IpVenture v. Prostar—Language of Performance or Language of Obligation?

Reader Mike told me about IpVenture, Inc. v. Prostar Computer, Inc. (Fed. Cir. Sept. 28, 2007). I’m delighted that he did, because it’s yet another case that I can point to in making the argument that to control your drafting you need to clearly distinguish one category of contract language from another.

IpVenture owns and licenses patents on inventions relating to management of personal computers. One of its owners is C. Douglass Thomas. In 2003, IpVenture sued Prostar and another computer manufacturer for infringing its patent. The defendants sued for dismissal on the grounds that IpVenture didn’t own the entire interest in the patent, due to Thomas’s obligations under his employment contract with Hewlett-Packard, where he worked from 1992 to 1995. The district court agreed and dismissed the suit, but the Court of Appeals for the Federal Circuit held that the dismissal had been in error, because IpVenture had not assigned HP an interest in the patent and HP had disclaimed any interest in it.

The patent in question was filed in 1994, while Thomas was employement by HP. Thomas’s employment agreement contained the following provision:

This Agreement also concerns inventions and discoveries (whether or not patentable) … (hereinafter called “Proprietary Developments”) that are conceived or made by me alone or with others while I am employed by HP; that relate to the research and development of the business of HP, or result from work performed by me for HP; or that do not qualify under the prevailing provisions of California Labor Code Section 2870. Such Proprietary Developments are the sole property of HP, and I agree:

a. to disclose them promptly to HP;
b. to assign them to HP; and
c. to execute all documents and cooperate with HP in all necessary activities to obtain patent, copyright, mask work, and/or trade secret protection in all countries, HP to pay the expenses.

The district court concluded that “I agree … to assign” constituted an assignment of all Proprietary Developments to HP and was equivalent to “does hereby grant.” The district court declined to consider, on the grounds that it had been entered into after the suit was filed, a 2005 agreement between IpVenture and HP in which HP acknowledged not having any rights in the patent.

The Court of Appeals for the Federal Circuit disagreed with the district court, holding that the agreement to assign “must be implemented by written assignment.” The CAFC also held that the district court should have taken into account HP’s statement in the 2005 agreement, as it served to remove any uncertainty regarding the language of the employment agreement.

The principal lesson I draw from this case is that it’s best not to use agrees to to express an obligation—someone might be inclined to argue that it’s in fact language of performance. The CAFC in effect held that “I agree to assign” constitutes language of obligation, not language of performance. I concur that given the context, that’s clearly the only sensible interpretation. Nevertheless, I can see how, if semantic acuity isn’t your strong point, you might think otherwise. And more to the point, in this case a litigator was willing to go to court to argue that “I agree to assign” constitutes language of performance, and the first court to hear the argument agreed.

As a general matter, it’s commonplace for drafters to use language of obligation (as in Acme shall purchase the Shares as of the date of this agreement) when they’d be better off using language of performance (as in Acme hereby purchases the Shares).

By the way, if I had drafted the HP employment agreement and had wanted to express language of obligation, I would have said “I must assign.” (I think it best to use must instead of shall in agreements that use the first or second person—such agreements are analogous to consumer contracts.)

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.