Monday, May 2, 2011

Invention Assignment Agreements – A Reminder

A recent decision of the U.S. District Court for the Southern District of New Yorkis a useful reminder for both employees and companies of the important of invention assignment agreements.  To summarize, Michelle Baker worked part time for IBM from 1990 to 1993, while she was a graduate student at Columbia.  During that time, she came up with some ideas for graphical interfaces, worked on them at IBM and talked with people at IBM about them.  On her way out, she tried to assert ownership (or “establish” that IBM wasn’t interested), but IBM rebuffed her and her supervisor put a memo in his file to that effect.  Undaunted, Baker applied for several patents, which eventually issued.  She then sued all and sundry (but not IBM) for infringement.  When the defendants figured out that IBM probably owned the patents, Baker sued IBM to establish her ownership.  She lost.

Legally, the decision is mostly unremarkable.  But it’s a useful reminder of how seriously everyone should take those “boilerplate” invention assignment agreements.

On the company side, IBM’s agreement did what it was supposed to do:  Prevent employees from arguing that their best work while employed consists of “personal projects.”  That often feels unfair to employees.  Where the technology is closely related to the company’s business, that attitude is, to be blunt, just self-interest talking.  So companies, investors and M&A purchasers, take note:  There really is a reason to make sure that each and every employee (and, in the case of a startup, each and every founder) signs one of these things before starting work.  The problem is real and assignments really solve it.

Now back to the employee’s perspective.  The most obvious lesson is to understand and pay attention to IP assignments.  They aren’t just meaningless boilerplate that you sign along with the sexual harassment policy.  If you’re developing IP (especially if you’re doing it on the side), you need to read and think about the assignment or you could be agreeing to something very uncomfortable.  Of course, these agreements can be very unfair if they claim ownership to IP that isn’t either related to the company’s business or developed using company facilities.  If you’re in California, you can relax, since that’s unenforceable under Section 2870 of the California Labor Code.  Even outside of California, overreaching is pretty rare in respectable companies.  In this case, for example, IBM’s agreement was fairly limited.  Baker was using IBM facilities to develop technology smack in the middle of IBM’s business.

So, what can you do if you have a side project that would be covered by the assignment?  If you haven’t signed yet, one route is to exclude your project expressly.  Assignment forms almost always have a provision that allows you to list things that are excluded.  The reason people don’t usually want to do this is that it sends the signal to your new employer that you’re already working on your exit (and maybe on competing with them).  That’s true enough, but avoiding the embarrassment of disclosing can be the equivalent of not talking to your doctor about a lump in an embarrassing place:  You’ve avoided some unpleasantness now, but it’s likely to come back up in a much more unpleasant way later.  It’s almost always better to do something about the problem before it festers.

The first step is to make sure you understand the specifics of the assignment and what it requires you to disclose.  If you can get comfortable (preferably with competent legal advice) that your project is outside of the assignment and the assignment doesn’t require you to disclose unrelated projects (some do), the best choice may be to keep quiet and make sure you don’t work on them during company time or with company facilities (e.g. laptops, tablets and phones, and e-mail, text and voice accounts provided by the company).  Bear in mind, however, that you may have to convince skeptical VCs or purchasers in the future.  Unlike your co-founders, spouse and (maybe) your lawyer, they won’t be bending over backwards to agree with you.  So don’t take this route if you think it’s a close case.

The other alternative is to disclose and discuss.  If you bring it up and ask if the company cares, the answer may be “no.”  If so, get it in writing from the right person (go as high as you can, but make sure to check if the assignment specifies who has to sign off) and put it in your file.  In doing this, you don’t have to hit the company over the head with the commercial possibilities, but try hard not to be deceptive.  A consent obtained by trickery might not hold up.  In any event, it greatly raises the likelihood they’ll feel ripped off and sue you if they later realize what happened.

If the company really cares, it’s best to see if you can deal with your project as some kind of mutual business opportunity.  By the way, if the technology is really what they hired you to work on or if you’ve already developed it to the brink of commercialization, this won’t work.  They’ll just tell you to be satisfied with the options/restricted stock you already have and get back to work.  But if it’s clearly not in your job description and it’s still just a twinkle in your eye, what they already own may not be very valuable to them without you.  So both of you have rights (you have the right to not work on it) and there’s room to deal.  Whatever deal you reach should be formal and written.  Oral “understandings” will almost always end badly for all concerned, but mostly for the employee.  If you think the company won’t need or want you to help develop the technology, you should seriously consider quitting as your first step (maybe putting off doing anything until you find a new job with a company in a different business).

To get lawyerly for a moment, one thing to note in this opinion is the court’s emphasis (following on the Federal Circuit’s Stanford v. Roche decision) on the magical words “hereby assign.”  It appears (although the opinion is frustratingly unclear on this) that this language would allow a company to bring a declaratory judgment action to settle title without regard to any statute of limitation, assuming the company wasn’t aware of any actions of the employee inconsistent with the company’s ownership, since it causes ownership to vest on creation of the IP.  Personally, I think these courts are putting too much weight on the ethereal idea of a present transfer of ownership to something that, at present, doesn’t exist.  But they are doing it, so it’s worth bearing in mind.