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IP: In Preston v. Marathon Oil, Federal Circuit helps clarify who owns a patent

Case helps provide a federal-level, unified resolution to the question of whether continued employment constitutes sufficient consideration for an assignment contract

It is a common misconception that an employer automatically owns all rights to the patents invented by its employees. The general rule is that, in the absence of an agreement to the contrary, an invention and any patents covering that invention belong to the employee/inventor. While state law will give an employer “shop rights” to use such an invention, this can create uncertainty and make it difficult to sell or transfer the business.

An employer, therefore, as a condition of employment, usually require that its employees sign agreements that assign inventions (and other intellectual property) created by the employee as a part of their employment to the employer. Contract law requires mutual consideration, however, for an agreement to be enforceable. Companies often struggle with whether simply providing an employee with continued employment constitutes sufficient consideration to support an assignment contract.

In Preston v. Marathon Oil Company,  the U.S. Court of Appeals for the Federal Circuit recently held that no additional consideration beyond the continuation of at-will employment is required to support an employee’s assignment of inventions (and other intellectual property) to his employer.  In the case, Marathon Oil Company hired Yale Preston as a relief pumper in its coal bed methane well operation. Preston was hired as an employee at-will and later signed a contract agreeing, among other things, to assign to Marathon all intellectual property made or conceived during the term of employment that was related to Marathon’s business or created using its confidential information or equipment. There was no separate or additional consideration for this contract beyond Preston’s continued employment.

During his employment, Preston worked on a baffle plate system used for methane gas extraction. Preston drafted conceptual drawings, met with Marathon’s engineers, engaged a third party on Marathon’s behalf to manufacture the baffle plates, and managed the installation of the baffle plates in Marathon’s gas wells. While Preston was still employed by Marathon, the company began preparing a patent application for the baffle plate system. Preston then left Marathon and filed his own patent application for the baffle plate system. Both patent applications ultimately matured into issued patents, but Preston refused to assign his patent to Marathon.

Marathon sued Preston, alleging that he had breached his employment agreement by refusing to assign the patent. The matter was ultimately brought before the Federal Circuit, with the key issue being whether, under Wyoming law, the continued employment of an existing at-will employee constitutes adequate consideration to support an agreement containing an invention assignment provision. Since state law governs patent ownership, the Federal Circuit certified this question to the Wyoming Supreme Court, which answered in the affirmative—that continuation of at-will employment is sufficient consideration under Wyoming law. Preston v. Marathon Oil Co. As a result, the Federal Circuit found that the employment agreement at issue was enforceable, and Marathon owned the patent.

At first blush, the implication of the Preston holding is to provide a federal-level, unified resolution to the question of whether continued employment constitutes sufficient consideration for an assignment contract. However, because this decision was rendered under Wyoming state law, it may not be capable of being universally applied. Nonetheless, the Federal Circuit’s opinion certainly provides guidance to employers concerning how best to structure intellectual property assignment agreements to ensure that rights are protected for at-will employees.

Contributing Author

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William Lenz

William J. Lenz is a partner at Neal, Gerber & Eisenberg LLP and represents clients in a wide variety of intellectual...

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Contributing Author

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Jessica Rissman Cohen

Jessica Rissman Cohen is an intellectual property associate who manages her clients’ portfolios of patents and trademarks. She prosecutes trademarks and patents and handles related...

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