Inventions Not Made Under Employment Agreement

By on April 22, 2021

Applying a “middle ground” standard of review, the US Court of Appeals for the First Circuit affirmed a district court’s decision denying a company’s request for a declaratory judgment asking a former employee to assign patent rights to the company under the employment and separation agreements, because there were inconsistencies in the jury verdict. Covidien LP; Covidien Holding Inc. v. Brady Esch, Case No. 20-1515 (1st Cir. Apr. 8, 2021) (Gelpi, CDJ.)

During his employment with Covidien, Esch signed employment and separation agreements, which required a duty of confidentiality, an obligation to disclose any invention created during his employment with Covidien or within one year after leaving Covidien, and assignment of such inventions to Covidien. After his termination, Esch founded his own company (Venclose) and filed patent applications that were assigned to Venclose. Covidien sued Esch for breach of confidentiality and breach of obligation to disclose inventions.

At trial, the jury found that Esch breached his duty of confidentiality by publication of the patent applications, but did not breach his obligation to disclose inventions to Covidien under the agreements (question 3 on verdict form). The verdict form also included questions 6-8 concerning whether inventions were made under the agreements, but the jury was not required to answer these questions if the answer to question 3 was negative. After trial, Covidien moved for a declaratory judgment requesting that Esch assign patent rights to Covidien pursuant to the assignment provision of the agreements. The district court denied the motion, finding that the jury verdict questions were “internally inconsistent” and that “the jury’s ‘decisive’ negative answer to Question 3 could only be read as a factual finding that no ‘Inventions’ were made that are encompassed under the Employment Agreement.” Covidien appealed.

The First Circuit agreed with the district court, applying a “middle ground” standard, which is more rigorous than abuse of discretion but less open-ended than de novo review. This standard of review “requires attentively digest[ing] the facts and the district court’s stated reasons.” The Court found that the district court sufficiently addressed the agreements under applicable Massachusetts law and specifically explained the definition of “inventions” and the assignment requirement to the jury. The Court found that Covidien’s request that the jury should answer questions 6-8 regardless of the answer to question 3 was neither “substantively correct” nor “essential to an important issue,” and was an instruction “substantially covered in the charge.” Further, the Court found that the “internally inconsistent” jury verdict, namely that Esch met his disclosure obligation by violating his confidentiality duty via publication of the patent applications, could only be read as a factual finding that there were no inventions encompassed by the agreement. Accordingly, the First Circuit concluded that the district court did not abuse its discretion in denying Covidien’s post-trial declaratory judgment request.

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