Intellectual Property – Patent Ownership – Subject Matter Jurisdiction – Contract – Labor & Employment – Tort/Negligence

Litéra Corp. v. Martinez (Lawyers Weekly No. 020-043-17, 31 pp.) (James Gale, C.J.) 2017 NCBC 34

Holding: All of defendant’s counterclaims depend on her claim that she invented a virtual deal-room technology, Wormhole Computing, so the court lacks subject matter jurisdiction over such claims. Although the issue of who invented Wormhole is relevant to plaintiff’s claims, those claims may be decided on alternate grounds, so the court has jurisdiction over plaintiff’s claims.

The court grants plaintiff’s motion for summary judgment as to defendant’s counterclaims. The court denies plaintiff’s motion for summary judgment as to its own claims because material issues of fact exist.

According to defendant’s employment contract with plaintiff, anything she invented while working for plaintiff belonged to plaintiff. However, defendant contends that she developed Wormhole before she went to work for plaintiff and shared her invention with defendant in exchange for an oral promise of royalties (the “Development Agreement”).

Defendant claims that plaintiff breached this promise. Plaintiff claims that defendant breached her employment agreement and breached her confidentiality agreement in her disclosures to the U.S. Patent and Trademark Office.

Inventorship is a unique question of patent law that cannot be adjudicated by state courts. Although an ownership claim may, in some instances, turn on the question of inventorship, if a party’s claim of ownership arises based on an express assignment contract or an implied-in-fact contract, then state law controls and the claim does not involve a question of federal patent law.

Defendant claims that the Development Agreement gives her a contractual right to ownership of the Wormhole patent; however, the Development Agreement is only valid if she can establish that she owned Wormhole since her invention is her only purported consideration for the agreement.

Defendant claims that she owns Wormhole because she created it before she went to work for plaintiff. Since defendant’s claim of ownership turns on the question of inventorship, and as there is no other basis on which defendant can prove ownership, the court does not have subject matter jurisdiction over her claim to ownership, and any claim that requires defendant to establish ownership to prevail must be dismissed.

All of defendant’s counterclaims – breach of contract, misappropriation of trade secrets, fraud, negligent misrepresentation, unjust enrichment, and declaratory judgment – turn on the question of inventorship. These claims arise under federal patent law; consequently, this court has no jurisdiction over them.

With regard to plaintiff’s claims, although the issue of inventorship may be relevant to an ownership claim based on an employment agreement contained hired-to-invent provisions, it is not controlling; therefore, such an ownership claim is a matter of state law rather than federal law. Plaintiff’s claims depend on interpreting the parties’ contracts and do not necessarily depend on establishing who invented Wormhole.

Plaintiff can prevail on its claims by establishing that defendant disclosed confidential documents related to Litéra IDS (a patented collaboration software that plaintiff has a license to use) and Litéra Galaxy, a Litéra software that incorporates Wormhole and Litéra IDS. The court would not need to resolve the Wormhole inventorship dispute, so plaintiff’s claims do not fall within the federal court’s exclusive jurisdiction, and this court is not divested of subject matter jurisdiction over these claims.

Plaintiff also asserts that defendant breached her employment and confidentiality agreements when she filed a patent application asserting ownership rights in Wormhole. To prevail on this claim, plaintiff could potentially concede or not challenge defendant’s assertion that she invented Wormhole but contend that she did so during the course of her employment with plaintiff, meaning plaintiff has ownership of Wormhole based on the terms of the agreements. The question of when an invention occurs is not necessarily a question of federal patent law. The questions of what work defendant completed while employed by plaintiff and whether such work was governed by their agreements present issues of state law that do not depend on determining inventorship.

Plaintiff’s claims for breach of contract and trade secret misappropriation extend beyond the question of whether defendant was the inventor, and if so, when the invention occurred, because plaintiff presents other theories on which it can prevail. Moreover, the court’s jurisdiction over plaintiff’s claims is not defeated by defendant’s assertion of a defense based on her claim of inventorship.

However, there are disputes as to whether defendant’s patent application disclosed any information that was not previously disclosed in the application filed by plaintiff’s founder. There are also disputes as to whether defendant’s work on Wormhole constitutes employee work product. Therefore, plaintiff is not entitled to summary judgment on its claims.

Motion granted in part and denied in part.