Patent clauses in state DOT contracts: Paper tigers?

May 2014 » Web Exclusive
Stephen L. Keefe, P.E., Esq.

When civil engineers talk about intellectual property, the questions that seem to arise most often revolve around the issue of patent ownership. And because work in this industry typically involves contracts, patent ownership issues in civil engineering quickly become mired in and complicated by contractual obligations. Much of this complexity stems from the conflict of two sets of competing bodies of law for determining who owns a patented invention developed under a contract: state contract law and federal patent law.

This murky, no man's land of competing laws over patent ownership came up at the 2013 ASCE Annual Conference during a question and answer period following a presentation on patenting. The discussion, representative of many potential ownership problems for patents in the heavily contracted civil engineering field, delved into contracts for engineering design work between state departments of transportation (DOTs) and consultants. Civil engineers participating in the discussion pointed out that DOT contracts typically include a clause asserting — likely in a nebulous way — that any patents developed under DOT contracts belong to the DOTs. 

For example, a typical clause may read something like this excerpt from a publicly available DOT contract: "The Consultant also agrees that it will not publish, copyright, or patent any of the data developed under this Agreement, it being understood that such data or information is the property of the Department" (emphasis added). In view of such clauses, the civil engineers at the question and answer session seemed to shrug their shoulders and conclude, "Hey, if the contract says that any patent developed under it belongs to the DOT, then the patent has to belong to the DOT, right?" They essentially agreed that the DOT would automatically win any case arising out of that issue. 

However, the legal answer lands in the gray area covering so much of American jurisprudence. That is, it all depends on the facts of a given case. And as some of the controlling rules below show, the law provides encouraging news to civil engineering inventors who would like to retain ownership of their patents in the face of DOT contracts.  

The Supreme Court of the United States recently opined, in a case not all that different from the hypothetical controversies discussed at the ASCE conference last year, that an inventor initially owns the rights to his or her invention. In other words, patent ownership vests first in the inventor. Therein lies a DOT's first difficulty in trying to obtain patent rights developed under its contracts.

Typically, a DOT forms a contract with a business association (e.g., a company). Therefore, the contract may cover inventions that the company owns. For a contract between a DOT and a company to even reach the issue of patent ownership, an individual employee-inventor must have assigned his or her invention to the company that contracted with the DOT. Without an agreement to assign between the employee-inventor and the company the DOT contracted with, the DOT will not be able to obtain patent rights, because the company itself never obtained any patent rights from its employee to give away. 

It follows that the DOT generally cannot take the rights to an invention developed under a contract made with an engineering company unless the employee-inventor has assigned his or her invention to that company. That is, without that patent assignment from an employee to the employer, the patent rights remain vested with the individual employee-inventor. So, the DOT desiring to take rights under a contract from a company must ensure that employee-inventors actually execute agreements giving their patent rights to their company. After all, the founding fathers made it clear in the Constitution that only individual people, not legal entities such as companies, qualify as "inventors" under U.S. law.

As an aside, in the case where a DOT contracts directly with an individual who invents under the contract, the above assignment issue becomes moot and presents no problems to the DOT. 

But a second issue still lies in wait to trip up an unwary DOT. Let's assume the DOT overcomes the first problem above, and employee-inventors have properly assigned their patent rights to their company so that the company actually has patent rights to give under the contract. The DOT must still legally take ownership of a patent invented under the contract. State law typically governs interpretation of a contract. But, one of the U.S. Court of Appeals has in recent years preempted (essentially overruled) certain aspects of state law regarding patent ownership transfer. In a number of somewhat controversial cases, that U.S. Court of Appeals ruled that contract clauses endeavoring to transfer patent ownership may have to meet certain criteria of federal law, as opposed to merely complying with applicable state law for property transfer. 

Federal courts currently appear to look for certain types of terms in ruling that a contract clause operates to legally transfer patent rights between parties. Based merely on various exemplary DOT contracts currently floating around the Internet, at least some, and possibly many, DOT contracts seem to lack these types of terms. For example, the contract clause mentioned above using the phrase "it being understood that such [patent] data or information is the property of the Department" could fail to transfer patent rights under current federal law. Indeed, many current DOT contracts may lack suitable wording to ensure transfer of patent rights under the current law, despite the presence of intimidating but loosely worded clauses asserting DOT ownership of all patents developed under a given contract.

Though probably arising less often, a last trap awaits a DOT wanting to contractually take patents away from the companies doing their work. Projects using research funds granted by the Federal Highway Administration (FHWA) and other federal agencies constitute a third pitfall for DOTs leveraging their bargaining power as an owner to make grabs at patent rights. Projects using federal research money may invoke the provisions of the 1980 Bayh-Dole Act, which provides that inventors receive a portion of proceeds from their patents. A significant body of law has developed out of the Bayh-Dole Act to protect inventors from losing rights to patents developed under federal research funds. This jurisprudence could frustrate a DOT's attempt to take patent rights off of inventors and their companies via an intellectual property transfer clause buried in a DOT contract.

To sum up, to expect to take patent rights off of consultants and contractors working under an agreement, a DOT must ensure that a target contracting party has actually been assigned patent rights by its employee-inventors, that the DOT contract has acceptable wording to legally transfer a patent, and that federal research funding does not invoke Bayh-Dole. However, in a field that often neglects patenting its inventions, DOTs and engineering companies alike can probably expect one or more of these legal blocks to remain unchecked. For example, assuming the average consultant or contractor doing DOT work has a process in place for assigning employee inventions to employers may amount to a far-fetched expectation. Further, in the often patent un-savvy civil engineering field, many DOT contracts may fail to incorporate either current federal law requirements for assigning patent rights or Bayh-Dole considerations that kick in with federal research funding.

So, the apparent consensus of the civil engineers at the 2013 ASCE conference probably overestimates the DOT's real power for taking patent rights under most contracts used today. In many cases, DOT contractual clauses threatening to strip consultants and contractors of their patent rights developed under its contracts may amount to, quite literally, paper tigers. 

If DOTs do try to enforce these seemingly powerful contract clauses meant to transfer patent rights, they may find that provisions of federal patent law could stop them dead in their tracks in a variety of situations. If a court looked closely at a DOT contract on this issue, it might very well deem the DOT as caught in one of the above traps and expose the contract clause asserting patent ownership transfer as an empty threat having no legal effect.

Stephen L. Keefe, P.E., Esq., is a patent attorney with Rabin & Berdo, in Washington, D.C. After graduating from West Point with a degree in civil engineering and serving in the U.S. Army, Keefe practiced as a structural engineer for six years and earned a Master's Degree in civil engineering from Columbia University. He served as a patent examiner at the U.S. Patent & Trademark Office, received a Juris Doctorate from the George Washington University Law School, and practiced patent law for several years at a large Washington, D.C., intellectual property law firm. He can be contacted at skeefe@keefepatentlaw.com.

DISCLAIMER: This article presents general information only and should not be regarded as legal advice. Accordingly, the author disclaims liability for any omissions or errors. Readers should contact their own lawyer regarding their own specific legal questions, and should not take actions relying on the information presented in this article. This article does not establish an attorney-client relationship with the author or his firm.


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