The U.S. Court of Appeals for the Federal Circuit recently ruled in DDB Technologies, Inc. v. MLB Advanced Media, L.P., No. 2007-1211 (Fed. Cir. Feb. 13, 2008) that federal law applies to the question of whether an assignment-of-inventions clause in an employment contract creates an automatic assignment of the patent to the employer or merely a promise to assign in the future.
Specifically, in applying federal law the court followed its earlier rulings in Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000) and Filmtec Corp. v. Allied-Signal Inc., 939 F.2d 1568, 1573 (Fed. Cir. 1991) in holding that title to a patent is transferred upon creation of the underlying invention by operation of law and without any further action required by the employer and/or inventor, so long as the contract expressly provides for a present assignment of future inventions and related patent rights.
The significance of the decision lies in the fact that a uniform federal law will apply in determining when an assignment takes place under an assignment-of-inventions clause in an employment contract, and that contract interpretation of this issue will not be not subject to the whims of the various state laws. Assuming that the language in the assignment-of-inventions clause of their employment contracts is drafted correctly and precisely, employers can now take comfort in the fact that they will obtain ownership of their employees' inventions at the moment of their creation, without the necessity of entering into further assignments with their employees.
The plaintiff in this case, DDB Technologies, Inc. ("DDB"), brought a patent infringement suit in the Western District of Texas against MLB Advanced Media, L.P. ("MLBAM"). The patents in question related to a method for creating a computer simulation of a live event (such as a sporting event). The inventor was Dr. David Barstow, who co-founded DDB and assigned his rights in the inventions to DDB upon forming the company. Barstow had created these inventions while employed at Schlumberger Technology Corporation ("Schlumberger"), prior to forming DDB.
During the course of the proceedings, MLBAM purchased from Schlumberger all of Schlumberger's rights in the relevant patents. DDB argued that Schlumberger never had a claim of ownership to the patents and raised several arguments as to why Schlumberger was precluded from making such a claim now, including statute of limitations, waiver, estoppel and laches. MLBAM argued that Schlumberger had automatically acquired all rights in Barstow's inventions pursuant to its employment contract with Barstow and that, therefore, MBLAM now owned the inventions and the underlying patents. The district court agreed with MLBAM, which then successfully had the case dismissed on jurisdictional grounds due to DDB's failure to join all patent owners (including MLBAM) in the suit.
On appeal, the Federal Circuit remanded to the district court for additional discovery relating to whether the inventions at issue were within the scope of the employment agreement. However, the Federal Circuit affirmed the decision of the district court that any inventions of Barstow that were within the scope of the employment agreement were automatically assigned to Schlumberger by operation of law at the time of creation.
Federal Law Versus State Law
The Federal Circuit faced the threshold question of whether to apply federal law or state law to the issue of whether the inventions and their underlying patent rights were automatically assigned to Schlumberger. The court acknowledged that contract interpretation generally falls within the ambit of state law. The question of automatic assignment necessarily becomes an issue of patent ownership, however, and patent ownership is required before a plaintiff has standing to sue an alleged patent infringer. Therefore, according to the Federal Circuit, this question of automatic assignment is "intimately bound up" with standing to sue for patent infringement, and so is governed by federal law.
In applying federal law, the court looked to the language of the assignment-of-inventions clause in the employment contract, which provided that Barstow "agrees to and does hereby grant and assign" to Schlumberger all inventions falling within the scope of the agreement, together with their related patent rights. The Federal Circuit, citing Speedplay and Filmtec, held that where an employment contract contains such a present grant of rights in future inventions and related patent rights (as opposed to a mere promise to assign in the future), title to the patent transfers to the employer immediately and by operation of law upon the invention's creation.
Interestingly, according to the court, the question of the whether the inventions fall within the scope of the agreement (and would therefore be subject to the above-described automatic assignment) is a matter for state law. In this case, Barstow assigned to Schlumberger pursuant to his employment contract all inventions "which relate in any way to the business or activities" of Schlumberger or its affiliates, or "which are suggested by or result from any task or work" of Barstow for Schlumberger. The court stated that the determination as to whether the inventions at issue were covered by the assignment clause of this employment contract would be governed by Texas law. Under Texas law (and contract law generally), the behavior of the parties and other related evidence may be relevant to contract interpretation where the language is ambiguous on its face. The Federal Circuit therefore remanded to the district court for additional discovery on this issue.
Practice Tips
One practical effect of this case is to lend some certainty to the interpretation of contract language in an assignment-of-inventions clause in an employment contract, at least with respect to the issue of automatic assignment. As long as the contract provides for a present assignment of inventions and their underlying patent rights, and not merely an obligation of the inventor to assign such inventions and patent rights in the future, then no further act is necessary ownership of the invention and rights in any underlying patents vest in the employer as soon as such invention comes into being. While specific assignment language will necessarily be subject to examination by the court, at a minimum language specifying that the employee "does hereby grant and assign to Company or its nominee his entire right, title and interest in and to ideas, inventions and improvements coming within [the scope of the agreement], together with any and all domestic and foreign patent rights in such ideas, inventions and improvements" will be sufficient to effect a present assignment of future rights.
Further, many employment contracts require in addition that the employee agree to execute assignments as requested by the employer to secure such rights. Such language was present in the employment contract in this case, and DDB attempted to argue that there was no automatic assignment given the contract's contemplation of the execution of a future assignment. The court disagreed with this argument, finding that the language requiring the inventor to execute assignments in the future did not conflict with the fact that a present assignment had taken place. Therefore, companies may insert language in their employment contracts requiring the inventor to execute assignment documents, so long as the language does not make assignment of the invention contingent upon such execution.
Of course, whether an employee's invention is subject to assignment under the employment agreement at all is still a matter of state law, and there is unlikely to be any uniformity of interpretation as to what inventions "relate to" the company's business or are "suggested by" the employee's work for the company. These qualifiers are vague at best, and any determination as to their applicability to an invention will necessarily be factual in nature. To undercut at least some of the uncertainty in this area, employers would be well served to require their employees to disclose any inventions conceived of or developed by the employee during their employment, and to document carefully any communication with their employees in connection therewith.
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