3-05.VOITH HYDRO [employee invention contract].doc3-05.VOITH HYDRO [employee invention contract].doc
VOITH HYDRO, INC., a Delaware Corporation, Plaintiff, v. HYDRO WEST GROUP, INC., a Washington Corporation, and Dr. Alexander Gokhman,Defendants.
No. C-96-1170 SC
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
1997 U.S. Dist. LEXIS 3817
March 26, 1997, Decided
March 26, 1997, FILED
PROCEDURAL POSTURE: Plaintiff employer filed a complaint against defendants, employee and corporation, alleging, inter alia, breach of an employee invention agreement and of a patent assignment agreement against the employee, misappropriation of trade secrets against both defendants, and interference with contract against the corporation.
OVERVIEW: The employee and corporation secured a patent for an invention by the employee. The employer asserted that it had a right to the patent. The employee had worked on the invention and had applied for a patent on part of the invention while employed by the employer, and the employee had signed an employee invention agreement, including a patent assignment agreement, on his first day of work for the employer. After a trial before the court, the court held that the agreements were valid, enforceable contracts for which the employee's job was adequate consideration. However, the court held that neither contract was breached, that no trade secrets were misappropriated, and that the corporation did not interfere with the contracts because the original patent application did not include confidential matters and the actual patent was for a different invention than that disclosed in the original application.
OUTCOME: The court ordered that judgment be entered in favor of defendants and against the employer.
Samuel Conti, United States District Judge
OPINION: FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. INTRODUCTION
This action involves a dispute over the rights to a patent for a hydroelectric "potential flow turbine." The potential flow turbine was invented by defendant Dr. Alexander Gokhman and the patent is held by defendant Hydro West Group, Inc. Plaintiff Voith Hydro, Inc. claims the right to the patent pursuant to an Employee Invention Agreement and a Patent Assignment Agreement executed by its predecessor in interest Allis-Chalmers and defendant Dr. Gokhman.
Plaintiff Voith Hydro, Inc. filed a complaint[*2] on March 29, 1996, alleging, inter alia, n1 breach of the Employee Invention Agreement and breach of the Patent Assignment Agreement against defendant Gokhman; misappropriation of trade secrets against defendants Gokhman and Hydro West Group, Inc.; and interference with contract against defendant Hydro West Group, Inc. Defendants claim that the potential flow turbine is not covered by the Employee Invention Agreement or the Patent Assignment Agreement and therefore plaintiff has no interest in the patent. In addition, defendants contend that the Employee Invention Agreement and the Patent Assignment Agreement are invalid because they were not supported by adequate consideration, are unconscionable and are contracts of adhesion.
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n1 All additional claims were voluntarily withdrawn by plaintiff during trial.
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On March 10 through March 12, 1997, the court conducted the trial in this matter. Having considered all of the evidence introduced at trial, together with the arguments of counsel, the court finds that the[*3] Employee Invention Agreement and the Patent Assignment Agreement are valid, enforceable contracts. The court also finds, however, that the potential flow turbine is not covered by either the Employee Invention Agreement or the Patent Assignment Agreement and therefore defendant Gokhman did not breach either contract. The court further finds that the. defendants did not misappropriate plaintiff's trade secrets and that defendant Hydro West, Inc. did not interfere with plaintiff's contract with Gokhman. The court makes further findings of fact and conclusions of law as set forth below.
II. FINDINGS OF FACT
A. Facts Relating to All Alleged Claims and Defenses
1. Voith Hydro, Inc. ("Voith") is a Delaware corporation with its principle place of business in York, Pennsylvania.
2. Hydro West Group, Inc. ("Hydro West") is a Washington corporation with its principle place of business in Bellevue, Washington.
3. Dr. Alexander Gokhman ("Gokhman") is an individual who resides in San Francisco, California.
4. Gokhman received a Ph.D. in hydromachinery from the Moscow Power Institute in 1962 and has been an engineer working and teaching in the field of fluid mechanics since[*4] that time.
