Importance of “Hire-to-Invent” Contracts in the Assignment of Patent Rights

The assignment of intellectual property (“IP”) rights means a transfer of rights such as patents, trademarks, copyrights, industrial/commercial designs and technology from an assignor to an assignee. The assignment agreements differ from the license agreements. In the latter, the licensor authorizes another (licensee) to use licensor’s IP under specific conditions in return for a fee or a royalty. Therefore, while a licensor retains ownership of the IP, an assignor loses ownership following the transfer of rights to the assignee.

In patent law, the general notion is that an employee/inventor owns his/her invention, even though the invention was conceived or reduced to practice during the employment period, unless:

1. The employer and the employee sign a written agreement, by which, the employee expressly assigns all patent rights to the employer; or

2. The employee is a “hired-to-invent” employee, i.e., the employee is hired to create something specific or solve a specific problem.

“Both exceptions are firmly grounded in the principles of contract law that allow parties to freely structure their transactions and obtain the benefit of any bargains reached.” , 228 F.3d 1357, 1359 (Fed. Cir. 2000).

In a hire-to-invent contract regarding innovations, it is imperative that an employer or an employee comprehend their legal rights. The hire-to-invent doctrine comes to an employer’s rescue where there is no written agreement indicating employee’s assignment of patent rights to the employer. In such a scenario, the employer owns the invention because the employee was hired to invent and there is no express written agreement that contradicts the assignment of patent rights from employee to the employer.

However, an employer needs to be vary of the employees who do not fall in the “hired to invent” category and must have separate written agreements for such employees in order to avoid disputes in future. For instance, in Peregrine Semiconductor Corp. v. RF Micro Devices Inc., No. 3:12-CV-0911-H (S.D. Cal. Jan. 8, 2014), Peregrine’s former employee, an engineer involved in semiconductor development, assigned patent rights to his new employer. The Court held that the former employee did not fall under the “hire-to-invent” category because he was not hired to solve a specific problem. Instead, in addition to R&D, he was also involved in marketing and customer development. The result could have been in favor of Peregrine if there was a written assignment agreement between Peregrine and the employee.

Furthermore, in a recent case involving hire-to-invent agreement, the US Court of Appeals for the Federal Circuit held that although the agreement expressly assigned copyrights to the software code, it was silent on the assignment of patent rights. See James v. J2 Cloud Services, LLC, Case No. 17-1506 (Fed. Cir., Apr. 20, 2018). Additionally, the Court emphasized that the crux for hire-to-invent contract disputes is the employer-employee relationship and the applicability of this doctrine its “depends on the terms of the contractual relationship of the parties.” Here, the agreement was between two LLCs, to which the inventor was not even a party nor an employee of the assignee. In view of these facts, the Court reversed the district court’s dismissal of inventor’s claims for lack of subject matter jurisdiction.

Since the hire-to-invent contracts are rooted in state law, the application of the doctrine varies with different states. But the bottom-line is that employers should protect themselves by drafting a written assignment agreement which expressly states that the employee assigns all IP rights, including patent rights, whether conceived before or during the employment, to the employer. The agreement should describe each IP right individually to eliminate any confusion or a possibility of dispute. Whether the employee is a general employee or hired to perform a specific task, written employer-employee agreements must exist. Lastly, the employers should keep in mind the difference between employees and independent contractors and modify the assignment contracts accordingly.

Written By:

Mansi Parikh

Attorney at Law; Chair of IP Group

Schumann Hanlon Margulies LLC

(E) mparikh@shdlaw.com;

(T) (201) 451-1400

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