Companies acquire invention rights by one of three ways from employees. A formal Invention Assignment Agreement is typically executed when the employee begins employment. The Agreement assigns certain inventions of the employee to the company. Invention rights can also be acquired by way of the Employed-to-Invent doctrine. In particular, to the extent that the employer specifically hires or directs an employee to exercise inventive faculties, the invention is owned by the employer. Even if the employer does not have full rights to the employee’s invention, the employer may still have a “shop right” to use the invention without liability for infringement depending on whether the employee utilized company assets to develop the invention.
The following case illustrates the problems associated with companies that do not have invention assignment agreements or with relying upon a sub-contractor that does not have the proper invention assignment procedures in place. General Electric (“GE”) manufactures jet engines. GE attempted to manufacture the blades with composite material. However, the blades were subject to failure. As a result, GE outsourced engineering and manufacturing of the composite blade to a division of Chromalloy Gas Turbine Corporation (“Chromalloy”). Chromalloy appointed Teets as the chief engineer for the project. Unfortunately, Chromalloy did not have an Invention Assignment Agreement in place with Teets. Eventually, Teets invented a new process for fabricating a durable composite blade which GE purchased for its engines. A patent application was filed. Later, Teets asserted that he, not Chromalloy owned the invention rights in the process for fabricating the composite blade. The lower Court held that Chromalloy at least had “shop rights” in the invention. As such, at the least, Chromalloy could continue to sell the new composite blades to GE. Upon appeal, the Federal Circuit held that Chromalloy had more than just “shop rights” but also owned the patent rights. Although the Teets did not expressly assign the invention to Chromalloy, the Court construed an implied-in-fact contract to assign the invention to Chromalloy based on the particulars of the employment relationship. Teets v. Chromalloy Gas Turbine Corporation, 83 F.3d 403 (Fed. Cir. 1996).
Based on this case, it is important to set up proper procedures and documentation to clarify ownership of intellectual property rights cases not only in the employment context but also when hiring a sub-contractor. Employers should implement procedures to obtain invention assignment agreements from employees. It may also be important to ensure that your sub contractors have proper invention assignments from its employees to prevent any delays in production if one of the sub-contractor’s employees objects to intellectual property ownership issues.
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