Employer and Employee Invention Rights: Does My Employer Have Rights in My Invention?

Whether an employer has rights in an employee’s invention depends on the circumstances of the invention, the terms of any agreements between the employee and employer, and the state’s laws that cover the situation.

The first step is to review the terms of any agreements that the employee signed with the employer. This is because it is possible for an employee to transfer his or her rights in an invention to the employer through a written agreement. Titles to agreements that might contain relevant terms regarding invention ownership include “employment agreement”, “non-compete agreement” “non-disclosure agreement” “intellectual property agreement” “invention agreement” “employee invention agreement” etc. Not all documents with such titles necessarily contain provisions regarding invention ownership, however such documents, if they exist, should be reviewed in case they contain such provisions.

Regardless of the title of the agreement, we are looking for terms that transfer rights in invention to the employer in consideration for the employee employment compensation. Terms regarding invention ownership may explain the scope and extent to which the employer claims ownership over the employee’s inventions.

The terms of an agreement might provide that the employer owns inventions developed by the employee, even if the employee does it on his or her own time and with his or her own resources. However, typically ownership claims are limited to inventions that are related to the employer’s business or reasonably anticipated future business.

Some states have statutes that limit the types of inventions an employer can claim ownership in. For example, Illinois has an Employee Patent Act that prohibits an employer from claiming rights in an invention in which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, unless (a) the invention relates (i) to the business of the employer, or (ii) to the employer’s actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the employee for the employer. Therefore Illinois prohibits employers from claiming rights in inventions not developed with employer resources and unrelated to the employers business. However, not all states have such a statute. So if Illinois law does not apply to the employment agreement at issue, statutes of the applicable state law will need to be reviewed.

No Agreement
If there is no written agreement providing the employer owns certain inventions of the employee, then the result will depend on the circumstances of the employment and invention. If any employee was hired or directed to solve a particular problem or to exercise his or her inventive faculties, then it is likely the employer will own the resulting invention under an implied-in-fact assignment. However if the hiring or direction is not sufficiently specific and the employee was not hired or directed to make improvements in a designated area, the employer may not own the resulting invention. There is a fine line between hire-to-invent and general employment, which is very circumstance dependent.

Shop rights
In the instance where the employer does not own the invention, but where the employee uses the employer’s resources to conceive, develop, or to reduce an invention to practice, the employee may have “shop rights” in the invention. Shop rights provide the employer with a nonexclusive, royalty-free, nontransferable license to make use of the invention.

It is important for employers to have written agreement that define which employee inventions that the employer will own. To determine whether an employer will own a particular invention, the applicable employment agreements, the circumstances of invention, and the applicable law should be reviewed.

Options When Your Invention Is Stolen

If you disclosed your invention to someone and that person subsequently copied your invention and or filed a patent application on the invention, you may have options to take action depending on the circumstances. Several scenarios are explained below.

By an non-inventor employee
If your employee, who is not an inventor, is commercializing or has sought patent protection, you will want to review the documents that were executed when the employee was hired. Such documents could include non-disclosure or non-compete provisions.

The misappropriation of the invention could constitute a breach of the non-disclosure provisions and or could constitute trade secret misappropriation if the product/service at issue was not publicly available, or if publically available, if the employee had access and utilized non-public information about the products/services. The misappropriation could also violate a non-compete provision depending on its terms. Further, the misappropriation could violate the employee’s duty of loyalty to his/her employer.

By an inventor employee
Many of the claims explained above regarding the non-inventor employee may exist against a inventor employee depending on whether the employer has any rights in the invention.

To determine whether the employer has any rights in an invention, first any signed agreements between the employee and employer should be reviewed. Language pertaining to employee ownership of employee’s inventions should be reviewed if such language exists.

If no signed agreements exist a number of factors may be considered to determine whether the employer has any rights in the invention such as: (1) was the employee employed to invent, (2) did the employee work on the invention at the direction of the employer, (3) did the employee work on the invention during work hours, (4) did the employee work on the invention using employer equipment, and (5) was the invention related to the employee’s business or reasonably anticipated business or research?

