EMPLOYEE ASSIGNMENTS OF INVENTIONS – AN UPDATE

Intellectual Property Update

In 2011, the U. S. Supreme Court held that a present assignment by a Stanford University faculty member to a company where he was consulting was effective despite an earlier promise to assign in the employment agreement between Stanford University and the faculty member. In other words: “I assign” beats “I will assign”. Bd of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Systems Inc., 563 U.S. 776 (2011).

When the assignment is effective is a key issue to address in the contract language. Because the owner of a patent is initially the inventor, only the inventor has standing to sue for patent infringement without an assignment. Rights granted in the employment agreement using “passive verbs in the indefinite or future tense” require a subsequent assignment. Omni Medsci, Inc. v. Apple Inc., ___ F.3d ___ (Fed. Cir. August 2, 2021) (a provision stating patents “shall be the property of the University” was not an automatic assignment and as such required a subsequent assignment to effectuate the transfer).  

Consequently, language such as “employee hereby assigns” should replace “employee shall assign” in employment contracts (link).

What post-employment inventions can be assigned is a second key issue recent cases have identified.

Employee Alleshouse assigned to his employer  

“all inventions, improvements, developments . . .or patentable material that Employee conceives or hereafter may make or conceive . . . resulting from or suggested by Employee’s work for the Company . . . .”

The assignment language included inventions conceived after employment terminated. Using no confidential information of the former employer, Alleshouse conceived and patented post-employment inventions. The successor in interest to the former employer sued seeking an assignment of the patents. Applying a California statute protecting employees[1], the Court found the broad assignment language void. The obligation to assign inventions conceived after the employee’s departure was held to function as an unlawful non-compete. Whitewater West Industries, Ltd. v Alleshouse, 981 F.3d 1045 (Fed. Cir. 2020).

A subsequent International Trade Commission case (applying California law) interpreted an assignment of all

“inventions (including new contributions, improvements, designs, developments, ideas, discoveries . . . ) which I may . . . conceive, develop or reduce to practice during  the period of my employment . . . .”

The “inventions” (and in a later version, “intellectual property”) language was interpreted as limiting the assignment to “subject matter that itself could be protected . . . before the termination of employment.” Patent rights could not exist “until at least conception of that invention.” In this case the conception date was after termination. So the assignment language did not include “ideas . . . contributing to a post- employment patentable invention”. Bio-Rad Laboratories Inc. v. ITC, ___ F.3d ___ (Fed. Cir. April 29, 2021), petition for rehearing pending.[2]

The court’s narrow reading of the assignment language requiring the invention to be conceived before termination of employment avoided the need to apply the California statutes discussed in Alleshouse.[3] Consequently, cases not subject to the California statutes are subject to the same limiting construction if they use comparable language regarding assignment of “inventions” or “intellectual property”.

As the law is developing, employee patent assignments should (and if California law applies, must) be reviewed to confirm a straightforward reading (1) creates a present assignment, and (2) reasonably limits the assignment of post-employment inventions, most conservatively to inventions (a) conceived during employment or (b) made using the former employer’s trade secrets.

[1] California Business and Professions Code §16600 voids any contract restraining lawful trade of any kind. California Labor Code §2870 (a) limits an employee agreement to assign to only certain inventions. The court found the contract duty to assign was void as a substantial restraint on the former employee and §2870 did not approve assignments of post-employment inventions.

[2] The court specifically noted: “We do not deem a mere joint inventor’s contribution to a post-agreement conception sufficient”. Bio-Rad argues in the petition for rehearing that this was error.

[3] The court referred to the California statutory limitation on assignments as a “confirmatory reason” for the court’s “straightforward reading”.