Finding IP Value
Alleged Assignment Under Employment Agreement Ruled Insufficient to Convey Patent Ownership
Written by: Stephen C. Hall
Under U.S. law, an inventor on a patent or patent application owns the patent rights, unless there is a contract assigning the rights to another owner. Against this framework, a recent case before the Federal Circuit Court of Appeals hinged on whether an employment contract, executed at the beginning of a University researcher’s employment, created an automatic assignment of his later-patented diagnostic device.[1] As discussed in more detail below, this case offers important lessons on the type of language that employers and universities should use in their employment agreements and the steps to take when employees invent patentable subject matters.
If the researcher had retained the patent rights to his invention, then he also had retained the ability to convey those rights at a later time to Omni MedSci, Inc. (“Omni”), the subsequent patent owner who sued Apple Inc. (“Apple”) for infringement. However, if the researcher had transferred his rights to his University employer, as Apple contended, then Omni could not and did not own the patent rights. In that case, Omni would lack standing to assert the patent rights, and Apple would be entitled to a dismissal of the case.
The researcher’s employment contract, combined with certain University bylaws, provided the only contract language raised by Apple to support its contention. Thus, this case turned on whether any future invention rights were automatically conveyed by the contract entered into at the beginning of the employment.
This determination, of course, depended on the specific wording of the employment contract. Apple argued that in his employment contract, the researcher had agreed to abide by all University rules, regulations, and bylaws. Apple specifically pointed to language contained in Bylaw 3.10, Paragraph 1, which stated in relevant part that “[p]atents … issued or acquired as a result of or in connection with administration, research, or other educational activities conducted by members of the University staff and supported directly or indirectly … by funds administered by the University … shall be the property of the University.” (Emphasis added.)
Apple contended that this language automatically conveyed legal title to the patent rights at issue to the University, leaving the inventor no rights in the invention for him to have assigned to Omni in the first place. Consequently, according to Apple, Omni lacked standing to assert these patent rights against Apple because the phrase, “shall be the property of the University” in Bylaw 3.10, Paragraph 1, effectuated an automatic conveyance to the University, preventing any subsequent conveyance to Omni.
The Court, however, disagreed. Under controlling law, a patent assignment clause like the one at issue can be categorized in at least two ways.[2] It either can be a present, automatic assignment of a future invention, or it can be merely a promise to assign patent rights to the invention in the future. In the former case, no further acts are necessary to effectuate the assignment. In the latter case, however, involving a future promise to assign, a further act is necessary to convey ownership, namely the execution of an assignment in the future when there is an invention to assign.
The Court determined that this case presented a future promise to assign, because Bylaw 3.10, Paragraph 1 did not result in a present and automatic conveyance at the time of its execution. The Court reasoned that a present and automatic conveyance of patent rights only could occur, if at all, upon a condition being met, namely that the research leading to a later invention had been “supported directly or indirectly … by funds administered by the University.” However, Bylaw 3.10, Paragraph 4 addressed the exact opposite condition and result, namely that there also could be certain patent rights “resulting from activities which have received no support, direct or indirect, from the University [which] shall be the property of the inventor ….” (Emphasis added.)
The Court observed in a footnote that the disposition of Apple’s motion did not require a finding about whether there had been support or had not been support by the University. Rather, the opposite results that could arise between these two similarly structured paragraphs meant that Bylaw 3.10 could be a promise of a future transfer (Paragraph 1), or it could be a relinquishment allowing the researcher to own a future invention (Paragraph 4), but the result could only be known well after employment began, allowing enough time for the determination of whether University funds had been used. Stated differently, because it would be well after employment began before one could know if a Paragraph 1 situation or a Paragraph 4 situation was presented, the Court held that the researcher’s employment contract could not have created a present and automatic transfer of his invention.
As a result, the conveyance during the researcher’s employment to Omni was a valid transfer. This made Omni the assignee of the asserted patent rights, giving Omni standing to assert its action against Apple.
In terms of practical lessons, this case raises important considerations for all employers, including universities. As the holding by the Supreme Court in Roche also reflected, verb tense in employment contracts is a significant consideration. In an employment agreement, the phrases “shall be the property” or, in the Roche case, “shall assign,” are actually much different and likely to be less effective than language saying the researcher “hereby does assign” all future inventions. In employment agreements, the “and hereby does assign” phrasing is better than the language at issue in this case. In addition, instead of relying on an employment agreement and any attendant policies, handbooks, bylaws, or the like, it generally will be preferred to obtain a specific assignment from every inventor whenever a university or company claims ownership of new technology.
[1] Omni MedSci, Inc. v. Apple Inc., 2021 WL 3277220 (Fed. Cir., August 2, 2021); available publicly at http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/20-1715.OPINION.8-2-2021_1812582.pdf.
[2] Bd. Of Trustees of Leland Stanford Jr. Univ. v. Roche Mol. Sys., Inc., 563 U.S. 776, 786 (2011)(“Roche”).
