Issues With Employee Assignment Agreements

PatentLawPic207DDB Tech v. MLB Advanced Media (Fed. Cir. 2008)

Mr. Barstow (head of DDB) was still an employee of Schlumberger when he invented his system for simulating a baseball game. As part of his employment agreement, Barstow assigned all rights to inventions relating to or resulting from Schlumberger business.  At the time, Schlumberger’s GC for software agreed that Barstow’s baseball software was his own personal work and not Schlumberger related. After DDB filed suit, MLB bought “any interest that Schlumberger had in the patents” along with a retroactive license.

The district court (Judge Yeakel) dismissed the case for lack of subject matter jurisdiction — finding that the baseball software invention fell within the employment agreement and that MLB is now the patent owner. DDB appeals.

Employee Assignment: Under the Texas law, the employment agreement creates an instant assignment as soon as a qualifying invention is created. Thus, if the patents “qualify” as within the employment agreement, then they were owned by employer regardless of any seeming waiver, estoppel, or statute of limitations. Those defenses could prevent enforcement of an agreement to assign, but do not negate an already consummated assignment.

The CAFC ordered the lower court to reopen discovery so that the parties could collect evidence on whether the baseball software invention fell within the scope of the employment agreement.

Notes:

  • Employees beware: Your employer likely owns your future inventions! Best practice for garage inventors is to obtain a written exception to the policy prior to inventing. Otherwise, you should obtain an assignment from the company.  Of course, this depends upon state law and whether the agreement includes the magic language: “[The employee] does hereby grant and assign.” If Barstow had been employed at the University of Missouri, he might have won because the employment agreement only requires the employee “upon request [to] assign … all domestic and foreign rights.”  For prolific home inventors, this difference may be enough to warrant a job change.
  • Loyalty?: Not to pick on Schlumberger, but isn’t it odd that they chose to do business with MLB over their own former employee…
  • Patently-O Discussion of district court case.
  • This case was handled by my former firm, MBHB LLP. However, I was in Boston by the time that they took over the litigation. 
  • Recordation of Assignment: A reader suggested that the patent recordation statute (35 U.S.C. 261) be considered. If you remember 1L property, the patent recordation statute is a notice statute with a three-month grace period.  Thus, a subsequent assignee of a patent will hold title over a prior assignee if two conditions are met: (1) the prior assignee did not record in time (which would give constructive notice); and (2) the subsequent assignee was “without notice” of the prior assignment. The timing is no question here — Schlumberger did not record until after DDB had already sued. The only issue then is whether DDB had notice of the prior assignment.
  • Notice of Prior Assignment: Under Federal Circuit law, a subsequent assignee can have notice of a prior assignment based on actual notice, constructive notice, or even inquiry notice under the principles of equity. Unfortunately, the leading CAFC case on this issue is non-precedential, Katz v. Lear Siegler, 1993 US App Lexis 17507 (Fed. Cir. 1993), and at least two law firms have been publicly chastised for citing the case to the CAFC.

38 thoughts on “Issues With Employee Assignment Agreements

  1. I have a hypothetical question:
    Suppose in Country X, by an operation of law, the rights to the invention automatically belong to the employer (Company A), if the invention is created, to put it simply, within the scope of employment. Company A subsequently files for a patent for the invention in the U.S. His U.S. Patent Attorney sends him an assignment form which the employee duly executes and the assignment is recorded with the USPTO. My question is this: Since by law, the rights to the invention already automatically vested in Company A to begin with, what proprietary rights does the assignment that is executed and filed later on with the USPTO seek to record? Is there a necessity to complete an assignment in such a case since the applicant (Company A) already has all rights in the invention by virtue of the law of Country X? Thanks in advance.

  2. I have a question – If you assign the rights does you employer also have the ability to remove you as the author on your invention?

  3. Washington State also has a law against the big grab by employers (which is a artifact of fuedal era common law). It is slightly different language but same results as the referenced Illinois law. It is found as the last paragraph in Washington Labor Law as section RCW 49.44.140. Interestingly, it was promoted to the Legislature by the Boeing Company. Essentially codifying and extending to all what was Boeing’s unusually fair (for 1979) policy.

