December 02, 2021, 11:00am EDT
In the fast-paced world of tech development, employees and subcontractors are often called upon to ramp up quickly in order to meet aggressive development schedules. The race to get a quick start on the development cycle and stay ahead of the competition sometimes leads companies to put aside good contracting principles. Boilerplate employment and subcontractor agreements may be used as a timesaver, but there can be significant pitfalls to this approach.
As a current Apple case demonstrates, development agreements with ambiguous language can lead to serious damage. This article is a warning to those who have ears to hear.
Omni v. Apple
In 2018, Omni Medsci, Inc. sued Apple, Inc. over certain patents that had been assigned to Omni by a University of Michigan (UM) tenured professor. Apple’s defense claimed that UM owned the patent rights, not Omni, since prior to assigning the patents to Omni, the professor had executed an employment agreement that included language stating:
“… Patents and copyrights issued or acquired as a result of or in connection with administration, research, or other educational activities conducted by members of the University staff and supported directly or indirectly (e.g., through the use of University resources or facilities) by funds administered by the University regardless of the source of such funds, and all royalties or other revenues derived therefrom shall be the property of the University.”
The federal district court did not agree with Apple’s argument, so Apple appealed to the Court of Appeals for the Federal Circuit (CAFC). The CAFC issued its opinion in April 2021. Like the federal district court, the CAFC did not agree with Apple’s argument. Omni did in fact own the patents, not UM.
But why? Isn’t it clear in the contract language that the patents were property of UM?
In a word, no. The employment agreement did not unambiguously constitute a present automatic assignment to UM (e.g., “agrees to grant and does hereby grant”) nor a promise to assign in the future to UM (e.g., “will assign”). In other words, even though the employment agreement contained the language that patents (and copyrights) “shall be the property of the University,” this language did not actually transfer (i.e., assign) any such rights to UM. Thus, Apple lost its argument on appeal, and UM lost its rights in the patents.
For another interesting and similar case, with arguably even more at stake, google Stanford University v. Roche Molecular Systems, which was decided by the U.S. Supreme Court in 2011.
The rule: Without a clear assignment, inventors own the invention
The unequivocal rule in the U.S., confirmed again by the U.S. Supreme Court in the Stanford case, is that ownership of an invention vests first the inventor.
For those reading this article who contract with others to do the inventing, including employees and subcontractors, think about what this means. It means that unless properly phrased assignment agreements are in place, you may not own the patents you paid for and think you own.
More than patents
In the tech development environment, there is even more at stake than patents, of course. What about trade secrets, CAD design files, know-how, software source and executable code, drawings, material lists, identity of suppliers, test procedures, manufacturing procedures, and other processes that may provide competitive commercial advantage? This intellectual property may be as valuable, or even more valuable, than patent assets.
Some of the many other reasons to refrain from using boilerplate agreements include defining non-disclosure/non-compete/non-solicitation obligations; defining contract deliverables, including right to cover in the case in which a subcontractor fails to perform; defining acceptance requirements; holding key assets such as source code in escrow; and defining the obligations of the parties in a variety of contingent situations.
A qualified, experienced business attorney who practices in the tech development space should be consulted before such agreements are executed, or at least before the development work begins. It may not be possible to unscramble the IP ownership egg later – and in the tech development space, ownership of IP can be everything.
This article was originally published in Orlando Inno.