ASSIGNED ALL MY RIGHTS AWAY: The Overuse of Assignment Provisions in Contracts for Patent Rights

• Author: Emily A. Sample
• Position: J.D. Candidate, The University of Iowa College of Law, 2019; B.S. in Chemical Biosciences, University of Oklahoma, 2016
• Pages: 447-490

ASSIGNED ALL MY RIGHTS AWAY: The Overuse of Assignment Provisions in Contracts for Patent Rights Emily A. Sample * ABSRACT: Many companies rely on the use of assignment clauses to grant themselves ownership of intellectual property created by their employees. Many of these contracts target patent ownership rights, are overly broad, and prevent employee–inventors from receiving fair value for the work they provide to their employers. When the clause collects patent ownership rights, these contracts reduce the motivation to innovate and restrict the mobility of employees. As a result, many scholars challenge the principle of assigning away intellectual property in initial employment contracts. Only some of this criticism is warranted because businesses may validly claim some of the inventions created by their employee–inventors. Many businesses hire with the intent to innovate a specific invention, and basic principles of agency law and shop right doctrines would indicate that the invention belongs to the business. Without that invention, many businesses may struggle to survive and raise revenue. Because economic realities have changed since the Framers wrote the Patent Clause into the Constitution and Congress initially passed the Patent Act, both the employer and the employee–inventor share rights to many inventions, possessing legal rights to the invention and personhood rights to the invention, respectively. To resolve this conflict, corporations should modify existing contracting practice to rely on right of preemption provisions, courts of all levels should consistently interpret contract law in light of patent law terms of art when patent ownership suits reach them, and Congress should authorize the ability to terminate patent rights assignments to empower employee–inventors and promote more equitable consideration and compensation for inventions created by their employees. I. INTRODUCTION ........................................................................... 448 II. PATENT LAW AUTHORIZES THE USE OF ASSIGNMENTS................. 451 A. F OUNDATION FOR P ATENTS .................................................... 451 * J.D. Candidate, The University of Iowa College of Law, 2019; B.S. in Chemical Biosciences, University of Oklahoma, 2016. 447 448 IOWA LAW REVIEW [Vol. 104:447 B. C ASE P RECEDENT ................................................................... 454 III. CORPORATIONS TAKE ADVANTAGE OF ASSIGNMENT PROVISIONS BY MAKING ASSIGNMENT A CONDITION OF EMPLOYMENT ......................................................................... 461 A. I MBALANCE OF P OWER ........................................................... 461 1. Corporate Needs Have Displaced the Age of the Sole Inventor ......................................................... 464 2. Courts Offer Corporations More Remedies than They Offer to Employee–Inventors .................... 467 3. Reputational Concerns of Employee–Inventors Impact Their Productivity ........................................... 470 B. S TATE L AW O FFERS E MPLOYERS P ROTECTION A FTER THE T ERMINATION OF E MPLOYMENT ............................................. 473 1. Trailer Clauses Allow Employers to Acquire More Intellectual Property .......................................... 473 2. Courts Favor Employers When Determining Time of the Conception of the Invention .................. 475 3. Corporations Reserve Rights to Maintaining Operational Secrecy .................................................... 478 IV. PRIVATE BUSINESSES AND PUBLIC GOVERNMENT SHOULD WORK TOGETHER TO RESOLVE THE INEQUITABLE ASSIGNMENT OF EMPLOYMENT INTELLECTUAL PROPERTY ........... 481 A. R IGHT OF P REEMPTION C ONTRACT P ROVISIONS ....................... 481 B. J UDICIAL I NTERPRETATION OF C ONTRACTS R EDEFINED ............. 485 C. C ONGRESSIONAL A CTION ....................................................... 486 V. CONCLUSION .............................................................................. 489 I. INTRODUCTION As many corporations spearhead research and development in the United States, most of the inventive expectations are the responsibility of employees rather than shareholders or directors. Such products are frequently patentable under the Patent Clause of the Constitution and the provisions of the United States Code. 1 It is well-settled law that the inventions of employee–inventors do not immediately vest in their employers. 2 Employers were concerned that they could lose the invention on which they 1. U.S. CONST. art. I, § 8, cl. 8; 35 U.S.C. §§ 100–156 (2012). 2 . See Solomons v. United States, 137 U.S. 342, 346 (1890); Am. Cyanamid Co. v. Hubbell, 76 F.2d 807, 807 (3d Cir. 1935). But see United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933) (holding that inventions assign to employers if the invention was the reason for employment). 