Further state statutes might exist that impact what rights an employer can claim in an invention. For example, Illinois has a statute that limits an employer’s ability to own inventions made by the employee on his or her own time without any of the employer’s equipment, supplies, or facilities when the invention is not related to the employer’s business or the employer’s actual or demonstrably anticipated research or development.

By a non-employee co-inventor
If there are two or more non-employee inventors, under patent law, each inventor will own the patent jointly with the other inventors. This allows each inventor to make, market, sell, license, or otherwise grant rights in the patent and receive moneys therefrom without splitting the funds with the other inventors. Further, each inventor does not need to get permission from the other inventors to undertake such activities with respect to the patent.

Therefore it is important to account for the possibility that co-inventors might fall into a dispute about the patent, a patent application, or the commercialization of a patent pending product/service. Whenever there is more than one inventor it is best to form a legal entity in which the inventors own an interest (e.g. own shares). The ownership of the invention can be transferred to the legal entity by all inventors. The internal operating documents of the entity can describe (1) the ownership interest of each inventor (and other non-inventors, if desired), (2) how the invention will be commercially exploited, (3) how disputes are resolved between inventors, (4) what happens if one or more inventors wants to proceed but other inventors do not, and (5) many other business considerations. The legal entity formed can be a written partnership, a corporation, an LLC, or other entity.

If the rights in the invention were assigned to an entity, then action may be taken based on the rights held by the entity.

By a someone under an NDA
Prior to marketing or publicizing an invention, it is often necessary for an inventor or company to work with others to develop the product or to take other necessary marketing and business actions for launching the product. Often a nondisclosure agreement (NDA) is used between the inventor/company and the third parties prior to product/service launch.

If the invention was misappropriated by a person or entity to which the invention was disclosed under a NDA, then the NDA should be consulted for determination of rights you may have.

Some possible basis for taking action are explain above depending on the circumstances. If your invention has been misappropriated, you likely have options for taking action and recovering rights in the invention. If there is a basis for taking action, the first set may be to send a letter to the misappropriator. However, in some circumstances the first step will be be to file a lawsuit or take action at the USPTO. Seek advice of an attorney regarding the options you may have under your particular circumstances.

Ensuring Strong Patent Enforcement Position Through Virtual Patent Marking

U.S. patent law encourages patent owners to mark products or services that are covered by at least one claim of a patent. Therefore patent marking is an important step in ensuring a strong patent enforcement position if infringement occurs. The America Invents Act now allows “virtual patent marking” as explained below.

Reason for Marking
Section 287 of Chapter 35 of the U.S. Code provides that if a patent owner fails to mark its patented invention, then the damages will be limited to those arising after the infringer was notified of the infringement. However, if the invention is marked, then the patent owner will be able to get damages back to the start of the infringement (subject to any applicable statute of limitations).

Therefore, lets see what happens if the invention is not marked. Assume that an infringer starts infringing your patent five years ago, but you only discovered the infringement today and thereafter quickly sent the infringer a demand letter notifying the infringer of the infringement. Lets assume that the sales over the last 5 years resulted in 3 million dollars in recoverable patent infringement damages. Since the invention was not marked, the patent owner would only be able to recover damages arising after the infringer received the infringement demand letter, and not the 3 million dollars accruing over the last 5 years.

Therefore, marking has an impact on the damages that are recoverable for infringement. Also, whether the invention was marked impacts how a infringer might react to a claim of infringement. If the infringer has a liability of 3 million dollars in damages the infringer is obviously in an inferior bargaining position in terms of settlement as compared to if the infringer as no monetary liability because the invention was not marked.

Who Should Mark
Those that are making, offering for sale, or selling within the United States any patented article or importing any patented article into the United States should mark. Therefore if you are not commercializing your invention by the above activities, you are not subject to the damages limitations of section 287.

How to Mark
Marking notice may be given either by (1) fixing on the product the word “patent” or the abbreviation “pat.”, together with the number of the patent, or (2) by fixing thereon the word “patent” or the abbreviation “pat.” together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent.

If from the character of the patent article, the product itself cannot be marked, then it is permissible to fix the above notice on a label attached to the product or to the package of the product.

