Employment Agreements for Employee-Inventors Should Be Drafted to Assign Patent Rights at the Time the Agreement is Signed Rather than Requiring Later Acts

Authored by Uttam G. Dubal, D. Brian Kacedon, and John C. Paul

To assert a patent in litigation, a party must show that it held legal title to the patent when the lawsuit began. Otherwise, a court may dismiss for lack of standing. Often employers rely on employment agreements signed by employee-inventors to claim legal title to the asserted patents. These agreements usually contain clauses that assign all of the inventor's patent rights to the employer and require the employee to assist the employer in securing patent rights. Whether an employer possesses title to a patent often turns on whether the assignment was expressly undertaken at the time of the signed agreement, or whether it was deferred to some future time. In a recent opinion in C.R. Daniels, Inc. v. Naztec Int'l Group, LLC, 1:11-cv-01624 (D. Md. Apr. 13, 2012),¹ the district court addresses these issues and denied the defendant's motion to dismiss because the plaintiffs held legal title to the asserted patents.

Background

In response to allegations of patent infringement relating to a particular type of wheeled voting booth, defendant Naztec International Group, LLC contended that plaintiffs C.R. Daniels, Inc. and Casto & Harris, Inc. did not own the asserted patents when the lawsuit commenced and therefore lacked standing. Central to the court's analysis were three documents: (1) the complaint of patent infringement filed in June 2011; (2) the assignment records both executed and filed with the U.S. Patent and Trademark Office in September 2011; and (3) the inventors' employment agreements, which included clauses that automatically assigned any future patent rights to the employer.

One of the inventors of the asserted patents, Gary Abel, executed an assignment of rights to C.R. Daniels a few months after the suit was filed. Similarly, the other inventor, Joseph Wilson, executed an assignment of his rights to Casto after the suit was filed. These assignment documents were recorded with the USPTO in September 2011. Each of these assignments contained the following language: "Assignor owns, and by this document assigns to Assignee, all right, title, and interest to the Patent Rights."

In claiming legal title to the asserted patents, the Plaintiffs relied on the employment agreements, which were entered into several years before the filing of the complaint. Abel signed his with C.R. Daniels in December 1999. The agreement stated: "I hereby agree that without further consideration to me any inventions or improvements that I may conceive, make, invent or suggest during my employment . . . shall become the absolute property of [C.R. Daniels], and I will, at any time at the request of [C.R. Daniels] . . . execute any patent papers covering such inventions [that may be] necessary or helpful in the prosecution of applications for patent thereon [and related litigations]." Wilson's employment agreement with Casto included a virtually identical clause.

The C.R. Daniels Decision

In C.R. Daniels, the court focused on the language in both inventors' employment agreements, which stated that "without further consideration to [the inventor] any inventions . . . shall become the absolute property of [employer]." As in most employment contracts, those clauses addressed the ownership of intellectual property that had not yet come into being at the time they were executed. The use of such "future-oriented" language is common and inevitable in these situations. The crucial consideration of when the employer obtains legal title to the invention turns on whether the assignment was "expressly undertake[n] . . . at the time of the agreement," or whether it was left "to some future date."

Generally, if the agreement does not merely obligate the inventor to grant future rights in any future invention, but rather expressly grants any future rights, then no further act would be required once an invention came into being. The transfer of title in this scenario would occur by operation of law, sometimes referred to as the FilmTec rule (after FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991), in which it was first set forth). Alternatively, many employment and consulting agreements contain language that serve as an agreement to assign, not an actual assignment. Agreements with such "will be assigned" language require a later assignment for legal title to pass.

After setting forth this framework, the C.R. Daniels court determined that the language in both inventors' employment agreements indicated that no further act would be required once an invention came into being. In other words, the transfer of title would occur automatically, by operation of law. Neither employment agreement contained language indicating that some other act had to be performed for the assignment to be complete. As for the language relating to "execut[ing] any patent papers covering such inventions," the court considered this language to merely create obligations of the inventors to assist their employer in performing ministerial acts to obtain and enforce the patents.

The court found it troubling that in the applications of the asserted patents, the inventor-applicants affirmed that they had not "assigned, granted, conveyed or licensed and [were] under no obligation under contract or law to assign, grant, convey or license, any rights in the invention[s]." The inventors were, however, bound by their earlier employment agreements, which controlled in this instance. Thus, the Plaintiffs were found to hold legal title to the asserted patents before the commencement of this infringement suit.

Strategy and Conclusion

Assignment of patents for existing and yet-to-be-conceived inventions are commonly assigned by operation of law under written employment contracts between employee-inventors and their employers. Companies should take care in drafting employment agreements and ensure that the relevant clauses do not require inventor-employees to perform additional, later acts to complete an assignment.

While courts try to avoid requiring specific wording of such clauses—thereby potentially exalting form over substance—clear language that immediately and automatically assigns rights by operation of law will avoid any potential confusion or perceived lack of standing. Because a case may be dismissed for lack of standing at any time, both plaintiffs and defendants in litigation should, regardless of the stage of litigation, assess whether the language of the relevant employment agreements raise a potential standing issue. In addition, parties should always review relevant assignment records prior to filing suit to make sure any issues are addressed prior to the initiation of litigation.

Endnotes

¹The C.R. Daniels decision: link no longer available

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