Ownership of Employee Inventions
Intellectual Property Update
Ownership of Employee Inventions
Businesses rely on innovative and resourceful employees to meet and exceed customer expectations. Occasionally, those innovative and resourceful employees come up with an invention – something useful, novel and not obvious. When an inventor/employee leaves to work elsewhere, who owns the invention?
I. The Inventor/Employee Initially Owns the Invention
“Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor.” Bd. of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, Inc., 563 U.S. 776, 780, 131 S.Ct. 2188, 2192 (2011). “[U]nless there is an agreement to the contrary, an employer does not have rights in an invention ‘which is the original conception of the employee alone.’” Id. at 786, 131 S.Ct. at 2195, quoting United States v. Dubilier Condenser Corp., 289 U.S. 178, 189, 53 S. Ct. 554, 558, amended, 289 U.S. 706, 53 S. Ct. 687 (1933).1 This becomes particularly important in litigation, because standing to assert a patent claim requires ownership of all inventors’ rights on the date the lawsuit is filed. STC.UNM v. Intel Corp., 754 F.3d 940, 941, 943-44 (Fed. Cir. 2014); Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1364 (Fed. Cir. 2010).
In rare circumstances, an assignment of rights in the invention to the employer is implied. For example, if the employee is hired to invent, the resulting invention may be deemed assigned to the employer. But these cases are fact specific and exceptional. See, e.g., Banks v. Unisys Corp., 228 F.3d 1357, 1359-60 (Fed. Cir. 2000) (no implied license where the employee refused to sign an express license); Scott System, Inc. v. Scott, 996 P.2d 775, 778 (Colo. App. 2000) (whether employee was hired to invent was a disputed issue of fact). See also James v. J2 Cloud Services, LLC, 887 F.3d 1368, 1375–76 (Fed. Cir. 2018) (whether implied license exists where inventor was not personally a party to the services contract and only the copyright to software, not patent rights, was expressly assigned).
If there is no assignment, the employer might obtain a limited “shop right,” which amounts to a license to use the invention. Again, these shop rights arise under limited circumstances, for example, if the employee used the employer’s resources to develop the invention. But shop rights are not fully transferable and not exclusive, so they are much less valuable than patent ownership. Absent an enforceable agreement to the contrary, the employer’s shop rights do not preclude the inventor from fully exploiting the invention, even in competition with the employer or former employer.
II. The Inventor/Employee Can Leave and Compete
Without any contractual restrictions, an employee can explore a new concept, develop a business plan and make reasonable preparations to compete – as long as the employee does not use the employer’s proprietary information. Even high ranking employees (such as a vice president of marketing) who are privy to confidential information can go into competition with the former employer as long as the employer’s confidential information is not used. Taser Int’l, Inc. v. Ward, 224 Ariz. 389, 397, 231 P.3d 921, 929 (Ariz. App. 2010).
III. The Employer Can Acquire Patent Ownership by a Written Contract
To avoid the loss of trade secrets and inventions to transitory employees, employers can use a variety of contractual provisions. One common provision is an assignment of inventions.2 To transfer ownership, the inventor must assign the patent, or patent application, in writing. 35 U.S.C. § 261. The assignment should be recorded in the Patent and Trademark Office to provide notice against subsequent purchasers. Id.
A. “I Assign” Beats “I Will Assign”
There is an important distinction between a present assignment and an agreement to assign in the future. In a Supreme Court case, a Stanford University faculty member, who developed a diagnostic test for HIV, “agree[d] to assign” inventions resulting from his employment to Stanford University. Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Systems, Inc., 563 U.S. 776, 131 S.Ct. 2188 (2011). The faculty member later consulted with a private company on HIV research and agreed “he will assign and do[es] hereby assign” to the company inventions made “as a consequence of access” to the company lab. When Stanford tried to enforce its patent, Roche, the successor to the company, claimed it had acquired the HIV related patent rights under the professor’s consulting agreement. Because the promise to assign to Stanford did not result in an executed assignment until three years later, the “do hereby assign” language in the consulting agreement took precedence. The later executed assignment to Stanford had no effect because the patent rights had already been transferred to the company.
