Can Only One Word Put Ownership of Your IP in Jeopardy?
Update Your Employment Agreements to Guarantee
Intellectual Property Assignments
Should You Update Your Employment Agreements?
Yes—And Here’s Why:
What’s the difference between an employment agreement that says, “I hereby assign all inventions and intellectual property I develop during my employment,” and one that says, “I will assign inventions I develop during my employment”?
Turns out—one word…and maybe millions of dollars.
A decision by the U.S. Court of Appeals for the Federal Circuit affirmed a decision that an employment agreement stating, “I will assign” title to my inventions to my employer, did not automatically transfer title or ownership to the employer of an employee’s inventorship rights. The court determined that use of the word “will” before “assign” indicated an intent to transfer an employee’s ownership of inventions in the future. Read on to learn how certain words in an employment agreement—like I “will” assign or “agree to” assign”—can inadvertently nullify what you presume to be an immediate transfer of inventions to you as the employer.
In the federal case, Advanced Video Techs. LLC v. HTC Corp., 2018
U.S. App. LEXIS 682 (Fed. Cir. Jan. 11, 2018), the patent at issue listed three employee co-inventors who created an invention while employed by Infochips Systems, Inc. Two of the inventors assigned their ownership rights in the invention at the time the company filed a patent application. The third inventor did not.
Advanced Video, Infochips’ successor, filed a lawsuit against HTC alleging that HTC infringed its patent. HTC challenged Advance Video’s standing to bring the suit because ownership of the patent was unclear given the employee’s missing assignment agreement.
Nonetheless, Advanced Video argued that, while the third inventor did not sign a specific assignment agreement relating to the patent like her co-inventors, she effectively transferred her ownership interests to her employer because of three provisions in her employment agreement: an “I will assign” provision, a trust provision and a quit claim provision. The “will assign” and trust provisions stated:
I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, interest in and to any and all inventions…which I may solely or jointly conceive or develop or reduce to practice…during the period of time I am in the employ of the Company.
The quitclaim provision stated:
I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have . . .of any patents, copyrights . . . resulting from such application assigned hereunder to the Company.
The district concluded that the contract provisions did not effect a transfer of ownership in the patent rights to Advanced Video, and, consequently, dismissed the case for lack of standing. Advanced Video, of course, appealed.
The Federal Circuit affirmed the district court’s dismissal, citing an earlier decision where the court construed a consultant’s “agree[ment] to assign” his inventions as nothing more than a promise to take action in the future. Similarly, the federal appeals court here held that the employment agreement documented only an intent to assign patent rights to her employer in the future. In other words, the employment agreement documented an agreement to agree, not an automatic transfer of title.
Advanced Video, nonetheless, argued that the inventor intended to immediately transfer the invention because her employment agreement stated that she would “hold in trust” rights on her employer’s behalf—the Federal Circuit Court suggested, ironically, that such language undercuts the company’s argument. The court found it illogical for an inventor to immediately assign her rights to an invention only to be immediately required to maintain those rights as a caretaker for her employer.
Under the quit claim provision—in which the inventor quitclaimed her patent infringement claims to her employer “resulting from any patent application assigned hereunder”—as distinguished from “assignable hereunder”—the court found this agreement to quit claim covered patent applications assigned at the time of the contract. Since no applications existed when the employee signed her agreement, nothing was quitclaimed to the employer.
The Federal Circuit ultimately found that, because the inventor never effectively assigned patent rights to her employer (or anyone else), she was a co-owner of the patent her employer alleged to be infringed by HTC. As a co-owner of the patent, the employee was required to participate in the infringement action (or at least consent to it) for Advanced Video to have standing to sue. Since the employee was not a party to the case and could not be joined involuntarily, Advanced Video had no standing to continue the case on its own.
So how can employers avoid this harsh mistake in their employment and intellectual property assignment agreements? Drafting an assignment agreement that unambiguously states an inventor’s present intent to assign away rights (including to invention not yet existing) is not so easily done.
At a minimum, future-sounding words that imply an employee “will assign” or “agrees to assign” or “intends to assign” should be avoided. Rather, assignment language like “hereby assign” or “will and does assign,” were preferable according to the court.
So what should an employer do? We recommend that you audit your employment, confidentiality and other intellectual property assignment agreements and check for the magic words. For those conducting due diligence as to IP ownership (in M&A deals or other contexts), be sure to scrutinize employment agreements and the chain of title to patents and other intellectual property. The key: Look for the magic words in the present tense: “I hereby assign” or “I will and do assign.”
Legal Business Edge, LLC is ready to answer questions about your employment and assignment agreements. We can assist you with such an audit and help you take the steps necessary to remedy ineffective assignment language in your employment agreements.