  4. How about Illinois for a different view (I understand California has a similar statute but I do not have a reference to it. An interesting note on this statute is that patent lawyers I have asked about this are unaware of and cannot locate this statute but good friend who is a “generalist” found it in under five minutes when I asked him as it is part of the miscellaneous property statutes in Illinois):

    link to ilga.gov

    (765 ILCS 1060/2) (from Ch. 140, par. 302)
    Sec. 2. Employee rights to inventions ‑ conditions). (1) A provision in an employment agreement which provides that an employee shall assign or offer to assign any of the employee’s rights in an invention to the employer does not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, unless (a) the invention relates (i) to the business of the employer, or (ii) to the employer’s actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this State and is to that extent void and unenforceable. (omitted)
    (2) An employer shall not require a provision made void and unenforceable by subsection (1) of this Section as a condition of employment or continuing employment. (omitted)

  5. Just follow Nevada’s lead and avoid all the contract mumbo-jumbo:

    1. NRS: CHAPTER 600 – TRADEMARKS, TRADE NAMES AND SERVICE MARKS
    81 KB – 17-Oct-20073 hit(s)
    MISCELLANEOUS PROVISIONS NRS 600.500 Employer is sole owner of patentable invention or trade secret developed by employee. _________

    NRS 600.500 Employer is sole owner of patentable invention or trade secret developed by employee. Except as otherwise provided by express written agreement, an employer is the sole owner of any patentable invention or trade secret developed by his employee during the course and scope of the employment that relates directly to work performed during the course and scope of the employment.

  6. to metoo The theory is little known it involves the concept that only one person within his lifetime is capable of producing significent invention.Time wise it would date to prehistoric times and beyond. It involves the concept of high breeding of royal families over thousands of years to produce the top code in that tribe as in the 12 original. Then in recent years the crossing of those tribes to produce the top inventing ability in history=myself.Only one person is capable of producing major inventative ideas the rest steal and take credit for the only master inventors ideas. Many companies know this fact and send their employees to talk to me.They aparentley developed a nickname for me called Mr. Invent others developed nicknames like the didgit to indicate I was always one number off of getting credited with the invention.These individuals enforce their thefts by indications of death threats reguarding themselves and other organized criminals. This certantly produces a sickening reward for single handedly producing the most beautiful society on earth.The moral of the story is the only place to legally purchase an invention is from http://www.inventingconsultantcreator.net although it is doughtful that with our present corrupt system in place that the patent will be correctly awarded.

  7. Mr. Martin,

    Mr. Merges’ paper has been around for some time and does provide a relatively accurate explication of relevant law. However, it is clear that he proceeds from the perspective of an academic who has not acquired significant experience in the way corporations actually go about their daily business. It would have helped had he taken into account at least the following three (3) “truisms”:

    1. Most significant inventions is a company usually arise from the creative efforts of just a few individuals who are typically sole inventors vis a vis any specific invention. In fact, most in-house counsel intimately involved in the R&D process can usually identify those few individuals by name, and those individuals rarely make up more that a very small percentage of the total R&D employment base. It is said that “10% of employees create the coat-tails upon which the remaining 90% ride.” In my experience withing a major R&D corporation involved heavily within the aerospace industry, I observed the number typically to be in the order of about 1%…what I coined the “go-to-guys” whenever real problems needed real, practical and feasible solutions. In an organization of about 2,000 R&D engineers, I noted that about 20 individuals or so were the ones responsible for virtually all significant inventions.

    2. The notion that employee incentive programs can have a positive effect does have some merit to the extent that an employer actually has such a program. Most do not. For those that do, parsimony seems to rule the day. It is the rare company indeed that has given such programs any meaningful degree of consideration and implemented a somewhat meaningful program. I have always been struck by the disparity in compensation and incentives given to senior management for meeting financial goals, even those in senior management who contributed not a whit, versus that of the very few who via R&D actually made meeting those goals a reality. I can only imagine the hit a company would experience to its bottom line if those few in R&D one day showed up to work and en masse announced they were leaving.

    3. Most companies are so preoccupied with their product lines and market niches that they never even consider the possiblity that spin-outs can be worthwhile. In many cases the mere mention of technology transfer results in the “messenger” being viewed as one having a contagious STD who should move on to more productive matters, such as pushing meaningless memos from the confines of his/her cubicle.

    There are, of course, other relevant observations I could proffer, but I have decided not to do so in the interest of brevity.

    What would be interesting to read would be a new article following the author being secunded to a business organization for an extended period of time to see for himself how such organizations actually go about doing their jobs. It would be a real eye opener and likely result in an extensive re-write to reflect how the world operates outside the hallowed halls of academia.

