Preston v. Marathon Oil Co.

• Citation: 277 P.3d 81,33 IER Cases 1651,2012 WY 66
• Decision Date: 10 May 2012
• Docket Number: No. S–11–0166.,S–11–0166.
• Parties: Yale PRESTON, Appellant (Plaintiff), v. MARATHON OIL COMPANY and Thomas Smith, Appellees (Defendants).
• Court: United States State Supreme Court of Wyoming

277 P.3d 81

33 IER Cases 1651

2012 WY 66

Yale PRESTON, Appellant (Plaintiff),

v.MARATHON OIL COMPANY and Thomas Smith, Appellees (Defendants).

No. S–11–0166.

Supreme Court of Wyoming.

May 10, 2012.

Representing Appellant: Philip A. Nicholas and Mitchell H. Edwards, Nicholas & Tangeman, LLC, Laramie, Wyoming. Argument by Mr. Edwards.

Representing Appellees: Mark R. Ruppert, Joanna R. Vilos and Tyler J. Garrett, Holland & Hart LLP, Cheyenne, Wyoming; Shane P. Coleman, Holland & Hart LLP, Billings, Montana. Argument by Mr. Ruppert.

Before KITE, C.J., and GOLDEN, HILL, VOIGT, and BURKE, JJ.

KITE, Chief Justice.

[¶ 1] The United States Court of Appeals for the Federal Circuit certified a question to us regarding the validity of an assignment of intellectual property rights given by Yale Preston to Marathon Oil Company without any additional consideration other than continued at-will employment.

CERTIFIED QUESTION

[¶ 2] The certified question is:

Does continuing the employment of an existing at-will employee constitute adequate consideration to support an agreement containing an intellectual property-assignment provision?

Our answer to the question is “yes,” continuation of at-will employment is sufficient consideration for an agreement requiring assignment of intellectual property.

FACTS

[¶ 3] The certification order contains the following statement of facts relevant to the question certified:

(b) A statement of all facts relevant to the questions certified

While we do not believe that resolution of this question requires application of the facts of this particular case, below are selected underlying facts to provide context. In a letter dated February 22, 2001, Pennaco Energy, Inc. (“Pennaco”), a wholly-owned subsidiary of Marathon (collectively, Pennaco and Marathon are referred to as “Marathon”), offered employment to Preston as a relief pumper in Marathon's coal bed methane well operation in the Powder River Basin in northeastern Wyoming. In addition to describing Preston's proposed responsibilities, compensation, and benefits, the letter indicated that Preston was being hired “under the policy of ‘employment at will’ whereby you or the Company is free to terminate the employment relationship at any time and for any reason without cause or liability other than as prescribed by law.” Preston countersigned the letter on February 27, 2001.

Thereafter, Preston started work for Marathon, although there is a factual dispute as to the precise date. After a bench trial, the district court in this case made a factual finding that Preston began employment with Marathon on March 30, 2001. Preston contends that he began work on March 1, 2001.¹

On April 5, 2001, Preston signed a document entitled Marathon Oil Company and Subsidiaries Employee Agreement (“the April 2001 Employee Agreement”). Brenda Williams signed on behalf of Marathon on the same date. The agreement contained the following provisions relevant to this dispute:

1. Definitions

* * * * * *

(d) “Intellectual Property” means all inventions, discoveries, developments, writings, computer programs and related documentation, designs, ideas, and any other work product made or conceived by EMPLOYEE during the term of employment with MARATHON which (1) relate to the present or reasonably anticipated business of the MARATHON GROUP, or (2) were made or created with the use of Confidential Information or any equipment, supplies, or facilities of the MARATHON GROUP. Such property made or conceived by EMPLOYEE (or for which EMPLOYEE files a patent or copyright application) within one year after termination of employment with MARATHON will be presumed to have been made or conceived during such employment.

* * * * * *

3. Disclosure and Assignment of Intellectual Property

EMPLOYEE agrees to promptly disclose to MARATHON and does hereby assign to MARATHON all Intellectual Property, and EMPLOYEE agrees to execute such other documents as MARATHON may request in order to effectuate such assignment.

Although the agreement provides that it “shall be governed and construed in accordance with Ohio law,” both parties agree that Wyoming law applies pursuant to Wyoming's choice of law rules. It is undisputed that Marathon did not provide any additional consideration to Preston for signing this document beyond continued employment.

[Reference to attached documents].