Because the invention belongs to the inventor until transferred, assignment provisions should be written as a present ownership transfer, and not simply as a promise to transfer in the future. Many employers have responded by inserting appropriate language in new employment agreements, but some companies, unfortunately, continue to rely on provisions that do not take into account the 2011 Stanford University case.
For example, in January 2018, an agreement providing the employee “will hold in trust” and “will assign” to the company was again treated as a mere promise to assign – indeed, the employee “could not immediately convey the rights and at the same time hold them in trust.” Advanced Video Technologies v. HTC Corp., 879 F.3d 1314, 1317 (Fed. Cir. 2018). Consequently, the company did not have full ownership and could not sue to enforce the patent.
Sometimes the “hereby assign” language is used, but the agreement limits the scope of the assignment to only certain inventions. See Trireme Medical, LLC v. Angioscore, Inc., 812 F.3d 1050, 1053 (Fed. Cir. 2016) (assignment limited to inventions the inventor was “developing” or “reducing to practice” after the effective date of the agreement).
To further eliminate uncertainty, an assignment specific to the particular invention and patent application should be obtained from the inventor in connection with filing for the patent. Recording this assignment with the USPTO creates a presumption of validity. SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1328 (Fed. Cir. 2010).3
B. The Employer Should Diligently Request a Specific Assignment.
In the Stanford University case, Stanford could not enforce its patent rights against Roche because the faculty inventor had made an earlier effective assignment when he consulted with Roche’s predecessor company. Ironically, Roche was able to defend a claim of infringement because of the contract language signed by the Stanford inventor, but could not obtain actual ownership of the patent. See Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Systems, Inc., 583 F.3d 832, 846-48 (Fed. Cir. 2009), aff’d, 563 U.S. 776, 131 S. Ct. 2188 (2011). Roche had waited more than 4 years to request a declaratory judgment of ownership or otherwise perfect its ownership – too long under California law.4 Consequently, neither Stanford nor Roche could enforce the patent against the other party.
Even if the inventor has contractually assigned patent rights in the manner required by the Stanford University case, the assignee should promptly require the inventor to execute a specific written assignment to transfer the rights in a subsequently developed invention.
In addition, the employment or consulting agreement should obligate the inventor to promptly disclose inventions5 and to cooperate in executing additional necessary documents (including a formal and recordable assignment). The inventor’s obligation to disclose and cooperate should exist at least through the term of the employment or consulting agreement. Delay in obtaining the formal specific assignment may bar efforts to obtain a later assignment under the statute of limitations.
A statute of limitations will begin to run on an employment contract by the time the employer should have known of a breach. Often, a former employer does not actually discover the breach until the former employee files a patent application and brings a product to market, which can take years. But the employer may have a duty to make a reasonable investigation. The Federal Circuit (applying Delaware law) recently recognized an employee’s “departure and new venture could well have been a red flag that should have generated an inquiry whether [the former employee] had conceived an invention during his employment.” Personalized User Model, LLP v. Google, Inc., 797 F.3d 1341, 1346 (Fed. Cir. 2015). The court noted there were several opportunities to explore this question, “the obvious one being an exit interview.” Id. “Companies can also watch competitive patent filings” or inquire “unobtrusively about the employee’s new startup company.” Id at 1347. The Federal Circuit concluded “there should be some basic level of diligence in looking after one’s interest.” Id.
An employer’s rights in an invention are usually determined by the terms of a written assignment from the inventor. To secure its rights, an employer should:
- Provide for a present assignment (not a promise to assign), a duty for the employee to disclose inventions, and a duty to cooperate in filing any additional papers to perfect the assignee’s ownership of the invention;
- Confirm the invention assignment with a specific assignment for each patent application;
- Monitor employee conduct related to innovation; and
- Reaffirm the employee’s contractual obligation in an exit interview.
Taking these steps could prevent a loss of patent ownership rights.