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.
The main objective of this newsletter is to alert you to the rapidly changing legal environment in United States patent law.
The 2013 American Invents Act (AIA) made sweeping changes in the United States patent law. In the early 1990’s Global Corporations began lobbying Congress to change the United States patent law to conform to the international model based on the 19th Century German patent law. The AIA is the desired result of their lobbying efforts.
Over the course of the next few decades, these changes will affect the way commercially valuable ideas are developed and protected. Will these AIA changes be good for society as a whole? Or will these AIA changes primarily assist the economically powerful? Several of these AIA changes are now being challenged in the courts, and we anticipate that the United States Supreme Court will be making determinations as to the constitutionality of many of these changes.
Those adversely affected by these AIA changes are now lobby Congress to enact legislation that will alleviate hardships caused by these changes. A major concern of our clients is the negative impact patent office grant proceedings have on the ability of startup companies to raise capital to launch a business based on a patented invention. It may be virtually impossible to persuade an investor to risk capital if the patent’s validity can be challenged in such proceedings. Especially since a lawsuit seeking to stop a competitor from selling the patented invention can be stayed until the issue of validity is decided, which could be many years. Consequently, the AIA post grant proceeding in the United States Patent and Trademark Office are a disincentive to invest in any startup companies based on a patented invention.
Click here if you wish to support legislation preventing a patented invention of a small entity from being challenged in post grant proceedings in the United States Patent and Trademark Office.
This month’s newsletter will address amendments to the Federal Rules of Civil Procedure (FRCP) and their effect on patent litigation. These new rules, which became effective on December 1, 2015 and apply to all actions pending as of that date, modify several key aspects of patent proceedings including the standards for pleadings and the procedural rules and scope of discovery. A summary of the amendments below is suggestive of the continuing trend in federal litigation toward identifying legitimate complaints and improving the general efficiency of the legal system.
Pleadings Requirements. The Appendix of Forms under Rule 84 of FRCP have been repealed under the amendments. Specifically, Form 18, which allowed plaintiffs to initiate patent litigation with bare-bones claims, is no longer applicable. Form 18 enabled litigants to file standardized, minimally descriptive claims against multiple defendants with rudimentary information, including the details of the patent, the assertion that the defendant allegedly infringed on such patent and that the plaintiff incurred damages.
With the removal of Form 18 from FRCP, plaintiffs will be obligated to meet the enhanced pleading requirements set forth by the U.S. Supreme Court decisions in 2007 and 2009 (Bell Atl. Corp. v. Twombly and Ashcroft v. Iqbal). Under these rulings, the plaintiff must plead facts sufficient to demonstrate that he is entitled to relief under the law. This criteria entails a more substantive examination by the court including dismissing pleadings that are mere conclusions and determining whether properly plead claims reasonably merit relief. However, as the judiciary has not issued definitive pleadings rules, the degree of specificity differs considerably among various jurisdictions.
Discovery Procedures. Specific rules under FRCP have been amended to enhance the procedural efficacy of the litigation process. Under the amended Rule 16(b)(2), courts must issue an order to schedule the matter (including trial date, discovery deadlines etc.) within 90 days after the defendant has been served or within 60 days after the defendant has appeared before the court in connection with the litigation. A party may now serve discovery requests 21 days after service of the complaint and summons. The effect of this amendment is to allow requests to be issued before the first Rule 26(f) conference even takes place. Prior to this revision, discovery requests could not be served until the Rule 26(f) conference, which often occurred months after the complaint was filed. The 30 day window to respond to discovery requests begins at the time the conference takes place.
The Year 2015 was transitional for Connors & Associates pc. In November the firm’s founder, John J. Connors, retired as lead director of ICI Medical, Inc. (NASDAQ). John wrote the foundational patents that protected ICU’s products over a 30-year period, and served as temporary CFO, and a member of the audit, compensation, and governance committees. Connors & Associates pc was founded about the same time that John began working with Dr. George A. Lopez M.D., the inventor of the ICU’s products and founder of ICU Medical, Inc. Because of John’s experience working with the founder of a start-up company that went public, he understands that investors demand valid and enforceable patents upon which to base their investment. Connors & Associates pc produces such patents.
Thomas Connors, John’s son, has been with the firm for over 10 years, and handles all trademark and patent prosecution, and client correspondence. He also now manages the firm’s business. John continues to work closely with Thomas as needed, but mainly focuses on patent application preparation. He also gives talks on intellectual property for inventors, entrepreneurs, and small businesses. The firm’s data watchdog and tracker of actions items critical to securing the intellectual property of our clients, Beth Ellison, has been with the firm for over 20 years. Beth now primarily assists Thomas in performing his duties. Brady Connors, John’s grandson, has been with the firm for one year, and assists Thomas and John in facilitating client communication.
Left to right: Thomas Connors, John J. Connors, Beth Ellison and Brady Connors