a doll teaches legal drafting, or, pay attention to your ip assignment provisions

8/9/2019 A Doll Teaches Legal Drafting, or, Pay Attention to Your IP Assignment Provisions

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G L O B A L CA P I T A L

B L O G

ONE WORDIN CONTRACT BOILERPLATE COULD COST $1 BILLION.

THATSALOTMORE THAN THE LEGAL FEES. ANDALLFORADOLL.

Summary: Raise your hand if you have read or drafted an agreement with:

(a) A proprietary rights assignment provision;(b) A provision with a long list of examples or other things assigned; or

(c) Both.Well, the 9th Circuit just yanked from Mattel its claim for roughly $1,000,000,000(thats a billion dollars) in its slugfest with MGA over IP infringement arising from theBratz doll. That decision turns in part on scrutinizing the assignment language in anemployment agreement (I admit: The entire opinion did not turn on just one word).The court looked at the meaning of one word: inventions. Then the court looked atthe list of terms that were supposed to explain that word in that provision.

As many lawyers who draft agreements will see, that wordand the list used to explainthat wordis what most lawyers find in their templates for assignment provisions.Call it boilerplate. In the future, call it a drafting mistake not to pay attention moreclosely to that metal. And remember ejusdem generis from your 1st-year contractsclass.

(As of the date of this post the opinion had not been provided a standard citation. Youcan find it athttp://bit.ly/bdqtrQ.)

There is some messy language about the application of California Labor Code Section 2870. I think that the court got the analysis wrong (but its largely in footnotes). Well comment in passing on this point. Also, the court applied its own(and widely disliked) Apple v. Microsoft extrinsic/intrinsic test for infringement.Well save that for another lawyer to address.

By the way, this post is not about the case itself but about its lessons for lawyers and

their clients about agreements. And one lesson is: Make sure that the language really,really covers what you want covered.

Introduction

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OK, so a Mattel employee quits Mattel and joins another company and there makes a doll

that becomes the Bratz toy line that whacks Barbie in the marketplace. (MGA

eventually acquires the rights.) Mattel sues MGA in federal district court, claiming,among other things, that the employee had assigned all his rights by operation of the

proprietary rights assignment provision in his employment agreement. The district court

agrees and finds for Mattel (and on several other bases not relevant to this post). MGAappeals and the 9th Circuit Court of Appeals vacates the judgment (for all that money) and

remands (sends it back) to the district court. Technically, the Court chastised the lower

court for failing to take into account more evidence on critical points and to makefindings of fact on these matters. So, if it goes to back to that court (rather than gets

resolved through settlement), then we can expect a more robust discussion of these

matters.

Its Just a Word. Welllll . . .. Can You Say Ejusdem Generis (and pronounce it

properly)?

Reviewing the agreement on a de novo basis (never a good sign for the lower court), the

9th Circuit quotes some of the relevant language from that assignment provision:

I agree to communicate to the Company as promptly and fully as practicable all

inventions (as defined below) conceived or reduced to practice by me (alone or

jointly by others) at any time during my employment by the Company. I hereby

assign to the Company . . . all my right, title and interest in such inventions, andall my right, title and interest in any patents, copyrights, patent applications or

copyright applications based thereon. (Emphasis added.) At 10532-3.

The opinion then quotes the contract definition of inventions:

[T]he term inventions includes, but is not limited to, all discoveries,

improvements, processes, developments, designs, know-how, data computer

programs and formulae, whether patentable or unpatentable. At 10533.(We regularly see a definition that doubles and even triples that list.)

The Court looks at whether or not the word inventions includes ideas. And withouteven mentioning the age-old phrase, ejusdem generis, the Court at least quotes one

application of the hoary rule: [C]ourts avoid constructions that would make a

particular item in a series . . . markedly dissimilar to other items on the same list[.] At10533. Just before that quote from a previous case, the Court notes that ideas differ

quite a bit from the list in the agreement. (Note to readers: Make the comparison

yourself).

