Anticipate This!™ | Patent and Trademark Law Blog

The Patent “Shop Right”.

Posted in Practice Commentary by Mike Dockins on February 20, 2007

A “shop right” is a common law right of an employer to use an invention patented by one or more of its employees without liability for infringement.

Surprisingly, the “shop right” has yet to be codified and remains open to interpretation by the courts, though it is a topic to be addressed. The immense body of case law suggests that not all courts agree on the doctrinal basis for “shop rights”, and therefore not all courts agree on the particular set of circumstances necessary to create a “shop right”.

The courts are equally split regarding the doctrinal basis. Half of the courts find that “shop rights” are based in the principles of fairness and equity, that is fairness entitles an employer to a royalty-free license to use a patented invention without liability for infringement because the employer’s time, facilities, etc. were used. The other half of the courts find that “shop rights” are based in the theory of equitable estoppel, that is, the consent or acquiescence of an employee to the use of a patented invention by the employer generates a royalty-free license.

Though the difference in the doctrinal basis is significant, the outcome generally is not. In most instances either doctrinal basis yields the same result. Tantamount in the determination of finding a “shop right” are the typical factors the courts use. Such factors include (but are not limited to):

–Contractual nature of the relationship between the employer and employee;
–Whether the employee consented to the employer’s use of the invention;
–Whether the the employed induced, acquiesced in, or assisted the employer in use of the invention;
–Whether the employer financed an invention by providing wages, materials, tools, and a work place; and
–Employee’s consent, acquiescence, inducement, or assistance to the employer in using the patented invention without demanding compensation or other notices of restriction.

In short, the doctrinal basis a particular court uses in its “shop right” analysis is less important than the facts of the case that yield the factors the court will consider; “shop right” cases are very fact-driven and dependent.

Below are a list of sources for additional reading on “shop rights”, including some significant cases:

Gill v. U.S., 160 U.S. 426 (1896).
U.S. v. Dubilier Condenser Corp., 289 U.S. 178 (1933).
Lariscey v. U.S., 949 F.2d 1137 (Fed.Cir. 1991).
McElmurry v. Arkansas Power & Light Co., 995 F.2d 1576 (Fed.Cir. 1993).
P. Rosenberg, Patent Law Fundamentals, sec. 11.04, 11-20. –C.T. Dreschler, Annotation, Application and Effect of “Shop Right Rule” or License Giving Employer Limited Rights in Employee’s Inventions and Discoveries, 61 ALR2d 356 (1958).

Microsoft Corp. v. AT&T Corp.: USSC Hearings Scheduled for Wednesday, February 21st.

Posted in Litigation Commentary by Jake Ward on February 20, 2007

As reported at MSN/Money, the Supreme Court on Wednesday will hear oral arguments in a case that could test the global reach of U.S. patent law.  The dispute centers on 35 U.S.C. § 271(f)(1), aimed at preventing companies from circumventing U.S. patent law by shipping “components” overseas for assembly.  The case tests whether software is such a “component” and whether creating copies of software overseas from a master disk shipped from the U.S. is covered by § 271(f)(1).

Specifically, the background and questions presented before the USSC have been articulated as follows:

Title 35 U.S.C. § 271(f)(1) provides that it is an act of direct patent infringement to “suppl[y]. . . from the United States . . . components of a patented invention . . . in such manner as to actively induce the combination of such components outside of the United States.”

In this case, AT&T Corp. alleges that when Microsoft Corporation’s Windows software is installed on a personal computer, the programmed computer infringes AT&T’s patent for a “Digital Speech Coder” system. AT&T sought damages not only for each Windows-based computer made or sold in the United States, but also, under Section 271(f)(1), for each computer made and sold abroad. Extending Section 271(f)—and consequently, the extraterritorial application of U.S. patent law—the Federal Circuit held that Microsoft infringed under Section 271(f)(1) when it exported master versions of its Windows software code to foreign computer manufacturers, who then copied the software code and installed the duplicate versions on foreign-manufactured computers that were sold only to foreign consumers.

The questions presented are:

(1) Whether digital software code—an intangible sequence of “1’s” and “0’s”—may be considered a “component[] of a patented invention” within the meaning of Section 271(f)(1); and, if so,

(2) Whether copies of such a “component[]” made in a foreign country are “supplie[d] . . . from the United States.”