An interesting IP assignment and employment case comes out of Wyoming. Yes, you heard that right, Wyoming. A nice summary of the issue was given by William Lenz and Jessica Rissman Cohen:
It is a common misconception that an employer automatically owns all rights to the patents invented by its employees. The general rule is that, in the absence of an agreement to the contrary, an invention and any patents covering that invention belong to the employee/inventor. (emphasis added)
And that’s why employers often require new employees to sign “Inventions Agreements”, or similar agreements under various names such as “Assignment of Intellectual Property” or “Proprietary Rights Ownership Agreement”, the purpose of all of which is the same: To remove any ambiguity as to ownership of intellectual property created during the employment relationship.
To be clear, this an intellectual property problem unique to patents. Copyrights, for example, are deemed automatically “work made for hire” when created under an employment relationship, even in the absence of an IP assignment agreement such as those mentioned above. Indeed, Section 101 of the Copyright Act expressly defines a “work made for hire” as “a work prepared by an employee within the scope of his or her employment. Although this being the law and lawyers being lawyers, there are cases challenging whether an employee is in fact an “employee”, and by extension challenging whether an individual’s work is a “work made for hire” in the absence of an assignment agreement. Community for Creative Non-Violence v. Reed, 490 U.S. 730 (1989).
In the Wyoming case, Preston v. Marathon Oil Company, 684 F.3d 1276 (Fed. Cir. 2012), an employee of Marathon Oil, Yale Preston, did in fact sign one of those assignment agreements, but only after he had begun work at Marathon. Two major issues were argued. First, whether the fact that Preston had continued to work at Marathon after assigning the agreement was sufficient contractual consideration to make the assignment enforceable. And second, even if the assignment was valid and enforceable, did it cover an invention that Preston claimed was made before his employment began.
Here, Marathon’s agreement provided for assignment of inventions “made or conceived” during employment. Preston argued that the invention at issue had been an idea which he had “conceived” prior to the employment. Marathon was successful at proving that, regardless of when “conceived”, the invention had only been first developed – and thus “made” – during his employment.
John Smith of Bradley Arant Boult Cummings LLP writes,
In Preston, the court held that the employee had agreed to assign any invention that he “conceived or made” during his employment. That is, “or” means “or” according to the Federal Circuit, which found that Preston had at least made the invention while at Marathon and his argument that his conception of the invention occurred prior to his beginning to work there was irrelevant.
Smith goes on to discuss the potential pitfalls of loose contract language by employers, including the uncertainties where the requirement was that the invention be conceived and made during employment (rather than “or”). It might be deplorable legal parsing, but it makes all the difference in the world particularly in tech-heavy companies. A healthy practice would certainly call for clarity in the employment relationship from the get-go, as in: “We understand that whatever you create while working for us is ours, whatever you created beforehand is yours”, but in any event having agreement about what is and what is not covered under the employment relationship. Preston did disclose his invention and likely thought he was protecting his rights in his invention by doing so, but he still failed to read the contract.
Next to the question of enforceability of the assignment, since it was only signed a after commencement of Preston’s employment with Marathon. Backing up for a moment to a pedantic discussion: Contract law requires that both parties exchange something of value – called “consideration” – in order that an agreement be enforceable. So, therefore, I pay you $15,000 for a car, and you give me a car. We both obviously give up something of value.
In the employment context, obviously the employer is paying the employee to work for the company, and that payment constitutes consideration for the employee’s giving certain commitments to the employer such as an agreement to give up rights to intellectual property. The question in Preston was whether that same agreement was binding if executed well after the commencement of employment. This is an important question in a patent dispute such as Preston because the answer affects the entirety of who owns rights to exploit the patent. In other employment contexts, this is important because employers frequently update company policies, and ask all employees – new and current – to formally “acknowledge” acceptance. Employers might argue that the consideration for current employees to be bound by new terms in those policies – for example, a changed vacation accrual policy or maternity leave policy – is the employees’ continued employment at the company.
That’s exactly what the Wyoming Supreme Court advised in the Preston case. Actually, the case was in the U.S. Court of Appeals for the Federal Circuit, since it involved a dispute about the patent rights, but since it involved an issue governed by Wyoming employment law the federal court asked the Wyoming Supreme Court to weigh in on the employment issue.
Employers might also argue, probably more weakly, that the consideration is the employees’ original consideration of agreeing to work at the company in the first place. And this point is addressed with personnel policies that typically state something to the effect of “this policy is subject to modification at any time without further consideration and without notice”.
Even more commonly, this issue is raised with privacy policies and terms of use for websites, which may or may not require new acknowledgements or sophisticated click-through acceptances such as those required by software upgrades from Apple’s iTunes. Policies are constantly being changed to reflect changed business circumstances, new subscription policies, changes or perceived changes in privacy laws, etc. So for example, Evernote has this statement in its Terms of Service:
If we do update these Terms, you are free to decide whether to accept the terms or to stop using our Service … ; your continued use of the Service after the effectiveness of that update will be deemed to represent your agreement with, and consent to be bound by, the new Terms.
This type of disclosure may or may not be legally required, but it certainly helps companies challenge users’ claims of ignorance of terms and changes to terms of service. Employers might similarly take the view that good disclosure practices, followed by knowing conduct by employees after that disclosure, undercut the strength of employee arguments of non-enforceability of IP transfer terms and other terms of employment. This would not insulate an employer from claims of violations of public policy – an employer cannot legally ask an employee to waive claims against future discrimination – but the IP and other issues discussed here do not rise to that level.
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