Monday, February 18, 2008

Patent Law and employee contracts

PatentHawk has a post which includes the text:

patent law saves time and money by clearly delineating facts about who, what, when, where, and how inventions were developed. Patents are useful when and because they give companies the right to stop former R&D employees from taking their work to competitors. Contract and trade secret law will always be available at the margin to handle details. The point is that in a world with clearly disclosed and publicly searchable patents and assignments, company managers can focus more on how new technology should be marketed, manufactured, and distributed, and less on how to prevent employee defections (or in planning raids of other companies' R&D employees). It's partly the bright-line, standardized nature of patent rights that make them useful as an alternative to contract.

IPBiz notes that one needs to contemplate the Feb. 13 CAFC decision DDB vs. MLB. In 1998, the Barstow brothers assigned patents including US 5,526,479 to DDB. The ultimate question in the case (but NOT decided by the CAFC on Feb. 13) is whether the interest of Dr. David Barstow (“Barstow”) in these patents was PREVIOUSLY assigned to his former employer,
Schlumberger Technology Corporation (“Schlumberger”).1 Barstow, a computer scientist, worked for Schlumberger from 1980 until 1994.

The district court had found that the patents in suit fell within the scope of Barstow’s employment
agreement because they were both “suggested by” and “related to” his work for
Schlumberger. In determining that the patents in suit were “suggested by” Barstow’s
work, the district court relied particularly on their relation to two prior patents issued to
Schlumberger that named Barstow as the inventor. During the prosecution of three of
the four patents in suit, one of these patents was listed by the patent examiners as prior
art (although not cited by the applicant as prior art). In determining that the patents in
suit were “related to” Barstow’s work, the court relied in part on a 1992 letter from
Barstow to his brother Daniel which the district court interpreted as an admission by
Barstow of such a relation.

Of documentation issues, the CAFC noted:

DDB’s discovery requests could have led to the production of documents (if they
existed) such as copies of the applications for the patents in suit in Schlumberger’s files,
notes of conversations by Schlumberger employees demonstrating the extent of the
company’s knowledge of the inventions, further communications between Barstow and
Schlumberger regarding the inventions, or communications as to whether
Schlumberger’s officers or employees believed that Schlumberger had an ownership
interest in those inventions.

Judge Newman in partial dissent wrote:

It is not disputed that during Dr. Barstow's employment the responsible
Schlumberger officials agreed that the inventions relating to the computerized recall and
replay of sporting events were not within the scope of his employment agreement. In 2006,
sixteen years after the first patent application was filed (in 1990), thirteen years after the
first patent was issued (in 1993), and twelve years after Dr. Barstow left Schlumberger (in
1994), Schlumberger reportedly represented to the defendant MLB Advanced Media
(MLBAM) that Schlumberger owns the Barstow inventions and the four patents thereon,
including those filed after Dr. Barstow left Schlumberger.


Interpretation of employment contracts, including clauses establishing employer-
employee obligations with respect to inventions and patents, is a traditional state matter.

This is a quite different issue from "standing in patent cases," supra. The rule that a plaintiff
must own the property on which he sues in federal court does not preempt the laws
governing property ownership. The adjudication of property rights that arise from an
employment agreement is not preemptively removed from state law when the agreement
concerns patent property. (...) There is no conflict between the creation of the patent as a creature of federal law, and
ownership of patent property governed by state law. (...)The complex balance between an employer's rights to control its proprietary information and safeguard its commercial interests, and an employee's rights to use his
experience for purposes outside of the employer’s interests, has traditionally been subject
of state law, and when dispute arises, has been subject to trial to a jury.

PLI notes:

Finally, as Professor Crouch points out in his post, there is likely another important issue lurking here that does not seem to be addressed. An assignment is only effective against those who subsequently obtain an alleged assignment if the original assignment was recorded during the firs 90 days. Schlumberger never recorded within the first 90 days, and in fact did not record until DDB already brought suit against MLB Advanced. This being the case the only issue with respect to whether DDB holds good title should be whether DDB knew of a prior assignment to Schlumberger. Even if Schlumberger did automatically obtain an assignment as a result of the employment agreement if DDB did not know about that assignment then DDB should have superior title to Schlumberger, which would mean that they would have superior title to MLB Advanced, who obtained their rights through assignment from Schlumberger.

Patently-O notes: The only issue then is whether DDB had notice of the prior assignment. IPBiz notes: If the inventors signed an employment contract wherein assignment passed as a matter of law, the inventors were on notice.

35 USC 261 says:

Subject to the provisions of this title [35 USC § §1 et seq.], patents shall have the attributes of personal property.

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

A certificate of acknowledgment under the hand and official seal of a person authorized to administer oaths within the United States, or, in a foreign country, of a diplomatic or consular officer of the United States or an officer authorized to administer oaths whose authority is proved by a certificate of a diplomatic or consular officer of the United States, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States, shall be prima facie evidence of the execution of an assignment, grant or conveyance of a patent or application for patent.

An assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.

IPBiz notes 35 USC 261 speaks of a "subsequent purchaser". The theory of Patently-O would be that the assignment from Barstow to Schlumberger was void because it was not recorded by Schlumberger within three months.

Switching to "real estate," the effect of recording a mortgage is to give notice to the world of the incumbrance on the property.
Going to a bankruptcy case, one can find the important issue:

However, the mortgage lien is still valid as between the debtors and Fieldstone. The importance of recording a mortgage concerns notice to future lenders who seek security in the same real estate; it has no effect on the secured status of Fieldstone’s loan to the debtors. It is only unperfected as against a subsequent bona fide purchaser

Recording statutes, including 35 USC 261, are in place to protect SUBSEQUENT PURCHASERS. Failure to record does not erase the contractual arrangement between Schlumberger and Barstow, whatever it was.


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