176. In fact, a "no assignment" penalty default rule might create an incentive for those licensees with immediate ulterior motives to disguise their preferences for an assignable license by acting the same way as the licensees who are hedging their bets.
177. See supra note 118 (describing the increase in overall societal wealth achieved by freely assignable licenses).
178. See supra note 169 and accompanying text (outlining the view that a default rule should encompass the choices that the parties would make in the absence of negotiated terms).
179. See supra note 136 (suggesting some contractual measures a licensor could use ex ante to protect against harm from future assignments of the license). Note, also, that a licensor can expressly make a license nontransferable if the licensor determines that the risk of harm from assignment is too great.
180. If more people value free assignment, then the value of an assignable license in the market will be greater than that of a nontransferable license.