  8. to meto ya I got it royally.Of course discrimanation against royals is yet another method that pto will not put patents into the correct names.You wouldent know where I could Find a good lawyer would you.I guess my grandfathers fought with them with no sucess either back to 1790.Their refusal to recognize the theory of the master inventor royal preminant has finally shut down global inventing.

  9. Metoo: “[I]f those defenses are waived with respect to Dr. Barstow’s interest, then it is irrelevant whether or not they are waived with respect to the brother’s interest.”

    Not necessarily. If the company took no action to assert its ownership, record its interest in the patent, or even monitor patent prosecution, it’s inaction could be seen as an estoppel with respect to DBB or with respect to the brother (the other inventor), for instance. Those claims aren’t related to the employee — they exist independent of the employee. Ultimately, the argument would have to be (for the reason you point out) that the company is estopped from now claiming that it is an owner vis-a-vis the brother or DBB.

    I’m just saying that it is presumptuous to conclude that all claims are out the window, when I don’t believe they are necessarily foreclosed.

    (There could likewise be a laches argument, too.)

  10. Michael, you estimate that you were the actual inventor on about 10,000 patents since 1953, yet you are not a named inventor on any patents? Wow – you really got screwed.

  11. to; metoo re inventions reminder; My inventions comprise every inventative original concept with reguards to intellectual materials production that I have studied.I estimat totaling the entire top 10000 recorded since 1953.My pto credited inventions total 0 Obviously this sounds impossible witch is one reason that I have 0 another is I was the victum of such an agreement as we are discussing reguarding forced invention sign offs.Of course our system comtains many other ways to be cheated of these rights. My grandfathers i believe had this same incredible ability and were also cheared by our vile system.

  12. Inventorship signoffs involving post employment situations are extremley anti productive for human advancement they should be considered as capable of stalling any incentive to produce and therefor fraudulant, and a severe cival rights violation they demonstrate principles of involitary servitude and slavery.

  13. Slonecker, I can’t seem to find a link for that article… any chance you can help me out? Sounds like a good read.

  14. bierbelly,

    See Rule 4.3 contained in the model rules promulgated by the ABA. Of course, whether or not a specific bar has implemented the rule needs to be investigated.

  15. “A word to the wise. Whenever an employed inventor does something that is arguably outside the scope of an employment agreement and then wants to try and exploit it, he/she is well advised to always seek independent counsel for a legal opinion of his/her rights and obligations under the agreement. In all candor, situations such as this present to in-house counsel the opportunity to run afoul of the rules governing the practice of law, and I am surprised that this issue has not as yet, to my knowledge, been presented to a state bar for a ruling.”

    You’d be surprised at how many company employees think that in-house counsel actually works for them, in their interest. LOL. Kinda like submitting your complaints about the company and your boss to HR.

    I’ve had a similar situation, where a company employee contacted me about something involving the company. I didn’t advise him one way or the other. I had to tell him that “I represent the company”…would I have been faithfully executing my duties to the company to tell him to seek outside counsel? I doubt it.

  16. A useful synopsis of the law, at least back in the 1990 timeframe, can be found at 18 AIPLA Quarterly Jounal 127 (1990) by Paul Van Slyke and Mark Friedman.

  17. In the first place what right does the employer have to the total invention. Was the employee specifically hired to invent or for other purposes.Was the agreement signed under duress or threat of physical or ecomomic harm.What possible right does the employer have to inventions concieved after leaving employment.Why arent these agreements considered fraud when a business partnership 33% 66% profit split is not specified.

  18. In the first place what right does the employer have to the total invention. Was the employee specifically hired to invent or for other purposes.Was the agreement signed under duress or threat of physical or ecomomic harm.What possible right does the employer have to inventions concieved after leaving employment.Why arent these agreements considered fraud when a business partnership 33% 66% profit split is not specified.

  19. Sean, if those defenses are waived with respect to Dr. Barstow’s interest, then it is irrelevant whether or not they are waived with respect to the brother’s interest. As M. Slonecker said, if MLB establishes that they acquired Dr. Barstow’s interest in the patent, it’s game over. I do agree, however, that the majority’s decision with respect to federal/state law is absurd.

