April 13, 2016
Oil & Gas Monitor
Authored by Anthony D. Del Monaco and Benjamin A. Saidman
Operating companies in the oil and gas industry often contract with oilfield service companies for equipment and operations to explore, extract, and deliver oil and gas from the ground, to the refinery, and ultimately to the consumer. This dynamic creates a number of potential pitfalls for operating companies and oilfield service companies looking to maintain a stake in any patent rights generated from the relationship. Just like operating companies, oilfield service companies may spend as much as a $1 billion a year on research and development.1 As the price of oil remains low, all parties must innovate to become more productive and cost efficient. To preserve the financial investment and maintain a competitive edge, parties protect these innovations through patent rights. Who owns these patent rights in these relationships, however, sometimes becomes an issue.
Inventorship rights and ownership rights are two distinct concepts in patent law. Ownership of a patent begins with the original inventor or inventors. Absent any agreement to transfer or assign patent rights, the patent rights remain with the individual inventor or inventors. Therefore, an individual, whether as an employee or contractor, owns the patent rights to the subject matter that he invented, even if he conceived his invention in the course of his employment.
Two exceptions, however, exist to this general rule. First, inventors, may expressly contract to assign or transfer their patents. Typically employees or contractors sign a contract with a company assigning future rights to any inventions that they may invent in the future while the company employs them. This dynamic might make the most sense for an operating company. But a service company may be less willing to cede control of the intellectual property generated by its employees to the operating company that has hired the service company. Service companies should try to retain control of their intellectual property to justify the large research and development expenditures and allow the service company to provide innovative services to all of its clients.
The particular choice of language in an assignment agreement defines the strength and reach of the agreement. In Preston v. Marathon Oil Co., 684 F.3d 1276 (Fed. Cir. 2011), a federal appellate court considered an employment contract which stated that any "invention" that an employee "made or conceived" while employed at Marathon was considered intellectual property and therefore automatically assigned to Marathon. The Marathon employee argued that he conceived of his baffle system prior to his employment at Marathon, and therefore the agreement did not obligate him to assign rights to his invention. Construing the employment under state law, the federal appellate court found that the employee’s baffle system was not made and conceived prior to his employment, and as a result the invention constituted "intellectual property" under the contract. Therefore, the employee had to assign his rights to Marathon.
Under the second exception to the general rule, where a company hires an employee to invent something or solve a particular problem, the invention may implicitly belong to the employer under state law. If, for example, an operating company hired a contractor to solve a particular production problem, the intellectual property resulting from that contract may implicitly become the property of the operating company. The contractor can expressly contract around this implicit grant, but the contractor must fully understand the nature of the contract before beginning work.
In Pederson v. Akona, 429 F. Supp. 2d 1130 (D. Minn. 2006), a federal district court considered a situation where a manufacturer hired a supplier for development of a commercially viable floor-sweeping compound using super-absorbent that the manufacturer later patented. The court held that because (1) the manufacturer compensated the supplier for his work, (2) the supplier completed testing using the manufacturer’s input and raw materials, and (3) the manufacturer provided notice that it intended to seek patent protection at its expense, an implied‑in‑fact contract existed and required the supplier to assign its interest in the invention to the manufacturer. Because the supplier did not plan ahead for the ownership of the patent rights, the manufacturer owned the rights to the supplier’s innovation.
These scenarios pose a question: How can operating companies and oilfield service companies ensure they retain control, or at least a stake, in their intellectual property? Both parties may freely contract and negotiate the ownership of any patent rights that result from the relationship. Both parties should explicitly identify any future patent rights via transfer or assignment at the beginning of the business relationship. Postponing discussions on ownership of patent rights leaves both sides exposed and makes it difficult for the parties to maintain an ownership interest in any patent rights that develop from the relationship.
1 Oilfield Services: The Unsung Masters of the Oil Industry, The Economist, July 21, 2012, http://www.economist.com/node/21559358.
Originally printed in Oil & Gas Monitor on April 13, 2016. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
June 10-12, 2024
San Francisco
Lecture
Patent Protection for Software-Related Inventions in Europe and the USA Training Course
June 5, 2024
Hybrid
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.