Who owns inventions by employees? By Paul Ross.

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HR Laws - September 1, 2012

 [author: Paul Ross]

Yale Preston was an at-will employee of Marathon Oil Company in the Powder River Basin of Northeastern Wyoming. While employed by Marathon, Preston developed a process that he believed would improve methane gas extraction from wells. Marathon began using the process while he was employed and continued using it after his employment ended. When Preston objected, the dispute led to litigation over the ownership of the relevant patents. Specifically, Preston argued that his agreement to assign intellectual property to Marathon was invalid because he didn’t receive anything in exchange for his promise other than continued employment.

Preston’s employment and invention

Marathon hired Preston in February 2001. A few months later, in April, Marathon and Preston entered into a written employment agreement under which Preston assigned to Marathon the rights to any intellectual property he might develop while employed by the company. “Intellectual property” included “all inventions, discoveries, developments, writings, computer programs and related documentation, designs, ideas, and any other work product” that Preston “made or conceived” during his employment. The agreement didn’t provide anything to Preston in return for the assignment other than his continued employment by Marathon.

In August 2002, Preston proposed a design to his supervisor that he believed would improve the company’s ability to extract methane gas from water-saturated coal. He worked with a Marathon engineer to implement the idea, and by February 2003, the design had been formalized and used on at least three of Marathon’s wells. Marathon began the process of patenting Preston’s idea. However, in April, his employment ended. Over the next several months, Marathon installed the system in eight additional wells without his authorization or consent. Two months after his employment ended, Preston filed his own patent application covering the same system, and a series of lawsuits followed.

Preston: ‘It’s mine’

Preston made a series of arguments claiming ownership of the Marathon gas system he developed. Most importantly, he argued that his “agreement” to assign intellectual property wasn’t valid because he received no consideration (i.e., something of value) from Marathon in exchange for the agreement. He contended that he was already an at-will employee when he entered into the agreement, and therefore, he didn’t receive anything new in exchange for his assignment.

Both the lower court and the appellate court rejected Preston’s argument, holding that under Wyoming law, consideration isn’t required to modify the terms of an at-will-employment relationship. Specifically, the appellate court held that “the stability of the business community is best served by ruling . . . that no additional consideration is required to support an employee’s post-employment execution of an agreement to assign intellectual property to his employer.” The court continued, “If the employee does not agree to that modification of the terms of his employment, he can terminate the relationship without any penalties.”

In reaching its conclusion, the court distinguished the agreement Preston signed from a noncompetition agreement. Courts have reasoned that noncompetes, which generally are disfavored in Wyoming and many other states (including Oklahoma), are so significant that separate consideration is required. In those situations, the Wyoming Supreme Court has held that “public policy favored separate consideration[,] and continued at-will employment was not sufficient consideration to support [a noncompete] agreement . . . based, in part, on the sanctity of the right to earn a living.” However, in a case involving an intellectual property assignment, no such right was implicated, and the agreement was upheld.

In Oklahoma, while continued employment might be sufficient consideration to assign future job-related intellectual property, it may not be sufficient to assign existing intellectual property and is unlikely to be sufficient to assign “all inventions, discoveries, [and] developments conceived during the term of employment.” Preston v. Marathon Oil Co., No. 2011-1013 (Fed. Cir., July 10, 2012).

Takeaway

At the conclusion of this saga, the appellate court ultimately decided that Preston’s idea was validly assigned to Marathon when he signed the agreement. Although this case applied Wyoming law, the court’s decision reinforces the fundamental core concept of at-will employment. While there are some limits, generally speaking, an at-will employer is free to define and change the terms and conditions of at-will employment without providing additional consideration for those changes. While the law of some jurisdictions may differ, this case could be a valuable tool for employers faced with similar arguments.