Ventures To & Fro
29 Dicembre Dic 2011 1032 29 dicembre 2011

Lose a Gejillion Euros: Why IP Assignment Language Matters

(A "machine translation" of this post can be found at this link)

(File this under: “We told you so!”)

If you want to risk losing many millions of Euros (or dollars), then don't bother using lawyers.

Stanford Goofed

An assignment agreement and an NDA just cost Stanford University about a gejillion dollars in lost royalties. (OK, so it wasn’t a gejillion dollars but it was a lot.)

So what? So, if your business relies on assignment of IP rights (which is most startups these days) and you sign NDAs, then you had better pay attention. That’s the message from a 2011 US Supreme Court opinion (typically called Stanford v. Roche, and found at 131 S.Ct. 2188 (2011)).

Getting IP Rights Assignment Language Right

Specifically, you better make sure that any agreement that assigns IP rights does so in legally binding language. For example, Stanford’s employment agreement included an assignment provision written as an agreement to assign—i.e., an agreement today to assign something in the future. It read to the effect that: “I hereby agree to assign . . .[.]”

That’s not a valid assignment because it says that you will do it in the future. . It has to read something to the effect of “I hereby assign . . ..”

Why NDAs Matter

Second, you better read your NDAs to make sure that they do not assign rights themselves. That’s also what happened with Stanford. One of their researchers signed an NDA that said that the research assigned all rights in anything that arose from access to confidential information covered by that NDA. Oops. It seems that no one bothered to read that NDA on behalf of Stanford.

The university lost patent rights because their lawyer got their assignment provisions wrong. And the US Supreme Court affirmed that loss.

Will Startups Listen?

This is a hard message to convey. Clients often complain that lawyers spend too much time adjusting small amounts of language that differ among agreements. Often, they will take one draft of an agreement and simply adjust it on their own—without legal counsel—for future projects. Well, look at what happened to Stanford.
Likewise, clients are convinced that NDAs are standardized and therefore not worth lawyer time. One can just download a copy from the web—heck, a hundred different versions.

Well, just remember that Stanford lost its patent infringement case (with damage claims at $200 million). And they lost the rights to the gene technology at the core of those patents.

For the sake of saving a few Euros or dollars in legal fees, companies take that risk. And perhaps it is not worth it.

Note: The Supreme Court opinion did not include a lot of discussion on the agreement language itself. For a more detailed discussion of the language, see the circuit court opinion at 583 F. 3d 832 (2009).

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