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February 13, 2008

Wage Slave to Own

Back in 1991, the Barstow brothers, David and Daniel, patented a way to include computer events within a live broadcast. Being sports fans, the Barstow boys dreamt up the idea from wanting to watch baseball games simulated on a computer. They went after MLB Advanced Media, who got the matter tossed in district court over subject matter jurisdiction. Problem was that David worked, under employee contract, for Schlumberger when the patent was filed, leaving title under a cloud. The district court wouldn't hear the Barstows out, so the Barstows appealed.

DDB Technologies v. MLB Advanced Media (CAFC 2007-1211)

DDB was the company formed by the Barstow brothers. The patents assigned to DDB were: 5,189,630; 5,526,479; 5,671,347; and 6,204,862.

David Barstow had been a software developer at Schlumberger, but the baseball simulator was a hobby project. They had talked it over with their employers. Charles Huston was Schlumberger's general counsel for software matters, and Dr. Reid Smith was the director of the lab in which Barstow worked. Both testified that, in their opinion, the Barstow invention belonged to Barstow.

Smith testified that Barstow's project was "general knowledge" at Schlumberger, that he had never "suggest[ed] to Dr. Barstow that the personal work he was doing belonged to Schlumberger," and that he was not "aware of anyone at Schlumberger ever stating a belief that Dr. Barstow's personal work belonged to Schlumberger." J.A. at 165-66.

On appeal, the crux was whether the patent assignment to Schlumberger was automatic, as the district court ruled.

We must first determine whether the question of automatic assignment is governed by federal or state law. Although state law governs the interpretation of contracts generally, see Thatcher v. Kohl's Department Stores, Inc., 397 F.3d 1370, 1373 (Fed. Cir. 2005), 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. We have accordingly treated it as a matter of federal law. See Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000); Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1580-81 (Fed. Cir. 1991); cf. Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323, 1328 (Fed. Cir. 2002) (holding that bona fide purchaser defense is governed by federal law). Applying federal law, we have held that whether an assignment of patent rights in an agreement such as the one in this case 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." FilmTec, 939 F.2d at 1573 (contract provided that inventor "agrees to grant and does hereby grant" all rights in future inventions); see also Speedplay, 211 F.3d at 1253 (contract provided that employee's inventions within the scope of the agreement "shall belong exclusively to [employer] and [employee] hereby conveys, transfers, and assigns to [employer] . . . all right, title and interest in and to Inventions"). 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." Arachnid, 939 F.2d at 1581 (contract provided that, for inventions within the scope of the agreement, "all rights . . . will be assigned by [inventor] to CLIENT").

Seems that David Barstow had a employee agreement of assignment.

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. J.A. at 471 (emphasis added). This contractual language was not merely an agreement to assign, but an express assignment of rights in future inventions.

So, if the patents were within the scope of the employment agreement, Barstow was out of luck. Whether the patents fell under the agreement was governed by Texas law.

DDB had no right to jury trial with regard to standing, the appeals court ruled.

The district court investigation was ruled inadequate to have made a decision regarding standing: the court had not allowed discovery on the key issue; an abuse of discretion, which is legalese for police state mentality in not wanting to be bothered by the facts. Hey, it's Texas - draw your pistolero and blast away, cowboy.

Schlumberger's view that the agreement did not apply (and its silence) would only be significant if Schlumberger had been aware of the nature of Barstow's project. The crucial question thus was the extent of Schlumberger's knowledge of the project at the time that the company's officers concluded that the project was not within the scope of the agreement. The problem is that DDB was denied discovery on this central issue. MLBAM filed its motion to dismiss on May 1, 2006, several months after the close of discovery. DDB on May 12, 2006, filed a motion to extend the discovery period and for limited jurisdictional discovery.

DDB's discovery requests could have led to the production of documents (if they existed) such as copies of the applications for the patents in suit in Schlumberger's files, notes of conversations by Schlumberger employees demonstrating the extent of the company's knowledge of the inventions, further communications between Barstow and Schlumberger regarding the inventions, or communications as to whether Schlumberger's officers or employees believed that Schlumberger had an ownership interest in those inventions.

Under the circumstances of this case, given the central relevance of the information sought in discovery, it was an abuse of discretion for the district court to deny DDB jurisdictional discovery, including document and deposition requests. See, e.g., McAllister v. FDIC, 87 F.3d 762, 766 (5th Cir. 1996) (district court abused its discretion in denying discovery on jurisdictional issue); see also Commissariat à l'Energie Atomique, 395 F.3d at 1323-24 (same). On remand, the district court should allow DDB to conduct reasonable discovery relevant to the issue of whether the patents in suit fall within the scope of Barstow's employment agreement with Schlumberger.

Remanded for further discovery.

The CAFC Queen of Dissent, Judge Newman, did her thing, in her "right on!" way. To hear Newman tell it, the majority ruling got it wrong six ways to Sunday, but Newman agreed that the matter ought to be remanded for further fact-finding.

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If you are a high-tech wage slave, odds are that your company owns every thought bubble that comes into your head until they decide to heave you out the door "at will." Check your employment contract, and, if you have any doubt, get a written exemption for any patentable idea you may have. State laws vary, but don't rely upon the vagary of state law: make the situation legally copasetic with express consent.

Posted by Patent Hawk at February 13, 2008 4:20 PM | Litigation

Comments

No doubt that Barstow should have gotten a letter waiving their rights to the invention from Schlumberger. But it's encouraging to see that the Federal Circuit is going to let Barstow have a shot at showing that Schlumberger did in fact pass on its rights to the invention instead of letting the blanket language of some employment agreement snatch his work away from him.

Posted by: Michael Martin at February 13, 2008 5:59 PM

I am puzzled on how the SOL defense was decided adversely to Barstow. It seemed that the court held as a matter of Federal Law that when there is an automatic assignment, the state SOL does not apply. The Court's summary of the lower court opinion was to the effect that equitable defenses (waiver, laches, estoppel)were unavailable under Texas law when there was an automatic assignment. SOL is a legal defense, however. How it was handled by the District court was not discussed. Nor was the basis of the Court holding that the SOL defense was "without merit" clear.

Barstow discussed his inventions with Slumberger in the early '90s. The patents issued in this time frame. They were available to Slumberger to inspect. More than a decade passed befroe Slumberger made a claim of ownership based on its contract with Barstow. How can the Texas contract SOL defense be avoided?

Posted by: anon at February 22, 2008 11:35 AM

From the District Court:


"DDB asserts that Schlumberger's, and
therefore MLB's, ownership rights in the patents in suit are barred by statute of limitations, waiver, various forms of estoppel, and laches. However, the Court finds that these equitable defenses are unavailable to DDB based on Texas law and the existing facts."

"If an assignor cannot urge estoppel or
waiver against his assignee, the Court reasons that an assignor likewise should not be able to assert statute of limitations or laches against his assignee."

In other words, an employer can sit on his or her rights indefinitely regardless of the investments made by the employee in reliance on inaction and in total disregard of state statutes that actions must be filed within 4 years. All you have to do is sell your rights to a defendant when it is sued.*

This is not justice.

* § 16.051. RESIDUAL LIMITATIONS PERIOD. Every action for which there is no express limitations period, except an action for
the recovery of real property, must be brought not later than four years after the day the cause of action accrues. Acts 1985, 69th Leg., ch. 959, § 1, eff. Sept. 1, 1985.

Posted by: anon at February 22, 2008 3:24 PM

QUESTION:

Is there a precedent for asking for a dispensation of "Natural Justice"?

Especially in Texas? Maybe going back to the Conception of Texas?

Posted by: Ron at July 15, 2009 8:59 PM