Employers often have new employees sign an Employment Agreement at the time of their employment. Basic terms of an Employment Agreement often require that the employee protect the intellectual property of the employer, and not disclose confidential information of the employer without authorization. The basic terms of an Employment Agreement also often include a requirement that the employee assign to the employer any intellectual property rights of the employee to any inventions conceived by the employee under the terms of their employment.
However, it is important for the employer to realize that an Employment Agreement executed by an employee, that requires the employee to assign to the employer their intellectual property rights in any invention conceived by the employee under the terms of their employment is not an actual assignment of the invention to the employer. A separate Assignment Agreement transferring intellectual property rights in an invention from the inventor employee to the employer is required.
This issue was addressed earlier this year by the United States Court of Appeals for the Federal Circuit in the case of Advanced Video Technologies LLC, v. HTC Corporation, HTC America, Inc., BlackBerry Limited, Blackberry Corporation and Motorola Mobility LLC.
In the Federal Circuit case, Advanced Video Technologies LLC appealed an order from the United States District Court for the Southern District of New York that dismissed its complaints of patent infringement for lack of standing. The District Court based its decision to dismiss the patent infringement complaints on the ground that a co-owner of the patent was not a party to the action, and the co-owner’s ownership interests in the patent were not transferred to Advanced Video.
The dismissal of the patent infringement complaints by the District Court was affirmed by the Federal Circuit.
The appeal to the Federal Circuit involved U.S. Patent No. 5,781,788, titled “Full Duplex Single Clip Video Codec”. The infringement of the patent was not at issue. The single issue considered by the Federal Circuit was whether or not a co-inventor of the patent transferred her ownership interests in the patent under the terms of an Employment Agreement. The co-inventor did not sign any separate Assignment Agreement transferring her ownership interests in the patent to her employer. The co-inventor only signed an Employment Agreement.
The patent identifies three co-inventors of the subject matter of the patent. For brevity sake, and to simplify this article, I identify the co-inventors as Inventor No. 1, Inventor No. 2 and Inventor No. 3. The invention that is the subject of the patent was created while the three co-inventors were employed by Infochips Systems Inc.
Through a series of transfers, which are not discussed here for brevity sake and to simplify this article, the ownership interest in the invention and the ownership interest in the Employment Agreements were transferred from Infochips Systems Inc. to Advanced Video. At one point during the series of transfers discussed above, the ownership interest in the invention and the ownership interest in the Employment Agreements were transferred to an entity called AVC Technology Inc. (“AVC”). In 1995, AVC filed a parent patent application that eventually led to the patent of this article. Two of three co-inventors, Inventor No. 1 and Inventor No. 2 executed assignments of their ownership interests in the invention and the patent application to AVC. Inventor No. 3, however, refused to assign her ownership interest in the invention and in the patent application to AVC. Although the patent application was not assigned to AVC by Inventor No. 3, AVC filed Petitions with the Patent Office requesting that it be permitted to prosecute the patent application. The Patent Office granted AVC’s Petitions, and the patent was issued to AVC. The patent rights held by AVC were later transferred to Advanced Video.
In 2016, Advanced Video filed three patent infringement lawsuits against HTC Corporation, HTC America, Inc., Blackberry Limited, Blackberry Corporation and Motorola Mobility LLC (the Appellees) in the District Court for the Southern District of New York. In the lawsuits, Appellees filed a Motion to Dismiss for lack of standing. Advanced Video argued in the District Court that it had acquired Inventor No. 3’s ownership rights in the invention and in the patent through the aforementioned series of transfers, beginning with a transfer from Inventor No. 3 to Infochips under the terms of the Employment Agreement signed by Inventor No. 3. Advanced Video argued that there were three provisions of the Employment Agreement signed by Inventor No. 3 that effected a transfer of the invention and patent rights of Inventor No. 3 to Advanced Video.
