Employment Agreement Breach: Failure to Assign Can’t be Fixed Because of Statute of Limitations

Personalized User Model and Konig v. Google (Fed. Cir. 2015)

This case involves a fascinating set of back-door dealings. While Konig was employed at the non-profit research institute SRI, he started a side project with a friend creating a personalized information service – the subject of the patent that he filed (apparently without offocially notifying SRI). It is Konig’s patent that is being allegedly infringed by Google. See U.S. Patents No. 6,981,040.

After Konig’s patent holding company sued Google for infringement, Google management then called-up SRI and obtained a quitclaim deed over “any rights” in the patent held by SRI. With those rights in-hand, Google argued in court that Konig had breached his employment agreement by failing to assign rights to the patents to SRI and that Google was now the rightful owner (of at least a right to have the patents assigned). The district court, however, found the breach-of-contract claim time-barred by its state-law statute of limitations.

Because Konig’s alleged breach-of-contract with SRI was in the 1990’s, it seems likely that the three-year statute of limitations term had passed. However, Delaware (the site of the lawsuit) has a “discovery rule” that tolls any statute of limitations for the period in which an injury is ‘inherently unknowable” and “the claimant is blamelessly ignorant of the wrongful act and the injury.” Of course, a simple search years ago of the patent database would have turned up Konig’s patent rights, but the Search Giant argued that search would have been “practically impossible.” In the appeal, the Federal Circuit agreed with the district court that Google’s arguments were not sufficient proof of the inherent unknowability of Konig’s alleged breach or proof of SRI’s blameless ignorance. In particular, SRI knew that:

Konig was leaving [SRI] to immediately work at a start-up technology company. Considering the competitiveness of companies and institutes in the technical world and, as Google has argued, that the technology was related to Konig’s work at SRI, his departure and new venture could well have been a “red flag” that should have generated an inquiry whether Konig had conceived an invention during his employment with SRI that he might intend to develop and commercialize with his new company.

More importantly, Google failed to show that SRI was blamelessly ignorant of Konig’s alleged breach of contract. Google’s attempts to dispense with its burden of proof for the blamelessly ignorant element of the discovery rule by arguing the futility of any inquiry do not compensate for its failure of proof. Despite the opportunities for SRI to have inquired about Konig’s departure and his new venture—the obvious one being an exit interview, at which an inquiry might have been made regarding whether Konig had made any inventions at SRI that had not been reported to SRI—the record is critically deficient on the minimum quantum of evidence necessary to show that SRI did anything to protect its interests. . . .

Employers do not need to track a former employee’s every movement for an indefinite period of time to look for potential claims, but there should be some basic level of diligence in looking after one’s interests.

Delaware also has a statutory tolling of causes of action when the would-be defendant is out of the state of Delaware. 10 Del. C. § 8117. Although not express in the statute, the district court held that the tolling did not apply when the cause of action had “no connection to Delaware.” On appeal, the Federal Circuit affirmed: “Although the statute on its face does not require any connection to Delaware, we agree with the district court’s disinclination to interpret the statute so broadly as to apply to any claim, claimant, or defendant.”

Recordation Prevents Straight Ownership Claim: Although the court does not go into it here, ownership of patent rights would not generally require proof of breach-of-contract. If SRI owns the patent rights then its sale of rights to Google should shift ownership, regardless of whether Konig was in breach of contract or not. One problem with that theory, however, is that the employment agreement does not appear an effective transfer of rights but only a promise to transfer. Thus, even under the employment agreement Konig remained owner until such time as he transferred ownership to the employer. A second problem with the theory involves the recordation statute – 35 U.S.C. 261, which suggests the recordation of the assignment to Konig’s company may be sufficient to extinguish Google’s purchased rights.

14 thoughts on “Employment Agreement Breach: Failure to Assign Can’t be Fixed Because of Statute of Limitations

  1. 7

    […] Employment Agreement Breach: Failure to Assign Can’t be Fixed Because of Statute of Limitations – Google management then called-up SRI and obtained a quitclaim deed over “any rights” in the patent held by SRI. With those rights in-hand, Google argued in court that Konig had breached his employment agreement by failing to assign rights to the … […]

  2. 6

    The CAFC, explaining Delaware’s statute of limitations on breach of employment contract:

    Employers do not need to track a former employee’s every movement for an indefinite period of time to look for potential claims, but there should be some basic level of diligence in looking after one’s interests.

    So … what is the minimum requirement in Delaware for employers to preserve their rights in this situation (e.g., where an employee has breached his/her contract, is pursuing a patent and hiding that fact from his employer)? The employer has to check the PTO database at least once every three years following every employee’s departure to see if any employee is listed as a named inventor in a contract-breaching patent application?

    1. 6.1

      some basic level of diligence in looking after one’s interests

      It seems like that “basic level of diligence” should be satisfied by “having a binding written contract with the employee”.

      The fact that some information about a breach of contract could be theoretically found by active searching shouldn’t cause that searching to be mandatory for the preservation of one’s rights. If the employer brings the cause of action diligently upon actual knowledge of the breach, that would seem to suffice for fairness purposes.

      Weird holding.

    2. 6.2

      MM, don’t firms provide this as a service? When I got out of law school, the firm I worked at sent me to the gazettes to do searches just like this for a number of clients. As well, we all passed the gazette around so that individual lawyers could do this for their own clients.

      While we don’t use gazettes very much any more, simply adding employees on such a list couldn’t be that hard. Given that everything is online now, having your HR department run an automated search could not be to much beyond any competent IT department.

      1. 6.2.1

        don’t firms provide this as a service?

        If they didn’t before, I guess they will now … in Delaware at least.

  3. 5

    Dennis!

