Comments on: IpVenture v. Prostar—Language of Performance or Language of Obligation?

By: Ken Adams

Ken Adams — Sat, 06 Oct 2007 16:37:40 +0000

Steve: In the comment I added after Anthony’s, I alluded to the distinction you refer to. I assumed that the agreements Anthony was referring to involved a simultaneous signing and closing. If not, The Purchaser hereby purchases would be an unfortunate choice. Ken

By: Steve

Steve — Sat, 06 Oct 2007 16:30:51 +0000

Anthony’s comment regarding asset purchase agreements requires some context. If he means the type of agreement by which one company buys the assets of another, then the language of obligation is exactly right. That style of agreement (see, for example, the Model Asset Purchase Agreement by the ABA Business Law Section Committee on Negotiated Acquisitions) contemplates a closing of the transaction on a subsequent date at which an instrument of assignment effecting the purchase would be delivered. Indeed the entire structure of the obligations in that agreement depend on the transfer NOT taking place at the time of signing. (For example, there is a period of “due diligence” and express conditions to the closing taking place that would be nonsensical if the purchaser had purchased when it signed.)

Perhaps that is not the sort of agreement Anthony had in mind.

By: mike

mike — Tue, 02 Oct 2007 20:56:09 +0000

Well, just to clarify.

I think that “hereby assigns” could mean both current and future inventions, depending on the remainder of the clause (both shortened for simplicity):
Employee hereby assigns all interest in:
1. the Making Widgets invention. (current invention, but this isn’t usually the employment agreement context)
2. any Inventions first conceived of or reduced to practice during his or her employment. (future invention, typical in the employment context)

We know that we can presently assign future inventions. In Filmtec v. Allied-Signal, 939 F.2d 1568, 1572, the Federal Circuit stated:
“If an assignment of rights in an invention is made prior to the existence of the invention, this may be viewed as an assignment of an expectant interest. An assignment of an expectant interest can be a valid assignment.”

I think that you can dispose of the “and agrees to assign” and rely solely on “hereby assigns” for the purpose of a present assignment of expectant interest, at least if you can get the Federal Circuit to take your case (remember, assignments are governed by state law even though they involve patents).

If the “agrees to assign” is meant to do something more like require that the assignor file the appropriate document, I would instead include a clause that actually requires the assignor to execute any documents upon request. This might be important, for example, if the assignee wants to record an actual assignment document that clearly lays out the assigned invention with the PTO. This can also be a safety valve if some court decides that you can’t actually presently assign a future expectant interest.

By: Ken Adams

Ken Adams — Tue, 02 Oct 2007 20:02:59 +0000

10803: My reaction to assigns and agrees to assign was largely driven by my understanding that Mike was advocating assigning now both current and future rights. Using assigns and agrees to assign to accomplish that would be misguided. Assigns and agrees to assign expresses that I'm transferring rights I have now and that I'm under an obligation to transfer any rights I acquire in the future. If that's the approach you adopt, I wouldn't lump the two verbs together, given that one would be used with respect to current rights and the second with respect to future rights. I'd say Acme hereby assigns X and shall assign Y. I'm profoundly ill-informed when it comes to patents, so I wouldn't dare offer an opinion as to which of the two approaches is preferable. Ken

By: 10803

10803 — Tue, 02 Oct 2007 19:36:55 +0000

“Hereby assigns and agrees to assign” isn’t all that bad in the context of the employment agreement. It’s a statement of a present action (I assign every invention I have right now) and an agreement to take a future action (and I’ll assign to you everything I come up with later).

Query whether it is appropriate for someone to assign now something he doesn’t yet have or, alternatively, to have this seemingly perpetual, renewing action in an ‘ancient’ agreement (~by some agreement I signed 10 years ago I hereby assign to you today…)

I think the conveyance of future IP probably should be done in the future. So I might say “I assign and shall assign” and then backstop that with a further-assurances clause with a specific performance remedy. That way the employee conveys what he has now and I have an enforceable obligation to cause the conveyance of those things that arise in the future.

By: Ken Adams

Ken Adams — Tue, 02 Oct 2007 13:49:35 +0000

Mike: Thanks. Regarding why hereby assigns is better than simply assigns, I point you to MSCD 3.7. And as a vehicle for assigning everything now, the usage hereby assigns and agrees to assign is extremely dubious. Ken

By: mike

mike — Tue, 02 Oct 2007 13:41:06 +0000

Ok, I opened up my “Drafting Patent License Agreements” Fifth Edition by Brian G. Brunsvold and Dennis P. O’Reilley. Their example clause for the “Assignment of Future Inventions” (which follows a discussion of the cases cited in IpVenture case) begins: “The Employee hereby assigns and agrees to assign to the Company…”

Whether that formulation or “hereby assigns” or merely “assigns” is the “best language,” I’m not sure. I’d say the fact that since the “x hereby assigns” formulation has been held up a couple of times now, I’m going to stick with it in my template language.

There are reasons to have other obligations (like to execute a more formal assignment or other similar documents) since the assignee may want to take more unambiguous precautions: e.g. the assignee may want to record an actual assignment with the patent and trademark office.

By: Ken Adams

Ken Adams — Tue, 02 Oct 2007 13:31:13 +0000

Anthony: The Purchase agrees to purchase is just fine if you want to risk following IpVenture into court. If the purchase is being made concurrently with the signing of the contract, it's language of performance, so use The Purchaser hereby purchases. If instead the intention is that the Purchaser effect the purchase at some future time, then use language of obligation, namely The Purchaser shall purchase. You comment has helped bring home to me that confusion over agrees to seems to be widespread. Ken

By: Anthony

Anthony — Tue, 02 Oct 2007 13:20:53 +0000

Ken, in asset purchase agreements, I frequently come across the expression “The Purchaser agrees to purchase…” I’ve always felt this was rather weak language and so I’ve begun to use “The Purchaser hereby purchases…”. I think I’m in the minority with this preference though and I’m wondering if there is a generally preferred phrase? Thanks.

By: Ken Adams

Ken Adams — Tue, 02 Oct 2007 13:17:52 +0000

Mike: I suggested that “must assign” would have been preferable if HP had wanted to express language of obligation. (Again, the only reason for using “must” rather than “shall” is that the contract in question refers to the employee as “I.”) If HP had wanted to express language of performance, then they should have used “hereby assign.”

I leave to guys like you the question of which would have been more appropriate, language of obligation or language of performance, or what, if any, is the standard practice in the industry. But in terms of language of performance, is “hereby assign” enough to transfer patent rights? And is that the best language for assigning now rights that currently don’t exist?

Ken