United States: If Your Employment Agreements Use This One Word, Your Patents' Ownership May Be In Jeopardy

Last Updated: January 24 2018
Article by Eleanor M. Yost

What is the difference between an employment agreement that says "I hereby assign inventions I create during my employment to my employer," and one that says "I will assign inventions I create during my employment to my employer"? 

One word... and perhaps, millions of dollars.

Last week, the U.S. Court of Appeals for the Federal Circuit affirmed a district court decision that an employment agreement that provided an employee "will assign to the Company all [ ] right, title, and interest in and to any and all inventions" did not automatically transfer ownership of the employee's inventions to her employer. According to the court, use of the word "will" before "assign" indicated an intent to transfer ownership in the future.

Read on to learn how certain words in an assignment provision — like "will" or "agrees to" — can inadvertently nullify the automatic transfer of invention ownership to an employer.

***

The patent at issue in Advanced Video Techs listed three co-inventors: Benny Woo, Xiaoming Li, and Vivian Hsiun. They created the invention described in the patent while employed by Infochips Systems Inc. Mr. Woo and Ms. Li expressly assigned their ownership interests in the invention to Infochips when Infochips applied for the patent. Ms. Hsiun, though, did not.

Later, Advanced Video, Infochip's successor, filed a lawsuit claiming that HTC and others infringed the patent. The defendants challenged Advanced Video's standing to bring the suit, because ownership of the patent was unclear given Ms. Hsiun's missing assignment agreement.

Advanced Video argued that although Ms. Hsiun did not sign a specific assignment agreement relating to the patent like her co-inventors, she had effectively transferred her interests to Infochips pursuant to three provisions of her employment agreement: a "will assign" provision, a trust provision, and a quitclaim provision. The "will assign" and trust provisions of the agreement provided:

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, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company.

The quitclaim provision provided:

I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company.

The district court concluded these provisions did not effect a transfer of Ms. Hsiun's ownership rights to Advanced Video, and dismissed the case for lack of standing. Advanced Video appealed the decision to the Federal Circuit.

The Federal Circuit affirmed, in a split decision, the district court's dismissal. Reminiscent of its decision in Bd. of Trs. of the Leland Stanford Junior University v. Roche Molecular Sys., Inc.1, in which the Federal Circuit interpreted a consultant's "agree[ment] to assign" his inventions as nothing more than a promise to take action in the future, the court here held that the employment agreement's "will assign" language was nothing more than a promise that Ms. Hsiun would assign inventions to her employer in the future. In other words, the employment agreement only reflected an agreement to agree, not an automatic transfer of title.

Turning to Advanced Video's argument that Ms. Hsiun intended to immediately transfer the invention because her employment agreement provided that she would "hold[ ] in trust" rights on her employer's behalf, the court suggested that such language cut against the argument. It seemed illogical to the court for an inventor to assign away her rights to an invention, only to be immediately charged with maintaining those rights as a caretaker for the new owner. 

Regarding the third provision at issue, that Ms. Hsiun quitclaimed her patent infringement claims to her employer "resulting from any [patent] application assigned hereunder," the court decided that the phrase "assigned hereunder" — as distinguished from "assignable hereunder" — only covered patent applications assigned at the time of the contract. Since no applications existed at that time, the court reasoned, nothing was quitclaimed to the employer.

The Federal Circuit ultimately decided that because Ms. Hsiun never effectively assigned her patent rights to her employer (or, apparently, anyone else), she was the co-owner of the patent Advanced Video asserted against HTC. As a co-owner, she was required to participate in the infringement action (or at least consent to it) for Advanced Video to have standing to sue. But since Ms. Hsiun was not a party, and could not be involuntarily joined, Advanced Video could not continue the case on its own. The court therefore affirmed the district court's dismissal for lack of standing.

***

So how can employers and other patent assignees avoid this harsh result? Advanced Video Techs. highlights the critical importance of proper assignment language in contracts that seek to transfer an inventor's intellectual property rights to someone else. But drafting an agreement that unambiguously expresses an inventor's present intent to assign away rights (including invention rights that might not exist yet) is easier said than done.

At a minimum, future-sounding words that suggest the employee "will assign" or "agrees to assign" or "intends to assign" should be avoided. Instead, assignments should use "hereby assign," or "will and hereby does assign," which is language the Federal Circuit previously blessed in the Stanford case.

We also recommend setting a goal this year to audit your employment, confidentiality, and other intellectual property assignment agreements. Check them for the magic words, particularly if any of your agreements were prepared before 2011. For those conducting due diligence with respect to IP ownership (in connection with M&A deals, or in other contexts), be sure to carefully scrutinize employment agreements and the chain of title of patents. Look for assignment language that is in the present tense: "I hereby assign" or "I will and hereby do assign." This is especially critical for any patents where the inventors did not execute confirmatory assignments during prosecution. Carlton Fields' IP and employment attorneys are ready to assist you with an audit and remediation steps, if needed.

***

The case is Advanced Video Techs. LLC v. HTC Corp., Nos. 2016-2309, 2016-2310, 2016-2311, 2018 U.S. App. LEXIS 682 (Fed. Cir. Jan. 11, 2018) (Newman, O'Malley, and Reyna, J.).

Footnote

1 The Stanford decision was reviewed by the Supreme Court in 2011, but there, the Supreme Court declined to review the Federal Circuit's interpretation of the assignment provision language.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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