Benefits Practice Resource Center

Beneﬁts Practice Resource Center Reproduced with permission from Beneﬁts Practice Resource Center, Insights, 01/19/2017. Copyright ஽ 2017 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com A Guide to Drafting Effective Assignments of Copyrights and Patents in Executive Employment Agreements and In the Navy and former lead singer for the Village People. A dual regime of federal2 and state law applies to the determination of whether an employer or employee owns a copyright or patent. For copyrights,3 a federal statutory regime provides that when an employee creates a work within the scope of his or her employment, the work is made for hire and the employer owns the copyright. When a work is not made for hire, the federal statutory regime provides that the employee-author owns the copyright, and permits the employer to acquire the copyright by assignment from the employee- * BY STEVEN H. SHOLK,ESQ. 09905, 2006 BL 110429 (S.D.N.Y. Oct. 16, 2006); Scion Breck- Steven H. Sholk, Esq. ([email protected]) is a enridge Managing Member, LLC v. ASB Allegiance Real Es- Director in the Corporate Department of Gibbons P.C. tate Fund, 68 A.3d 665, 677 (Del. 2013); Pellaton v. Bank of New York, 592 A.2d 473, 477, (Del. 1991); Newell Rubbermaid, and Chair of the Employee Benefits and Executive Inc. v. Storm, No. 9398, 2014 BL 86472 (Del. Ch. Mar. 27, Compensation Group. 2014); Parker Rust-Proof Co. v. Allen, 203 N.W. 890 (Mich. ‘‘The rule [for patent assignments] nonetheless remains a 1925) (employee bound by agreement to assign patents even technical drafting trap for the unwary.’’ Bd. of Trs. of the though he claimed that he did not know what he was signing); Gillman v. Chase Manhattan Bank Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., , 537 N.Y.S.2d 787 (N.Y. 563 U.S. 776, 800 (2011) (Breyer, J., dissenting). 1988) (failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract); ‘‘When you’re young, you just want to get out there and Nat’l Bank v. Equity Investors, 506 P.2d 20 (Wash. 1973) (in aren’t really paying attention to what’s on paper. I never the absence of fraud or coercion, a party who voluntarily signs even read one contract they put in front of me, and that’s a but does not read a contract is bound by it). 2 big mistake.’’1 Victor Willis, writer of the lyrics for YMCA The power of Congress to regulate copyrights and patents is found in Section 8 of Article I of the United States Constitu- tion, which grants Congress the power ‘‘to promote the prog- * The author thanks Robert E. Rudnick, Esq., a Director in ress of science and useful arts, by securing for limited times to the Intellectual Property Department of Gibbons P.C., for his authors and inventors the exclusive right to their respective review of this article. writings and discoveries.’’ 1 For an obligor’s common law duty to read a contract be- 3 Copyright protection applies to original works of author- fore signing it, see Carroll Touch, Inc. v. Electro Mech. Sys., ship fixed in any tangible medium of expression. 17 U.S.C. Inc., 15 F.3d 1573, 1580 (Fed. Cir. 1993) (‘‘[I]f Lazarevich [the § 102(a). Works of authorship means architectural works, dra- former employee] was indeed mistaken as to what he was as- matic works (including any accompanying music), literary signing under the [invention] assignment agreement, that mis- works, motion pictures and other audiovisual works, musical take was attributable solely to his own imprudence. EMS [the works (including any accompanying words), pantomimes and subsequent employer founded by Lazarevich] does not dispute choreographic works, pictorial, graphic and sculptural works, that Lazarevich is an intelligent, well educated, and sophisti- and sound recordings. Id. cated individual and that he was fully capable of reading and A copyright gives the owner the rights to (1) reproduce the comprehending the agreement at the time it was executed.’’); copyrighted work; (2) prepare derivative works; (3) distribute Centrifugal Force, Inc. v. Softnet Commc’n, Inc., No. 1:08–cv- copies to the public by sale or other transfer of ownership, or 05463, 2011 BL 333812, at *7 (S.D.N.Y. Mar. 1, 2011) (failure by rental, lease, or lending; (4) perform or display the work to read a clickwrap license agreement before agreeing to its publicly; and (5) in the case of sound recordings, perform the terms does not relieve a party of its obligations under the work publicly by means of a digital audio transmission. 