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Federal Circuit Holds that Automatic Assignment of Employee Rights May Foreclose Certain Defenses

By Sarah Sorscher — Edited by David Lawson

DDB Technologies, L.L.C. v. Major League Baseball Advanced Media, L.P.
Federal Circuit, February 13, 2008, No. 2007-1211
Slip Opinion

On February 13, the Federal Circuit affirmed in part, vacated in part and remanded for further discovery a decision of the District Court for the Western District of Texas related to employee assignment of patent rights.

The court affirmed the district court’s holding that appellant DDB Technologies could not assert statute of limitations and equitable defenses against patent claims by Schlumberger Technology Corporation — a former employer of DDB’s co-founder, inventor David Barstow — because Barstow’s employment agreement with the company automatically assigned the patent rights in question to Schlumberger, and Texas law foreclosed those defenses for automatically assigned patent rights.

The Federal Circuit vacated the district court’s dismissal for lack of jurisdiction (and resulting denial of jurisdictional discovery). The district court held that DDB failed to join either Schlumberger or Major League Baseball Advanced Media (MLB), which it held were both necessary parties because they were co-owners of the patents. While holding that DDB was not yet entitled to a jury trial on the merits, because the facts of the case were insufficiently intertwined with the jurisdictional issue, the Federal Circuit remanded for further discovery on the jurisdictional question alone.

Dennis Crouch of Patently-O sees the decision as a major victory for employers, and warns employees to explicitly protect their rights.
Gary Odom at Patent Prospector dissects the opinion, also seeing severe dangers ahead for inventive employees.

DDB brought suit against MLB for infringement of four patents related to gathering data about and generating computer simulations of live baseball games. After the suit had been filed, MLB negotiated with Schlumberger to purchase whatever rights Schlumberger had to David Barstow’s inventions.

After the district court dismissed the case for lack of jurisdiction, DDB appealed, claiming the patents were unrelated to Barstow’s work for Schlumberger and thus not covered by his employment contract. DDB further claimed that Schlumberger’s claim of ownership was barred by both long inaction and earlier reassurances by Schlumberger’s counsel that the patents were unrelated to Barstow’s employment.

Judge Dyk, writing for the majority, first noted that Texas law precludes statute of limitations and equitable defenses asserted after an assignment of rights. To determine whether such assignment was made in this case, the court used federal law, citing its own precedent holding that the question was “intimately associated with” standing. The court held that in light of the contractual language, all patents within the scope of the employment agreement would have been automatically assigned to Schlumberger such that the statute of limitations waiver and estoppel defenses have no merit. Judge Dyk finally held that DDB had no right to a jury trial, and that the issue of jurisdictional standing in this case was separate from the merits.

Holding that the district court erred in denying further discovery on the standing issue, the court remanded for further proceedings on whether the patents fell within the scope of the employment agreement.

Judge Newman concurred with the decision to remand for additional discovery, but dissented on several other grounds. He argued that, on remand, the court should have been ordered to consider the case on the merits. Judge Newman would have ordered further exploration of the asserted statute of limitations and equitable defenses, noting the extensive time that had elapsed since the patents were filed and Schlumberger’s previous assurances to Barstow that the inventions were not covered by his employment agreement. He argued that the majority distorted state law questions of contract into federal law questions of jurisdiction. Finally, he argued that refusal to join by a party with independent claims to the patent would not automatically cause a plaintiff to lose jurisdictional standing because of the availability of Rule 19 involuntary joinder of parties with independent claims.

The decision establishes that whether statute of limitations and laches defenses are available is established by the language of the employment contract. Such defenses fail where the agreement has been written to confer automatic assignment of title (“The employee hereby assigns . . . ”), suggesting that statute of limitations defenses may be successful where the language of the agreement merely obligates the inventor to grant future rights that must be asserted before assignment can occur (“The employee agrees to assign . . . ”).

The effect of the decision is ultimately to strengthen the rights of employers to employee inventions. Crouch suggests that inventors wishing to maintain patent rights to private projects should obtain a written exception to policy or assignment from the company “prior to inventing.”

Posted On Feb - 17 - 2008 Comments Off

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