Read Your Contract: Prior Invention Assigned to Employer When Incorporated into Employer’s Software

Intellectual Property Law

In Apprio, Inc. v. Zaccari,1 the U.S. District Court for the District of Columbia held an agreement enforceable where if, in the course of employment, the employee incorporated a prior invention into the employer’s product, the employer would obtain the intellectual property rights in that prior invention. The court reasoned that even though the employee only acknowledged the invention assignment provision in the employment agreement, it was unreasonable for an employee to say nothing to his employer if he intended not to be bound by the agreement.

Apprio Inc., a government contractor, sued former employee Neil Zaccari for breach of contract. Apprio asserted that Zaccari transferred his ownership rights in a software program he developed while working for the company to Apprio. From 2014 to 2017 Apprio worked for the Defense Contract Management Agency (DCMA), a federal agency established under the Department of Defense to simplify and supervise the work of its government contractors. DCMA employed Apprio to develop the software and automated procedures, and to help DCMA create an integrated workload management system to enable effectual receipt and assessment of government contracts by DCMA.

While working for Apprio, Zaccari was provided with a contract titled “Proprietary Information and Assignment of Inventions Agreement” (the Agreement). Zaccari agreed that he acknowledged receiving the Agreement but says he was not informed that approving the document was a condition of employment or that signing the contract would make it binding. Zaccari used Microsoft Excel Macros to develop software that automated the DCMA’s manual contract receipt and review procedure (the CRR Software). Zaccari contended that he produced the CRR Software out of base code that he created in 2008 and then updated the base code while working for Apprio.

After terminating employment, Zaccari rejected Apprio’s demands that he return the CRR Software. Zaccari also declined to assign intellectual property rights in the CRR Software to Apprio and applied for his own copyright registration for the CRR Software. Zaccari sued Apprio, contending Apprio violated the Agreement and infringed his copyright in the CRR Software.2 Apprio sued Zaccari a few months later, and the court consolidated the cases.

Apprio filed for summary judgment concerning Zaccari’s assignment of intellectual property rights in the CRR Software, including assignment of Zaccari’s copyright registration.

The court initially explained:

To prevail on a claim for breach of contract under District of Columbia law, a plaintiff must establish: (1) a valid contract between the parties, (2) an obligation or duty arising out of the contract, (3) breach of that obligation or duty, and (4) damages caused by that breach. . . . The instant motion concerns the first two of these elements and presents two questions. First, is the Agreement a binding contract between Apprio and Zaccari? Second, if the Agreement is a binding contract, does it dictate that Zaccari assigned his rights to the CRR Software?3

The parties disputed whether the Agreement was an enforceable contract, and whether Zaccari agreed to be bound or just acknowledged that he received the Agreement from Apprio. Under D.C. law, “[f]or an enforceable contract to exist, there must be both (1) agreement as to all material terms; and (2) intention of the parties to be bound.”4

The court believed Apprio had the better position because it was clear that in acknowledging the Agreement Zaccari objectively demonstrated his acceptance of its terms. The court noted that the “Agreement begins by identifying a crucial element of contract formation—the consideration Zaccari will receive in exchange for agreeing to the terms presented.”5

In addition, Zaccari’s actions relating to the Agreement also exhibited his intent to accept the terms of the contract. The court reasoned:

Here, Zaccari accepted the benefits described in the Agreement (“being retained as a[n] . . . employee of Apprio, Inc.”) and continued receiving pay. Zaccari never followed up with Apprio’s Human Resources office to ask any questions about the Agreement or to object to any of its terms. Moreover, Zaccari was hardly “silent” when presented with the Agreement: he provided the only acknowledgement that Apprio expected. . . . It is unreasonable for an employee to say nothing to his employer if he intends not to be bound by the kinds of provisions included in the Agreement—not just the assignment of rights, but duties of loyalty, confidentiality, and non-disclosure and non-solicitation provisions. Employers rarely treat these kinds of provisions as optional. Despite his assertion that he did not intend to be bound, there was no way that Apprio, or anyone else, could have known this was his subjective mental state.6

Accordingly, since the court held that Zaccari demonstrated his intent to be governed by the Agreement by his acknowledgment and conduct, it rejected his assertion that he did not intend to accept the Agreement.

Having held there was a binding contract between Apprio and Zaccari, the court addressed the interpretation of the Agreement.

Apprio asserted that Zaccari forfeited his rights in the CRR Software. Zaccari responded that he did not give up any rights even if he was bound by the Agreement.