Oops. Ill bet the lawyer who wrote that agreement is squirming; Ill double up on the

bet that Mattel and MGA lawyers are now digging through their files on all employmentagreements. Uh-oh. (And Ill triple that bet by arguing that most other lawyers who draft

those types of agreementsand clients who use those agreementshave not yet startedto pay attention. But wait: Im not a betting man.)

Yikes! It gets worse. The Court later takes note that Mattel actually signed agreements

with other employees (and probably independent contractors) by which inventions and


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ideas are assigned. Uh-oh. I think some lawyers may be looking to create an ABA

Lawyer Protection Program. Or perhaps look for a career in another industry.

So What?

The Royal We empathize with the Mattel lawyers. That language is in so many

agreements in the technology world that it has become boilerplate not closely scrutinized.Many lawyers assume that those at the client with technical expertise have vetted the

applicability of that language. Budget and time pressures from the client often force a

lawyer into a kind of issue triage, relying upon the wisdom presumably intrinsic in thelanguage having been applied without challenge in thousands of previous uses of that

provision.

None of this makes it right. Every lawyer should know that ejusdem generis compels one

to use clear drafting to specify precisely what is to be covered. One simple way ofexplaining one application of that rule is that the more items are added to the list then the

narrower the applicability of that list. Dont quote me, though. Say what you mean in

the language. If the employee is not going to be involved in, say, computer programming

or databases then why would one include data computer programs and formulae?

And every client should check this language to make sure that it is clear in what it

actually covers. Is it ideas and inventions? Now, We are not convinced that ideas can

indeed be assigned (it depends upon the jurisdiction). But thats a discussion a clientshould have with its lawyer. And thats a discussion for which the client should happily

pay the legal fees. Is it worth the risk of losing a billion dollars in damages to save a few

thousand dollars?

Wait, Theres More.

We are truly baffled that the Court did not address in more detail the applicability ofCalifornia Labor Code Section 2870. Perhaps it was briefed and perhaps the lower court

did not find it necessary to address the issue. Quoting again from the 9th Circuit opinion

shall not apply to an invention that the employee developed entirely on his or her

own time without using the employers equipment, supplies, facilities or trade

secret information except for those inventions that either (1) relate at the time ofconception or reduction to practice of the invention to the employers

business . . . or (2) result from any work performed by the employee for the

employer. Footnote 5 at 10538 (Emphasis added in blog post)

As far as we can tell, the exceptions to that rule should protect Mattel. Mattel made

Barbie. The employee was working on Barbie. Uh-huh.

Whatever the outcome of the case, the reasoning of the opinion should get lawyers who

draft to sharpen their pencils. And re-read their notes from 1st-year contracts classes.

Our thanks to the legal eagles at Law.com whose Corporate Counsel

newsletter alerted us to another development in this case.

James C. Roberts IIIis the Managing Partner ofGlobal Capital LawGroup(www.globalcaplaw.com) and CEO of the strategic consulting firm, Global
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Capital Strategic Group (www.globalcapstrat.com). He heads the international,mergers & acquisitions and transactional practices and the industry practices

concentrating on digital, media, mobile and cleantech technologies. He is currently

involved in opening the Milan office. Mr. Roberts speaks English and French and, with

any luck, Italian in the distant future. He received his JD from the University of Chicago

Law School, his MA from Stanford University and his BS from the University ofCaliforniaBerkeley. You can reach him [email protected].

The GLOBAL CAPITAL firms counsel domestic and international clients on strategic and

legal issues inherent in the deployment of intellectual & financial capitala merger oracquisition, foreign market expansion, a strategic alliance, a digital content license, a

mobile deal, foreign and domestic labor and employment policies, starting a new entity

or raising capital. Clients range from global Fortune 100 corporations such as Deutsche Bank and News Corporation and its subsidiaries, MySpace.com and Fox

Interactive Media, to start-ups. Industries represented include digital media, Internet,

software, medical and biotechnology, nanotechnology, consulting firms, environmentaltechnology, advertising, museums and other cultural institutions and manufacturing.

www.g l oba l cap l aw.com www.g l oba l caps t r a t . com

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