Patent Watch: Preston v. Marathon Oil Co.

Alerts / July 18, 2012

Even if we assume state law governs the issue and that state law would take a broader view of conception than would be applied normally in the patent context, we still find that an invention necessarily requires at least some definite understanding of what has been invented.

On July 10, 2012, in Preston v. Marathon Oil Co., the U.S. Court of Appeals for the Federal Circuit (Bryson, Dyk, O'Malley*) affirmed-in-part and vacated-in-part the district court's summary judgment, inter alia, that Marathon owned U.S. Patents No. 6,959,764 and No. 7,207,385, which related to improved machinery used to extract methane gas from water-saturated coal in a coal bed methane gas well. The Federal Circuit stated:

Preston's argument with respect to Paragraph 1(d) -- that the '764 and '385 patents are not "Intellectual Property" under the April Employee Agreement -- is inconsistent with a plain reading of the agreement. Both Preston and Marathon agree that the April Employee Agreement must be construed according to state law. Under Wyoming law, "[i]f an agreement is in writing and the language is clear and unambiguous, the intention is to be secured from the words of the agreement." In such cases, "the writing as a whole should be considered, taking into account relationships between various parts."

The district court determined that "invention," as recited in the April Employee Agreement, requires both conception and reduction to practice. [I]f Preston's invention was not both made and conceived prior to his employment, it constitutes "Intellectual Property" under Paragraph 1 of the April Employee Agreement. Preston argues only that he conceived of his baffle system prior to employment at Marathon. [A]ll evidence supports the conclusion that no physical manifestations or detailed drawings of the patented baffle system existed prior to Preston's employment at Marathon. Preston created two-dimensional drawings of the baffle system, ordered the baffle plates and personally participated in the first installation of those baffles in Marathon wells after his employment with Marathon began. As the district court found, the invention was not reduced to practice (i.e., not made) until -- at the earliest -- late summer 2002 and was not installed until January 2003, well after Preston's 2001 start date with Marathon. Because there is no dispute that Preston did not make his invention prior to his employment with Marathon, the '764 patent and '385 patent are properly included as "Intellectual Property" under the plain language of Paragraph 1(d).

Preston next argues that, even if the invention embodied in the '385 and '764 patents is "Intellectual Property" under Paragraph 1(d), he had the right to and did exclude that invention from the April Employee Agreement under Paragraph 4. He contends that Paragraph 4 removes from the scope of Paragraph 1(d) certain intellectual property that might otherwise be covered thereby -- i.e., any "invention" listed therein, regardless of when "made." Because Preston listed "CH4 Resonating Manifold" in Paragraph 4, he contends it is an "invention" that is not subject to assignment under the agreement.

Even if we assume state law governs the issue and that state law would take a broader view of conception than would be applied normally in the patent context, we still find that an invention necessarily requires at least some definite understanding of what has been invented. The evidence here does not satisfy even that loose standard and the record supports the conclusion that Preston was not in possession of an excludable invention before he began employment at Marathon.

Indeed, the district court's factual finding that "Mr. Preston's testimony regarding the level of development of the CH4 resonating manifold is not credible, and that he had, at most, little more than a vague idea before his employment with Marathon began" disposes of this question. On appeal from a bench trial, we review a district court's findings of fact for clear error. A factual finding is clearly erroneous if, despite some supporting evidence, we are left with the definite and firm conviction that a mistake has been made. No such mistake was made here, and we see no reason to disturb the district court's factual findings, especially when they are well supported in the record. As the district court found, Preston provided no evidence -- other than his own testimony -- that corroborated his claim of invention prior to employment with Marathon. In contrast, substantial testimony was presented that contrasted the "crude" drawings shown to his co-workers at Marathon years after the invention was purportedly completed and the drawing done by Preston at his deposition. Preston admits, moreover, that he never discussed a "resonating manifold" with his co-employees or mentioned that the baffle plates he had drawn were part of a "resonating manifold," and made no prototype prior to his arrival at Marathon.

Based on the district court's findings of fact, we agree that Preston could not demonstrate invention prior to employment at Marathon. And we find this to be so even under Preston's broad reading of the term "conceive." Simply, Preston's uncorroborated, "little more than a vague idea" does not meet even this standard. If we were to accept Preston's argument that "conceive" can include having "little more than a vague idea" and that an employee need offer no proof of exactly what that idea was, Paragraph 1 of the April Employee Agreement would be rendered meaningless. This produces an absurd result that is contrary to the principles of contract interpretation under Wyoming law. Thus, Preston's notation in Paragraph 4 did not remove anything from the scope of the "Intellectual Property" covered in Paragraph 1(d).

We therefore hold that the district court properly included the '764 patent and '385 patent in the scope of "Intellectual Property" under Paragraph 1(d) and did not exclude the same under Paragraph 4. Because the assignment clause in the April Employee Agreement states that the employee agrees to "hereby assign" all "Intellectual Property," it is an express assignment of rights in future inventions that automatically assigned rights to Marathon without the need for any additional act. Accordingly, we find that Marathon owns the rights to the '385 patent and '764 patent.

If you have questions about the material presented above, please contact Dr. Lawrence M. Sung (lsung@bakerlaw.com or 202.861.1537) or any member of our Intellectual Property Team.

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