Paragraph 2.3 of the Agreement stated:

2.3 Assignment of Inventions. Subject to Sections 2.4 and 2.6, I hereby assign and agree to assign in the future . . . to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of My Service.7

In addition, Paragraph 2.4, “Unassigned Inventions,” states that an employee retains inventions “developed entirely on [the employee’s] own time without using [Apprio’s] equipment, supplies, facilities, or trade secrets and neither related to [Apprio’s] actual or anticipated business, research or development, nor resulted from work performed by [the employee] for [Apprio].”8

“Prior Inventions” are those that “[an employee] made prior to the commencement of” employment with Apprio.9 Even if the employee doesn’t disclose a prior invention, “[i]f, in the course of . . . Service, [the employee] incorporate[s] a Prior Invention into a Company product, process or machine,” then Apprio receives “a nonexclusive royalty-free, irrevocable, perpetual, worldwide license . . . to make, have made, modify, use and sell such Prior Invention.”10

Zaccari asserted that even if he was governed by the Agreement, he did not assign any intellectual property rights in the CRR Software to Apprio because the CRR Software comprised two components: a base code and an update to the base code. In addition, Zaccari argued that he developed the base code in 2008, and it should be governed by Paragraph 2.2 as an invention developed prior to employment.

The court rejected both arguments in view of the clear language in the Agreement. The court explained that the Agreement stated that “[i]f, in the course of [his employment], [he] incorporate[s] a Prior Invention into a Company product, process or machine,” then Apprio receives intellectual property rights in that Prior Invention.11

The court therefore held that Zaccari assigned his invention rights in the CRR Software to Apprio. According to the court:

There is no genuine dispute that the CRR Software does not qualify as an “Unassigned Invention” under Paragraph 2.4. Unassigned Inventions must be (1) “developed entirely on [an employee’s] own time without using the Company’s equipment, supplies, facilities, or trade secrets”; (2) not “related to the Company’s actual or anticipated business, research or development”; and (3) not “result[ ] from work performed by [the employee] for the Company.” Agreement ¶ 2.4. . . . [T]he CRR Software was, in fact, “related to [Apprio’s] actual or anticipated business,” and thus [] it was not an Unassigned Invention that Zaccari developed separately from his work for Apprio.12

The court further determined:

Even accepting all evidence and drawing all inferences in Zaccari’s favor . . . the unambiguous language of the Agreement still dictates that Zaccari assigned his proprietary rights in the CRR Software to Apprio. Zaccari has failed to identify any material facts in dispute that would undermine this conclusion. Hence, Apprio is entitled to summary judgment on the issue of contractual assignment of rights.13

The court therefore held that Apprio and Zaccari were subject to a valid agreement, and that Zaccari transferred his invention rights in the CRR Software to Apprio according to the Agreement.

Takeaways

Invention assignment provisions in an employment agreement should be carefully tailored to an employer’s needs. Here, the employer required that the employee assign any inventions—whether or not created for the employer—if the employee incorporated the invention into the employer’s product. The employee should have been more careful before improving his prior software and incorporating it into his employer’s software.

The employment agreement at issue in this case strongly favors the employer and might be an impediment for some potential employees because the employee forfeits a prior invention. Employers should also consider less extreme measures, such as requiring a nonexclusive license as an alternative. Employees should be cautious and notify employers prior to incorporating their prior inventions, or inventions of others for that matter.


Irah Donner is a partner in Manatt’s intellectual property practice and is the author of Patent Prosecution: Law, Practice, and Procedure, Eleventh Edition, and Constructing and Deconstructing Patents, Second Edition, both published by Bloomberg Law.

 


1 Apprio, Inc. v. Zaccari, No. 18-cv-2180, 2021 WL 2209404, 2021 BL 202190 (D.D.C. June 1, 2021).

2 Zaccari v. Apprio, Inc., No. 18-cv-1560 (D.D.C. June 29, 2018).

3 Apprio, slip op. at 8.

4 Id., slip op. at 8 (citing United House of Prayer for All People v. Therrien Waddell, Inc., 112 A.3d 330, 337–38 (D.C. 2015)) (quoting Georgetown Ent. Corp. v. Dist. of Columbia, 496 A.2d 587, 590 (D.C. 1985)).

5 Id., slip op. at 11.

6 Id., slip op. at 14–15.

7 Id., slip op. at 17 (quoting Agreement ¶ 2.3).

8 Id., slip op. at 17 (quoting Agreement ¶ 2.4).

9 Id., slip op. at 17 (quoting Agreement ¶ 2.2).

10 Id., slip op. at 18 (quoting Agreement ¶ 2.2).

11 Id., slip op. at 19 (quoting Agreement ¶ 2.2).

12 Id., slip op. at 20–21.

13 Id., slip op. at 24.

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