5. Gokhman conceived of the idea for a potential flow turbine in 1958 while employed in the former Soviet Union. Drawings of the potential flow turbine were made at that time, however, a model was never made and the invention was not pursued due to prohibitive costs.
6. A potential flow turbine consists of wicket gates and runner blades that work in conjunction with the wicket gates. The potential flow turbine differs from the prior art because potential flow theory is applied to design the shape of the wicket gates and runner blades resulting in increased efficiency.
7. Gokhman disclosed his idea for a potential flow turbine to Stephan Todorovski in the 1970s. Basic diagrams were made at that time.
8. Gokhman worked for Allis-Chalmers Manufacturing Company ("Allis-Chalmers") in York, Pennsylvania, as an engineer in Allis-Chalmers' hydroelectric turbine business from 1981 through 1986.
9. When he began work on January 5, 1981, Gokhman entered into an " Employee Invention Agreement and Confidential Information Agreement" ("Invention Agreement") with Allis-Chalmers in York, Pennsylvania. The Invention Agreement was not provided to Gokhman prior to his first day of work. [*5]
10. Subsection A of the Invention Agreement contains provisions regarding the ownership of inventions and ideas conceived or developed during employment. It specifies that any inventions and ideas conceived or developed during employment are the property of Allis-Chalmers.
11. Subsection B of the Invention Agreement contains provisions for the confidentiality of the technical information and documents of Allis-Chalmers.
12. Employee invention agreements like the Invention Agreement are commonplace, and are routine in manufacturing companies and companies that are involved in research and development.
13. Gokhman was aware in 1981, prior to working for Allis-Chalmers, that it is conventional for American companies to require an employee to sign such an agreement. Gokhman signed a similar agreement when he was employed by the University of Miami. Gokhman read the Invention Agreement before signing it and was under no compulsion to sign it. Gokhman did not ask Allis-Chalmers before coming to work whether there would be an invention assignment or confidentiality agreement.
14. Gokhman was hired to work in the research and development division of Allis-Chalmers and to design computer[*6] software relating to the development of hydro turbine technology.
15. During his employment at Allis-Chalmers, Gokhman was told that if his work was good, he could continue working at Allis-Chalmers until he retired. However, Gokhman understood that his employment was at will and not for a specific period of time. He did not have a contract promising him employment for a set period of time, he did not ask for such a contract, and he understood that Allis-Chalmers would not agree to such a contract.
16. Gokhman's work was satisfactory and Gokhman received positive evaluations.
17. In 1983, Gokhman proposed to Allis-Chalmers that he be allowed to work on a potential flow turbine invention in connection with a specific turbine project called the Yacereta project. Allis-Chalmers was then having difficulty reaching the promised level of efficiency in generating electricity for that project.
18. Thereafter, Gokhman performed certain work on a potential flow turbine invention. One set of prototype wicket gates was manufactured in connection with that invention for the Yacereta project. However, Allis-Chalmers never fully completed the wicket gates so that they could be tested and never[*7] tested the wicket gates. Gokhman also performed certain computer calculations for customized runner blades that would work with the Yacereta potential flow wicket gates to produce increased turbine efficiency. Conventional runner blades could not be used for that purpose. However, Allis-Chalmers never manufactured any runner blades from those computerized calculations.
19. On September 30, 1985, Gokhman and Allis-Chalmers applied for a patent on the potential flow wicket gates, and Gokhman simultaneously assigned the patent to Allis-Chalmers pursuant to a Patent Assignment Agreement. This patent application (the "1985 Patent Application") did not contain any disclosure or patent claims relating to the runner blades which are necessary for the operation of a potential flow turbine.
20. The 1985 Patent Application was rejected by the United States Patent and Trademark Office ("PTO") in early 1986 because of prior art.
21. Allis-Chalmers chose not to continue proceedings on the 1985 Patent Application at that time because the need to increase efficiency on the Yacereta project was solved by other means. Financial constraints also dictated that Allis-Chalmers put on hold the development[*8] of the potential flow turbine for Yacereta.
