Who Really Owns Your Patents

Highly productive scientists and engineers are often eager to start companies around their great ideas. Often, those ideas are conceived while at a university and, under the Bayh-Dole act, are typically owned by the university if assigned to it by the inventors (if there was no prior assignment to the University, legal counsel is advised). Often, the inventors spin out their inventions into startup companies. The universities typically agree to license back the patent rights and provide resources for incubating the inventions during the early commercial stage. The start-up companies should then develop a patent estate for its further innovations that is not owned by the university. This can be tricky where funds are limited.

What if, however, those ideas were conceived while working at a company? This is a more complicated situation. Ask any in-house counsel and they will tell you that an important prerequisite for hiring scientists, engineers, and technicians is that they prospectively assign their work-related inventions to the company. This is typically accomplished by employment agreements. For instance, in California, Section 2870 of the labor code states:

a) 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

Thus, according to the California labor laws, under such agreements, employees own their inventions unless they were made at their employers’ facility, using the employers’ resources or trade secret information, or if they relate to their employer’s business. This accords with Federal patent laws. See Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., et al., 131 S. Ct. 2188, 2194-95 (U.S. 2011)(Absent agreement to the contrary, employers have no rights in employees’ inventions.) Companies should therefore protect themselves by including assignments in their employment agreements.

With this in mind, founders of new companies must ask themselves whether they are walking out the door with their prior employer’s IP. Even if patent applications are filed on behalf of the new company, the old company may have ownership interests in them. A recent California case illustrates this point.
Kulakowski v. Verimatrix, Inc., 2014 WL 2054256 (Cal.App. 4 Dist. 2014). Robert Kulakowski was Verimatrix’ Chief Technology Officer. He signed an employment agreement that required him to disclose his inventions to the company, acknowledged that the company owns them, and that he could not compete with the company during his employment.

In 2008, Verimatrix was working on video security technology pertaining to “day-date” movie releases. This refers to releasing movies for home viewing on the same day as they are released in theaters. In 2009, Kulakowski began working with another entity, Channel Islands, on a project known as “Blu–Box” that relates to security for day-date release technology. He conceived of the encryption security technology referred to as “Rescue CAS.” He filed seven provisional patent applications. In May 2010, he formed a new company, Secure TV, Inc., to commercialize Rescue CAS. Kulakowski's last day of employment with Verimatrix was on September 30, 2010. In December, 2010, he filed a Patent Cooperation Treaty (“PCT”) application.

In March 2011, Kulakowski filed a court action asking for a declaration that Verimatrix had no ownership interest in his patent applications. The Court would not grant the request. It said that Kulakowski breached his fiduciary duties to Verimatrix. He took opportunities for himself rather than offering them to Verimatrix. It also said he competed with Verimatrix while he was still employed by the company. Kulakowski was not entitled to declaratory relief because he had “unclean hands.”

The facts in Kulakowski are not very flattering for the plaintiff. In situations where the facts are less clear, however, departing employees may still be at risk for suits alleging breach of fiduciary duties, theft of trade secrets, and equitable ownership of patents or patent applications. Suits such as this may happen in any technological area – including the life sciences. Thus, I advise such departing employees or their employers to seek counsel to review the propriety of the departing employee’s actions and the potential ownership of the relevant patents.

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