Watch out for the “hereby assigned” language in your employment contract

Companies often ask what language to use in their employment contracts to make sure that the titles of the inventions by their employees are transferred to the company.  My answer has always been “hereby assigned,” at least for now.

The rule that the “hereby assign” language in an employment contract immediately transfers the title of an employee’s invention to the company originated from a 1991 Federal Circuit ruling.   In Filmtec Corp. v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991), the Court held that the “hereby assign” clause results in an automatic assignment of rights from an employee to the employer.  This language should be contrasted with an “agree to assign” clause, which, according to the Supreme Court in Stanford v. Roche, does not shift legal title until the inventor actually does assign after inventing.

In Stanford v. Roche, Dr. Holodniy executed an agreement with Stanford in 1988. The agreement contained “agree to assign” clause.  Later, Dr. Holodniy executed another agreement with Cetus that contained “hereby assign” language.  While under the obligation of both agreements, Dr. Holodniy made a scientific discover, which resulted in a highly valued patent.  Standford and Cetus ended up in a court fight vying for the ownership of the patent.  Following Filmtec decision, the Supreme Court sided with Cetus with the reasoning that Standford’s earlier agreement did not actual transfer the title of the invention while Cetus’ later agreement transferred the title upon signing.

However, the change may be in the air—there are some strong backers in asking the court to review the current rule. In his dissenting opinion in Stanford v. Roche, Justice Breyer challenged the Federal Circuit rule. Relying upon history and tradition, Justice Breyer wrote that the initial “hereby-assign” employment contract as creating equitable title in the invention whose legal title does not automatically transfer.  Justice Breyer’s position is consistent with the rule before Filmtech in 1991, when the patent law appears to have long specified that a present assignment of future inventions (as in both contracts in Standford v. Roche) conveyed equitable, but not legal, title.  Under this rule, both the initial Stanford and later Cetus agreements could have given rise only to equitable interests in Dr. Holodniy’s invention. And as between these two claims in equity, the facts that Stanford’s contract came first and that Stanford subsequently obtained a postinvention assignment as well should have meant that Stanford, not Cetus, would receive the rights its contract conveyed.

So stay toned.  For now, for companies/employers, make sure that your employment contracts include “hereby assign” language; whereas, for employees, before you sign that employment contract, ask yourself--do you really intend to assign all your future inventions immediately to your employer?

Thanks for reading.

Connie

cwan@patentonomy.com