Virtual Marking
As provided above, you can provide notice by listing a internet address together with the word patent or pat. where the resulting internet webpage provides an association between each patented article and the corresponding number of the patent. In this way you can quickly and easily update the marking of products with newly issued patents by updating the patent marking webpage to show the patents that apply to the corresponding product. This alleviates the need to change molds or packaging as new patents are issued.

Routinely Updated. The webpage should be updated whenever a patent status changes, including when a patent issues and if a court or the USPTO invalidates or narrows the patent in a way that would change whether the corresponding product is covered by the patent.

Availability. The webpage should be continuously available so that anyone trying to determine the patents covering a product/service will be able to have ready access to the webpage. Records of continuous webpage availability should be kept.

Change log. Further it would be best to keep a change log of the changes to the patent marking webpages so that the log shows the details of each change made to the webpage and the date that change was made. This change log is important to show when marking related to a given product/service or patent began on the webpage.

Published Applications. Published patent application and corresponding products may also be listed on the same or a different web page. When listing published patent application on the same page as issues patent, it should be clear that the published application are not issued patents. The benefit of listing published patent applications is that the webpage might provide actual notice that could allow for the recovery of royalties under provisional patent rights statute.

Inventorship: When was the Invention Conceived?

Dawson v. Dawson, Dkt. No. 2012-1214, 1215, 1216, 1217 (Fed. Cir. March 23, 3013).

This case deals with the issue of when an invention is conceived and involves an invention ownership dispute between a university and a pharmaceutical manufacturer. The issue was whether an inventor, Dr. Dawson, conceived of the invention while employed at the University of California, San Francisco (“UCSF”) or instead later when he joined Insite, a pharmaceutical manufacturer. This case deals with medical preparations, but is interesting on the conception point.

While employed at UCSF, Dr. Dawson made a presentation at a meeting of the World Health Organization (“WHO”) Alliance for Elimination of Trachoma. Trachoma is a bacterial infection of the eye that can lead to blindness. Dr. Dawson’s presentation covered the topical use of an antibiotic called azithromycin to control trachoma, which later became the subject of two patents at issue in the appeal. Documents from the WHO regarding the meeting, discussed Dr. Dawson’s presentation but also included a number objections to Dr. Dawson’s approach, such as the concern that that “[n]o product is available” and that the “[e]fficacy and dosing schedule” would need to be determined, and that “problems with ointments for trachoma treatment are well known . . . . Ointments are difficult to apply and poorly tolerated.”

Dr. Dawson left UCSF and began working at Insite with Dr. Bowman on a formulation. Dr. Dawson needed the help of Dr. Bowman because Dr. Dawson did not have experience in preparing ophthalmic medication formations. Dr. Dawson and Dr. Bowman later filed two patent applications as joint inventors. These applications resulted in Patent No. 6,239,113 and U.S. Patent No. 6,569,443. UCSF filed an application to provoke an interference.

Principles of Invention Conception
The court recited several principals of invention conception:

  • Conception is the “‘formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice.’” Hybritech Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1376 (Fed. Cir. 1986)
  • After conception “all that remains to be accomplished, in order to perfect the art or instrument, belongs to the department of construction, not creation.” 1 Robinson on Patents 532.
  • “[c]onception is complete only when the idea is so clearly defined in the inventor’s mind that only ordinary skill would be necessary to reduce the invention to practice, without extensive research or experimentation,” and that “[a]n idea is definite and permanent when the inventor has a specific, settled idea, a particular solution to the problem at hand, not just a general goal or research plan he hopes to pursue.” Burroughs Wellcome Co. v. Barr Labs., Inc., 40 F.3d 1223, 1228 (Fed. Cir. 1994).
  • “[b]ecause it is a mental act, courts require corroborating evidence of a contemporaneous disclosure that would enable one skilled in the art to make the invention.” Id.

No Testimony of the Inventors
The court noted that UCSF did not seek testimony from inventor Dr. Dawson or Dr. Bowman on the issue of conception. This is likely because the inventors were not likely to provide favorable testimony to UCSF. However, in this case the reliance on what normally surfaces as corroborating evidence, i.e. contemporaneous disclosure of the alleged conception, was not successful.

