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Do You Own What Your Employees Create?: Avoiding a “Technical Drafting Trap for the Unwary”

Date

July 19, 2011

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3 minutes

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Do you own the intellectual property rights in what your employees create? As the Supreme Court of the United States recently affirmed: not necessarily.

On June 6, 2011, the Supreme Court issued its decision in the case Stanford v. Roche Molecular Systems, No. 09-1159. While much of the Court’s decision focused on ownership of patent rights for federally-funded inventions, an important aspect of the Court’s holding involved interpretation of language commonly found in many employment agreements and intellectual property assignment agreements.

In what one Justice called a “technical drafting trap for the unwary,” the Court affirmed a lower court’s holding that an inventor’s earlier promise to assign inventions to his employer was trumped by the same inventor’s later actual assignment to a third party.

In the Stanford case, a small California research company called Cetus was developing methods for quantifying blood-borne levels of human immunodeficiency virus (HIV), the virus that causes AIDS. In 1988, Cetus began collaborating with scientists at Stanford University to test the efficacy of new AIDS drugs. Dr. Mark Holodniy joined Stanford as a research fellow around that time, and when he did so he signed a Copyright and Patent Agreement stating that he “agree[d] to assign” to Stanford his “right, title and interest in” inventions resulting from his employment at the University.

Dr. Holodniy subsequently became involved with the joint research at Cetus and, as a condition of gaining access to Cetus’s facilities, Dr. Holodniy signed a Visitor’s Confidentiality Agreement with Cetus. That agreement stated that Holodniy “will assign and do[es] hereby assign” to Cetus his “right, title and interest in each of the ideas, inventions and improvements” made “as a consequence of [his] access” to Cetus.

Ultimately, Stanford obtained three patents for inventions arising from the research Dr. Holodniy conducted at Cetus. Separately, Roche acquired certain Cetus assets, including Cetus’s rights in the agreement with Dr. Holodniy. After Roche began marketing HIV test kits based on the patented inventions, Stanford sued Roche for patent infringement. Roche defended Stanford’s claims, in part, by asserting that it co-owned the patented inventions because of the rights it acquired from Cetus.

With respect to the two seemingly inconsistent agreements signed by Dr. Holodniy, the Court adopted the reasoning of the lower court in affirming that Roche in fact did have an ownership interest in the patented inventions and could not be sued by Stanford for patent infringement.

Specifically, the Court noted that the “general rule” is that “rights in an invention belong to the inventor” and, “unless there is an agreement to the contrary, an employer does not have rights in an invention.” However, to be fully effective, such an agreement must be more than a promise to assign rights in the future; it must be an actual, immediate transfer of rights.

In adopting the lower court’s holding, the Court confirmed that Dr. Holodniy’s earlier agreement with Stanford constituted a mere promise to assign rights in the future, unlike Dr. Holodniy’s agreement with Cetus which actually assigned Dr. Holodniy’s rights in the inventions to Cetus. Therefore, as a matter of contract law, Cetus (and, subsequently, Roche) obtained Dr. Holodniy’s rights in the patented inventions. The omission of four small words (“and does hereby assign”) from the Stanford agreement made all the difference.

The Court’s decision in the Stanford case reiterates the importance of using proper language in employment agreements and intellectual property assignment agreements with employees and independent contractors. If you have questions about the language in your company’s agreements, please do not hesitate to contact a member of Levenfeld Pearlstein’s Intellectual Property Group to further discuss.


Filed under: Intellectual Property

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