Opinion ID: 419996
Heading Depth: 2
Heading Rank: 1

Heading: Shop Right.

Text: 15 A shop right is essentially an irrevocable, non-exclusive license that is acquired by an employer under certain circumstances to practice the invention of his employee. See P. Goldstein, Copyright, Patent, Trademark and Related State Doctrines 173 (2d ed. 1981). The shop right doctrine originated in American law in 1843, in the case of M'Clurg v. Kingsland, 42 U.S. (1 How.) 202, 11 L.Ed. 102 (1843). The doctrine was originated and perpetuated by the Supreme Court as an equitable principle of common law, even though the existence of shop rights potentially conflicts with federal patent statutes which purport to confer upon a patentee the exclusive right to practice his invention. See 35 U.S.C. Secs. 261, 271(a) (1976). The rule, succinctly stated, is that where a servant, during his hours of employment, working with his master's materials and appliances, conceives and perfects an invention for which he obtains a patent, he must accord his master a non-exclusive right to practice the invention. United States v. Dubilier Condenser Corp., 289 U.S. 178, 188, 53 S.Ct. 554, 558, 77 L.Ed. 1114 (1933). 16 The Supreme Court developed the concept of shop right as a form of equitable compensation for situations where the employer has financed an employee's invention by providing wages, materials, tools, and a workplace. 6 A shop right also has some attributes similar to those of equitable estoppel. In particular, a shop right is most commonly found where the employee-inventor has induced the use of his invention by his employer or has acquiesced in such use over a period of time. See Francklyn v. Guilford Packing Co., 695 F.2d 1158, 1161 (9th Cir.1983); Kierulff v. Metropolitan Stevedore Co., 315 F.2d 839, 841 (9th Cir.1963). The combination of equitable concepts underlying the shop right doctrine was well explicated by the Court in Solomons v. United States: 17 [W]hen one is in the employ of another in a certain line of work, and devises an improved method or instrument for doing that work, and uses the property of his employer and the services of other employes to develop and put in practicable form his invention, and explicitly assents to the use by his employer of such invention, a jury, or a court trying the facts, is warranted in finding that he has so far recognized the obligations of service flowing from his employment and the benefits resulting from his use of the property, and the assistance of the co-employes of his employer, as to have given to such employer an irrevocable license to use such invention. 18 137 U.S. 342, 346, 11 S.Ct. 88, 89, 34 L.Ed. 667 (1890). 19 The district court ruled that a shop right in favor of Mechmetals was created by virtue of Glaeser's work in co-inventing the plastic capstan. This is a conclusion of law, subject to our independent review, Francklyn v. Guilford Packing Co., 695 F.2d 1158, 1160 (9th Cir.1983), although the findings of fact entered by the district court will be upheld unless clearly erroneous, id. We conclude that the district court's determination on this issue must be reversed, because on the uncontroverted facts as found by the district court, no shop right ever accrued to Mechmetals. 20 The district court incorrectly overlooked the precise nature of the relationship between Mechmetals and the three co-inventors of the capstan. O'Neill and Painter, the chief designers of the capstan, were not employees of Mechmetals at all. They approached Glaeser with their idea for the capstan in order to secure assistance in reducing the idea to practice. Glaeser, as president of Mechmetals, agreed to assist in the venture. This was a businesslike, negotiated transaction, not the type of informal understanding between an employer and employee present in cases where the Supreme Court has deemed it necessary to imply an equitable shop right. Cf. United States v. Dubilier Condenser Corp., 289 U.S. 178, 183-86, 53 S.Ct. 554, 555-57, 77 L.Ed. 1114 (1933) (shop right conceded where inventor was a research and development employee who conceived and perfected invention during working hours in employer's laboratory); Gill v. United States, 160 U.S. 426, 427 n. 1, 16 S.Ct. 322, 323, 40 L.Ed. 480 (1896) (shop right found where employee, a skilled machinist, invented device during working hours at employer's expense, and allowed employer to use patented invention for many years); see also Gill, 160 U.S. at 431-33, 16 S.Ct. at 324-25 (listing other, similar cases). 