Monthly Topic

This month’s newsletter examines ownership of the title to a patent in the context of employment relationships. The validity of assigning such rights in a contract has important ramifications for many proprietary industries. The underlying issue is whether an automatic assignment provision of future inventions to an employer is essentially a transfer of title to the employer. Employers prefer this type of provision because it eliminates the hassle, expense and legal obstacles involved in obtaining an assignment to an invention once the employee is no longer affiliated with the company.
Under current law, as set forth by the U.S. Court of Appeals for the Federal Circuit over 20 years ago, if an employee/patentee “hereby assigns” future inventions in an employment contract, then this serves as a valid transfer of property rights to the employer. The U.S. Court of Appeals for the Federal Circuit recently revisited this issue in 2015. In the case of Alexander Shukh vs. Seagate Tech., the petitioner alleged that the contractual assignment of a potential future invention does not in fact confer title to that invention to the employer. This argument is rooted in traditional concepts of property law that state that current sales of future goods simply present a contract to sell, as provided under the Uniform Commercial Code (UCC). Thus, an automatic assignment provision would not be sufficient to convey ownership rights; rather an independent contract at the time of invention would be necessary to grant legal title to the property (the invention) to a third party. In October, 2015, the federal circuit upheld its previous decision, but the matter is likely to be further reviewed on appeal.

The specific language of the automatic assignment provision has been viewed as the determinative factor in characterizing the assignment. In one Federal Circuit case (DDB Technologies, LLC v. MLB Advanced Media, L.P.) a former employee argued that his interests in a number of patents had not been assigned to his former employer. The Court focused on whether the clause actually established an “automatic assignment” or simply an “obligation to assign” (as the petitioner in in the Alexander Shukh case alleged). The contractual language provided that the employee “agrees to and does hereby grant and assign” all rights in future inventions in the course of his employment. According to the Court, this language represents an explicit assignment of rights in the invention, such that no additional action is mandated after the creation of the invention and title is assigned by operation of law.

Automatic assignment provisions are fairly standard in certain industries. If the current legal status of such agreements is overturned, how would employers structure their employment contracts? First, contracts that contain automatic assignment clauses would be deemed void. In all likelihood, employers would be required to negotiate individualized assignment provisions with each employee for each invention that the employee participated in developing. To preserve their legal rights, employers might consider executing a separate patent assignment agreement with the inventor/employee when the invention is created. Given existing challenges to this rule in the courts, it may be prudent for employers to consider how to implement these changes in the near future.

In the context of employment agreements, employers and employees should diligently review the language in their automatic assignment provisions to be certain that the language reflects their understanding of their individual rights to the title of future patents. While current law treats such clauses as an automatic transfer of title, the inconsistency between federal law and common law property principles suggests that there may be further scrutiny of this holding in the future. Contact us for thorough and up-to-date legal advice tailored to your concerns about intellectual property rights.

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