Navigating post-employment patent assignment agreements and the burden of proof

Jeffrey L Costellia
Nixon Peabody, Washington DC
jcostellia@nixonpeabody.com

Nicholas J Choi
Nixon Peabody, New York
nchoi@nixonpeabody.com

Brady McMillin
Nixon Peabody, Chicago
bmcmillin@nixonpeabody.com

The Eastern District of Texas found that an assignment agreement presuming that patents filed by a former employee up to a year after leaving an employer would still be owned by the employer was valid despite worker-friendly state employment laws, because the agreement also provided that the presumption could be rebutted by a showing that the invention was invented after leaving the former employer. The former employee was in fact able to convince the court that the invention occurred after the termination of his employment, and the court ruled that he did in fact own the patents and had standing to assert them in a patent infringement lawsuit, clearing the way to a subsequent $278.8m jury award.

The case at hand

If an employee of a technology company leaves that company, but within one year files a patent worth hundreds of millions of dollars, who owns that patent, the former employer or the former employee? That is the question that Judge J Rodney Gilstrap from the Eastern District of Texas faced in Headwater Rsch LLC v Samsung Elecs Co (Headwater II).^[1]

Dr Greg Raleigh, the founder of plaintiff Headwater Research LLC, was a former Qualcomm employee who had left Qualcomm on 19 September 2008, and within several months, on 28 January 2009, filed a provisional application for patents that Headwater then asserted against Samsung in a patent litigation lawsuit. Samsung raised a standing defence, contending that the asserted patents belonged to Qualcomm, not Headwater, pointing to an assignment agreement that Dr Raleigh had signed at Qualcomm providing that all ‘inventions’ would be assigned to Qualcomm and defining ‘inventions’ as:

All inventions, discoveries, developments, formulae, processes, improvements, ideas[,] and innovations, whether patentable or not […] made, conceived, reduced to practice, authored, or fixed in a tangible medium of expression by me […] whether or not made, conceived, reduced to practice, authored, or fixed in a tangible medium of expression during working hours, which results from my work or association with the Company, or which results from or is aided by the use of the Company’s equipment, supplies, facilities[,] or trade secret information, or which is related to or coming within the scope of the Company’s business, or related to the Company’s products or any research, design, experimental[,] or production work carried on by the Company.

Importantly, the assignment agreement also provided a rebuttable one-year post-employment assignment presumption:

I agree that an Invention […] described in a patent application filed by me or in my behalf within one year following termination of my employment with the Company shall be presumed to be an Invention subject to the terms of this Agreement unless proved by me to have been conceived and first reduced to practice by me following the termination of my employment with the Company.

Samsung argued that, because the asserted patents had been filed by Dr Raleigh within one year after leaving Qualcomm, the patents belonged to Qualcomm, and Headwater had no standing to bring the suit.

In a prior related case involving the same parties (Headwater I),^[2] Samsung had raised a similar standing defence based on the same assignment agreement, and Headwater had contended that the one-year provision was void because it violated section 2870(a) of the California Labour Code and section 16600 of the California Business and Professions Code.

It is worth mentioning that California is one of the most worker-friendly states in the US and section 2870(a) of the California Labour Code limits the enforceability of employee invention assignments by providing that:

Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

Meanwhile, section 16600 of the California Business and Professions Code provides that ‘Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void’.

Despite these protections, the court in Headwater I had found that the one-year provision was valid and did not run afoul of either California statute because the assignment presumption was rebuttable, explaining that:

The provision does not create “restraint of a substantial character” as it is only a rebuttable presumption. §2870(a) inherently endorses an assignment provision wherein the invention was “developed […] using the employer’s equipment […] [or r]elate[d] […] to the employer’s business […] or [r]esult[ed] from any work performed by the employee for the employer,” much like the Assignment Agreement here. As such, the effect of the one-year provision is to place the burden of proof on the employee, not to materially alter their positions. The Court cannot find the provision is a “restraint of a substantial character” on an employee’s engagement in lawful trade.