17 agreement); Bar-Ayal v. Time Warner Cable Inc., No. 1:03–cv– U.S.C. § 106. COPYRIGHT ஽ 2017 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 2 author to the employer. A state regime, usually the com- is the person who actually creates the work, which is mon law of contracts, determines the scope of assign- the person that puts an idea into a fixed, tangible ex- ments. pression.8 A copyright does not vest in the employer For patents,4 a federal statutory regime provides that solely because the subject matter of the work bears unless an employee is hired to invent, the employee- upon or arises out of the employment relationship,9 or inventor owns the invention. This regime permits the the employee uses the employer’s facilities or resources employer to acquire the invention by assignment from in creating the work.10 the employee-inventor to the employer. As a result of However, when a work is made for hire by an em- judicial interpretation of the standing requirements in ployee, the employer is treated as the author and owner an action for patent infringement, federal common law of the copyright.11 A written assignment from the em- determines whether an assignment is a present transfer ployee to the employer is not necessary, and the em- of an expectant interest, or an agreement to assign in ployer can register the work in the Copyright Office in the future. Other than this determination, a state re- its name.12 gime, again usually the common law of With a work made for hire, the employee can acquire 5 contracts, determines the scope of assignments. the copyright only if the employer and employee ex- The dual regime of federal and state law often results pressly agree to the employee’s ownership in a written in a mishmash of legal rules. For employers to success- instrument signed by both of them.13 Equitable de- fully navigate this mishmash and ensure their ownership of copyrights and patents with reasonable cer- 8 tainty, effective assignments are necessary.6 The Model Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 737 Confidentiality and Intellectual Property Provisions (1989) (‘‘As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into (the ‘‘Model Provisions’’) in the Appendix are intended a fixed, tangible expression entitled to copyright protection.’’). to serve as effective assignments. 9 Avtec Sys., Inc. v. Peiffer, 21 F.3d 568, 572 (4th Cir. 1994); Pavlica v. Behr, 397 F. Supp. 2d 519, 525 (S.D.N.Y. 2005); Schmid Bros., Inc. v. W. Goebel Porzellanfabrik KG, 589 F. Copyright Ownership Under Federal Law Supp. 497 (E.D.N.Y. 1984). 10 Balt. Orioles, Inc. v. Major League Baseball Players For copyrights, ownership of the copyright initially Ass’n, 805 F.2d 663, 672 n.14 (7th Cir. 1986). vests in the author of the work.7 Generally, the author 11 17 U.S.C. § 201(b). 12 17 U.S.C. §§ 408(a) and 409. Registration is necessary to bring an action for copyright infringement, 17 U.S.C. § 411(a), 4 Patent protection applies to the invention or discovery of and to obtain statutory damages, 17 U.S.C. § 412. any new and useful composition of matter, machine, manufac- 13 17 U.S.C. § 201(b); see also Balt. Orioles, Inc. v. Major ture, or process, or any new and useful improvement thereof. League Baseball Players Ass’n, 805 F.2d 663 (7th Cir. 1986) 35 U.S.C. § 101. The invention must satisfy the requirements of (since baseball players were employees of clubs and the scope eligible subject matter, novelty, and nonobviousness. In addi- of their employment covered performances before broadcast tion, the patent application must fully and particularly describe audiences, the clubs owned the copyright in the game telecasts the invention. 35 U.S.C. § § 101 to 103 and 112. as a work made for hire; statutory presumption that the clubs A patent gives the owner the rights to exclude others from owned the copyright was not rebutted when the players and making, using, or selling the subject matter of the claimed in- clubs did not expressly agree in the Uniform Player Contract, vention. 35 U.S.C. § § 154 and 271. Benefit Plan, and collective bargaining agreement that the 5 For the freedom to create statutes of eight states, see dis- players owned the copyright; an agreement that alters the cussion infra notes 158-167 and accompanying text. statutory presumption that the employer owns the copyright in 6 For the importance of certainty of ownership by busi- a work made for hire must appear on the face of the signed nesses of their intellectual property, see Llewellyn Joseph Gib- written document), cert. denied, 480 U.S. 941 (1987); Molinelli- bons, ‘‘Tech Transfer: Everything (Patent) is Never Quite Freytes v.

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