Assignment
Breach of an Implied Contractual Obligation (of Employee) to Assign Patent Rights (to Employer, Then to Successor Corporation)
May Employer’s Rights Under a Written Employment Agreement Be Assigned Without the Employee’s Consent?
May an Implied-In-Fact Contractual Obligation Regarding Intellectual-Property Rights Be So Assigned?
Successor Corporation
Patent Law
Illinois Law
Wisconsin Law
Common Law of Massachusetts (Contract Formation)
(…) REXA also challenges the district court’s grant of summary judgment to Chester on Count IV, REXA’s claim for breach of an implied-in-fact contractual obligation to assign any patent rights in connection with the patent application. In evaluating such a claim, federal courts “apply state-law principles of contract formation to determine whether an implied contract existed.” Farmers Edge Inc. v. Farmobile, LLC, 970 F.3d 1027, 1031 (8th Cir. 2020) (citing Teets v. Chromalloy Gas Turbine Corp., 83 F.3d 403, 407 (Fed. Cir. 1996)). The parties agree that REXA’s claim for breach of an implied-in-fact contract arises under the common law of Massachusetts, where Koso employed Chester.
Massachusetts law provides that if an employer “contemplates the discovery of an invention” and contracts with an employee to build it such that the employee “must have reasonably understood that such inventions as resulted from his performance of the contract should belong to the employer,” the employee has “an implied obligation to assign any patents ... for said inventions to his employer.” Nat’l Dev. Co. v. Gray, 55 N.E.2d 783, 787 (Mass. 1944) (citations omitted). Subsequent cases have extended that proposition. When an employee—even if hired in a general capacity—is specifically “directed during the course of his employment to develop or perfect new or existing machinery or processes, his employer becomes the owner of resulting inventions and may compel the assignment of patents taken in the employee’s name.” Steranko v. Inforex, Inc., 362 N.E.2d 222, 233–34 (Mass. App. Ct. 1977); see also Silica Tech, L.L.C. v. J-Fiber, GmbH, 2009 WL 2579432, at *13 (D. Mass. Aug. 19, 2009) (same).
REXA is correct that the question of whether an employer’s rights under a written employment agreement may be assigned without the employee’s consent is materially distinct from whether an implied-in-fact contractual obligation regarding intellectual-property rights may be so assigned. The concerns that weigh against permitting a successor corporation to enforce a contract for employment, a personal service, do not necessarily apply to an implied contractual right to assign intellectual property. Chester and MEA do not sufficiently account for the differences between employment and intellectual-property rights. Notably, in other cases involving similar allegations, courts and parties have assumed that successors-in-interest may enforce the type of implied-in-fact contractual right at issue here.
Yet, we decline to hold that as a matter of Massachusetts law, an implied-in-fact obligation to assign patent rights may be transferred to a successor-in-interest. After all, state courts are the “ultimate expositors” of their own laws. Smart Oil, LLC v. DW Mazel, LLC, 970 F.3d 856, 863 (7th Cir. 2020) (citation omitted). “A federal court sitting in diversity must proceed with caution in making pronouncements about state law,” especially given that such pronouncements “inherently involve a significant intrusion on the prerogative of the state courts to control that development.” Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1092 (7th Cir. 1999) (citations omitted). Here, there is no need to resolve the Massachusetts state-law issue concerning the transferability of implied-in-fact obligations to assign patents. Instead, we adjudicate REXA’s implied-in-fact contractual claim by applying a requirement common to all such claims.
As a general rule, “an individual owns the patent rights to the subject matter of which he is an inventor, even though he conceived it or reduced it to practice in the course of his employment.” Banks, 228 F.3d at 1359. But there are exceptions. In the archetypal case involving an inventor’s breach of an implied-in-fact contractual obligation, an employer may be entitled to ownership rights associated with “the inventions of employees hired to direct or to engage in inventive research.” Steranko, 362 N.E.2d at 233 (citations omitted). Also, when an employee is specifically “directed during the course of his employment to develop or perfect new or existing machinery or processes, his employer becomes the owner of resulting inventions and may compel the assignment of patents taken in the employee’s name.” Id. at 233–34. By adhering to this rule, Massachusetts follows the law of many other states. See, e.g., Teets, 83 F.3d at 408 (“Even if hired for a general purpose, an employee with the specific task of developing a device or process may cede ownership of the invention from that task to the employer.”) (applying Florida law); Goodyear Tire & Rubber Co. v. Miller, 22 F.2d 353, 356 (9th Cir. 1927) (applying federal common law).
The pertinent question is whether the employer “specifically directed” the employee to create the invention at issue. Farmers Edge, 970 F.3d at 1032; Teets, 83 F.3d at 408. “The primary factor courts consider in determining whether an employed to invent agreement exists is the specificity of the task assigned to the employee.” Farmers Edge, 970 F.3d at 1032 (quoting Skycam LLC v. Bennett, 900 F. Supp. 2d 1264, 1276 (N.D. Okla. 2012)). In Skycam, the court correctly reasoned that if the employee was not employed or specifically directed “to invent the entirety” of the system described in a claim of the patent application for which assignment is sought, the employer “is not entitled to ownership of the invention described therein.” 900 F. Supp. 2d at 1277.
(U.S. Court of Appeals for the Seventh Circuit, July 28, 2022, REXA, Inc. v. Mark V. Chester and MEA, Inc., Docket Nos. 20-2953, 20-3213, 21-2033)
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