General Idea Not Enough in This Case
The court found that the announcement of the general idea in the WHO documents was not sufficient. The court found that the documents provided a preliminary statement about a possibility or potential use and an need for continued work and a report back, fell short of the “definite and permanent idea of the complete and operative invention.”

The Court further found the specific concentrations provided in the patent claims were not disclosed initially in the WHO documents and at the time Dr. Dawson did not know of what concentrations to use.

The dissent found the evidence showed that Dr. Dawson did conceive of the invention while at UCSF. The majority responded that it was reviewing the decision of the Board and not evaluating the evidence in the first instance. Therefore the majority only concluded “that substantial evidence supports the Board’s relevant factual findings and that the Board did not err in holding that UCSF failed to meet its burden of proof as to the legal issue of conception.”

Sufficient Computer Structure Disclosure for Means-Plus-Function Elements

HTC Corp v. IPCom GMBH, Dkt. No. 2011-1004 (Fed. Cir. Jan 30, 2012) [PDF].

HTC sue IPcom for declaratory judgement of non-infringement of IPCom’s Patents, including U.S. Pat. No. 6,879,830 and IPCom countersued for infringement. The ‘830 patent is directed to the handover of a cellular phone from one base (tower) to another, as for example, when a person uses a cell phone in a car traveling between coverage areas.  The invention is intended to reduce the chance of service interruption during the handover.

Claim 1 provides:

A mobile station for use with a network including a first base station and a second base station that achieves a handover from the first base station to the second base station by:

storing link data for a link in a first base station,

holding in reserve for the link resources of the first base station, and

when the link is to be handed over to the sec-ond base station:

initially maintaining a storage of the link data in the first base station,

initially causing the resources of the first base station to remain held in reserve, and

at a later timepoint determined by a fixed pe-riod of time predefined at a beginning of the handover, deleting the link data from the first base station and freeing up the resources of the first base station, the mobile station comprising:

an arrangement for reactivating the link with the first base station if the handover is unsuc-cessful.

At summary judgement, HTC claimed that claims 1 and 18 (similar to claim 1), were invalid as indefinite because (1) they claimed both an apparatus and method steps and (2) the patent failed to disclose structure corresponding to the claimed means-plus-function element “arrangement for reactivating.”

Over Emphasis on Prosecution History. While the district court found the claims invalid because they claimed both apparatus and method steps, the Federal Circuit disagreed.  The Federal Circuit found the claim was an apparatus claim directed to a moble station (cellular phone) to be used within a network. In interpreting the claim language the Federal Circuit considered factors set out in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc): (1) the words of the claim, (2) the specification, (3) the prosecution history, and (4) extrinsic evidence. The Federal Circuit found that the district court put too much emphasis on the prosecution history. The patentee in response to an office action stated, “the cited section of [the prior art reference] clearly describes a process that is completely different from the claimed process. . .” (emphasis added). The Federal Circuit  noted that “claim language and the specification generally carry greater weight than the prosecution history.” The court found that the attorney’s signle reference to a “process” in response to an office action was insufficient when viewed in relation to the plain language of the claims and specification.

Sufficient Computer Structure. The Federal Circuit found that the district court erred in finding that the disclosure of a processor and transceiver was sufficient structure. The Federal Circuit noted that when considering whether their is sufficient support in the specification for a means-plus-function limitation, the disclosure of a general purpose computer or micro processor is not enough. Instead an algorithm must also be disclosed which the computer/processor executes. A patent must disclose “a means for achieving a particular outcome, not merely the outcome itself.” Yet, the appellate court found HTC waived any argument regarding whether the ‘830 patent disclosed a sufficient algorithm.

Further, the Federal Circuit rejected HTC’s argument that the specification needed to disclose the precise circuitry, components, or schematics or controllers would be employed. The court provided that level of hardware disclosure is not necessary, stating “as long as a sufficient algorithm describing how a general-purpose computer will perform the function is disclosed, reference to such general-purpose processors will suffice to overcome an indefiniteness challenge.”

AMEX Gift Cards Not Infringing

Privacash, Inc. v. Am. Express Co., No. 2011-1027 (Aug. 11, 2011) [PDF].

