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The United States Court of Appeals for the Federal Circuit has issued an important ruling relating to the drafting, interpretation, and enforcement of patent assignment clauses.

The ruling, in DDB Technologies, L.L.C. v. MLB Advanced Media LP¹, was issued February 13, 2008. This particular ruling concerns an employment agreement, but it applies to any agreement containing a patent assignment clause. The most significant aspect of this ruling is that the Federal Circuit, over a strong dissent, ruled that questions relating to patent assignment clauses will be governed by federal law, not state law.

Background

The principals of DDB Technologies are Dr. David Barstow and his brother Daniel Barstow. The brothers are listed as co-inventors of three computer simulation patents relating to the display of a live event on a viewer’s computer and one pattern-matching patent relating to a method allowing a viewer to search for information about a live event. In 1998 the Barstow brothers assigned these four patents to DDB, which they had formed to commercialize their patents.

The ultimate question in the lawsuit was whether Dr. David Barstow had previously assigned his interest in these patents to his former employer, Schlumberger Technology Corporation. Dr. Barstow, a computer scientist, had worked for Schlumberger from 1980 until 1994 and during this period was subject to an employment agreement.

The employment agreement required Dr. Barstow to furnish Schlumberger promptly a complete record of any and all technological ideas, inventions, and improvements, whether patentable or not, which Dr. Barstow, solely or jointly, may conceive, make, or first disclose during the period of his Schlumberger employment. Dr. Barstow agreed to and did grant and assign to Schlumberger or its nominee his entire right, title, and interest in and to the ideas, inventions, and improvements coming within the scope of his employment agreement which (a) relate in any way to the business or activities of Schlumberger; (b) are suggested by or result from any task or work of Dr. Barstow for Schlumberger, or (c) related in any way to the business or activities of Schlumberger’s affiliates.

Under the agreement if Dr. Barstow's "technological ideas, inventions or improvements" were to fall within the scope of his Schlumberger employment agreement, then he assigned to Schlumberger that interest together with any and all domestic and foreign patent rights in such ideas, inventions, and improvements. Dr. Barstow also agreed to execute specific assignments and do anything else properly requested by Schlumberger, at any time during or after his employment with Schlumberger, to secure such rights.

During Dr. Barstow's employment with Schlumberger, he worked on several projects related to the development of computer software used in connection with physical sensors used in logging oil wells, as well as on other software development projects. He also worked on several personal projects with his brother relating to broadcasting data about a live event and producing a simulation of the event to be viewed on a computer. This project with his brother eventually led to the applications for four patents that the Barstow brothers assigned to DDB. Two of the four patents were filed and one was issued during Dr. Barstow's employment with Schlumberger.

During his employment with Schlumberger, Dr. Barstow had discussed with his boss at Schlumberger and Schlumberger's general counsel for software matters the personal project he was working on with his brother. They determined that they did not believe the project belonged to Schlumberger and they didn't see how the project applied to Schlumberger's business. Apparently, no one at Schlumberger ever suggested that Dr. Barstow's personal project belonged to Schlumberger. However, it was unclear how much the company administration at large was aware of Dr. Barstow's personal project and whether it was aware at all of the determination given Dr. Barstow respecting its rights, if any, in the project he worked on with his brother. The decision Dr. Barstow's superior and the general counsel made about Dr. Barstow's personal project was never documented at the time. The failure to document this decision accounted for the problems DDB faces in the lawsuit over the ownership of its patents.

In 2004, DDB filed a patent infringement action against MLBAM alleging that MLBAM provided several Internet services that infringe DDB’s computer simulation and pattern-matching patents. Before the end of discovery in the patent litigation, MLBAM entered into an agreement with Schlumberger that assigned to MLBAM all of Schlumberger’s rights and interest in DDB's four patents in the lawsuit and granted MLBAM a retroactive license to practice under the patents.

The district court found that the DDB patents were within the scope of Dr. Barstow's employment agreement because they were both "suggested by" and "related to" his work for Schlumberger. Furthermore, the district court had determined that Dr. Barstow’s assignment to Schlumberger under his employment agreement was automatic. DDB had urged that there was no automatic assignment.

Federal Circuit Ruling

The first question addressed by the Federal Circuit was whether the question of an automatic assignment is governed by federal or state law. The Federal Circuit ruled:

"Although state law governs the interpretation of contracts generally [citation omitted] the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is intimately bound up with the question of standing in patent cases. We have accordingly treated it as a matter for federal law."

The Federal Circuit went on to rule as follows:

"Applying federal law, we have held that whether an assignment of patent rights in an agreement . . . is automatic, or merely a promise to assign depends on the contractual language. If the contract expressly grants rights in future inventions, 'no further act [is] required once an invention [comes] into being,' and 'the transfer of title [occurs] by operation of law.'" (Citations omitted).

The Federal Circuit determined that the language in Dr. Barstow's Schlumberger employment agreement is an express assignment of rights in future inventions. Thus, the Federal Circuit determined that if the four DDB patents were within the scope of Dr. Barstow's employment agreement, they were automatically assigned by operation of law to Schlumberger, with no further act required on the part of the company. However, the Federal Circuit believed the question of whether the patents at issue were within the scope of the employment agreement was an open question requiring further discovery.

The Federal Circuit found that the provision required the employee "to execute specific assignments and do anything else properly requested by Company, at any time during or after employment with Company, to secure such rights" does not "conflict with the clear language of the present, automatic assignment provision in the agreement."

DDB, the Federal Circuit ruled, had been denied key jurisdictional discovery as to whether the four patents in question were within the scope of Dr. Barstow's Schlumberger employment agreement. The court affirmed in part, vacated in part, and remanded to the district court the ruling in this case.

Federal, Not State, Law Governs Patent Assignment Clauses

Most significantly, the Federal Circuit, over a strong dissent, ruled that questions relating to patent assignment clauses will be governed by federal law, not state law. On one hand, this means more uniformity related to patent assignment clauses. However, it may make the enforcement of agreements containing patent assignments more complicated and possibly create jurisdictional issues respecting the proper appellate forum to the extent some issues are governed by state law and others are governed by federal law.

The Federal Circuit's ruling relates to an employment agreement, but the ruling applies to any agreement containing a patent assignment clause. When issues may arise under an employment agreement (or any other agreement) governed by federal law, it appears that this possibility should be reflected in the governing law provision used in such contracts:

This Agreement shall be governed by and interpreted under the laws of the State of ______, except to the extent the issue arising under the Agreement is governed by federal law.

The DDB Federal Circuit ruling is also instructive on how to draft patent assignments. The ruling supports drafting patent assignments with express grants in future inventions as opposed to a promise to grant an assignment in the future: the present assignment in future inventions occurs automatically by operation of law as the inventions occur, but the promise to grant an assignment in the future requires a further act by the assignor.

The Federal Circuit also found that requiring specific assistance to secure the assigned rights is not in conflict with the general assignment of future inventions. Accordingly, further assistance clauses can be used without concern of such provision causing a conflict with other assignment provisions.

Furthermore, the ruling underscores the importance of documenting any decision relating to inventions by employees that are outside the scope of their employment agreement.