You Can’t Put Your Head in the Sand; Manage Employee Departures

Personalized User Model, LLP v. Google Inc., [2014-1841, 2015-1022] (August 18, 2015), has a number of valuable lessons to employers about handling employees and employee inventions.  In addition to lessons about present versus future assignments (see Prior Post), the Federal Circuits also explained the diligence required when an employee leaves.  As a defense to Personalized User Model’s infringement claims, Google tried to acquire the rights of the invention owned by SRI, the employer of one of the co-owners at the time of conception.  However, to assert these rights, Google had take the position that the employee breached its agreement to disclose and assign the invention, while the employee took the position that such a claim was barred by the statute of limitations.  Google argued that the statute of limitations was tolled because the breach was “unknowable” by SRI, but the Federal Circuit disagreed.

The Federal Circuit said that SRI knew the employee was leaving to immediately work at a start-up technology company. Considering the competitiveness of companies and relatedness of the technology, the employee departure was a “red flag” that should have generated further inquiry.  The Federal Circuit indicated that SRI should have conducted an exit interview, even if a disclosure would not have been forthcoming.  The Federal Circuit also said that SRI could have asked other employees and watch competitive patent filings.  The Federal Circuit said:

Employers do not need to track a former employee’s every movement for an indefinite period of time to look for potential claims, but there should be some basic level of diligence in looking after one’s interests.

The Federal Circuit said that whether this “basic” level of diligence is satisfied by evidence of a standard exit interview wherein the departing employee is asked if all contractual obligations have been met, or of inquiring unobtrusively about the employee’s new startup company, should be determined on a fact-specific basis.

An employer should consider:

  • Providing for an exit interview in its employee agreement (use a checklist that you get the employee to sign).
  • Requiring the employee to advise of subsequent employers.
  • Getting permission of the employee to contact subsequent employees (and avoiding a tortious interference claim).
  • Monitoring the patent applications published and patents issuing to the former employee and his/her new employer.








“I agree to assign and hereby do assign”

Personalized User Model, LLP v. Google Inc., [2014-1841, 2015-1022] (August 18, 2015), reminds us that an employee agreement will preferably include a immediate assignment of the employee’s inventions. Personalized User Model sued Google for patent infringement.  In the course of discovery, Google learned that the patented inventions were conceived while one of the co-inventors was employed by SRI.  In a move worthy of Harvey Specter and Mike Ross in Suits, Google attempted to acquire SRI’s rights in the invention.  Unfortunately for Google, the Federal Circuit agreed with the district court that the statute or limitations prevented Google from asserting a breach of contract action against the co-inventor.  The result likely would have be very different, if, instead of simply agreeing to assign inventions conceived during employment:

I agree to execute such documents, disclose and deliver all information and data, and to do all things which may be necessary or in the opinion of SRI reasonably desirable, in order to effect transfer of ownership in or to impart a full understanding of such discoveries, improvements and inventions to SRI.

the agreement provided that the inventions automatically belonged to SRI.  While one can forgive this lapse in an agreement drafted more than thirty years ago, today it is generally advisable to have an automatic assignment.  Several years ago in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., 583 F.3d 832, 842 (Fed. Cir. 2009) the Federal Circuit explained that the language “agree to assign” is merely an agreement to assign in the future requiring a subsequent written instrument.  In contrast, the words “do hereby assign” have been construed as a current  assignment of future inventions.  See FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1572-73 (Fed. Cir. 1991).  If SRI’s agreement had included a current assignment of future inventions, SRI would have had ownership rights to sell to Google, irrespective of any breach by the employee.

Personalized User Model is a great reason to review existing employee agreements, and to make sure that they include a current assignment of future inventions.  Of course, if your agreement does provide include a current assignment, you have to make sure that the rest of your paperwork is consistent.  Thus, rather than having the inventor subsequently execute an assignment of a particular invention, one should have the inventor execute a confirmation of the prior assignment of that invention.  Furthermore, if because of some business arrangement, a company want to assign rights to some third party, the company must do so itself (because of the automatic assignment), and an assignment from the employee would be ineffective to do so, because the rights had already been assigned to the company.  Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., 583 F.3d 832, 842 (Fed. Cir. 2009).