Lessons from the Doll Wars: Drafting A Workable Invention Assignment Clause

The blockbuster film Inception describes a seemingly impossible feat of corporate espionage, entering another person’s thoughts and extracting ideas. Considering this kind of appropriation both intrigues and chills us. We consider our private thoughts sacred, and our ideas, our own. So it surprises many business owners that with the right contract language, they can, in effect, claim ownership over the thoughts of employees.

It is less Orwellian than it sounds. An invention assignment provision allows a business to assert ownership over valuable ideas and conceptions by its employees, even ones that arise while the employee is away from the workplace. Yes, these are intangible “thoughts,” but the good news for those skeptical about the thought control implications is that courts have established limits on the scope of such provisions. A company cannot claim protection over concepts that are already public, or ideas that are so general they have no value. In one Georgia case, for example, an appeals court invalidated as too broad language that prohibited an employee from disclosing “any information concerning any matters affecting or relating to the business of employer.”

Precise drafting and work choice is critical. Otherwise, courts will not enforce these clauses. That means language appropriate to the industry, individual business and jurisdiction is critical. It also means that a business must give thought to what it wants to protect, define those parameters precisely, and make sure a defensible business interest in that scope of protection exists. In another Georgia case, a different appeals court upheld an assignment by the employee of non-public “discoveries, inventions, patents and application for patents.”

Very recently, we saw the point about draftsmanship driven home again. In federal court in California, toymaker Mattel has been battling with competitor MGA over who owns the rights to the “urban, multi-ethnic and trendy” line of dolls sold by MGA, the “Bratz.” Mattel claimed its former employee came up with the idea for the Bratz on company time and then took the idea to MGA. The employee’s contract assigned to Mattel “inventions” he may have “conceived or reduced to practice” at Mattel, which “includes, but is not limited to, all discoveries, improvements, processes, developments, designs, [and] know-how.” The trial court decided that the agreement included “ideas,” and a jury found against MGA, concluding that one of these ideas was for dolls named “Bratz.” After the verdict, the trial court entered an order that basically gave Mattel rights to the whole line of dolls and derivative properties, including spin-off films, and hundreds of millions in actual and potential profits.

About two weeks ago, the federal court of appeals reversed the trial court and sent the case back. The appeals court disagreed that the Mattel agreement covered “ideas,” pointing out that the clause might cover ideas, but did not have to. If the evidence conflicts, a jury will need to resolve what the parties meant. As another example, the designer’s agreement covered inventions conceived “at any time during my employment by the Company.” The federal appeals court decided this language, and the concept of company time, was also not particularly clear. The phrase “at any time during my employment” could refer to the whole calendar week, but it could also refer only to inventions that the employee came up with during work hours. Getting clarity on the meaning of this language formed part of the rationale for reversing a sizeable trial verdict and substantial injunction.

The lesson is not to eschew these agreements, but just to be thoughtful about how they are drafted and used. Although Mattel’s agreement was ambiguity in places, the appeals court did acknowledge, as have other courts, that a business can claim contract-based ownership over employee “ideas” – a much broader set than “inventions” alone. With the right language and balancing of its interests against the employee’s right to seek employment elsewhere, the business may own those inventions even if the employee conceived of them on his or her “personal” time.

For businesses with proprietary and evolving technology, these agreements are essential. For all businesses, they are key competitive tools, providing a valuable means of prohibiting competition by employees the business trained and exposed to confidential information.

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.