As opposed to a pre-assignment, which takes place before any inventions are made,
a post-assignment could indeed be considered as an assignment taking place after
the invention was made. This is a normal scenario in statutory regimes where a pre-
332 ArbEG, 6(2),(4).
333 Shlomit, Yanisky-Ravid, ‘”For a Mess of Pottage”: Incentivizing Creative Employees Toward Improved Competitiveness’ (2013) 43 Cornell HR Review, p. 1.
assignment is not allowed. However, the post-assignment subject of this chapter is not related to the time of the invention but to the time of the relevant employment relationship. The term here refers to an assignment taking place after the employment relationship with the inventor has ended, more specifically an assignment subject to
inventions made after the employment relationship.334
Examples of such a post-employment assignment in both the statutory and the contractual regimes will now be introduced, the first of which is a statutory post-
assignment presumption in the Finnish law:
8§: Where an application for a patent is filed during the six months following the termination of the employment for an invention to which section 4 should be applied if it had been conceived during the course of employment, the invention shall be deemed to have been made during the period of employment unless the inventor can give probable reasons why the invention had been made after the employment had terminated.335
In the event that a Finnish employee files a patent application for an invention within six months of terminating the employment and the employer would have been entitled to acquire the rights had it been made during the employment, the presumption of the law is that the invention was made during the employment. This presumption can only be reversed if the inventor can provide probable reasons as to why and on what basis the invention was made after the employment had been terminated. The purpose of this rebuttable presumption is to safeguard the position of an employer in situations where the employee leaves the company, to work for the competitor within the same business, and within a very short time comes up with an invention falling within the field of technology of the previous employer. This raises the question of whether the idea for the invention has already materialized during the previous employment relationship, and whether it should thus belong to the previous employer instead of the current employer of the inventor. The sufficiency of the “probable” reasons needs to be evaluated in the light of individual circumstances; it is always a matter of proof as to whether the idea was conceived already during the employment relationship with the previous
334 The post-assignment here does not apply to such inventions which the employee has made during the employment but where the employee has left before the employer has notified the inventor about the company’s intents regarding the invention and where the assignment takes place after the employment. In those situations, the invention is duly made in the employment relationship. 335 Act on the Right in Employee Inventions, 8.1§. Unofficial translation by Ministry of Trade and
employer and taken away in the head of the inventor336, or whether it was indeed made after the employee had already left and started to work for the new company, based on observations made at the service of the new employer. These situations are never black and white, as the process from developing an idea to a patentable invention can often be long, and the exact time of making the invention is not always clear-cut.
Also, in China, the post-employment assignment is a statutory matter:
Article 6 of PRC Patent Law:
An invention-creation that is accomplished in the course of performing the duties of an employee, or mainly by using the material and technical conditions of an employer shall be deemed an employment invention-creation. For an employment invention-creation, the employer has the right to apply for a patent. After such application is granted, the employer shall be the patentee.
For a non-employment invention-creation, the inventor or designer has the right to apply for a patent. After such application is granted, the said inventor or designer shall be the patentee.
For an invention-creation that is accomplished by using the material and technical conditions of an employer, if the employer has concluded a contract with the inventor or designer providing the ownership of the right to apply for the patent or the ownership of the patent right, such provision shall prevail.337
336 This issue could be turned into a question “Who own’s your head?” In 2004, the Texas Court of Appeals turned down software programmer Evan Brown's appeal for a jury trial to decide who owned an idea in his head (Brown v. Alcatel USA Inc. Tex App., petition for review denied; original case: Alcatel USA Inc. v. Brown, No. 199-00596-97, Tex Dist. Ct 219th Dist. July 26, 2002): Evan Brown had been working on an idea to convert old computer code to run on a modern machine, an innovation that would enable businesses to run their old software on much faster computers, since 1975. Finally, while on vacation in 1996, he figured out the final 20 % of the puzzle. When Mr. Brown mentioned the idea to his employers while working for DSC Communications Corporation, DSC decided that it owned the rights to Brown’s insight and demanded that he reveal his idea. Brown refused and was fired. DSC then launched legal action against him to gain possession of his thoughts. By 1998, Paris based Alcatel had purchased DSC and continued to assert ownership of Brown’s idea, and after it failed to gain control when Brown filed for bankruptcy, a summary judgement was issued in 2002 in favor of the company. By that time, not only had Brown lost the rights to his idea, but he was also convicted as liable for Alcatel’s massive fees for the attorney. Brown appealed, with no success. “Brown’s story,
although not particularly unique in its legal history, has become a symbol of the moral outrage felt by inventors who are required to hand over their ingenuity to their former corporate employers.” This quote is from Orly Lobel, The New Cognitive Property: Human Capital,
Knowledge Creation, and the Reach of Intellectual Property, San Diego Legal Studies Paper No. 14-170, p. 10.