The first provision of the Employment Agreement signed by Inventor No. 3 is a “will assign” provision. This provision of the Employment Agreement states that “I agree that I…will assign to the Company all my right, title, and interest in and to any and all inventions”. The second provision of the Employment Agreement is a “trust” provision. This provision of the Employment Agreement states that “I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company…all my right, title, and interest in and to any and all inventions”. The third provision of the Employment Agreement is a quitclaim provision. This provision of the Employment Agreement recites “I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents”.
The District Court concluded that none of the three provisions effected a transfer of Inventor No. 3’s ownership rights in the invention and in the patent to Advanced Video. Additionally, because Inventor No. 3 was not a party to the lawsuit, the District Court dismissed the case for lack of standing. Advanced Video appealed to the Federal Circuit.
At the Federal Circuit, Advanced Video argued that Inventor No. 3’s ownership rights transferred upon execution of the Employment Agreement by Inventor No. 3, citing the “will assign” language in the Employment Agreement.
The District Court had earlier found that “will” invoked a promise to do something in the future and did not effect a present assignment. The Federal Circuit agreed with the District Court that no present assignment existed in the Employment Agreement. The “will assign” language alone does not create an immediate assignment of Inventor No. 3’s rights in the invention.
At the Federal Circuit, Advanced Video also argued that the “will hold in trust” language of the Employment Agreement created an immediate trust in favor of Infochips (recall that Infochips’ ownership interest in the Employment Agreement was later transferred to Advanced Video”. The court stated that even if they were to determine that Inventor No. 3’s interests in the invention were immediately placed in trust, it did not follow that those interests were automatically, or ever, actually transferred out of trust in favor of Infochips. Absent a transfer, Inventor No. 3 would continue to hold the invention rights as a trustee. The Court further pointed out that while Advanced Video could potentially seek to enforce its alleged ownership rights, or allege a breach of Inventor No. 3’s duties as a trustee by her failure to transfer those rights by bringing an action against Inventor No. 3, no party brought such an action. Since Advanced Video had not sought to enforce any obligation Inventor No. 3 might have had under the trust, it ultimately has no standing to bring a patent infringement action.
The Court further noted that even if Advanced Video is correct that Inventor No. 3’s rights are held in trust, Advanced Video, as a trust beneficiary, cannot maintain a patent infringement suit where Inventor No. 3 is not a party, nor can Inventor No. 3 as a co-owner of the patent be involuntarily joined as a plaintiff, except under limited circumstances that did not apply.
Advanced Video further maintained that it had standing because it eventually acquired Inventor No. 3’s ownership interest in the invention when Inventor No. 3 quitclaimed her interest to Infochips under the terms of the Employment Agreement.
Advanced Video argued that the quitclaim provision of the Employment Agreement which recites “I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company” should essentially be read to mean all claims “assignable hereunder,” and that rights that Inventor No. 3 promised she “will assign” were immediately quitclaimed under the Employment Agreement. The Court noted that the Employment Agreement, however, did not provide “assignable hereunder” language. The Court noted that Advanced Video cited no authority showing that “assigned hereunder” covers patent rights that could have been assigned under a contract, but were never actually assigned.
The Court held that the quitclaim provision waives Inventor No. 3’s rights to interests in any patent rights that she assigned under the Employment Agreement. But, as no patent rights were ever assigned to Infochips, the quitclaim provision has no application. The Court then found that the quitclaim provision of the Employment Agreement did not effect an assignment of the patent from Inventor No. 3 to Infochips, AVC, or Advanced Video.
The Federal Circuit then held that Advanced Video did not have full ownership of the patent. Inventor No. 3 was neither a party to the suits, nor had Inventor No. 3 consented to the suits. Advanced Video, therefore, had no standing to maintain its suits. Accordingly, the Federal Circuit affirmed the District Court’s dismissal of the cases.
The Federal Circuit’s decision reemphasizes the importance that employers, even though they may have Employment Agreements in place that require employees to assign to the employer any intellectual property rights of the employee to any inventions conceived by the employee under the terms of their employment, a separate assignment agreement transferring intellectual property rights in an invention from the inventor employee to the employer is required.