22. Allis-Chalmers terminated Gokhman effective March 31, 1986. Allis-Chalmers did so as part of a general force reduction in the hydro turbine division. At the time, Allis-Chalmers was in a bad financial state and the hydro turbine division was a candidate for sale.
23. Gokhman's supervisors selected him for termination because his value to the company was more in long-term, research and development projects than in short-term money making projects. At that time, short-term economic viability was critical to Allis-Chalmers.
24. At the time Gokhman's employment was being terminated, Gokhman had an exit meeting with David Smith ("Smith"), the head of human resources. At that time, Smith asked Gokhman to sign a routine statement ("Statement on Confidential Matters") that reiterated the duties imposed by the Invention Agreement. The statement reminded that the employee is required to keep secret the confidential matters of Allis-Chalmers and its customers and that the employee is not free to use or disclose such information to anyone outside of Allis-Chalmers either during or after their employment except upon written consent.
25. At that[*9] meeting, Gokhman refused to sign the Statement on Confidential Matters. Gokhman told Smith that he felt that the Invention Agreement which he signed when he began work, was all that was required and that the Statement on Confidential Matters was redundant. Since the Invention Agreement included all the information in the Statement on Confidential Matters, Smith did not press Gokhman or require him to sign the Statement on Confidential Matters.
26. After Gokhman's employment was terminated, he did not complain to anyone at Allis-Chalmers or Voith about his termination. He did not file any claim with any government agency or court. He did not contact Allis-Chalmers or Voith in any way to complain that his termination was illegal, inappropriate or unfair.
27. On September 25, 1986, Voith purchased the assets of Allis-Chalmers' hydro turbine business in York, Pennsylvania. Allis-Chalmers assigned to Voith the Invention Agreement and the Patent Assignment Agreement and all of its rights thereunder.
28. Neither Allis-Chalmers nor Voith has further pursued the development of a potential flow turbine. Neither Allis-Chalmers nor Voith developed a potential flow turbine for the Yacereta project[*10] or for any other project.
29. After being terminated in 1986, Gokhman moved back to San Francisco, where he had continuously owned a home prior to his being hired in 1981 by Allis-Chalmers.
30. In the early 1990s Gokhman met with Bill Holveck, an engineer with defendant Hydro West. They met with counsel and submitted a potential flow turbine patent application to the PTO in 1993 ("1993 Patent Application").
31. The 1993 Patent Application contained substantial portions of the 1985 Patent Application relating to the wicket gates. However, the 1993 Patent Application differed from the 1985 Patent Application because it also disclosed runner blades to work in conjunction with the wicket gates.
32. On August 15, 1995 U.S. Patent No. 5,441,384 (the " '384 Patent" ) was issued on the 1993 Patent Application. No patent was ever issued on the 1985 Patent Application.
33. The invention disclosed in the '384 Patent is different from the invention disclosed in the 1985 Patent Application.
34. The 1985 Patent Application disclosed only the wicket gates to be used as part of a potential flow turbine. The '384 Patent, in contrast, discloses a potential flow turbine which is comprised of both[*11] wicket gates and runner blades designed using potential flow theory. The potential flow turbine is an independent invention that must be considered as a whole. The potential flow wicket gates enhance efficiency only as one component of a complete potential flow turbine and do not enhance efficiency on their own. Therefore, the wicket gates themselves cannot be considered an independent invention an must be considered only as a component part of the whole turbine.
35. The differences between the 1985 Patent Application and the '384 Patent include the following:
(a) The '384 Patent includes the design of turbine runner blades in addition to the design of the wicket gates. The 1985 Patent Application does not mention the design of turbine runner blades. Only the set of wicket gates and runner blades operating together increase efficiency;
(b) The turbine set disclosed in the '384 Patent is designed using two-dimensional potential flow theory. The two-dimensional potential flow concept for a turbine set design is unique in the turbine industry;
(c) The 1985 Patent Application provides that the sealing lines on the wicket gates have to be vertical cylindrical surfaces. [*12] In contrast the '384 Patent provides that the sealing lines need only be congruent and abut the sealing lines on adjacent gates.
