Recor Medical, Inc. v. Reinhard Warnking and Sound Invention, Inc.  C.A. No. 7387-VCN (Del. Ch., May 31, 2013, revised July 16, 2013).

Issues Presented:  Did plaintiff establish that: (i) the defendant conceived of the idea for a patent invention while employed at a predecessor of plaintiff; and (ii) the predecessor company had acquired the invention under an assignment agreement?

Short Answers:  Yes and yes. 

This is a unique dispute for the Court of Chancery because it is over the ownership of two patents.  However, as the Court noted, this is not a patent case – it is a contract dispute where the Court is being asked to interpret an Invention Assignment Agreement (governed by New York law) and an Asset Purchase Agreement (governed by Delaware law). 

The patents at issue document the use of ultrasound in renal denervation – the process of damaging the sympathetic nerves surrounding the renal arteries – to treat hypertension.  The dispute originates with plaintiff Recor Medical’s acquisition of all the assets of an insolvent medical device company, ProRhythm, Inc., that, at the time of acquisition, was focused on developing a therapeutic treatment for mitral valve repair. Three senior employees of ProRhythm (including the Chief Executive Officer), before their employment ended and before the acquisition of ProRhythm by Recor closed, began exploring the possibility of using ultrasound in renal denervation.

Thirty days after his employment ended, the former CEO filed two patents relating to the use of ultrasound energy to ablate the sympathetic nerves surrounding the renal artery. Then the three former employees began a startup medical device company to develop therapeutic treatments for hypertension. Meanwhile, the plaintiff, while initially pursuing the development of the mitral valve devices it had acquired, also began exploring and developing applications for the use of ultrasound energy in renal denervation. 

The plaintiff claimed ownership over the two patents in dispute based on the Invention Assignment Agreement, in which the former CEO explicitly agreed to assign any inventions he conceived of relating to the company’s proprietary information. The plaintiff asserted that the two inventions became the assets of the insolvent company through an asset purchase agreement because he conceived of them before his employment ended, and because they relate to the company’s proprietary information.

The Court concluded that ReCor has established by a preponderance of the evidence that: (1) Warnking had conceived of the idea for the patent while employed at ProRhythm; and (2) ProRhythm acquired Warnking’s invention under the IAA. However, the Court found that ReCor had not satisfied its burden at trial to prove that Warnking conceived of the invention during his employment at ProRhythm.  The Court declared ReCor to be the rightful owner of the patent application and enjoined the defendants from making further use of the technology disclosed in the applicable patents and ordered the defendants to “take all necessary steps to transfer to ReCor the applicable patents, all books and records pertaining thereto, and all the attendant rights to the applicable patents and the technology disclosed or claimed therein.”