Employer versus Employee Part II: Pre-Invention Assignment Agreements

At common law, the general rule of invention assignment is that employees retain ownership of patents on their inventions, unless the employee was employed to invent. (See post on Invention Assignment.) However, determining ownership of an invention at common law, e.g., who wins between the employee and employer, can be unpredictable and may involve complex factual issues relating to scope of employment, nature of the invention, and whether or not the employee used employer resources. To avoid this uncertainty, employers have commonly used pre-invention assignment agreements.

A pre-invention assignment agreement addresses ownership of an employee’s invention before it is even invented, e.g., addresses potential innovations. A contract having a pre-invention assignment provision typically requires the employee to assign to the employer the employee’s ownership rights in all inventions conceived or created during the course of employment. These contract provisions are known as pre-invention assignments, because the assignment is executed at the start of employment before any invention is actually conceived.

Courts have generally upheld pre-invention assignments under freedom of contract theories. As stated in Gas Tool Patents Corp. v. Mould, 133 F.2d 815, 818 (7th Cir. 1943)(citing Guth v. Minn. Mining & Mfg. Co., 72 F.2d 385 (1935)), “patentable discoveries are the legitimate subject of contracts to assign, and that, with certain limitations, action for specific performance lies for failure to execute the assignment required by the contract.” However, if a contract “provide[s] for the assignment of patents beyond the term of the employment, [they] are to be strictly construed; they must be fair, reasonable and just. The rule is further stated in 25 R.C.L. Specific Performance § 108, ‘Nor will equity compel compliance with an agreement to assign future inventions made after the inventor, having been discharged from the employment of the other contracting party, has assumed, with such party’s acquiescence, that the contract is terminated, and has expended time, efforts, and money in developing and exploiting new ideas.’” See Gas Tool Patents, supra.

Some states have passed employment invention laws that limit the subject matter of pre-invention assignment agreements. Often, these employment invention acts prohibit employment agreements from requiring employees to assign inventions created outside the scope of employment. These types of employment invention laws will be treated in more detail in a subsequent post.

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