(c) The nature of the controversy in which the questions arose

The present dispute centers around allegations of patent infringement and questions of ownership of two patents that cover a baffle system Preston invented: the '764 patent and the '385 patent. Approximately two months after Preston ceased to be employed by Marathon, he filed a patent application for his invention, which ultimately issued on November 1, 2005 as the '764 patent. Preston is listed as the sole inventor on the '764 patent. On June 14, 2004, Marathon filed a patent application for a similar invention that ultimately issued on April 24, 2007 as the '385 patent. The patent names both Preston and Defendant–Cross–Appellant Thomas Smith (“Smith”), who was a Marathon employee at the time Preston worked at Marathon, as co-inventors.

In the present litigation, Preston asserted counts for, among others, patent infringement and a declaration that Preston is the sole inventor of the '385 patent. Marathon raised affirmative defenses and counterclaimed for a declaration that Preston agreed to assign his rights in the '764 patent to Marathon pursuant to the April 2001 Employee Agreement. Smith also counterclaimed, seeking a declaration that he is a co-inventor of the '764 patent.

As it relates to the certified question, the district court entered a final judgment on August 30, 2010, finding that Preston was the sole inventor of the '764 and '385 patents, and that the April 2001 Employee Agreement is a valid contract, pursuant to which Preston was required to assign his ownership interest in the '764 and '385 patents to Marathon.

On appeal, Preston challenges, among other rulings, the district court's ruling that the April 2001 Employee Agreement requires Preston to assign his rights in the '764 and '385 patents to Marathon, which necessarily requires this court to decide the validity and enforceability of that agreement. Accordingly, the answer to the above-certified question of law may be determinative of one of the issues in this appeal.

(footnote in original and record citation omitted).

STANDARD OF REVIEW

[¶ 4] W.R.A.P. 11 governs certified questions. Rule 11.01 provides that we may answer a question of law “which may be determinative of the cause” pending in the certifying court and “concerning which it appears there is no controlling precedent” from this Court. “[Q]uestions of the application of the law, including identification of the correct rule, are considered de novo.” Pinnacle Bank v. Villa, 2004 WY 150, ¶ 5, 100 P.3d 1287, 1289 (Wyo.2004), quoting EOG Resources, Inc. v. State, 2003 WY 34, ¶ 7, 64 P.3d 757, 759 (Wyo.2003). See also, Prokop v. Hockhalter, 2006 WY 75, ¶ 6, 137 P.3d 131, 133 (Wyo.2006).

DISCUSSION

[¶ 5] It is helpful to start our analysis of the certified question with a review of the general rights of an employee and an employer to intellectual property conceived by the employee during the term of employment.

Generally an invention is the property of the inventor who conceived, developed, and perfected it, and the law protects and enforces the inventor's property rights in an invention unless he or she has contracted them away. Hence, the mere fact that the inventor was an employee at the time of the invention does not mean that that inventor is required to assign the patent rights to the employer. Thus, in the absence of a special agreement to the contrary, an invention and a patent secured for it belong to the inventor, even though the invention was made during the period of the inventor's employment, and the invention relates to the matter in which the inventor was employed, although the absence of an agreement does not necessarily preclude an employer from claiming a right to the invention.

19 Williston on Contracts, § 54:20 (4th ed. 2001). See also, University Patents, Inc. v. Kligman, 762 F.Supp. 1212, 1219 (E.D.Pa.1991). The public policy underlying this general rule is to encourage individuals to exercise their inventive powers. Banner Metals, Inc. v. Lockwood, 178 Cal.App.2d 643, 3 Cal.Rptr. 421, 428 (1960). However, “[i]f an employee's job duties include the responsibility for inventing or for solving a particular problem that requires invention, any invention created by that employee during the performance of these responsibilities belongs to the employer....” 19 Williston on Contracts, § 54:20. Thus, typically, an employee who is not hired to invent is the owner of any invention discovered during employment.

[¶ 6] Nevertheless, when an employee who was not hired to invent does invent something as part of his work duties, the employer is given a “shop right” to use the invention. 27 Am.Jur.2d Employment Relationship § 188 (2011) explains:

Where the employee is not hired specifically to design or invent, but nevertheless conceives of a device during working hours with the use of the employer's materials and equipment, the employer is granted an irrevocable but nonexclusive right to use the invention under the shop-right rule.

• Definition: The shop right is an employer's royalty or fee, a nonexclusive and nontransferable license to use an employee's patented invention.

Notwithstanding the existence of the shop right, the invention remains the property of the employee, and the employee has the right, conferred by the patent, to exclude all but the employer from the benefits of the invention.

[¶ 7] Mr. Preston was hired by Marathon as a relief pumper and there is no indication that his specific job duties included inventing the baffle system. So, under the general rules (without considering the impact of the assignment)...