Patent Ownership

Fed. Cir. upholds lower court ruling that continued at-will employment is sufficient consideration for a patent assignment in employment agreement (07/12/12)

In Preston v. Marathon Oil, Plaintiff Yale Preston challenged the validity of a provision in his employment agreement that reads as follows:

<box blue> 1. Definitions

(d) “Intellectual Property” means all inventions, discoveries . . . and any other work product made or conceived by EMPLOYEE during the term of employment with MARATHON which (1) relate to the present or reasonably anticipated business of MARATHON GROUP, or (2) were made or created with the use of Confidential Information or any equipment, supplies, or facilities of the MARATHON GROUP. Such property made or conceived by EMPLOYEE (or for which EMPLOYEE files a patent or copyright application) within one year after termnation of employment . . . will be presumed to have been made or conceived during such employment.

3. Disclosure and Assignment of Intellectual Property

EMPLOYEE agrees to promptly disclose to MARATHON and does hereby assign to MARATHON all Intellectual Property, and EMPLOYEE agrees to execute such other documents as MARATHON may request in order to effectuate such assignment. </box>

The district court applied Wyoming law and held, among other things, that Marathon acquired a shop right to Preston's baffle system and is therefore entitled to summary judgment on Preston's patent infringement claim, and following a bench trial that Preston was the sole inventor of the baffle system and was required to assign his interest in the two patents to Marathon pursuant to the employment agreement. Preston appealed the district court's ruling.

The Fed. Cir. certified a question to the Wyoming Supreme Court, asking, “Does continuing the employment of an existing at-will employee constitute adequate consideration to support an agreement containing an intellectual property-assignment provision?” The Wyoming Supreme Court responded with an interesting opinion (PDF).

In Wyoming, this was a case of first impression so investigated other jurisdictions and their own case law:

  • In Colorado, the Court of Appeals held that continued employment was not sufficient consideration.
  • The Third Circuit applied Pennsylvania law and upheld an assignment where the agreement included a promise by the employer to employ the inventor for a reasonable time – suggesting that “continued at-will” is not sufficient consideration.
  • The 9th circuit held (in 1927) 1) that continued employment was sufficient consideration. The court observed that the employer (Goodyear) did not bind itself to employ the inventor (Miller) for any stipulated period and Miller did not agree to remain for any designated length of time.
  • Wyoming also looked to its own case law and determined that a covenant not to compete, which under Wyoming low requires separate consideration, is not analogous to patent assignments since patent assignments do not affect the employee’s right to earn a living or otherwise impose an improper restraint of trade.

Wyoming answered the certified question as follows (incidentally, the logic mirrors that of the 9th circuit in 1927):

> We must, consequently, return to the basic precepts of at-will employment. As we mentioned earlier, at-will employment is terminable by either party at any time for any reason or no reason at all. Because of its terminable nature, either party has the power to modify the terms of the employment at any time, and the other party may either accept the new terms and carry on with the employment relationship or reject the new terms and terminate the relationship. The policies behind at-will employment were explained in Townsend v. Living Centers Rocky Mountain, Inc., 947 P.2d 1297, 1299 (Wyo. 1997):

> Our jurisprudence in the employment context has developed from the premise that the stability of the business community is our primary consideration and that stability is best served by applying contract principles in the employment context. Based on that fundamental precept we have produced the rule that, unless an express or implied contract states or establishes otherwise, all employment is a contract for at-will employment. Brodie v. General Chemical Corp., 934 P.2d 1263, 1265 (Wyo. 1997). An at-will employee can be terminated for any or no reason at all. Id. The at-will employment rule offers no remedy to an employee who has been arbitrarily or improperly discharged and has suffered adverse effects on his or her economic and social status regardless of how devastating those effects actually were. Stability in the business community is preserved because, at least at the state level, employers’ and employees’ decisions remain subject only to the express or implied contracts into which they have voluntarily entered or subject to statute.

We believe that the stability of the business community is best served by ruling, consistent with our at-will employment jurisprudence, that no additional consideration is required to support an employee’s post-employment execution of an agreement to assign intellectual property to his employer. If the employee does not agree to that modification of the terms of his employment, he can terminate the relationship without any penalties.

"Patents . . . relating to" broadly construed in license (01/04/09)

In Tyco Healthcare Group v. Ethicon Endo-Surgery, Defendant Ethicon challenged Tyco's ownership of the patents being asserted. Tyco argued it received the patents in accordance with a Contribution Agreement from a third party, U.S. Surgical Corporation (USSC). The Contribution Agreement assigned all assets except “[a]ny and all patents and patent applications relating to any pending litigation involving USSC” (emphasis added). On the same day as the Contribution Agreement was signed, USSC and Ethicon executed the Settlement Agreement, which purportred to resolve “five pending patent litigations” and several interference proceedings between the two companies. The court rejected Tyco's argument that the “relating to” phrase includes only patents asserted in the then-pending litigation or patent applications in the same family as an asserted patent. Since “relating to” was not defined in the Contribution Agreement, the court turned to a broad dictionary definition, and prior court decisions that broadly construe “related,” and agreed with the district court that Tyco bore the burden of proving the patents presently asserted were not related to the earlier litigation. The CAFC also refused to convert the dismissal without prejudice to one with prejudice as requested by Ethicon since the district judge may have reasonably concluded that Tyco can cure its lack of standing, e.g., by obtaining ownership of the patents.

Newman Dissents: Judge Newman argues that the Settlement Agreement identifies litigation that was pending at the time of the Contribution Agreement, and could have been used to identify which patents are “related” to the litigations. Since the technology of the patents asserted in prior litigations is not related to the patents asserted here, the patents clearly should not have been excluded, and the dismissal should have been reversed. Newman presents several other rationales for reversing the dismissal.

Goodyear Tire & Rubber v. Miller 22 F.2d 353

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