The U.S. Court of Appeals for the Federal Circuit announced that federal law partially controls the outcome in determining whether a patent assignment clause in an employment agreement applies to patents arguably developed outside the scope of employment, DDB Technologies, L.L.C. v. MLB Advanced Media L.P., Case No. 07-1211 (Fed. Cir., Feb. 13, 2008) (Dyk J.; Newman, J. dissenting-in-part).
In 1980, Dr. David R. Barstow executed an employment agreement with Schlumberger Technology Corporation that stated, in part, the following:
- which relate in any way tothe business or activities of [Schlumberger], or
- which are suggested by or result from any task or work of Employee for [Schlumberger], or
- which relate in any way to the business ... of Affiliates of [Schlumberger] ....
Dr. Barstow remained employed at Schlumberger until 1994. During his employment, Dr. Barstow and his brother filed four patent applications related to broadcasting data about a live event, such as a baseball game, and producing a simulation of that event to be viewed on a computer. Each brother assigned his rights to their company, DDB Technologies (DDB).
DDB brought suit against MLB Advanced Media (MLBAM) for infringement of four patents related to gathering data about and generating computer simulations of live baseball games. After the suit had been filed, MLBAM negotiated with Schlumberger to purchase whatever rights Schlumberger had to David Barstow's inventions.
After the district court dismissed the case for lack of jurisdiction, DDB appealed, claiming the patents were unrelated to Barstow's work for Schlumberger and thus not covered by his employment contract. DDB further claimed that Schlumberger's claim of ownership was barred by both long inaction and earlier reassurances by Schlumberger's counsel that the patents were unrelated to Barstow's employment.
On appeal, the Court determined that the Schlumberger employment agreement was an automatic assignment of rights such that the statute of limitations waiver and estoppel defenses have no merit. Although the Court mentioned that state contract law would normally apply to an employment contract, it also stated that federal law preempts state law when the agreement includes rights to patents. The Court stated "a patent assignment clause [that] creates an automatic assignment ... is intimately bound up with the question of standing in patent cases," thus federal law applies. The Court determined that the employment contract was ambiguous as to what was "related to" and "suggested by" Barstow's work with Schlumberger. The Court remanded for discovery on the issue of whether the patents-in-suit fell within the scope of the employment agreement.
In a strongly worded dissent, Judge Newman accused the panel majority of prematurely ruling that the issues of the statute of limitations and equitable defenses were not available as well as of incorrectly ruling that Dr. Barstow's rights and obligations under his employment agreement are preempted by federal law because "standing" is involved, even though the dispute arose from an employment agreement ( the scope and meaning of which is usually an issue to be decided under state law).
Practice Note: Employers may want to review their employment agreements and determine whether the patent assignment clause creates an "automatic" assignment and unambiguously defines the scope of what is covered.
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