18 December 2009

Identify All Legal Issues And Briefly State The Controlling Law

Sam Scientist from Springfield was hired by Big Pharma Inc. to research new drugs. On his first day, Sam, who was the company’s first African-American employee, was given an employee handbook that said that employees would be treated fairly, that he would only be fired for good cause and that Sam was here to work so no unproductive doodling was allowed on the job. While doodling one morning while on a corporate jet on its way to a conference in Boston, Sam invented an ink that would make someone forget anything they had read printed in that ink after two weeks.

Sam’s manager punished him for doodling by putting a memo in his file that Sam now had one strike. Big Pharma Inc. filed a patent for the ink invented by Sam. Sam was not given any of the profits from his ink, even though other scientists, all of whom were white, were given bonuses for inventing new drugs.

Big Pharma Inc. started a subsidiary, Fair Use LLC, to publish books using Sam’s ink. Fair Use LLC was owned 50% by Big Pharma Inc. and 50% by Big Pharma’s CEO and his secretary/mistress. Fair Use’s business model was simply to republish all best sellers without paying royalties to the authors. When Sam complained that he should be given 25% of Fair Use LLC, he was fired.


Susan's Husband said...

Why did Sam tell his boss how to make the ink? I think the legal nexus is there.

joe shropshire said...

Because it was in his contract to turn over his notebooks, same as it was in my dad's. I still have some of my dad's old patent paperwork: the applications, and the receipts for sale, to his employer Rohm and Haas Chemical, for the sum of one dollar. I'd guess one of the legal issues is what exactly is a notebook.

erp said...

Sam should have written up his invention in the new ink so his employers would have forgotten all about it after two weeks.

Susan's Husband said...

Well then that's what he gets for doodling in corporate notebooks on company time. That's why I always had my own notebooks for non-work related doodling.

Bret said...

This example illustrates how poor our IP system is.

Peter Burnet said...

I'll pass on civil rights issues, of which there appear to be several:

1) How can the company say Sam's doodling was "unproductive" if it uses it to file a patent and start a subsidiary business? In fact, does inventing something new and brilliant come within the ordinary meaning of "doodling"?

2)Is travelling to a conference time spent "on the job", even on a company jet? If it was simply a matter of convenience not to take public transport, I doubt it, and even if it is, what constitutes work expectations in those circumstances may be different from in the office or lab. I'd love to cross-examine the other passengers to see if they were snoozing after a welcoming scotch or blogging.

3) Are the terms of the handbook part of the employment contract? It is implied that the company can set policy and working rules from time to time, but they have to be reasonable. Conditions relating to rumuneration, use of inventions, patents, etc. are a matter of consent or contractual agreement that should have been agreed to expressly or by implication before he was hired. This is a bit of a two-edged sword for Sam, because he will want to rely on some of the terms, unless they are already implied in general employment law.

4) In the absence of express contractual agreement, does misconduct by Sam, even if substantiated, extinguish his IP rights to inventions that have nothing to do with his employer's business? Would he lose them if he were caught smoking in the washroom? Employment is not feudal serfdom and there is no droit de seigneur in IP law.

5) Sam doesn't work for Fair Use, so how can complaints about it be "good cause" within his employment with Big Pharma?

6) Fair Use is using the invention to make profits illicitly in steamy circumstances. You can't fire someone for simply asserting a legal entitlement provided they do so reasonably and civilly. This may not affect initial liability to Sam, but if that is established, Sam may be entitled to big punitives. Or, even better, a court may find he was fired in order to muzzle him about unlawful activities.

7) Being treated "fairly" implies equitably. If other scientists are given bonus' for their inventions, how can Big Pharma justify not giving Sam one simply because it relates to a new business, regardless of his race?

8) Should people from Springfield have the same rights as other Americans or are they not worth the bother?

The controlling law? Hey, I'm up here, so I can't help you there. But if Sam would like to retain me, I promise to bone up very quickly. Big Pharma, too, I suppose, although with it I'd ask to be paid in advance.

Peter Burnet said...

Hmm. Re: #2 and #4 above. I suppose it is important when the flight occurred, i.e. was it during normal business hours? But even if it was, I would argue work expectations are different than at the office. Is it misconduct to do the NYT crossword puzzle on the flight? How about during the taxi ride to the airport?

Susan's Husband said...

My views on Mr. Burnet's questions:

1) It's irrelevant whether Sam's doodling is unproductive. It was clearly against corporate policy and the corporation can therefore reasonably punish Sam for it.