The court in Headwater I had also contrasted Qualcomm’s one-year provision with one in another case, Applied Materials Inc v Advanced Micro-Fabrication Equip,^[3] where a similar provision had been found to be invalid because unlike Qualcomm’s one-year provision, it was not rebuttable.

Giving deference to its prior finding in Headwater I, the Court focused on whether Headwater could rebut the one-year provision by proving that Dr Raleigh ‘conceived and first reduced to practice’ the inventions at issue after leaving Qualcomm.

This issue raised some interesting questions as Dr Raleigh sought to assert a conception date later than the priority date of the patent, whereas patentees typically seek to claim an earlier conception date than the priority date of the patent to ‘swear behind’ pre-AIA 35 United States Code section 102 prior art. While an earlier conception date is typically proved through the inventor’s testimony with corroborating evidence, such as laboratory notebooks, models or drawings, Samsung argued that Headwater needed to present corroborating evidence for the later conception date that Dr Raleigh claimed.

The Court disagreed, explaining that ‘[t]here is no freestanding corroboration requirement, rather corroboration is only required to support an earlier conception date than the priority date of the patent’, and quoting its prior decision in Headwater I that:

The corroboration requirement simply does not mechanically work in the situation where the party without the burden is the one trying to prove an earlier conception date. Here, Headwater has no need to corroborate its latest conception date, the one supported by prosecution history filing, as it relies on no testimony. What Samsung wants Headwater to provide corroboration for is the lack of conception. Headwater would have to provide documentation that something novel was expressly not conceived of while Dr. Raleigh worked at Qualcomm.

The Court also dismissed Samsung’s argument that Dr Raleigh needed to corroborate that he did not conceive the invention earlier than he claimed in his patent application, noting that:

Samsung’s attempt to recast the inquiry as one of when the invention was conceived does not help. Under Samsung’s framework Dr. Raleigh would still have to corroborate that he did not conceive of the invention earlier than he claims in his patent application. Samsung does not explain how one could corroborate that negative.

Focusing on whether Dr Raleigh conceived the invention after he left Qualcomm, the Court heard testimony from Dr Raleigh that his role at Qualcomm involved business and strategy rather than inventing anything, that he did not work on what was claimed in the asserted patents while at Qualcomm and that he conceived of the idea and problems to be addressed by the invention after leaving Qualcomm. Dr Raleigh also pointed to documents showing that he was not thinking of the invention when he left Qualcomm, but rather around the time of filing the patents.

The Court found Dr Raleigh’s testimony and evidence credible, concluded that he had conceived the invention after leaving Qualcomm and ruled that Headwater had standing to sue, clearing the way for Headwater’s subsequent $278.8m jury award.

Practical implications

For employers: scrutinise post-employment invention assignment provisions

Employers with active research and development (R&D) divisions would be well-advised to examine any post-employment invention assignment provisions in their employment or assignment agreements. If such a provision is present, it should not conflict with any employment laws of the governing jurisdiction.  In California, for example, section 2870(a) of the California Labour Code and section 16600 of the California Business and Professions Code provide specific protections for employees. But a post-employment assignment provision may still survive strict pro-employee labour laws if it provides that the presumption can be rebutted by a showing that the invention was conceived and reduced to practice after the individual left their employment.

For employees: be thoughtful about the timing of your invention

On the flip side, employees who sign post-employment assignment agreements with their employers should understand what they are signing up for and carefully plan and time any post-employment R&D activities accordingly. Paying careful attention to the language in such agreements could mean the difference between owning intellectual property worth hundreds of millions of dollars, as was the case in Headwater II, or having no claim to any such intellectual property and no standing to bring a suit asserting such intellectual property.

Understanding invention conception corroboration requirements

Lastly, inventors and practitioners should remember that corroboration is not a freestanding requirement for proving conception in all situations. As Judge Gilstrap explained, corroboration is only required when seeking to prove a conception date earlier than the priority date of a patent. It is not required in the less-common situation when an inventor claims a later conception date than the priority date of the patent, which is supported by the prosecution filing history. In other words, maintaining records of activities evidencing conception and reduction to practice after filing a patent will generally not be as important as maintaining such records for activities prior to filing the patent.

Notes