    Your discussion of the ownership rights of SRI should acknowledge that FilmTec is under heavy criticism by the Supreme Court in Stanford v. Roche.

    A the present assignment of a future right is, under long prevailing law, is an equitable assignment only, not a legal assignment.

    Completely ignoring the difference between equitable assignments and legal assignment is a major problem with the Federal Circuit’s jurisprudence in this area.

    As well, FilmTec was whole cloth, a rule picked out of the air without legal analysis, citation to authority or reasoning — much like BMC Resources. The Feds need to reconsider that case en banc.

    Completely ignoring the Supreme Court is something the Federal Circuit does until the Supreme Court gets tired of giving hints and decides it is high time to take the Federal Circuit to the woodshed once more. We should urge the Feds to get their act together.

  4. 4

    Dennis,

    I think you are right. Isn’t there recent case law (cites escape me) saying that a promise to assign is not an assignment?

    On recordation: the three inventors all assigned to UTOPY, Inc. in 2000, then it went to Blacksmith Ventures, then a bank, then to Levino, a Cypress entity, and finally to Personalized User Model in 2007. Even if UTOPY was Konig’s alter ego, Blacksmith Ventures and certainly the bank probably were not.

    1. 3.1

      I don’t see anything “evil” about bringing as much pain to bear on this sorry grifter, his junky patent and his monetization schemes as possible. How much money was this grifter expecting from Google? Probably enough to allow him and his entire family to live comfortably for the rest of their lives. And he believed he was entitled to that because … why? Because he managed to squirrel a piece of junk past the incompetents at the PTO.

      Dennis left out an important bit: not only were all the asserted claims in this case tanked in inter parties reexamination, but Google was found to be non-infringing. But the patentee here wasn’t finished with his ridiculous arguments. Nope. The patentee wanted the claim term “document” to be re-construed to include documents other than “electronic files”. Read the claim I reproduced below and try to wrap your head around that one.

      Good riddance to this incredible pile of junk. In a fair and just system, Google would be reimbursed for all its legal fees related to tanking the patent and defending itself against infringement, and the actual owners of the patent would be permanently banned from asserting any and all patents.

  5. 2

    Functionally-claimed junk. Try to believe this:

    1. A computer-implemented method for providing automatic, personalized information services to a user, the method comprising:

    a) transparently monitoring user interactions with data while the user is engaged in normal use of a computer;

    b) updating user-specific data files, wherein the user-specific data files comprise the monitored user interactions with the data and a set of documents associated with the user;

    c) estimating parameters of a learning machine, wherein the parameters define a User Model specific to the user and wherein the parameters are estimated in part from the user-specific data files;

    d) analyzing a document to identify properties of the document;

    e) estimating a probability P(u|d) that an unseen document d is of interest to the user u, wherein the probability P(u|d) is estimated by applying the identified properties of the document to the learning machine having the parameters defined by the User Model; and

    f) using the estimated probability to provide automatic, personalized information services to the user.

    For people who get bogged down in excess verbiage, here’s the short version: (1) “automatically” collect data about a user, (2) use that data to “automatically” provide to the user information that is likely to be “of interest” to that user. WOWEE ZOWEE

    Love the bit about the “learning machine.”

    Our patent system is a joke.

  6. 1

    Can you say Alice? Abstract idea = providing automatic, personalized information services to a user u using probability models specific to the user and determined by learning. What’s left? Nothing.

    Remember, the more you put into the “abstract idea”, the less there is for the “substantially more” part of the analysis.

    1. A computer-implemented method for providing automatic, personalized information services to a user u, the method comprising: a) transparently monitoring user interactions with data while the user is engaged in normal use of a computer; b) updating user-specific data files, wherein the user-specific data files comprise the monitored user interactions with the data and a set of documents associated with the user; c) estimating parameters of a learning machine, wherein the parameters define a User Model specific to the user and wherein the parameters are estimated in part from the user-specific data files; d) analyzing a document d to identify properties of the document; e) estimating a probability P(u.vertline.d) that an unseen document d is of interest to the user u, wherein the probability P(u.vertline.d) is estimated by applying the identified properties of the document to the learning machine having the parameters defined by the User Model; and f) using the estimated probability to provide automatic, personalized information services to the user.

    1. 1.1

      PB: Abstract idea = providing automatic, personalized information services to a user u using probability models specific to the user and determined by learning. What’s left? Nothing.

      I think you found a nut, PB. The patentee here identified a “problem” with a lack of automation in a portion of a prior art process. His awesome solution? Automate that portion of the process! Wheeeeeee!

      Heckuva job, PTO.

      1. 1.1.1

        More specifically, PB, just in case it’s possible to teach you about how the law works, here’s the abstraction: using probability models specific to the user and determined by learning to provide personalized information services to a user

        That’s ineligible subject matter. It’s also (like a lot of abstract information processing preceeding) something that people (e.g., shopkeepers and others who make a living by selling stuff) have been doing for thousands of years with their customers.

        The Supreme Court has rightly recognized that adding “use a computer” (or any of a myriad different automatic information-processing tools in the prior art) to “automate” the process adds nothing innovative. In other words, as a matter of law, there is no eligible “invention” in such circumstances. And so the world turns.

        Get used to this because it’s never going away. On the contrary, the Supreme Court’s decision came about twenty five years too late.

        1. 1.1.1.1

          But on paper the pto did everything it could. The examiner made production for the quarter. And with such a long claim, probably didnt need to write a reason for allowance. Hell, in the 90’s, he/she probably didnt even type an action.
          The count system in Alice terms, Abstract idea: hold examiners accountable for doing sufficient work to justify their salaries. Eliminate the need for human supervision by automating it with a computer!

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