Practice Tips for Employee IP Assignment Agreements

A recent Federal Circuit decision discussing the effect of an Employee Intellectual Property Assignment Agreement upon the ownership of inventions made by the employee (Preston v. Marathon Oil Co., Nos. 2011-1013, -1026 (Fed. Cir. July 10, 2012) (decision here)) offers a number of practice pointers. Marathon Oil had filed suit against Preston, its former employee, claiming ownership of a patent obtained by Preston on an invention made while Preston was employed by Marathon. The Federal Circuit held that Marathon Oil was the rightful owner of the patent. The useful lessons would appear to be as follows:

1. Refer to the IP Assignment Agreement in the Offer Letter.

In this case, Preston had executed his IP Assignment Agreement with Marathon Oil after he had accepted the written offer of employment and started work. One of the questions at issue in the case was whether Preston’s continued at-will employment constituted sufficient consideration to support the IP Assignment Agreement. The Federal Circuit certified this question to the Wyoming Supreme Court, which held that continued employment was sufficient consideration under Wyoming law. However, this issue could have been avoided entirely if the offer letter had referred to the IP Assignment Agreement and made it clear that the offer was contingent upon execution of the agreement. If appropriate in the circumstances, we would recommend taking this step.

2. Made OR Conceived: Drafting Matters

The invention in question was a baffle system (see image on left) used to improve the extraction of methane gas from coal in a coal bed methane gas well. Preston claimed that he retained ownership of the invention because he had conceived of the idea before his employment began, even though the invention was first made during the course of his employment.

The IP Assignment Agreement assigned to Marathon all inventions “made or conceived” by Preston during the term of his employment that related to Marathon’s business or that were created using Marathon’s confidential information, equipment, supplies or facilities. The Federal Circuit held that the invention could not be excluded from the scope of the IP Assignment Agreement based on Preston’s prior conception for two reasons. Firstly, even if the invention had been conceived beforehand, it was nevertheless made during his Marathon employment, and the plain language of the IP Assignment Agreement specified that it applied to inventions that were “made or conceived” during employment. Secondly, Preston was not able to demonstrate that he had actually conceived of the invention beforehand; the evidence suggested he had no more than a vague idea of it.

3. Use a Present Assignment, Not Just an Agreement to Assign

Preston had obtained a patent on the subject invention by filing a patent application in his own name after leaving Marathon’s employ. The District Court had held that Preston was in breach of the IP Assignment Agreement for failing to assign this patent to Marathon. However, the Federal Circuit determined that there was no breach, because Marathon already owned the patent. Preston had assigned it under the IP Assignment Agreement – the language used was that the employee “does hereby assign to Marathon all Intellectual Property, and Employee agrees to execute such other documents as Marathon may request in order to effectuate such assignment”. The language of present assignment avoided the need for a further document to be signed by Preston to effect the assignment.

4. Exclusions Should Be Explicit

Employee intellectual property assignment agreements often allow an employee to specify any prior inventions invented outside the scope of employment, so as to avoid disputes just like this one. In this case, the Marathon Oil IP Assignment Agreement included a provision that allowed the employee to list unpatented inventions and unpublished writings that were not owned by Marathon. Preston listed “CH4 Resonating Manifold”. Preston contended that the invention in issue was a “CH4 Resonating Manifold”. The court held that, even if the patented invention were a CH4 Resonating Manifold, there was insufficient evidence to demonstrate that anything had been developed by Preston sufficiently for it to constitute an invention, and as such Preston had not validly excluded anything from the scope of the IP Assignment Agreement. This case certainly demonstrates that employers should not allow employees to cite exceptions to IP Assignment Agreements unless the exception is described sufficiently clearly for it to be identified if ever a dispute were to arise.

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