Privacash sued AMEX alleging that AMEX gift cards infringed U.S. Patent 7,328,181. The ‘181 provides a system with the objective of providing an anonymous and untraceable means for transacting purchases over the internet.

AMEX cards are activated when purchased and a usable until the value of the card is exhausted. AMEX will deactivate a card if it is reported lost or stolen. If reported stolen, a replacement gift card will be issued with the value remaining on the deactivated card.

Claim 1 of the ‘181 patent provides :

1. A method of transacting a purchase, comprising:

distributing a plurality of unfunded purchase cards from a purchase card provider to a plurality of purchase card outlets, wherein each of the purchase cards is a bearer instrument having an associated account number issued by a major branded credit card organization, an expiration date and a non-personalized cardholder name selected by the purchase card provider printed thereon, wherein the purchase card does not include information identifying the specific perspective cardholder, wherein information associated with each of the purchase card accounts is maintained in a software implemented application operated by the purchase card provider;

issuing a purchase card to a cardholder at the a purchase card outlet;

contacting the purchase card provider to fund and activate the purchase card account of specific purchase card issued with a software implemented application or via the telephone; and

transacting a cardholder purchase at any one of a number of retailers not associated with the purchase card outlet which accepts credit cards of the major branded credit card organization, wherein the cardholder presents the purchase card and the retailer contacts the purchase card provider over a network connection to interface with the software implemented application transmitting the purchase amount and the purchase card account number without requiring the retailer to collect and transmit personalized card holder identifying information, to verify using the software implemented retail application that the  purchase card is unexpired and that the purchase amount does not exceed the cardholder’s funding limit, whereupon the purchase card account information will be debited by the amount of the purchase and the account of the retailer will be electronically credited completing the purchase transaction.

A cancelable card is not a bearer instrument. The Federal Circuit  agreed with the district court that the AMEX card was not a bearer instrument or bearer card because it was capable of being cancelled or deactivated. Therefore the AMEX card was not  “as good as cash” and may not be  “used up to the limit available on the card by anyone in possession of the card” as provided in the ‘181 patent description.

The court noted that the purpose of the card in the ‘181 patent was to ensure anonymity of a purchase. However because the AMEX card allowed the true owner of the AMEX card to deactivate the card and get a replacement for the value remaining, the AMEX card did not provide anonymity, which was the purpose of the system of the ‘181 patent.

U.S. District Court Invalidates Computer Aided Method of Managing a Credit Application under Bilski

Dealertrack, Inc. v. Huber, et al., Doc. No. 06-2335 (C.D. Cal. 2009) [PDF]

Summary. The court granted summary judgment finding the asserted claims directed to a computer aided method of managing a credit application were invalid as failing the machine-or-transformation test from Bilski. The court found the process claims were not tied to a particular machine.

Facts. The plaintiff DealerTrack, Inc. (DealerTrack) asserted that defendant’s Finance Express and RouteOne infringed three of DealerTracks patents, including U.S. Patent 7,181,427 [Link] (the 427 Patent). The ‘427 patent provides a computer based credit application processing system [that] provides a graphical user interface, automatic software update downloading, lender to lender routing of credit applications, and integration with in-house finance and insurance systems and third party data entry facilities, among other features.

Claim 1 of the ‘427 patent provides:

A computer aided method of managing a credit application, the method comprising the steps of:

receiving credit application data from a remote application entry and display device;
selectively forwarding the credit application data to remote funding source terminal devices;
forwarding funding decision data from at least one of theremote funding source terminal devices to the remote application entry and display device;
wherein the selectively forwarding the credit application data step further comprises:
sending at least a portion of a credit application to more than one of said remote funding sources substantially at the same time;
sending at least a portion of a credit application to more than one of said remote funding sources sequentially until a finding [sic] source returns a positive funding decision;
sending . . . a credit application . . . after a predetermined time . . . ; or;
sending the credit application from a first remote funding source to a second remote finding [sic] source . . . .

DealerTrack arged that the claims of the 427 Patent were tied to a (1) central processor consisting of a specially programmed computer hardware and database, a (2) remote application entry and display device, and a remote funding source terminal device.