2) I don't see the "on the job" as important. What matters is that Sam put the notes in corporate notebooks which are the property of the corporation.

3) It is implied that the corporate handbook is part of the employment contract. If the company issues a new handbook with onerous rules, then one can quit to avoid enforcement.In my view such an employee would be entitled to the standard severance package since it would be quitting for cause.

4) The claim of the company would be that Sam never had IP rights to the invention. See (2).

5) That's a good point.

6) See (4).

7) The bonus point is one I am conflicted on. You have convinced me, however, that since Big Pharma filed a patent that is an endorsement of the concept and so Sam should have gotten a bonus.

8) Since I live in Illinois, I think people in Springfield should be treated as mercilessly as possible.

David said...

Not bad, Peter.

The issues that no one seems to want to talk about is, first, Fair Use LLC's implicit argument that it is fair use of copyrighted work if the reader will forget the work in two weeks and, second, the self-dealing involved in the CEO giving himself and his mistress half of the company. (Also, the mistress' claim for harassment, but we'll ignore that for now.)

In the real world, Sam's invention would almost certainly belong to Big Pharma.

Harry Eagar said...

'In my view such an employee would be entitled to the standard severance package since it would be quitting for cause.'

Has that ever happened?

Peter Burnet said...


1) You didn't read the question carefully. Sam was warned off "unproductive" doodling, not doodling. Plus the company really can't have it both ways on this one.

2) Why are you assuming he was doodling in corporate notebooks? Given your comment yesterdy about your own separate notebooks, do you see this as germane to who has IP rights? I don't, I think it has more to do with the nature of what he invented.

3) No, the handbook is not part of the contract. What is part of the contract is the employer's right to set policies and working conditions and to change these from time to time. I don't recognize the phrase "quitting for cause", but it sounds like our "constructive dismissal" which entitles an employee to quit and be in the same legal position as if he had been fired without just cause. Imposing unreasonable working conditions is a breach of the employment contract (Imagine if the company suddenly mandated that everyone must work naked). Sam would not just get a standard severance, he would get his full actual damages, including costs of job-hunting and re-training and damages for mental distress if he could prove them. Maybe punitives too, even up here where the law is much stingier that yours, given such egregious behaviour by such a powerful employer.

4) I know almost nothing about IP, but surely the fact that what he invented has nothing to do with his employer's business is an issue? Are you and David suggesting if he had invented a board game it would automatically be owned by Big Pharma? Surely that would have to be expressly provided for in a signed employment contract?

Susan's Husband said...

Mr. Eagar;

Yes, it happened to me when I left the big tech firm I worked at.

Mr. Burnet;

1) Ah, I had taken the "unproductive" term as an explanatory perjorative.

2) Because it was claimed that is how the boss found out how to make the ink. And yes, I consider it quite germane. That's precisely why I was careful on which notebooks and which computers I did things.

3) I don't see the distinction. How are work policies set, except through the handbook? I certainly would not consider quitting under such circumstances equivalent to be fired without cause. Regardless of what's put in the handbook, unless it singles out specific employees, should be the basis for damages.

4) I can't speak of IP rights in general, but in my industry if you work on it during company time with company resources, it's company property regardless of how much it relates to the company's normal business. For instance, if I were working a network management product and while taking a break wrote code to search my documentation using an algorithm that beat the pants off Google, that code would belong to the company even though the company doesn't do anything in that space. And yes, that was explicitly spelled out in the employment contract.

Suppose, for a more realistic example, the company decided to close a location in Champaign, Illinois and require everyone to work in Texas or California. Should an employee who quits based on that change get damages? If not, how is that really different from your "work naked" example?

Susan's Husband said...

P.S. to Mr. Cohen;

I am not discussing the issues you raise because I simply don't pay any attention to corporate shenanigans of that sort, even when I worked for the corporation in question. That's between the CEO and the board.

Peter Burnet said...


The concept of reasonableness underlies a lot of common law. The problem here is that David's example gives no evidence of an employment contract signed or otherwise agreed to before Sam started work. If there was one, I'm sure it would have dealt with IP rights quite specifically, given the nature of the business, but if there wasn't you would have to look to general IP law and I would be surprised if that didn't favour the inventor unless it was clearly an incident of his employment. If it was, how could he be disciplined for it, and if it wasn't, how can Big Pharma claim ownership?

