Co-Inventor's Employment Agreement May Have Transferred Rights to Employer

DDB Technologies, L.L.C., v. MLB Advanced Media, L.P., [2007-1211](February 13, 2008) [DYK, Newman, Clevenger] The district court dismissed for lack of jurisction and the Federal Circuit held that that the district court erred in denying DDB’s request for jurisdictional discovery, and remanded for limited jurisdictional discovery and for further consideration of the district court’s jurisdiction based on that discovery.
BRIEF: The jurisdicational issues is whether plaintiff owned the patent in suit, in view of the employement agreement one of the inventors (Barstow) had with Schlumberger. Immediately before the close of discovery, MLBAM entered into negotiations with Schlumberger to acquire any interest that Schlumberger had in the patents in suit. Several months later Schlumberger and MLBAM entered into an agreement that assigned to MLBAM all of Schlumberger’s rights and interest in the patents in suit and granted MLBAM a retroactive license to practice under those patents. The distrit court granted MLBAM's motion to dismiss. The court found that the patents in suit fell within the scope of Barstow’s employment agreement because they were both "suggested by" and "related to" his work for Schlumberger.
Because the language of the employment agreement provided for an automatic assignment of Barstow’s rights, the court rejected DDB’s statute of limitations, waiver, estoppel, and laches defenses. The court also held that the equitable defenses were not available because Barstow had not complied with the disclosure requirements of Paragraph 3 of the employment agreement. Having concluded that Schlumberger, and thereafter MLBAM, was a co-owner of the patents, the court determined that it lacked subject matter jurisdiction because DDB had not joined Schlumberger and could not join MLBAM.
If the assignment under the agreement was automatic, then DDB's assertion of acquiescence and estoppel would not apply. Although state law governs the interpretation of contracts generally, the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is intimately bound up with the question of standing in patent cases, and the Federal Circuit has accordingly treated it as a matter of federal law. The Federal Circuit said whether an assignment of patent rights in an agreement is automatic, requiring no further act on the part of the assignee, or merely a promise to assign depends on the contractual language. If the contract expressly grants rights in future inventions, no further act is required once an invention comes into being, and the transfer of title occurs by operation of law. Contracts that merely obligate the inventor to grant rights in the future, by contrast, may vest the promisee with equitable rights in those inventions once made, but do not by themselves "vest legal title to patents on the inventions in the promisee. The Federal Circuit noted that
Paragraph 4 of Barstow’s employment agreement with Schlumberger stated that Barstow “agrees to and does hereby grant and assign” all rights in future inventions falling within the scope of the agreement to Schlumberger. The Federal Circuit agreed with the district court that this contractual language was not merely an agreement to assign, but an express assignment of rights in future inventions.
The Federal Circuit the tunred to the question whether the employment agreement covered the patents in suit because they “relate in any way to the business or activities” of Schlumberger, or “are suggested by or result from” Barstow’s work for Schlumberger. The Federal Circuit found that those issues were governed by state (Texas) law. The Federal Circuit held that DDB was not entitled to a jury trial on this question. The Fedearl Circuit rejected DDB’s argument that the district court erred by holding a preliminary hearing, rather than awaiting jury trial on the merits, to resolve the jurisdictional issues.
However, the Federal Circuit said that the limited jurisdictional discovery requested by DDB clearly was relevant to the existence of subject matter jurisdiction. The employment agreement is ambiguous as to what is "related to" or "suggested by" Barstow’s work for Schlumberger, because resort to extrinsic evidence, for example, as to the nature of Schlumberger’s business or to that of Barstow’s work, is necessary to determine whether the provision applies. Under both Texas contract law and general contract law, when a contract is ambiguous, conduct of the parties which indicates the construction that the parties themselves placed on the contract may be considered in determining the parties’ true intent. The Federal Cirucit said that in general it gives substantial deference to a district court’s decisions on issues of discovery. However, under the circumstances of this case, given the central relevance of the information sought in discovery, the Federal Circuit found that it was an abuse of discretion for the district court to deny DDB jurisdictional discovery, including document and deposition requests.