Patent Assignments - Employers: Check Your Employment Agreements Before Bringing A Patent Infringement Suit

Tuesday, January 1, 2008 - 01:00

All of the "owners" of a patent must generally be included in an action to enforce the patent. The failure to include any such necessary party may be grounds for dismissal of the action (entities declining to join in the action may, however, be joined involuntarily). Such defects in "standing" might not be curable by subsequently acquiring, such as through a nunc pro tunc assignment, full ownership rights in the patent after the lawsuit has already been filed. These requirements ensure that all interested parties are before the court and that their interests are considered, and also serve to prevent accused infringers from being subjected to multiple infringement suits and duplicate liability.

Employers routinely rely on assignment requirements in employment agreements to obtain ownership of inventions and discoveries made by their employees, and the patent rights appurtenant thereto. Employers should, however, make certain that this reliance is not misplaced before bringing a patent infringement action. As addressed by the U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") in its recent decision in IpVenture, Inc. v. Prostar Computer, Inc., 06-1012, -1081 (Fed. Cir. Sep. 28, 2007), the ability of an employer to enforce a patent that it asserts it owns by virtue of an employment agreement, without having to join the inventor employee(s) in the action, can hinge on, of all things, the grammatical tense used in the employment agreement assignment language.

Employment agreements that contain phrases such as "Employee does hereby grant ownership of all inventions and discoveries to Employer" or "Employee hereby conveys, transfers and assigns its interest in any inventions to Employer" are construed by the federal courts to constitute present assignments. Present assignments are effective as of the execution date of the employment agreement. In contrast, clauses such as "I agree to assign all inventions and discoveries to Employer" or "All inventions and discoveries will be assigned to Employer" are construed to be merely agreements to assign, and are not present assignments. Such clauses are not considered effective until the employee actually carries out the promise to make the assignment by executing an assignment agreement.

The IpVenture case turned precisely on this distinction in language. IpVenture sued two computer manufacturers for patent infringement of a patent it claimed to own. The district court granted defendants' motion to dismiss the case because Hewlett-Packard ("HP"), the employer of one of the inventors at the time of the invention, was not named as a party. The district court found that HP had an ownership interest in the patent in a suit stemming from this inventor's employment agreement with HP. That agreement contained a provision requiring him "to assign [inventions and discoveries] to HP."

The Federal Circuit reversed the district court's dismissal of the action. It found that the employment agreement provision in question was not a present assignment, but rather merely an agreement to assign in the future to HP. The agreement to assign was never consummated by an actual written assignment document. Accordingly, at the time the lawsuit was commenced by IpVenture, HP did not, in fact, have any actual ownership interests in the suit patent and was not a necessary party to the litigation. The Federal Circuit also considered an agreement between IpVenture and HP entered into after the action had been filed which confirmed that HP had never acquired an interest in the patent at issue.

What This Means For You

Assignment provisions in employment agreements should be drafted as present assignments. Carefully review employment agreements with litigation counsel before commencing suit. As a prophylactic measure, it is good practice to execute a formal assignment for each intellectual property development, even where the employment agreement is properly drafted as a present assignment.

Bonus Tip

Corporations desiring to supplement deficiencies in existing employment agreements by presenting current employees with new agreements which require them to assign intellectual property to the employer should proceed with caution and consultation with appropriate counsel. The law varies from state to state, but some jurisdictions hold that mere continued employment is inadequate consideration to render such an agreement enforceable. Instead, in such jurisdictions, the employee must be provided with adequate additional consideration.

Randy Lipsitz is an Intellectual Property Partner in the New York office of Kramer Levin Naftalis & Frankel LLP. He was assisted by Richard Moss, Special Counsel, and Aaron Frankel, Associate, at Kramer Levin.

Please email the author at rlipsitz@kramerlevin.com with questions about this article.