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More on the DDB case

By Lawrence B. Ebert, Esq.

At least two blogs have brought up a recordation issue (35 USC 261) in the DDB case.

Patently-O wrote:

A reader suggested that the patent recordation statute (35 U.S.C. 261) be considered. If you remember 1L property, the patent recordation statute is a notice statute with a three-month grace period. Thus, a subsequent assignee of a patent will hold title over a prior assignee if two conditions are met: (1) the prior assignee did not record in time (which would give constructive notice); and (2) the subsequent assignee was ?without notice? of the prior assignment. The timing is no question here ? Schlumberger did not record until after DDB had already sued. The only issue then is whether DDB had notice of the prior assignment.

[DDB was represented at the CAFC by MBHB, former home of Patently-O.]

The issue is further crystallized at PLI:

Finally, as Professor Crouch points out in his post, there is likely another important issue lurking here that does not seem to be addressed. An assignment is only effective against those who subsequently obtain an alleged assignment if the original assignment was recorded during the firs 90 days. Schlumberger never recorded within the first 90 days, and in fact did not record until DDB already brought suit against MLB Advanced. This being the case the only issue with respect to whether DDB holds good title should be whether DDB knew of a prior assignment to Schlumberger. Even if Schlumberger did automatically obtain an assignment as a result of the employment agreement if DDB did not know about that assignment then DDB should have superior title to Schlumberger, which would mean that they would have superior title to MLB Advanced, who obtained their rights through assignment from Schlumberger.

IPBiz has noted that the relevant words of 35 USC 261 are An assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.

As some background, DDB was formed by the brothers David (who worked for Schlumberger between 1980 and 1994) and Daniel Barstow (who did not work for Schlumberger). The patents at issue were assigned by the brothers to DDB in 1998. The "ultimate" issue of the case is whether David's interest was previously assigned to Schlumberger (automatically) as a result of an employment contract. In 2006, Schlumberger assigned whatever rights it had in these patents to MLB.

The issue in the case is one of subject matter jurisdiction, because Schlumberger and MLB were not joined.

The CAFC first determined that "automatic assignment" is an issue of federal law. The issue of whether the employment agreement covered the patents in suit was one of state law (here Texas law). The CAFC ordered additional discovery on the latter point, and did NOT reach the issue of whether the patents did, or did not, fall within the scope of the agreement.

By (negative) implication, one might think that the CAFC did not consider the recordation issue dispositive. If hypothetically the patents are found to be within the scope of the employment agreement, then the patents were automatically assigned to Schlumberger. [If not within the scope, then DDB owns the patents and the jurisdictional issue is gone.]

Of the argument --Even if Schlumberger did automatically obtain an assignment as a result of the employment agreement if DDB did not know about that assignment then DDB should have superior title to Schlumberger--, one notes that

#1. If the court finally determines that Schlumberger did automatically obtain an assigment through the employment agreement, then David Barstow had notice. That notice might be imputed to DDB.

#2. Although the blogs only talk about a subsequent assignee, the statute is about "any subsequent purchaser or mortgagee for a valuable consideration, without notice."
Was DDB a subsequent purchaser and was DDB without notice?

Commentary to the Patently-O blog mentioned some generally interesting statutes (e.g., Nevada--NRS 600.500 Employer is sole owner of patentable invention or trade secret developed by employee. and Illinois: 765 ILCS 1060/2) but did NOT mention a highly relevant law review article: 2 U. Balt. Intell. Prop. L.J. 163

OWNERSHIP RIGHTS OF EMPLOYEE INVENTIONS: THE ROLE OF PREINVENTION ASSIGNMENT AGREEMENTS AND STATE STATUTES

Separately, note the provision in Delaware (19 Del. 805):

Any provision in an employment agreement which provides that the employee shall assign or offer to assign any of the employee's rights in an invention to the employee's employer shall not apply to an invention that the employee developed entirely on the employee's own time without using the employer's equipment, supplies, facility or trade secret information, except for those inventions that; (i) relate to the employer's business or actual or demonstrably anticipated research or development, or (ii) result from any work performed by the employee for the employer. To the extent a provision in an employment agreement purports to apply to the type of invention described, it is against the public policy of this State and is unenforceable. An employer may not require a provision of an employment agreement made unenforceable under this section as a condition of employment or continued employment.

Long, long ago, LBE had written about the Mars case: Mr. Knecht had worked for 17 years for Mars, but was fired over the dispute.

Full post as published by IPBiz on February 20, 2008 (boomark / email).