08272012An important but often overlooked provision in many researcher and programmer employment agreements is what is commonly known as an inventorship assignment provision — a provision that ensures that any discoveries or inventions by an employee on company time are assigned to and owned by his or her employer.  There have been a number of decisions issued by courts this year involving disputes over these provisions and last month, the U.S. Court of Appeals for the Federal Circuit issued an opinion that re-affirmed the importance of these provisions, especially for future inventions.

In Preston v. Marathon Oil Co.,Case No. 2011-1013, -1026, slip op. (Fed. Cir. July 10, 2012), the Federal Circuit held that an employee agreement in which an employee  “assigns” all intellectual property to his or her employer, if properly drafted, will cover future inventions.  The case is a reminder that companies and their attorneys should make sure that their employee agreements include a similar express assignment of intellectual property consistent with the law of their state.  (A PDF copy of the opinion is attached below). 

The Facts: Yale Preston, an employee of Marathon Oil’s subsidiary, Pennaco Energy, signed two agreements that required him to assign any inventions or discoveries that (1) related to the present or reasonably anticipated business of the Marathon or (2) were made or conceived with the use of Confidential Information or any equipment, supplies, or facilities of Marathon.  The agreements provided that any invention made or conceived by Preston within one year after his departure would be presumed to have been made or conceived while he was employed with Marathon.

Marathon’s agreements allowed Preston to carve out any previous “unpatented inventions and unpublished writings” as his own property.  Under this previous inventions and writings provision, Preston simply wrote “CH4 Resonating Manifold.”  CH4 is the chemical formula for methane. Throughout the case, the parties disputed whether “CH4 Resonating Manifold” referred to the claimed inventions in the two patents that were later issued in the case.

The disputed technology concerned a system used to extract methane gas from water-saturated coal in a coal bed methane gas well.  At trial, the parties disputed whether Preston had developed the system before working for Marathon.  While Preston offered inconsistent testimony as to when he first thought of the idea, there was no dispute that Preston never “made” the invention (i.e., physically constructed the system) before joining Marathon.  Preston testified that he drew a handful of sketches before joining Marathon but claimed that he misplaced these hand-drawn sketches.

Marathon installed Preston’s system in several wells beginning in 2003 and Preston was personally involved in some of the installations.  Soon after installation of Preston’s system, Preston learned that the invention was going through Marathon’s internal patenting process.  About two months after Preston left Marathon in 2003, Preston filed his own patent application covering the system, the patent for which issued in November 2005.  In 2004, Marathon also filed its own patent application covering the system, which ultimately issued in April 2007.

The Federal Circuit’s Holding:  After protracted litigation in different forums and a certified question to the Wyoming Supreme Court, the district court found that the system was the property of Marathon.  On appeal, the Federal Circuit agreed, focusing on three questions.  First, the Federal Circuit focused on whether the provision was enforceable and supported by consideration under Wyoming law.  Noting that the Wyoming Supreme Court had found that Marathon did not have to supply any consideration beyond continued employment to Preston to support the agreements (and thus distinguishing inventorship agreements from non-compete agreements, which do require consideration in Wyoming), the Federal Circuit found the agreements were enforceable.

Second, the Federal Circuit emphasized the importance of the district court’s findings that Preston was not credible — in essence, affirming the trial court’s conclusion that he could not be believed.  Finally, under the language of the employment agreements, the Federal Circuit found that even assuming that Preston had “conceived” of the invention prior to joining Marathon, he still had not “reduced it to practice” before joining Marathon — in other words, he had not built or made the invention, which the agreements required.  It therefore rejected his claim that he had carved out the system from his employment agreements, and affirmed the trial court’s finding that Preston “had, at most, little more than a vague idea before his employment with Marathon began.”

The Takeaway:  Inventorship provisions are important provisions and may prove even more critical as courts increasingly grow wary of trade secret and confidentiality disputes.  As a result, these provisions have been the subject of a fair amount of litigation as of late.  Kenneth Vanko reported recently on the South Carolina Supreme Court’s recent decision in Milliken & Co. v. Morin, which affirmed the validity of these provisions in South Carolina.  Likewise, Brian Bialas wrote earlier this month about a Massachusetts court that enforced a hospital’s IP policy and held that a staff physician’s invention for voice training was the property of the hospital.  And earlier this year, the U.S. District Court for the Northern District of Illinois issued an important decision in a trade secret dispute between Motorola and a number of its former employees enforcing the IP ownership provisions in their employment agreements.

While companies frequently focus on trade secret claims and the contractual provisions in employment agreements that support those claims, they should not lose sight of inventorship provisions, particularly to protect themselves in disputes with researchers or programmers.  If a company has a research and development department or if its employees assist it in improving or innovating its products, those employees should have these provisions in their agreements.  Of course, the agreements need to confirm with the law of your state (California, in particular, has a specific statute addressing these provisions), so it is important that you consult counsel when adding these provisions.

For more on the Preston decision, see the articles by Foley & Lardner’s Courtenay Brinckerhoff and Hunton & William’s Daniel Vivarelli.

Preston v. Marathon Oil.pdf (189.24 kb)