Property, intangible

a blog about ownership of intellectual property rights and its licensing

Why You Have That Employment Agreement Gobbledygook

Plaintiff Advanced Video Technologies has been around the block a few times already. AVT claimed to be the successor to a patent for a video codec. It had successfully asserted the patent against other defendants but ran into some problems when trying to sue HTC Corp., Blackberry and Motorola Mobility. Its first attempt failed because there was a missing link in the chain of title, meaning AVT didn’t actually own the patent. AVT didn’t appeal but instead had a receiver appointed for the sole purpose of transferring the ownership of the patent. The receiver assigned the patent to AVT and AVT started over again with HTC, Blackberry and Motorola Mobility.

Just a cast of characters first, there are many players to keep straight:

  • Infochips was the original employer of the inventors but it went out of business before the patent application was filed;
  • Woo was an inventor who bought the Infochip assets;
  • Woo assigned the assets to AVC, a predecessor to plaintiff AVT (“C” is before “T” in the alphabet, just keep that in mind when reading).
  • Epogy was the entity that supposedly owned the patent but didn’t, thus breaking the chain of title the first time around.

It’s actually more complicated than that, but that’s enough for our purposes.

This time, the challenge was that one of the three inventors, Vivian Hsiun, had not assigned her ownership of the patent to her employer. Under current Federal Circuit jurisprudence, an absent inventor means that the court lacks prudential standing for the lawsuit.

Here is the language from her employment agreement:

Hsieh employment agreement
If you can’t read it, it says:

I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company.

I agree that my obligation to assist the Company to obtain United States or foreign letters patent, copyrights, or mask work rights covering inventions, works of authorship, and mask works, respectively, assigned hereunder to the Company shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate for time actually spent by me at the Company’s request on such assistance. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign letters patent, copyrights, or mask work rights covering inventions or other rights assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, copyrights, and mask work rights with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company.

When the patent application was prosecuted, Hsiun refused to assign the invention. Instead, Woo (or as the court referred to him at one point, “hapless Woo”) filed a declaration with the Patent Office, attaching “a copy of the agreement whereby the omitted inventor agreed to assign this invention and the documentation wherein the rights in said agreement were purchased by me.” The Patent Office ultimately granted the patent.

The knowledgeable reader has already spotted the problem with this assignment – it’s an obligation to assign, not a present assignment of a future right. The court gives a thorough run-down on the law of the language of assignments as laid out in Arachnid, Inc. v. Merit Indus., Inc., Speedplay, Inc. v. Bebop, Inc., Filmtec Corp. v. Allied-Signal Inc., and Regents of Univ. of N.M. v. Knight. The plaintiff tried various textual arguments but none that stuck—I leave it to the readers to review that part of the opinion for themselves.* And it doesn’t matter what Woo said to the Patent Office:

Woo’s declaration to the patent office did not confer title to Hsiun’s share of the invention/patent on AVC — any more than AVT’s belief that AVC had passed title to the patent to Epogy turned that assertion from error to truth. See Advanced Video Techs., 103 F. Supp. 3d at 424. What Woo may have believed (or hoped) about the ownership issue is irrelevant because — as has been said before in the context of this dispute — saying so does not make it so. The question is whether, as a matter of law, Hsiun’s signature on her Employment Agreement operated to assign her one third share in the invention to Infochips, AVT’s predecessor in interest twice removed. If it did not, then no matter what Woo said to the Patent Office, AVC did not own 100% of the ‘788 invention by assignment at the time it obtained the patent.

But I think the more interesting part of the opinion is the court’s discussion of the administrative provisions baked into the employment agreement. We’ve all seen it and may have signed it, the provisions meant to be a backstop for the very situation of an uncooperative inventor. In this case there were two mechanisms that could have been used to solve the problem.

First, AVC, when prosecuting the patent, could have forced Hsiun to cooperate. But “[r]ather than sue Hsiun for specific performance of her contractual obligation to assist in the obtaining of the patent — an obligation that expressly extended beyond the term of her employment with Infochips — AVC chose to pursue the patent application without her.”

Second we have the power of attorney. Come to find out, “[u]nder the law of agency, … rights under the power of attorney clause are best characterized as an agency coupled with an interest (or, as it is referred to in the Restatement, as a ‘power given as security’ (Restatement (Third) Of Agency § 3.13 (2006)).” This is where (1) the agency is held for the benefit of the agent and not the principal, (2) the agency is created to secure the performance of a duty to the agent or to protect a title in him, and (3) the agency is created at the same time the duty or title is created or is created for consideration. It’s irrevocable (or else the principal could avoid its exercise by just revoking it). So who knew this boilerplate actually has a whole legal doctrine and all behind it?

Problem was, (bold by the court):

[N]either Woo nor AVC ever signed Hsiun’s name, either to a patent application or to any assignment of her interest in the invention. Instead, Woo asserted to the PTO that Hsiun had assigned her interest in the patent to Infochips back in 1992, by virtue of her signing the Employment Agreement. As detailed above, that assertion was (like so many of the assumptions made by AVT and its various predecessors in interest) factually and legally erroneous.

