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.