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“Hereby Assign” Language in Employment Agreement Automatically Assigned Rights to Employer Without the Need for an Additional Act

11-1013
July 10, 2012
Sanabria, Cecilia

Decision icon Decision

Last Month at the Federal Circuit - August 2012

Judges: Bryson, Dyk, O'Malley (author)

[Appealed from: D. Wyo., Judge Johnson]

In Preston v. Marathon Oil Co., Nos. 11-1013, -1026 (Fed. Cir. July 10, 2012), the Federal Circuit affirmed the district court’s judgment that Yale Preston assigned his rights in U.S. Patent Nos. 6,959,764 (“the ’764 patent”) and 7,207,385 (“the ’385 patent”) to Marathon Oil Company (“Marathon”) pursuant to an employment agreement.

In February 2001, Marathon offered Preston employment as a relief pumper in Marathon’s coal bed methane well operation in Wyoming. In addition to outlining Preston’s responsibilities, compensation, and benefits, the letter indicated that Preston was hired as an at-will employee. A few days later, Preston countersigned the letter. Preston began working at Marathon sometime in March 2001.

In April 2001, Preston and Marathon entered into an employment agreement. The employment agreement defines “Intellectual Property” as inventions, discoveries, developments, etc., “made or conceived by EMPLOYEE during the term of employment with MARATHON which (1) relate to the present or reasonably anticipated business of the MARATHON GROUP, or (2) were made or created with the use of Confidential Information or any equipment, supplies, or facilities of the MARATHON GROUP.” Slip op. at 4. Regarding assignments of intellectual property, the employment agreement states that the “EMPLOYEE agrees to promptly disclose to MARATHON and does hereby assign to MARATHON all Intellectual Property, and EMPLOYEE agrees to execute such other documents as MARATHON may request in order to effectuate such assignment.” Id. at 5. Lastly, paragraph 4 of the employment agreement provides a list of the employee’s unpatented inventions and unpublished writings, and indicates that Marathon agrees that such inventions are not intellectual property. Preston listed “CH4 Resonating Manifold” in paragraph 4.

The technology-at-issue relates to the improvement of machinery used to extract methane gas from water saturated coal in a coal bed methane gas well. In August 2002, while working as a Supervisory Control and Data Acquisition Operator at Marathon, Preston first raised the idea of using baffles to reduce water in a methane well annulus to a coemployee. Over the 2002 Thanksgiving weekend, Preston created drawings of his baffle plates using one of Marathon’s computers. In December 2002, Preston met with a Marathon engineer, Thomas Smith, to discuss his baffle system. Preston then hired a company on behalf of Marathon to make the baffle plates and begin installation in Marathon’s wells. Preston personally participated in the installation of his baffle system in three wells. Preston’s employment with Marathon ended in mid-April 2003.

While Preston was still employed at Marathon, Smith initiated Marathon’s patenting process. Preston knew that the invention was going through Marathon’s patenting process and did not object to Smith being a coinventor. On June 5, 2003, Preston filed for a patent application covering his baffle system, naming him as the sole inventor. That application ultimately issued as the ’764 patent. About a year later, Marathon filed a patent application on the same system, naming both Smith and Preston as coinventors, which later issued as the ’385 patent.

Preston offered inconsistent testimony at trial regarding when he first arrived at the idea for the baffle system. There is no dispute, however, that Preston never made the invention (i.e., physically constructed it) before joining Marathon.

In 2007, Marathon filed a lawsuit in Texas against Preston, alleging breach of contract for refusing to assign his ’764 patent rights to Marathon. The suit was dismissed for lack of personal jurisdiction, and Marathon then filed the same suit in Wyoming state court. Preston counterclaimed for patent infringement and conversion. That suit was stayed pending resolution of this case. In 2008, Preston filed a complaint in the U.S. District Court for the District of Wyoming, asserting (1) patent infringement;
(2) a declaration that Preston is the sole inventor of the ’385 patent; (3) unjust enrichment based on Marathon’s use of Preston’s invention; (4) conversion based on Marathon’s use of Preston’s invention; (5) breach of implied contract based on an alleged implied contract that Marathon would compensate Preston for his invention; and (6) misappropriation of trade secrets. Marathon counterclaimed that Preston agreed to assign the rights of the ’764 patent to Marathon.