337 Patent Law of the People’s Republic of China of October 1, 2009, Art. 6; WIPO translation: https://wipolex.wipo.int/en/text/178664.
Rule 12 of Implementing Regulations of the Patent Law
“A service-invention creation made by a person in execution of the tasks of the entity to which he belongs” referred to in Article 6 of the Patent Law means any invention- creation made:
(1) in the course of performing his own duty;
(2) in execution of any task, other than his own duty, which was entrusted to him by the entity to which he belongs;
(3) within one year after the retirement, transfer from the entity to which he
originally belongs or the labor and personnel relationship being terminated, where the invention-creation relates to his own duty or the other
task entrusted to him by the entity to which he previously belonged. “The entity to which he belongs” referred to in Article 6 of the Patent Law includes the entity in which the person concerned is a temporary staff member. “Material and technical means of the entity” referred to in Article 6 of the Patent Law mean the entity’s money, equipment, spare parts, raw materials or technical data which are not disclosed to the public.338
The Chinese law defines explicitly that also inventions that are made within one year from the termination of employment, when related to the employee’s duty or other task assigned to them at the service of the previous employer, are deemed to be employment invention-creations (“service inventions”).339 In other words, the same standard should be adopted in determining the service inventions created during employment and those created within one year after the termination of employment when the invention is such that the employer would have received the rights should the invention have been made while still working for the company.
In contractual regimes the employer’s position in respect of this kind of “idea hijacking” or the “trafficking of ideas” is safeguarded by contractual means. However, some restrictions exist to protect the employee. For example, Confidentiality and Inventions Agreements in the U.S. could constitute unfair business practice and thus be non-permissible based on unfair competition rules as in the following case, related to a trade-secret dispute where the Federal Court of the
338 Rule 12 of Implementing Regulations of the Patent Law of the People’s Republic of China (PRC), Promulgated by Decree No. 306 of the State Council of the PRC on June 15, 2001, amended for the first time in accordance with the Decision of the State Council on Amending the Implementing Regulation of the Patent Law of the PRC on December 28, 2002, amended for the second time in accordance with the Decision of the State Council on Amending the Implementing Regulation of the Patent Law of the PRC on January 9, 2010, and effective as of February 1, 2010; emphasis added. WIPO translation used: https://wipolex.wipo.int/en/text/182267. 339 Implementing Regulations of the Patent Law of the People’s Republic of China, Rule 12.3. It
should be noted that different terms are used in WIPO translations of the Patent Law and the Implementing Regulations, but the same source of translation was desired to be used in this thesis.
Northern District of California held that use of inventions agreements constituted unfair business practice under California law.340
Applied Materials (“plaintiff”), a California-based company, brought action against Advanced Micro-Fabrication Equipment and its Asian subsidiaries (“defendants”), for trade secret misappropriation, breach of contract and unfair competition. The litigation between the parties related to the fact that many of the defendants' employees previously worked for the plaintiff. Applied asserted that a number of its former employees had conceived inventions that belonged to Applied pursuant to the assignment clause in their employment agreements:
“In case any invention is described in a patent application or is disclosed to third parties by me within one (1) year after terminating my employment with APPLIED, it is to be presumed that the invention was conceived or made during the period of my employment for APPLIED, and the invention will be assigned to APPLIED as provided by this Agreement, provided it relates to my work with APPLIED or any of its subsidiaries.”
The defendant brought counterclaims for declaratory judgement and unfair competition, arguing that the assignment clauses were unenforceable non-compete agreements under California Business & Professions Code § 16600 because they unlawfully restricted employee mobility. The defendant argued that the assignment clauses merely created a rebuttable presumption that it owned its former employees’ inventions conceived in the first year after the end of their employment. The District Court, however, rejected this interpretation, holding that the clauses plainly stated that all such inventions “will be assigned” to the Applied. It further noted that the clauses stated neither that an employee can rebut the presumption nor how an employee would do so. However, the court held that the assignment clauses were unenforceable under California law for the following reasons:
1) The clauses were not limited to inventions using AM’s confidential information. 2) The clauses were not limited to inventions conceived by former AM employees while employed at AM, but instead extended to inventions conceived up to a full year after the end of employment.