As to moving an employee, sure, that is reasonable because that is how business works in the 21st century and is something any employee might reasonably expect, but it's not absolute. If a high-powered exec with a family is lured away from a competitor to work at head office in New York, and then suddenly is transferred to an outpost on the Upper Amazon, he may be able to refuse. As to being told to work naked, I guess one would have to be a libertarian to see that as within the ambit of an employer's discretion. :-)

erp said...

I was under the impression that everything one produced while under contract belonged to the company even if the work was done off site and on one's own time.

David said...

The point of the question is issue spotting, not issue resolution.

However, I think that erp has pretty much captured the essential nature of the rule in the US. Certainly, anything within the scope of your employment belongs to the company.

Also, in Massachusetts (which is why I specified Springfield and Boston), the employee's handbook can, depending upon the facts and circumstances, modify the default employment-at-will nature of the employment relationship. If the handbook says that you'll only be fired for cause, the courts will enforce that promise unless there's some good reason not to.

Harry Eagar said...

So, you got the severance?

I've never been anything but an at-will employee, so have never had an opportunity to test such things.

Peter Burnet said...


Perhaps IP law isn't that much different up here, but I would be surprised if, absent an employment contract, the employer owned rights to inventions unrelated to its business and developed on private time. If the guy used corporate facilities like labs, that would be different, but I don't see the notebook as a make or break issue, although it may be important evidence if the court is faced with conflicting stories.

What does seem to be quite different is there is no "employment-at-will" in the sense that a longterm employee can be summarily dismissed without notice or compensation without cause. It varies according to the responsibility of the position, but a general rule of thumb is a month for every year of service. The employer must either give notice (which it is perfectly entitled to insist the employee work through) or severance in lieu thereof. It can be contracted out of, but any employer who tries had better make sure the contract is airtight, was entered into voluntarily before employment started, and there is good evidence the employee understood what it meant.

This is onerous for an employer with the kind of employee that puts in several exemplary years and then suddenly becomes sub-par for whatever reason. OTOH, it can work to the employer's benefit for enforcing non-competition agreements and forestalling vandalism. And it doesn't apply (in theory) to employment pursuant to a series of fixed-term contracts unless it can be shown they are just a ruse.

erp said...

Lacking an employment contract spelling out the rules, it would seem logical that employers couldn't claim that inventions of employees belong to them. However, I remember reading a long time ago about a low level non-contractual employee, IIRC, a janitor, invented an ingenious gadget and the company argued successfully that since he thought about it on company time, it belonged to the company.

I don't think any unions were involved then. Had the poor guy been a union member, no doubt the union would have fought tooth and nail for the profits to go to them.

Harry may remember more details about the case.

BTW it's not only evil corporations that own their employees IP, college and university research departments, aka wholly owned subsidiaries of the federal government, have the same rules.

Harry Eagar said...

I believe you are speaking about the Sears employee in Chattanooga who invented the quick-release button for ratchet wrenches.

I don't know the details. The amazing thing is, after many years he got compensation.

It seems apparent that some lawyer or union went to bat for him.

Most years, I try to attend the labor law conference at which the latest horror stories about government protection of the rights of workers are told.

Then, the other 364 days a year, I hear the other side.

The saddest example, in connection with Peter's example of the good employee who goes bad, was a long-established business with many veteran employees that was taken over by an outsider. He hired a general manager who -- it was obvious to me although apparently not to anybody else -- was deranged as a result of untreated diabetes.

He made the lives of several hundred people hell for a year or so, till the business failed.

The workers were union but it wasn't the sort of thing a union could do anything about.

Susan's Husband said...

Mr. Eagar;

Yes, I got a severance package.


I have never heard of an IP relationship like erp describes, where works done off clock and off site belonged to the company. It would only come up if the invention was too similar to the company products and the claim would be that the employee stole the corporation's IP.

Heck, where I worked they didn't even mind if you ran a business in your off hours, as long as it was non-competitive.

I will also note that erp is quote correct about universities. My experience has been that universities are much more aggressive about asserting IP than corporations. When I was a wee sprite coding on university computers, I had to sign over everything I coded on those computers to the university lock, stock, and barrel. And that was while I was in junior high.

erp said...

SH, the case I'm remembering probably happened before you were born. The details are very foggy. Harry may have the better memory of it.

My son, the physicist, lives in France and works in their university system. He married a French person he met in Champaign/Urbana and now has dual citizenship. Don't ask!

Anyway, they're even stricter about things than here.

Bret said...

I've seen clauses in employment contracts that state that any invention made during the period of employment belongs to the company.