Employment Agreement Clauses Relating To Patent Ownership: Choose Your Words Carefully
Under U.S. law, inventors own patent rights to their inventions unless and until they transfer such rights to another.
Earlier this month, the Federal Circuit issued a decision in Advanced Video Technologies v. HTC Corp. in which a co-inventor refused to assign patent rights to her invention to her employer -- no formal assignment existed. However, an employment agreement between the co-inventor and the employer did exist.
Per the Federal Circuit’s opinion, “[t]he single issue involved in this appeal is whether a co-inventor of the patent transferred her co-ownership interests in the patent under the terms of an employment agreement.”
In rendering its decision, the Federal Circuit focused on three provisions in the employment agreement: (1) the co-inventor “will assign” her patent rights to the employer; (2) the co-inventor “will hold” her rights “in trust” for the employer; and (3) the co-inventor quitclaimed (relinquished) any claims she had against the employer “resulting from any [patent] application assigned [under the agreement to the employer].” The Federal Circuit’s treatment of each of these provisions will be discussed below.
1. “Will Assign” Clause
The Federal Circuit ruled that the “‘will assign’ language alone does not create an immediate assignment of the [co-inventor’s] rights in the invention to [the employer].” In particular, the Federal Circuit noted that the “hold in trust” clause undermined an immediate assignment to the employer because the co-inventor “could not immediately assign the rights and at the same time hold them in trust.”
The opinion also contained a discussion indicating that the phrase “will be assigned” does not constitute an assignment, but rather merely a promise to assign.
2. “Hold in Trust” Clause
The Federal Circuit analyzed the “hold in trust” clause under California law (the employment agreement indicated that California law applied to the agreement). The Federal Circuit reasoned that assuming the co-inventor’s patent rights were placed into trust, “it does not follow that those interests were automatically, or ever, actually transferred out of trust in favor of the employer. Absent a transfer, [the co-inventor] would continue to hold the invention rights as a trustee.”
The Federal Circuit noted that the employer had not taken any action against the co-inventor under California law for failure to act properly as trustee.
3. Quitclaim Clause
The Federal Circuit focused on language indicating that the co-inventor’s quitclaim related to patent applications assigned under the agreement. The Federal Circuit stated that because no patent applications had actually been assigned under the agreement, “the quitclaim provision has no application.”
The Federal Circuit concluded that the employer was not in possession of the co-inventor’s patent rights.
So, what lessons can an employer take from the Federal Circuit’s decision in Advanced Video? Be careful using “will assign” language. Also, be careful using a “hold in trust” clause and, if you do, be cognizant of relevant trust law in the agreement’s applicable jurisdiction. And be careful to use coordinated clauses (for example, if you quitclaim an assigned application, make sure there is an assigned application to quitclaim). In short, be careful!