2018] ASSIGNED ALL MY RIGHTS AWAY 449 had relied and invested. 3 For equity purposes, courts authorized the equitable remedy of shop rights, 4 and employers began contracting with employees to make the employer the patent owner. 5 These contracts utilize automatic assignment clauses, requiring no affirmative action on the part of the employer or the employee–inventor once the invention is made yet still granting employers a remedy should an employee–inventor attempt to claim the patent in his or her name. 6 Courts have primarily treated assignment clauses favorably, even though employers have drafted them to disadvantage the inventors they hire by collecting inventions beyond the scope and term of employment. 7 Courts have also expanded the protections available to companies beyond contract law. 8 These provisions and their interpretations by courts have begun to reduce innovation 9 and restrict employee mobility 10 —outcomes not anticipated by the Patent Clause of the Constitution. 11 To resolve these concerns, corporations should alter the provisions from automatic assignment clauses to right of preemption clauses to better represent the interests of the potential employee 12 and simultaneously improve the work ethic of their employees, which can greatly benefit the corporation. 13 Another important step that should be taken to resolve inequity between employers and employee–inventors would be changing 3 . See Solomons , 137 U.S. at 346. 4. “Shop rights” are a remedy for employers that grants them immunity from liability for infringing a patent belonging to one of their employee–inventors if the employee–inventor used the resources or equipment of the employer to invent the patented subject. See Shop Right , BLACK’S LAW DICTIONARY (10th ed. 2014) (“An employer’s right to an irrevocable, nonassignable, nonexclusive, royalty-free license in an employee’s invention, if the employee conceived and developed the invention during the course of employment and used company funds and materials.”). 5 . See infra Section II.B (describing the history of assignment clauses in employment contracts through historical jurisprudence). 6. As used in this Note, “assignment clauses” are the contractual provisions that “assign,” or grant, the ownership of patent rights to someone other than an inventor or joint inventor. See RESTATEMENT (SECOND) OF CONTRACTS § 317 (AM. LAW INST. 1981); Assignment , BLACK’S LAW DICTIONARY (10th ed. 2014). 7 . See infra Part III (describing the imbalance of power between employers and employee–inventors through the use of adhesion contracts, trailer clauses, noncompetition restrictions, and resource allocations). 8 . See infra Section III.B (describing the way state courts allow more legal opportunities for employers than they do for employee–inventors with state law causes of action and trade secret law). 9 . See infra notes 156–63 and accompanying text. 10 . Employee mobility refers to “the ease by which a skilled employee can leave one job, join another company, and immediately apply his or her skills.” Charles Tait Graves & James A. DiBoise, Do Strict Trade Secret and Non-Competition Laws Obstruct Innovation? , 1 ENTREPRENEURIAL BUS. L.J. 323, 324 (2006) (emphasis added). 11 . See infra text accompanying notes 263–65. 12 . See infra Section IV.A (proposing that employers implement right of preemption provisions to remedy the imbalance of power). 13 . See infra notes 160–66 and accompanying text. 450 IOWA LAW REVIEW [Vol. 104:447 existing judicial intervention to be more employee–inventor friendly. To accomplish this, courts should reinterpret some of the precedential doctrines used in this area to refine the applicable law to patent law terms of art instead of applying plain language contract interpretation. 14 This Note will argue that while courts do rely on principles of contract interpretation, there are other more applicable principles that ought to be applied, such as the technical meaning rule and construing ambiguities against the drafter. 15 Finally, Congress should amend the patent title to allow termination of assignment rights in order to force employers to provide adequate compensation to the employee–inventor for the value of the patent. 16 This Note will create a balanced solution that will recognize the legitimate interests of both the employer and the employee–inventor rather than using adhesion contractual assignment 17 of patent ownership rights. 18 This Note shall address this issue through several sections. Part II lays out the existing framework of the patent system, a treatment of the principles of patent assignment clauses, and how courts apply the law based upon this context. Part III reviews how the shift in economic realities has harmed innovation by discouraging employee–inventors from inventing and how employers have capitalized on this shift to generate larger intellectual property portfolios at the employer–inventor’s expense. Part IV proposes three possible solutions to reintroduce fairness to the employer–employee relationship. The first proposal requires corporations...