HERE’S THE LESSON: If you have a power of attorney for an uncooperative inventor, exercise it. Don’t rely on the assignment language, whatever it may be, sign the assignment as attorney-in-fact for the missing inventor.

AVT expended every effort to find some way to make it work but the court, with great thoroughness and in many paragraphs, speaking very slowly with repetition to make sure that AVT understood, explained why none of AVT’s theories would fly. First, any thought that the power of attorney gave AVT present rights wasn’t going anywhere:

So the only possible way for AVT to have acquired whatever rights AVC had as a result of its ownership of the Employment Agreement was if the recently appointed Receiver assigned AVT those rights. But the Receiver only assigned AVC’s rights in the ‘788 Patent, and the Employment Agreement’s enforcement provision are not rights in the patent, even though they are not wholly unrelated to the patent. Assigning AVC’s rights in the ‘788 patent did not effect an assignment of its rights in Hsiun’s Employment Agreement.

So what comes next? Do we go through this exercise yet again? Does AVT go back to the Court of Chancery and ask for the appointment of yet another Receiver?

No, we don’t. Because there is nothing left for AVC (or a Receiver for AVC) to assign. As Defendants correctly argue, the agency coupled with an interest by its terms was good for one thing and one thing only — it existed for the limited purpose of obtaining the patent. That is, it permitted the holder of the power, the agent, to sign applications and do all other lawful things that were necessary in order to get the PTO to issue a patent. But the patent has already been obtained. It issued in 1998. The patent has not been cancelled. The patent exists. There is no need to “obtain” it — even though the PTO was operating under a mistaken premise when it issued the patent to AVC alone.

(Emphasis in original.)

The Employment Agreement also “quitclaimed” Hsiun’s infringement claim, so AVT argued her absence didn’t implicate standing. Shot down again:

For the same reason as explained above, AVT has no interest in this quitclaim. The quitclaim rights arise under the Employment Agreement; they are not part and parcel of AVC’s rights under the ‘788 patent. Because AVC never transferred the Employment Agreement to anyone, AVT has no rights that arise by virtue of the Employment Agreement. Whatever powers the quitclaim conferred upon AVC were never transferred to AVT.

And once again, returning to the Court of Chancery to obtain further assignment of AVC’s assets would be unavailing. By its terms, the quitclaim applies only to patents that Hsiun assigned to the Company in accordance with the obligations she undertook in the Employment Agreement. The ‘788 patent is not such a patent. Hsiun had an undoubted contractual obligation to assign the patent to Infochips or (the Court is assuming) to its successors in interest who had the benefit of the Employment Agreement. Hsiun breached her contract when she refused to execute the assignment in 1995. But her breach did not work an assignment, and Woo and AVC never sued to compel Hsiun to live up to her obligations. Therefore, the quitclaim could never, by its terms, apply to the ‘788 patent.

If you haven’t gathered yet, the court was clearly very displeased that AVT brought this suit at all:

Woo and AVC had a strong case for breach of contract against Hsiun when she refused to sign the assignment. They chose not to bring that lawsuit. AVT argues here that Infochips’ and its successors had the right to sign Hsiun’s name to a patent application and to assign her interest in the invention; but neither AVT, nor Woo or AVC before it did either of those things. Instead, they did exactly what AVT did during all the years when it was bringing infringement actions while aware of a potential defect in its title to the patent: Woo declared that AVC owned Hsiun’s interest and toughed it out, hoping that no one would ever mount a challenge. Unfortunately for AVT, someone has mounted a challenge.

The dismissal is with prejudice. AVT expended considerable effort to cure the defect in title that proved fatal the last time around, but the court made no secret of the fact that the issue of Hsiun’s partial ownership of the patent was still lurking, unresolved. AVT has not cured this defect…. The time to clear up the question of Hsiun’s interest in the invention, and hence in the patent, was during the patent application process — not today, two decades later.

The defendants got their attorneys’ fees on the first failed lawsuit – I’d say it’s a slam-dunk for them this time around too.

Advanced Video Techs. LLC v. HTC Corp., No. 15 Civ. 4626 (CM); No. 15 Civ. 4631 (CM); No. 15 Civ. 4632 (CM) (S.D.N.Y. Jun 14, 2016).

* For the very sharp lawyer, the Hsiun agreement was signed in 1992. Film-Tec, which for the first time clearly stated that there could be a present assignment of a future invention (a conclusion that the Supreme Court has criticized and for which there is currently a petition for certiorari pending), was decided in 1991. I doubt that many human resource departments update their agreements on such a fine point so quickly, so you can’t be too hard on the company for having this currently disfavored language.

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One response to “Why You Have That Employment Agreement Gobbledygook”

  1. I think the court ruled correctly. If one of the inventors of a patent did not assign their patent to their employer, they are technically an co-owner of the patent. I also don’t think that every inventor should be forced to assign their patents to their employer either. I think individual inventors should be able to own the rights to their inventions.

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