Thus, the reasonability of the assignment clause(s) was evaluated by the court based on the scope of the assignment, both from the point of view of the substance and timewise. The assignment clauses were unenforceable because of how broadly the
340 Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. (Shanghai) Co., 630 F. Supp. 2d 1084 (N.D. Cal. May 20, 2009).
inventions were substantially defined as well as in respect of the time period for making the inventions. The assignment was subject to all inventions, without any reference to using confidential information. Timewise, the assignment extended the duty to disclose inventions made up to one year after employment. Such a practice violated the state law and was contrary to the public policy:
“Ultimately, the court finds that the assignment clause is overly broad with respect to both subject matter and temporal scope. Since the court finds that the assignment clause touches post-employment inventions, regardless of when they were conceived or whether they were based on Applied’s confidential information, the clause necessarily operates as a restriction on employee mobility. Accordingly, the court finds that the assignment clause is post- employment penalty that violates California public policy as codified in Business Professions Code § 16600.”341
“Since the Court has found that the Assignment Clause is unlawful under section 16600, it follows that the Assignment Clause constitutes unfair competition under section 17200.”342
Indeed, in California the law and the public policy strongly favors competition and employee rights to work freely wherever they choose. The policy defined in the referred California Business and Professions Code343 sets down specific exceptions344, under which a non-competition agreement can be enforceable.
BPC 16600. Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
17200. As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive,
341 Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. (Shanghai) Co., 630 F. Supp. 2d 1084, 1091 (N.D. Cal. May 20, 2009).
342 Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. (Shanghai) Co., 630 F. Supp. 2d 1084, 1092 (N.D. Cal. May 20, 2009).
343 California Business and Professions Code (BPC), adopted on June 15, 1937.
untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the BPC.345
A non-competition agreement, also called a non-compete covenant, or a restrictive
covenant, must be conducted between the former employee and the purchaser of the
equity interest, typically the employer. The employee may be prohibited from carrying on in a business that is similar to the business of the previous employer, namely if necessary to protect the legitimate interest of the employer.346 In most of the U.S. states the restrictive covenants are enforceable to the extent they are “reasonable”. The reasonability test may, however, be applied and interpreted in a different manner in the different states. However, in general, a non-competition agreement must be territorially limited to a specified geographic area where the employer conducted its business. In addition, term must be for a reasonable amount of time, and enforceability only for as long as the previous employer continues to carry on a similar business in the same geographic area.
The court case referred to was essentially about trade secrets, and the nature of the assignment clause as an unenforceable non-compete agreement was raised in the counter claims by the defendant. The ruling did not resolve the case in its entirety, as the issue concerning whether the patent applications disclosed Applied’s trade secrets was not resolved. Since then, the companies have settled all litigations between them and resolved the outstanding disputes.347 Indeed, restricting post- employment assignment clauses can be seen as an exception to protecting the trade
secrets of the company. Most trade secret disputes arise when employees who have
learned trade secrets as part of their work assignment leave to work for a competitor that may want the trade secrets and seeks to use the services of the employee in a manner that risks the trade secrets being exposed. Therefore, one of the measures by employers to protect their trade secrets is to impose some kind of post-employment activity restraint designed to protect the use or the disclosure of the trade secrets. It should be noted that irrespective of the validity of the non-competition agreement or the post-assignment clause there are always restrictions on disclosing and using trade secrets placed on employees based on the general principles of employment laws. However, the validity of post-assignment clauses, which require the employee to 345 California Business and Professions Code, Division 7, General Business Regulations. Part 2,
Preservation and Regulation of Competition. Chapter 5, Enforcement, 17200§, Amended by Stats. 1992, Ch. 430, Sec. 2. Effective January 1, 1993.
346 See e.g. IDS life Ins. v. SunAmerica, Inc., 958 F. Supp. 1258 (N.D. III 1997) and BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (N.Y. Ct. App.1999).
347 In the settlement the parties agreed that the patent families shall be jointly owned. Press release “Applied Materials And Advanced Micro-Fabrication Equipment, Inv. Settle litigation And Resolve all Outstanding Disputes”: http://www.amec-inc.com/news/news-detail.php?id=36.
assign and disclose inventions to their former employer during a predefined time after employment, determines who shall be the legal owner for such inventions.
Post-assignment clauses are typical, for example, in U.S.-driven companies, as a safety measure to avoid the risk of employees leaking any inventions from their heads to outside the company. However, it is also a risk for any company recruiting new employees from companies operating within the same business field if inventions conceived by an employee can belong to the previous employer. As the assignment is an individual action it is possible that not all the rights to a joint invention where a new employee is involved are vested in the employer, which causes challenges in both securing and using the invention. However, it is also certainly highly unfortunate for an employee to find themselves in a situation with two conflicting contractual obligations related to their inventive activities – a post- assignment duty set by the previous employer and a possible pre-assignment already made for the new employer. When a person is between jobs, the situation might even endanger the person being hired to companies operating within the same field of business as the previous employer. Therefore, non-compete agreements can restrict
employee mobility as in the Applied case.348