Five Tips for Transfer of IP Rights From Employees to Employers

A continuing challenge for companies in the United States is securing the intellectual property rights—and particularly rights to patentable inventions—developed by their employees.

The presumptive owner of a patentable invention generally is the human inventor; the company, despite employing the inventor, does not own the invention simply because of the employment relationship. In most cases, the inventor must transfer ownership of the invention to the company for the company to take title to the intellectual property. If the transfer or assignment agreement is incomplete, vague or uses language addressing future intent, the agreement or relationship may become problematic at the time a related patent is sold or asserted. This article provides several best practices for ensuring that an employee’s rights in a patentable invention are appropriately transferred to the company-employer.

Generally, the lack of an express assignment agreement from an employee to the company-employer may lead to the company not owning an invention made by its employee. This may occur even when the employee creates a patentable invention on the employer’s time using the employer’s resources. Absent an express assignment, the employer has only a “shop right.” A shop right is a nonexclusive, nontransferable, royalty-free license to use the invention. The employee-inventor remains able to license the invention to others, and, in a worst case, competitors of the employer.

An additional problem if invention rights are not transferred is that the company may lack prudential standing necessary to sue for patent infringement (assuming the invention is patented). Ownership (or an exclusive license) of a patent is a prerequisite to assert the patent. A lack of ownership forecloses a plaintiff’s ability to assert a patent. Correcting a lack of ownership after litigation commences is difficult; in many cases, the defect may lead to dismissal of the lawsuit. Further, the defendant may file a declaratory judgment action in a more favorable venue.

A company should use express intellectual property assignment agreements with its employees to avoid (or reduce) disputes about ownership. As part of an agreement, the employee assigns to the employer inventions conceived or made during employment.

Following are five tips companies can use to help make these assignment agreements more effective.

1. Use language effecting a present assignment instead of a promise to assign rights in the future.

The assignment clause should use present-assignment language. An example of commonly used present-assignment language is “I hereby assign …” As confirmed by the U.S. Court of Appeals for the Federal Circuit in Preston v. Marathon Oil (2012), this language transfers rights in an invention from the employee-inventor to the employer when the invention is made. A promise to assign in the future (e.g., “I agree to assign”), does not immediately transfer right to the invention. Future assignment language may require the company and employee to execute another assignment agreement to expressly transfer the invention. Completing an assignment after the invention is known (and the value of the invention is potentially known) may become problematic if the company and employee have a deteriorating relationship.

2. Include assignment clauses in employment agreements as a matter of course. 

Sometimes a company may ask only certain types of employees (those involved in research and development, for example) to sign an assignment agreement. But the company doing so may not capture innovations created by employees outside of product development. The better approach is to include an assignment clause in all employment agreements. This approach allows a company to capture the “light-bulb” innovation—for example, the assembly-line worker who unexpectedly invents a valuable modification to a machine used in the company’s business.

3. Add disclosure and waiver clauses. 

The assignment agreement should require the employee to disclose all inventions conceived or made before the employee accepted employment with the company. These clauses help define what inventions occurred after the employee/employer relationship begins. These clauses also may rebut claims that an invention surfacing after employment began related to work before employment. The disclosure clause should also make clear that the employee waives a later claim that an invention occurred before the employment relationship began if the invention is not disclosed in the employment agreement. The agreement should also require the employee to immediately disclose to the company any inventions conceived or made by the employee during employment. A company cannot patent inventions it does not know about.

4. Understand how state law governs assignment clauses.

Intellectual property assignments in employment agreements are governed by state law. In a recent employee-assignment case, for example, the Federal Circuit certified to the Wyoming Supreme Court the question of whether ongoing employment was sufficient consideration for a separate assignment agreement. The Wyoming Supreme Court decided that ongoing employment was sufficient consideration. Further, some states have statutes regulating assignment clauses. California and Washington, for instance, have statutes limiting the scope of intellectual property assignment clauses to cover only inventions that relate to the employer’s business. A company should review the laws of the relevant state that will govern the assignment agreement to ensure it is not overbroad.

5. Make the assignment clause clear; do not rely on an employee handbook. 

A company should include an assignment clause in an employment agreement, or even use a standalone assignment agreement, that the employee signs. Blanket provisions or policies in employee handbooks or other manuals in most cases do not result in a present assignment or an obligation to assign. A clear assignment clause that exists independently of other employment policy materials helps draw awareness to the assignment and its implications.

In conclusion, a company’s intellectual property may provide the advantage necessary to succeed in today’s technology-based marketplace. At least one recent study suggests that intangible assets, including intellectual property, make up an increasingly large percentage of the assets of large companies. Thus, it is critical for companies to secure ownership of the intellectual property created by their employees, and they can do so by improving their employment agreements or using specific intellectual property assignment agreements.

David Prange, a trial lawyer and a registered patent attorney, is a principal in the Minneapolis office of Robins Kaplan. He focuses on complex business litigation with an emphasis on intellectual property and licensing disputes. Josh Strom, a previous Robins Kaplan associate.