Property, intangible

a blog about ownership of intellectual property rights and its licensing

Invention Assignment and Shop Right

I don’t follow patent law as attentively as I do copyright and trademark, but I don’t recall seeing too many shop right cases.  Maybe this is ordinary stuff, but it was new to me.

First though is the dispute over who owned the invention, the employee or the employer. Normally it’s pretty well defined in an invention assignment agreement of some kind, but this case is a mess of facts. I’m surprised that defendant General Electric Company bothered to file a motion for summary judgment, and not at all surprised that it lost.

Former employee-plaintiff Henryk Oleksy started his invention while employed by Preferred Machine and Tool Products Corporation (“Old Preferred”).  A sub-subsidiary of GE named New Preferred (not the real name, but you get it) acquired the assets of Old Preferred on January 5, 1998. There were further corporate changes within GE after that that aren’t particularly relevant to the patent ownership issue.

Oleksy continued to to work on his invention while now employed by New Preferred. Upon the acquisition in January, 1998, he, like all former employees of Old Preferred, was asked to sign a “Patent, Proprietary Information and Waiver Agreement” (Waiver Agreement) that served to assign all employee inventions to GE, including a requirement that they execute all necessary documents. Oleksy didn’t sign the agreement and gave it to his attorney because of his pending invention.

At some point – could have been while the company was Old Preferred or New Preferred – Oleksy offered his invention to his employer.  On April 23, 1998, the president of New Preferred wrote a memorandum to Olesky saying “I am advising that you are free to take your manufacturing conceptual ideas to whomever would be most beneficial to you. We are not currently in a position to make the necessary changes to accommodate your process.” Oleksy also later had conversations with the company’s new president, Jewett, about implementing Oleksy’s process at the plant, but Jewett also said he wasn’t interested. Oleksy’s attorney wrote to Jewett looking to memorialize the verbal agreement, saying that in the conversation Jewett had confirmed the prior president’s statement that Oleksy would own the patent rights but also added that GE wanted to retain a shop right.  The lawyer asked Jewett to confirm the agreement by signing a copy of the letter and returning it, but Jewett never did.

Oleksy’s lawyer then contacted Robert Lampe, one of GE’s patent counsel, to confirm GE’s release of the invention. According to the Oleksy’s lawyer, Lampe tried to retract the original president’s memorandum. Lampe said they could come to an agreement, but they never did. Oleksy then signed the Waiver Agreement in December, 1998 and filed a provisional patent application in January, 1999.  There was more back and forth with Lampe and another lawyer at GE who suggested GE would license the patent, but apparently by then Oleksy wasn’t interested.  In November, 2000 Oleksy was asked to sign another invention assignment agreement, unsuccessfully tried to amend it to retain rights in his invention, and ultimately was fired because he wouldn’t sign it. The patent issued in 2002, in 2006 Olesky sued GE for patent infringement, and GE counterclaimed for breach of the Waiver Agreement and also claimed noninfringement because it had a shop right to the invention.

Wow. What a mess. So who owns the invention? I think it’s pretty clear no one wins this one on summary judgment, but Olesky got a boost from the court: “In the instant case, the undisputed facts not only do not demonstrate that defendant is entitled to judgment on its counterclaim for breach of contract, but they suggest just the opposite.”  Oleksy disclosed the invention and GE consistently said it wasn’t interested and also didn’t ask Oleksy to sign any assignment forms.  The court said “At no time from the point when plaintiff developed the process until after plaintiff had been terminated did defendant ever claim ownership rights in the process or patent.”

I think the court bent over a little backwards for Olesky. GE may not have affirmatively said it owned the patent, but it surely didn’t act like Oleksy did. I also think GE had some good legal arguments that the court didn’t buy. The assignment was to GE, so could New Preferred waive GE’s rights?  Retention of patents rights by employees was not contemplated in the Waiver Agreement (at least not that the court mentioned), so did the president’s memorandum language serve to amend the Waiver Agreement? Nevertheless, clearly no summary judgment here for GE.

The court then considered the shop right defense. A shop right is a common law right that allows an employer to practice an invention patented by an employee. It is an equitable defense, considering the circumstances surrounding the development of the patented invention and the inventor’s activities.

But, nothing for GE here. It was clear that Olesky conceived, developed and perfected his invention on company time using company materials, which normally would justify a shop right.  But there was also evidence that GE expressed time and time again it had no interest in the invention, so no shop right. And the kicker?

[S]hop rights are equitable in nature and creatures of common law. They attach where the employment relationship does not involve any specific contractual provisions providing for the assignment of intellectual property. “Where those rights are allocated by contract, the common law doctrine is superceded.”

In the instant case, defendant argues that plaintiff’s employment relationship with New Preferred was specifically conditioned on his agreement to assign intellectual property rights. “Where an employment relationship specifically anticipates the development and assignment of intellectual property and sets conditions for assignment, the equitable remedy of shop rights is inapplicable.” Accordingly, to the extent that the Waiver Agreement applies to plaintiff’s invention, the shop right doctrine does not.

(internal citations omitted). So if there’s an invention assignment agreement, no shop right, even if the employer doesn’t retain rights to the employee invention.  Good thing to know.

Oleksy v. General Elec. Co., No. 06 C 1245 (N.D. Ill. May 23, 2011).

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