(d) The '384 Patent gives an expression for the whirl value along the trailing edge of the wicket gate. If the sealing line is not a vertical cylindrical surface, then the circumferential velocity along this line would not be a constant as claimed in the 1985 patent Application.
III. CONCLUSIONS OF LAW
A. Jurisdiction and Venue
1. The court has jurisdiction over this action pursuant to 28 U.S.C. § 1332, and the Northern District of California is a proper venue for this action.
B. Applicable Law
1. Gokhman and Allis-Chalmers entered into the Invention Agreement and the Patent Assignment Agreement in Pennsylvania, and the contracts were performed in Pennsylvania. Therefore, Pennsylvania law applies to this action. Cal. Civ. Code § 1646.
C. Alleged Breach of the Invention Agreement
1. Under Pennsylvania law, to compel the assignment of the '384 Patent pursuant to an invention assignment contract, Voith must meet the following burden:
In an equitable action to compel the assignment of an invention[*13] of an employee to the employer, the employer must show by clear and convincing proof that (1) the invention was conceived [or developed] n2 by the employee while in the employ of the employer, (2) the assignment was governed by a valid, binding, and enforceable contract, unambiguous in its terms so as to warrant specific performance, and (3) all conditions and covenants concerning the assignment were fulfilled. The policy of the law is to protect the rights of the inventor, and in furtherance of that policy the language of an assignment agreement must be clear and precise, displaying the unmistakable intention that the matters involved are within the contemplation of the parties.
Mosser Industries, Inc. v. Hagar, 200 U.S.P.Q. 608 (Pa. Ct. Com. Pl. 1978)(citations omitted).
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n2 In Mosser, the employee entered into an agreement to assign his rights to any invention which he may conceive of during his employment. Under the Invention Agreement, however, Gokhman agreed to assign his rights to any invention conceived or developed during his employment.
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[*14]
2. The Invention Agreement is a valid, enforceable contract.
3. The Invention Agreement is supported by adequate consideration. Gokhman entered into the Invention Agreement on his first day of work in exchange for his employment at Allis-Chalmers. The employment itself was therefore consideration for the Invention Agreement. See Nat'l Risk Manag., Inc. v. Bramwell, 819 F. Supp. 417, 429 (E.D.Pa. 1993)(stating that employment itself is valid consideration for restrictive covenants contained in an employment agreement entered into on the first day of work).
4. The Invention Agreement is not an unconscionable adhesion contract. Such agreements are commonplace and are a standard part of research and development. Gokhman was aware when he agreed to work for Allis-Chalmers that such contracts were standard practice and he expected that he would be obliged to sign such a contract when he commenced work at Allis-Chalmers. Moreover, Gokhman had signed a similar invention assignment agreement when he worked for the University of Miami. In addition, Gokhman read the Invention Agreement prior to signing it, understood its terms and made no objections at the time. Furthermore, "it is well[*15] settled that an agreement on the part of an inventor to assign inventions developed while in the employ of another is not inequitable, or unconscionable." Patent & Licensing Corp. v. Olsen, 188 F.2d 522, 524 (2nd Cir. 1951).
5. Allis-Chalmers did not breach the Invention Agreement when it terminated Gokhman's employment. The Invention Agreement does not provide for a set term of employment. Gokhman had an at-will employment agreement with Allis-Chalmers and was never provided with an agreement that specified that he would be employed for any particular length of time. Although Gokhman was told that if he did good work he would be employed until he retired, Gokhman understood that he did not have an agreement with Allis-Chalmers that he would be employed until retirement. Gokhman also understood that he could be terminated at any time if Allis-Chalmers had financial difficulties.
6. Even if a promise to employ Gokhman for a "reasonable time" is implied as consideration for Gokhman's agreement to sign the Invention Agreement, Allis-Chalmers in fact fully performed because it employed Gokhman for five years, which is a reasonable time.