Federal Circuit Invalidates Employee Invention Assignment

The Federal Circuit has ruled that a provision in an employment agreement that requires an employee to assign to the employer any invention that the employee may “hereafter… conceive” “in any way connected to any subject matter within the existing or contemplated business of Company” is void under California law.

This is an important decision for both employers and employees, because similar provisions appear in many employment agreements.

The case of Whitewater West Industries, Ltd. v. Alleshouse, et al. involved Richard Alleshouse, who was employed by a company called Wave Loch starting in 2007.

Alleshouse is an engineer working in the field of “largescale, sheet-wave attractions” for water parks. In 2008. He signed a “Covenant Against Disclosure and Covenant Not to Compete” with Wave Loch. This agreement included the following language:

1. Assignment: In consideration of compensation paid by Company, Employee agrees that all right, title and interest in all inventions, improvements, developments, trade-secret, copyrightable or patentable material that Employee conceives or hereafter may make or conceive, whether solely or jointly with others:
   1. (a) with the use of Company’s time, materials, or facilities; or
   2. (b) resulting from or suggested by Employee’s work for Company; or
   3. (c) in any way connected to any subject matter within the existing or contemplated business of Company

   shall automatically be deemed to become the property of Company as soon as made or conceived, and Employee agrees to assign to Company, its successors, assigns, or nominees, all of Employee’s rights and interests in said inventions, improvements, and developments in all countries worldwide. Employee’s obligation to assign the rights to such inventions shall survive the discontinuance or termination of this Agreement for any reason.

(Emphasis added.)

The Agreement was governed by California law. California Labor Code § 2870(a) provides:

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 employer.

(Other states have similar statutes.)

Alleshouse left Wave Loch and formed a business called Pacific Surf Designs with Yong Yeh. Alleshouse and Yeh are named as the inventors on US Patents for water-park attractions that individuals may ride as if surfing, and on a patent for nozzle configurations for regulating water flow in such surfing attractions.

Whitewater sued Alleshouse, Yeh, and their company for breach of contract and correction of inventorship on the patents.

The parties agreed that the inventions weren’t conceived until after Alleshouse left his job at Wave Loch and that Alleshouse didn’t use any trade-secret or other confidential information of Wave Loch’s in his inventions.

The Federal Circuit ruled that the assignment was invalid under California law because it was over-broad in covering inventions made after an employer left the company.

The court noted:

A requirement of assignment, like the one at issue here, imposes [a harsh] penalty on post-employment professional, trade, or business prospects—a penalty that has undoubted restraining effect on those prospects and that a number of courts have long held to invalidate certain broad agreements with those effects.