What, if anything, can an employer do about the employee who leaves the company, taking his or her ideas along?

Inventions belong to the inventor (that’s your employee, not you) unless there’s an agreement to the contrary.  If the employee created the invention on company time and using company resources, then the company may have ‘shop rights’ to use the invention without paying a royalty to the employee.  The company does not own the invention – the company can’t sell the invention to someone else or exercise the other aspects of ownership, like applying for a patent.  On the other hand, if you specifically hired the employee to create the invention, then you may own the invention under the ‘hired to invent’ doctrine.  ‘Shop rights’ and ‘hired to invent’ are judge-made doctrines and resorting to either by an employer is an unnecessary, risky endeavor – what a judge giveth, a judge can taketh away.

You, the careful employer, do not want to rely on shop rights or hired-to-invent to protect your interests in inventions made by your employees. So what can you do?  The answer is in your employment agreements, of course.  Your employment agreement may say something like:

All inventions …which I may solely or jointly conceive, develop or reduce to practice during the period of my employment … shall be assigned to [Company].

Notice the temporal limitation:  “…conceive, develop or reduce to practice during the period of my employment… .”  Where the employee developed the invention to the point that the invention is actually constructed or would support a patent application prior to the time that the employee leaves the company, the answer is easy – the invention belongs to the employer. 

The more difficult question relates to inventions that span the time that the employee leaves the company.  What if the employee solves part of the problem during employment with the company and solves the rest of the problem after leaving the company?  Or how about the employee who develops know-how before leaving the company and creates inventions using the know-how after leaving the company? 

The Federal Circuit Court considered these issues in Bio-Rad Laboratories v ITC and 10X Genomics.  Two scientists launched a startup company for genetic sampling technology, signed employment agreements containing the language quoted above, sold the company for a lot of money, and created a new company (10X) that competed with the old company (Bio-Rad).  10X obtained patents for genetic sampling technology.  Bio-Rad developed parallel technology and 10X sued for patent infringement.  Bio-Rad defended by arguing that it co-owned the patents because the two scientists developed part of the technology while at Bio-Rad, so that the two scientists as employees were joint inventors with their later selves.  Bio-Rad reasoned that since it co-owned the patents, then it could not infringe. The problem with Bio-Rad’s argument is that the facts did not back it up.  The contribution that Bio-Rad claimed was made by the scientists in their time with Bio-Rad turned out to be part of the prior art (a Bio-Rad patent) and not part of the new inventions. 

The court concluded that the literal meaning of the contract assignment of “…conceive, develop or reduce to practice during the period of my employment…” meant that only inventions that were ready to patent during employment belonged to the employer.  The general know-how of the employee and the ideas of the employee during employment that were not yet ready to patent did not belong to the employer.

The Bio-Rad employment agreements did not address future inventions after termination of employment.  Consider Board of Trustees of Leland Stanford v Roche, which is not an employment case.  An employee of Stanford spent time at another institution to learn research techniques.  The Stanford employee signed an agreement with the other institution assigning any inventions made ‘…as a consequence of’ his work at the other institution.  The Stanford employee invented ‘as a consequence of’ the employee’s time at the other institution, and the courts concluded that the invention belonged to the other institution.

So can an employer protect itself from the export of half-conceived ideas and inventions by including the language ‘as a consequence of’ employment in the employment agreements?  This language certainly expands the options for the employer to inventions completed after employment ends; however, some states place limits on employment agreements and courts may be unwilling to enforce the term due to the limits on the future employability of the employee.  Courts are likely to enforce an obligation to assign future inventions to an employer if the assignment has clear and short time limitations.  The longer the time limit, the less likely that a court will enforce  the agreement. 

— Robert Yarbrough, Esq.