On SJ, the district court entered SJ in favor of Marathon (1) that it had a shop right to practice Preston’s baffle system invention; and (2) Preston’s claims for unjust enrichment, conversion, and trade secret misappropriation were barred by the “shop rights” doctrine or because they were untimely. Following a bench trial, the district court found that Preston was the sole inventor of the ’385 patent. The district court also found that Preston was required to assign his interests in both patents to Marathon under the employment agreement, and breached that agreement for failing to assign those rights. Both parties appealed.

On appeal, Preston argued that he did not have to assign his rights in the ’385 and ’764 patents to Marathon because (1) the employment agreement was invalid for lack of consideration; and (2) even if enforceable, the agreement did not function to assign rights of his inventions to Marathon.

Regarding the first issue, Preston argued that, under Wyoming law, absent additional consideration, the employment agreement was an unenforceable modification of the terms of his contract, as stated in the February 2001 letter. The district court disagreed with Preston’s arguments and declined to certify the question to the Supreme Court of Wyoming. On appeal, however, the Federal Circuit certified to the Wyoming Supreme Court the question of whether continuing the employment of an existing at-will employee constitutes adequate consideration to support an agreement containing an intellectual property assignment provision under Wyoming law. The Supreme Court of Wyoming answered “yes,” reasoning that the additional consideration is not necessary to support an intellectual property assignment and distinguishing noncompete provisions based, in part, on the sanctity of the right to earn a living.

Turning to the second issue, Preston argued that his invention cannot be considered intellectual property as defined by the agreement because he conceived of it before joining Marathon. According to Preston, if any element of the ’385 and ’764 patents was conceived outside of the period when he was employed by Marathon, then Marathon is not entitled to the rights in those patents. The Federal Circuit discussed the district court’s determination that the “invention,” as recited in the employment agreement, requires both conception and reduction to practice, and disagreed with the district court’s interpretation of patent law with respect to “invention.” According to the Federal Circuit, the language of the agreement indicates that any “invention” that is “made or conceived” by an employee while employed at Marathon constitutes intellectual property. Thus, the Federal Circuit explained that if Preston’s invention was not both made and conceived prior to his employment, it constitutes intellectual property. Because there was no dispute that Preston did not make his invention prior to joining Marathon, the ’385 and ’764 patents are considered intellectual property under the agreement.

Preston also argued that the assignment provision in the employment agreement cannot cover his invention because he listed “CH4 Resonating Manifold” under paragraph 4 of the agreement. Marathon argued that the patented invention is not a “CH4 Resonating Manifold.” The Federal Circuit did not resolve the parties’ dispute regarding the proper meaning of conception. Even taking the broader view, the Federal Circuit found that an invention requires at least some definite understanding of what has been invented. Based on the evidence of record, the Federal Circuit concluded that Preston was not in possession of an excludable invention before he joined Marathon.
After finding that the ’385 and ’764 patents were within the scope of the employment agreement, the Federal Circuit explained that the “hereby assign” language in the agreement served as an express assignment of rights in all future inventions that automatically assigned rights to Marathon without the need for an additional act. The Federal Circuit thus concluded that Marathon owned rights to the ’385 and ’764 patents. Thus, the Court did not reach the questions of whether Marathon owned a shop right to use Preston’s invention and whether Smith was misjoined as an inventor in the ’385 patent. Also, because the assignment was automatic, the Federal Circuit vacated the district court’s finding that Preston breached his agreement by failing to execute an assignment of his rights.

Summary authored by Cecilia Sanabria, Esq.