Wednesday, June 13, 2012

How Enforceable Are Your Employees’ Assignments of IP Rights?

It’s no secret that most appeals in the intellectual property arena end up in the U. S. Court of Appeals for the Federal Circuit, which sits in Washington, D.C.  What’s less well-known is that much of the law applied by that court to resolve IP disputes isn’t federal at all; it comes from the laws of individual states.  A recent case from the prairie of Wyoming illustrates the point.

Yale Preston was briefly employed by Marathon Oil as a relief pumper at the company’s operation in northeastern Wyoming.  After he had begun work, Preston was required to sign an agreement that purported to assign to Marathon his rights to any inventions he conceived while employed by the company.  Other than continued employment, he did not receive any additional payment or tangible benefit from the company in return for signing the agreement.

Two months after leaving Marathon, Preston applied for and received a patent for a baffle system he invented while still employed by the company.  Almost two years later, Marathon obtained a patent for a similar invention, which triggered an infringement fight in federal court.  The trial judge ruled that Preston was the sole inventor of the baffle system, but that he was obligated to assign his rights to the invention to Marathon under the terms of the employment agreement.

Courts across the country are split on whether continued employment, without more, is sufficient consideration to support an assignment of IP rights.  Thus, when the case got to the Federal Circuit court in Washington, there was no single “correct” answer to the question of whether Preston’s assignment of IP rights to Marathon was valid.  So, the court did the only thing it could do; it punted the issue to the Wyoming Supreme Court for an advisory ruling.  The Wyoming court’s decision surprised some observers.

Under Wyoming law, the court ruled, continued employment ordinarily is not sufficient consideration to support restrictive covenants, such as non-compete agreements.  (At that point, Preston probably could smell a victory coming his way.)  However, the court went on to explain that, in its view, there is a qualitative difference between non-compete agreements and agreements to assign IP rights:

The concerns with restraints on trade which attend non-competition agreements simply are not present for intellectual property assignment agreements. That is particularly obvious here, where Mr. Preston only agreed to assign the rights to inventions that he made or conceived while employed by Marathon. The agreement did not limit his right to earn a living, or, for that matter, his rights to inventions that were not related to Marathon’s business or were not created with the use of Marathon’s confidential information, equipment, supplies or facilities.

Thus, due to the very nature of the at-will employment relationship, the court concluded that separate consideration was not necessary to support the assignment of IP rights:  “If the employee does not agree to that modification of the terms of his employment, he can terminate the relationship without any penalties.”

Besides effectively dooming Preston’s appeal, the Wyoming Supreme Court’s ruling reinforced two very important lessons for employers:  (1) whether an assignment of IP rights is valid generally is a question of state contract law, which can vary widely from state to state; and (2) states may not always judge the assignment of IP rights by the same standards as those applied to other types of restrictive covenants, such as non-compete agreements.  Thus, it is critical that employers be aware that there is no such thing as a “one-size-fits-all” agreement that will meet their needs in all jurisdictions.  Each agreement must be tailored to the specific requirements of the state(s) in which employees are affected.

(The case, Preston v. Marathon Oil, is here.)

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