chevron-down Created with Sketch Beta.
February 07, 2023 Practice Points

“Shall Be the Property” Is Insufficient in a Contract to Automatically Assign IP Rights

A recent decision provides insight into how IP assignment provisions in contracts may be interpreted.

By Richard Kurz and Kiersten Fowler

In Omni MedSci, Inc. v. Apple Inc., No. 20-1715 (Fed. Cir. Aug. 2, 2021) (“Slip Op.”), a Federal Circuit panel considered the question of who owned the rights to certain intellectual property (IP), specifically patent rights, based on an employment-related contract. The issue in the case is whether the contractual language “shall be the property of the University” in an agreement “automatically and presently assigned legal title” of inventions. Slip Op. at 6. The opinion is instructive in that it analyzes the effect of the language used and its context in a contract when determining the ownership of IP rights based on Federal Circuit case law. The analysis is very fact-specific, as reflected by a dispute between the panel’s majority and dissent.

In this case, a professor working at the University of Michigan was subject to an agreement containing the following language:

1) Patents and copyrights issued or acquired as a result of or in connection with administration, research, or other educational activities conducted by members of the University shall be the property of the University.

Id. at 2–3. The majority decided that such language merely reflected a future agreement to assign. Thus, the professor, and not the university, retained title to the patents at issue, and he was able to assign them to a third-party.

The majority’s conclusion that this language “is most naturally read as a statement of intended disposition and a promise of a potential future assignment” was bolstered by two key considerations: (i) a comparison of that language to other language considered in Federal Circuit precedent, and (ii) the text of the agreement taken as a whole. See id. at 7.

First, the majority gave examples of wording that would have constituted a present automatic assignment versus a promise to assign in the future. For example, in FilmTec Corp. v. Allied-Signal Inc., 939 F.2d 1568, 1573 (Fed. Cir. 1991), the language “agrees to grant and does hereby grant” was a present automatic assignment of a future interest. Conversely, in Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1576 (Fed. Cir. 1991), the language “shall be the property of [Arachnid], and all rights thereto will be assigned by IDEA to [Arachnid]” constituted an agreement to assign rather than a present assignment. Similarly, in Chou v. Univ. of Chicago, 254 F.3d 1347, 1357 (Fed. Cir. 2001), the following merely obligated the assignment of inventions: “[e]very patentable invention ... shall be the property of the University, and shall be assigned, as determined by the University, to the University.” Lastly, in Regents of Univ. of New Mexico v. Knight, 321 F.3d 1111, 1119–20 (Fed. Cir. 2003), the language “such inventions and discoveries belong to the University” was a mere obligation to assign.

Second, the majority posited that the text of the agreement “stipulates the conditions governing the assignment of property rights” and “does not purport to effectuate the present transfer of a present or future right.” Id. at 7. This was demonstrated by the lack of present tense words of execution in the language. Additionally, other paragraphs in the agreement contained the same operative language, for instance, requiring that in some circumstances, patents “shall be the property of the inventor.” Id. at 3. The majority opined that if this were read as a present automatic assignment, it would require that the inventor presently automatically transfer title to himself, which plainly makes no sense. Further, another paragraph used the operative language: “patents shall be owned as agreed upon in writing.” Id. at 3. This explicitly referred to a future determination of ownership only after negotiation between the University and the inventor. Therefore, the Majority decided that the operative language of “shall be the property of” could not be a present automatic assignment when read in context. Id. at 8–9.

The dissent quarreled with the majority’s interpretation and thought it failed to take into account a history of consistent and undisputed interpretation and implementation of the contract. For example, University of Michigan policies provided for the granting of rights back to inventors, which the dissent posited were necessary because the university had automatic ownership of inventions. Therefore, the dissent concluded that the professor did not have the right to assign the patents.

In sum, this decision provides insight into how IP assignment provisions in contracts may be interpreted, and how the language used may—or may not—effectuate an automatic transfer of title of future inventions. However, as demonstrated by the vigorous dissent, this is a fact-based analysis that may involve considering the language in the context of the agreement as a whole as well as the course of dealing between the parties.

Richard Kurz is a partner and Kiersten Fowler is an associate in the New York City, New York, office of Haug Partners.

Copyright © 2021, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Litigation Section, this committee, or the employer(s) of the author(s).