  20. The issue of the brother’s ownership does expose another weakness in the CAFC’s decision, though.

    The D/Ct and CAFC assume that the SOL, estoppel, and waiver defenses “have no merit.” But that is presumptuous — if anything, those defenses are waived only with respect to Dr. Barstow’s interest. They would not be waived with respect to the brother’s interests, or to the interests of DBB.

    Also, the federal/state law issue seems preposterous. If the employment agreement has one form of language, it is governed by state law; if the “magical language” is used, it automatically becomes federal law.

    Once again, the CAFC is way off the mark, and Newman is the only voice of reason.

  21. JB,

    The problem is that co-owners of a patent are generally, in the absence of an agreement to the contrary, free to practice an invention without having to account to the other(s). Foley and Lardner pulled a “slick” move by placing the defendant in a position where it arguably became such a co-owner.

  22. What about the brother’s rights as an inventor, that he assigned to DBB? He apparently was never an employee of Schlumberger or anyone else, from the record.

    So he (the brother) has the full right to practice and license his invention. Maybe he can spread a little wealth his brother’s way. Pretty clever to have his brother (non-employee) work on the invention too.

    Or am I missing something here?

  23. Mr. Morgan,

    You will note from the dates that discovery was closed off on a set date, and that just days thereafter the defendant filed its motion for dismissal based upon its using the time between closure and its motion to secure the “quitclaim” from Schlumberger. To attack the “quitclaim” plaintiff needed more discovery, but the court refused to do so (even though defendant did not object). On the facts the CAFC held that decision to be arbitrary and remanded for further discovery.

    A word to the wise. Whenever an employed inventor does something that is arguably outside the scope of an employment agreement and then wants to try and exploit it, he/she is well advised to always seek independent counsel for a legal opinion of his/her rights and obligations under the agreement. In all candor, situations such as this present to in-house counsel the opportunity to run afoul of the rules governing the practice of law, and I am surprised that this issue has not as yet, to my knowledge, been presented to a state bar for a ruling.

  24. A very strange case, including the district court ruling that Barstow’s invention on baseball software could possibly be within his employment agreement to Schlumberger (whose business is definitely oil and gas drilling) on this set of facts. I also agree with Judge Newman’s dissent that both the district court and the Federal Circuit panel are jumping the gun here on the jurisdictional, estoppel, and statute of limitation issues. To call construction of whether an employment agreement applies to an invention for ownership purposes a “federal” or even “patent” law question in these circumstances is bizarre, and makes the majority panel look like it’s overreaching. The majority panel may be trying to help advance this ownership issue along after the district court really messed it up, but to do it the way they did is going to muck up (as Newman correctly points out) which law should apply to the contract issues here.

  25. IF the scope of this employee agreement really was specifically limited to inventions relating to the employer’s business, then where was there any assignment to the employer of the employee’s baseball game invention? What fact was actually in dispute here justifying a CAFC remand? Was there any actual allegation in this case that this employer was in the video game or other game business, or likely to be?

  26. Budge,

    I might be wrong, but I believe the SoF is satisfied by the employment agreement itself.

    “I hereby grant and assign (all the stuff I invent while employed by you)…”.

  27. I haven’t read the case, but I know there is a statute of frauds requirement when transferring title to a patent. An automatic transfer under law would not be possible, as you still need the written instrument. What gives with the automatic transfer then? All you can get is obligation to assign, no more. What’s going on here?

  28. This is one for the casebooks. An archetypical set of facts, a beautifully reasoned majority opinion, and a passionate dissent.

    The only question is what casebook: patent law, property law, choice law, or federal jurisdiction?!

  29. Isn’t the GC’s statement the same thing as an admission that the invention was outside the scope of employment?

    If that’s already in the record, it seems a little redundant. The district court’s opinion would be one line, “The court agrees with the GC that the baseball software was outside of the scope of employment, and that Schlumberger therefore transferred no rights in the invention to MLB.”

  30. “But did the GC’s statement constitute an enforceable oral contract? He obviously has the apparent, if not actual authority to bind the company.”

    I haven’t read the case, but it sounds like there was no consideration. It doesn’t appear that the GC agreed to deliver anything, nor does there appear to be any consideration from DDB. All the GC apparently did was to state a legal conclusion – “Your invention is not covered by the agreement.” Thus, the issue is estoppel.

  31. But did the GC’s statement constitute an enforceable oral contract? He obviously has the apparent, if not actual authority to bind the company.

  32. I think you meant to say “scope of the employment agreement” at the end of the last sentence before “Notes”

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