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Continuation of at-will employment sufficient consideration for an agreement to assign intellectual property to employer

May 14th, 2012  |  Ron Miller

The Wyoming Supreme Court can down squarely on the side of employers in a dispute concerning the ownership of two patents for a baffle system on oil field pumps in Preston v Marathon Oil Co. On a question certified from the Federal Circuit, the Wyoming high court was asked whether the continuation of at-will employment was sufficient consideration for an employment agreement that contained a provision requiring the assignment of intellectual property to an employer.

A federal district court had ruled that the employee was the sole inventor of two patents, but that a “Employee Agreement” was a valid contract that required him to assign his ownership interests to the company. On appeal, the Federal Circuit certified the question of additional consideration to the Wyoming high court.

Employee inventions. Several months after the employee began his employment he signed a document entitled “Employee Agreement” which contained the intellectual property provision. It was undisputed that the employer did not provide any additional consideration to the employee for signing this document beyond continued employment. Approximately two months after the employee ceased his employment he filed a patent application for his invention of the baffle system. He was listed as the sole inventor. The employer filed a patent application for a similar invention that named both the employee and a former coworker as co-inventors. The employee filed suit for patent infringement and a declaration that he was the sole inventor of the patent awarded to the employer. The employer counterclaimed, asserting that the employee had agreed to assign his rights in the first patent pursuant to the employee agreement.

Generally an invention is the property of the inventor who conceived, developed and perfected it. Thus, the mere fact that the inventor was an employee at the time of the invention does not mean that the inventor is required to assign the patent rights to the employer. However, if job duties include the responsibility for inventing or for solving a particular problem that requires invention, any invention created by the employee during the performance of these responsibilities belongs to the employer. Typically, an employee who is not hired to invent is the owner of any invention discovered during employment. Nevertheless, when an employee who was not hired to invent does invent something as part of his work duties, the employer is given a “shop right” to use the invention.

In this instance, there was no indication that the employee’s specific job duties included inventing the baffle system. So, under the general rule, the employee would be the owner of his invention and the employer would be entitled to use the invention under the “shop right” principle. However, the “Employee Agreement” included the intellectual property agreement requiring him to assign his invention to the employer.

Adequacy of consideration. Thus, the Wyoming Supreme Court was faced with deciding whether an at-will employee’s assignment of intellectual property rights to his employer must be accompanied by additional consideration, beyond the continuation of his employment, to be enforceable. As an initial matter, the court noted that there is a split of authority on the question of whether additional consideration is required to support post-employment assignment of intellectual property. The court rejected the employee’s contention that its decision in Hopper v All Pet Animal Clinic, Inc, which involved a covenant not to compete given by an employee after commencement of her employment, supported his contention that consideration in addition to continued at-will employment is necessary to support a post-employment assignment of intellectual property rights.

Rather, the court noted that it closely scrutinized covenants not to compete, employing a rule of reason analysis, to ensure that there is a proper balance between the competing interests of the employer and employee. The court observed that the requirement that a covenant not to compete must be supported by reasonable consideration separate from continued at-will employment was based, in part, on the sanctity of the right to earn a living. Because restraints on trade that attend non-competition agreements that limit an employee’s ability to earn a living, are not present for intellectual property assignment agreements, no additional consideration is required to support an employee’s post-employment agreement to assign intellectual property to his employer.

With patent assignment agreements, employees remain free to work for “whomever they wish, wherever they wish, and at whatever they wish, subject only to the requirement that the employee assignment to the employer any work product relating to the employer’s business developed by the employee while he or she was employed by the employer. Because of those differences, agreements to assign patents do not have to be supported by separate consideration. Thus, the certified question was answered in the affirmative.