Of course, businesses have a strong desire to own intellectual property developed by their employees. Patents, copyrights, and other sensitive and proprietary information, such as trade secrets, are among the most valuable assets a company may own, thus it’s critical to make sure that employee ideas and developments belong to the company. In the United States, inventions are presumed to be the property of the inventor, and any transfer of ownership (assignment) must be made in writing.
Employers sometimes depend on employment agreements and handbooks to demonstrate ownership in intellectual property developed by employees rather than requiring employees to sign assignment agreements for each patent application submission. Employers frequently include assignment clauses in employment agreements to give the employer rights to inventions created by the employee during the work period. These assignment provisions are frequently dismissed as basic boilerplate, yet their precise phrasing can have a significant impact on the assignment’s efficacy and restrictions.
Make certain you have a task, not just a promise to assign.
It is critical that the language used in an assignment clause states a present-tense, actual assignment when creating an agreement to have an employee assign future inventions. Courts have regarded phrases like hereby assign, agrees to give and does hereby grant, or that innovations shall belong to the employer and employee hereby conveys, transfers, and assigns to be effective in transferring ownership of a future invention without the need for further consent. When an innovation is made, ownership effectively transfers instantly.
Future-tense assignment provisions, on the other hand, will almost always necessitate a separate agreement to transfer ownership of the invention and any intellectual property (“IP”) associated with it. Many courts have determined that terms like “will assign,” “agree to assign,” and “will be assigned” are nothing more than a promise or contract to assign an invention in the future, rather than an actual assignment.
The phrasing of any carve-outs should be reviewed in addition to the assignment clause’s words. A carve-out clause in an agreement can be used to keep past innovations of a new employee from being assigned, or to keep inventions unrelated to the employee’s employment from being swept into the assignment provision. Even if the assignment clause includes the proper hereby assign type of language, a broad, non-specific carve-out clause may prevent an employee agreement from automatically assigning that employee’s inventions, because it leaves open the possibility that an invention is not subject to the assignment clause.
This opposing language may provide ambiguity in the employment agreement, causing it to be construed according to state law, allowing the employee to present extrinsic evidence, such as talks held during the hiring process, to overturn the automatic assignment. While the Federal Circuit governs patent assignment clauses, state law governs the settlement of contractual ambiguities, which differs greatly in terms of the admissibility of such extrinsic evidence.
Failure to acquire an automatic assignment can have serious ramifications.
An employer may face considerable difficulties if an assignment provision is found ineffective in transferring ownership of an invention. In such circumstances, a company would not have standing to sue for patent infringement until it had completed the steps necessary to obtain a valid assignment. This may need the filing of a breach of contract claim against the employee in order to compel the employee to perform his or her contractual obligations, which may include the completion of assignment paperwork. In the meantime, infringers may continue to use the invention, and if the infringement has lasted long enough, the six-year statute of limitations may prevent full compensation. Furthermore, if an inventor/employee has only made a promise to assign and instead transfers ownership to a third party who is unaware of the assignment obligation, the second transfer of ownership may probably succeed, leaving the original employer with no exclusionary rights.
More than only litigation can be harmed by ineffective assignment clauses. When entering into transactions involving the investment in or sale of IP assets, company divisions, or entire entities, businesses and investors typically conduct IP due diligence, and any weaknesses in assignment provisions may affect the perceived value of the IP assets and/or business being considered.
Do not expect the hired-to-invent paradigm to result in employee inventions being owned.
Because they feel they inherently own inventions that they pay someone to make, some employers do not need employees to sign an agreement containing an assignment of inventions. This will only be true on rare occasions under the hired-to-invent philosophy. Employees or contractors who were employed (and paid) specifically to generate a specific innovation or address a specific problem may be regarded to have implicitly conveyed their rights to the employer. However, this is a highly fact-based assessment that only applies to inventions made in response to the specific task for which the employee was hired. The mere title of researcher or even inventor will not be enough to guarantee the employer’s ownership of inventions. Furthermore, an employer relying on this concept will have no assurance about its rights to the innovation until a court rules one way or the other. If the court rules against the employer, it will lose the exclusionary rights it thought it had and could be sued for infringement by the employee or anybody else to whom the employee may have assigned the invention/patent rights.
An employer may gain limited shop rights in inventions developed utilizing the employer’s time, resources, facilities, or equipment if there is no effective assignment. Shop rights are an implicit license to practice the invention that prevents the employee from suing for damages or injunctive relief if the idea is patented. However, shop rights are limited, and the employer cannot prevent others from using the idea to compete. Furthermore, shop rights cannot be licensed or assigned, thus depreciating the IP assets and maybe the company.
Other factors to consider
In addition to having the proper hereby assign language, employment contracts should ensure that inventions are subject to the assignment clause, not only patents or patent applications. The language declaring that all inventions, improvements, discoveries, and the like are subject to the assignment, whether or not patentable or copyrightable, assures that information that could be protected under other regimes, such as trade secrets, immediately becomes the employer’s property.
Intellectual property has become increasingly important in establishing a company’s worth. The ability of a corporation to produce and safeguard its intellectual property is critical to its long-term success. As a result, it’s critical for businesses to understand that assignment clauses in employment agreements aren’t just boilerplate; they could be one of the most essential legal terms that affects not just the employee relationship, but also the worth of the company.