Central Processor Not Specially Programmed. The court stated, “The 427 Patent does not specify precisely how the computer hardware and database are ‘specially programmed,’ and the claimed central processor is nothing more than a general purpose computer that has been programmed in some unspecified manner.” See Ex Parte Nawathe, No. 2007-3360, 2009 WL 327520, (BPAI Feb. 9, 2009) (rejecting under Section 101 a claim reciting a computerized method of inputting and representing XML documents as insufficiently tied to a particular computer specifically programmed for executing the steps of the claimed method).

Not Tied to a Particular Machine. In an earlier claim construction order the court found:

  • “remote application entry and display device included any device, e.g.,personal computer or dumb terminal, remote from the central processor, for application entry and display.”
  • terminal device as any device, e.g., personal computer or dumb terminal, located at a logical or physical terminus of the system.”

The court has little trouble finding these devices were not particular machines withing the meaning of Bilski after finding that these various “devices” include “any device.”

Drafting Tips for Overcoming Obviousness Rejections and Officially Noticed Facts

In a patent application, it is important to describe the benefits and advantages that the invention provides over the prior art. This gives the invention context and provides reasons for the Examiner to find the unique features of the invention novel and non-obvious.

Defensive Uses. You may also use the benefits and advantages provided in the application defensively during prosecution. This may occur in two instances (1) when the examiner makes an obviousness rejection and provides reasons why one skilled in the art would combine the references and (2) when the examiner takes official notice of one or more facts.

Reasons To Combine References. Section 2145(X) of the MPEP provides that an obviousness rejection may not be based on improperhindsight reasoning gleaned from the applicants disclosure. Section 2142 provides To reach a proper determination under 35 U.S.C. 103, the examiner must step backward in time and into the shoes worn by the hypothetical person of ordinary skill in the art when the invention was unknown and just before it was made. It continues, The tendency to resort to hindsight based upon applicant’s disclosure is often difficult to avoid due to the very nature of the examination process. It further provides that knowledge of the applicants disclosure must be put aside in reaching an obviousness determination.

Therefore, if the Examiner provides a reason to combine two references, and that reason is listed in the application, the applicant can assert that the Examiner is using improper hindsight reasoning based on the applicant’s disclosure.

For example, say the Examiner asserted that one skilled in the art would combine two references to gain operational efficiency. Further, the applicant provided in the disclosure that the invention provided the benefit of increased operational efficiency over the prior art. Then the applicant could assert that the examiner is using improper hindsight reasoning and therefore, the operational efficiency rationale is not a proper basis to combine references. The Examiner may not be able to sustain the obviousness rejection without the given rationale.

Official Notice. Section 2144.03 of the MPEP allows an Examiner to take official notice of facts not in the record or to rely on common knowledge in making a rejection. However, section 2144.03(A) provides that Official notice unsupported by documentary evidence should only be taken by the Examiner where the facts asserted to be well-known, or to be common knowledge in the art are capable of instant and unquestionable demonstration as being well-known. The Examiner must be capable of such instant and unquestionable demonstration as to defy dispute.

Section 2144.03(B) provides that when the Examiner claims certain facts are common knowledge, the Examiner must “provide specific factual findings predicated on sound technical and scientific reasoning to support his or her conclusion of common knowledge.”

If the examiner uses a reason listed in the applicants disclosure to support his or her conclusion of common knowledge–like above–the applicant may assert that the Examiner is using improper hindsight reasoning based on the applicant’s disclosure.

Failure to List Advantages. If the applicant drafts a “slim” application that does not list the advantages and benefits provided over the prior art, the applicant will have a more difficult time attacking an Examiner’s reasoning as a basis of officially noticed facts and as used in an obviousness rejection.

Federal Circuit on Tour

The U.S. Court of Appeals for the Federal Circuit will hold oral argument in Silicon Valley in November:

The Court of Appeals for the Federal Circuit will hold hearings in several locations in Silicon Valley, California during the week of November 3, 2008. Santa Clara University School of Law, Stanford University School of Law and the United States District Courts in San Francisco and San Jose will each host a panel of judges for oral argument during that week.