21 The only one of the three co-inventors who could properly be labeled a Mechmetals employee was Glaeser, and Glaeser was not an ordinary employee. He was president and chief executive officer of Mechmetals. In practice, he exercised virtually unchecked control over Mechmetals' corporate affairs. The normal situation in which a shop right is created is where a servant uses his master's time, facilities and materials. See Dubilier Condenser Corp., 289 U.S. at 188, 53 S.Ct. at 557. To label Glaeser a servant of Mechmetals would ignore the true nature of his employment relation. Equity will not compel such a characterization. As we have recently observed, [t]he full nature of the parties' relationship must be examined to determine whether a shop right exists. Francklyn, 695 F.2d at 1161. 22 The behavior of Glaeser, O'Neill and Painter relating to the capstan patent is not the sort of conduct that gives rise to an estoppel in favor of Mechmetals. Even before the patent was issued, the co-inventors met and reached agreement on an allocation of patent rights. The patent itself was to be owned in its entirety by Gulliver, the company of O'Neill and Painter. Glaeser's company, Mechmetals, was to receive a contract right to produce Gulliver's requirements of the patented capstans. Neither Glaeser nor the others believed that Mechmetals would be allowed to sell the capstan independently without paying royalties. This case is thus distinguished from Francklyn, where we ruled that an estoppel arising from acquiescence in the employer's practice of the patent supported the district court's finding of a shop right. See 695 F.2d at 1161. Moreover, neither Glaeser nor the others ignored the right of Mechmetals to receive some return on its contribution to the invention. The requirements contract was created for this purpose. Glaeser, as Mechmetals' president, could have insisted upon additional compensation in the form of a license allowing Mechmetals to produce and sell the capstan. He did not. 23 Very important in this case is the fact, found by the district court, that Mechmetals requested and received reimbursement from Gulliver for materials and machine time used in developing a method for producing the capstan. To declare a shop right for Mechmetals in this situation would deviate from the basic premise justifying the creation of shop rights: that the employer should receive a share in an invention he has financed. Use by the employee of the employer's tools and materials has always been considered a touchstone of a shop right. See, e.g., United States v. Dubilier Condenser Corp., 289 U.S. 178, 188, 53 S.Ct. 554, 557, 77 L.Ed. 1114 (1933); Francklyn v. Guilford Packing Co., 695 F.2d 1158, 1162 (9th Cir.1983). Since Gulliver paid for the materials and machine time used in developing the capstan product, Mechmetals did not accrue any shop right under the common law doctrine. Cf. Francklyn, 695 F.2d at 1162 (shop right upheld where patentee-employee received promise from employer to underwrite expenses and pay for materials). It is true that Mechmetals did not receive reimbursement for the time Glaeser spent working on the invention. But Glaeser was the chief executive officer of Mechmetals, not a regular employee, and we surmise that Glaeser's work was a product of his business judgment that a successful invention would result in advantageous economic transactions for the company. This speculative opportunity provided a form of return on the investment of Glaeser's time in the project. It does not provide a proper foundation for finding a shop right in Mechmetals. 24 Finally, considerations of federal patent policy militate against finding any shop right here. As the Supreme Court has observed, [t]he only value that a patent has is the right that it extends to the patentee to exclude all others from making, using, or selling the invention for a certain period of years. Dubilier Condenser Corp., 289 U.S. at 202, 53 S.Ct. at 562. Patent transferees such as Gulliver are accorded protection by 35 U.S.C. Sec. 261 (1976), which states that [a]n assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent Office within three months from its date or prior to the date of such subsequent purchase or mortgage. This statutory provision shows congressional intent to accord a heavy presumption that the record patentee or patentees can convey good and exclusive title to their inventions. The court-made shop right doctrine constitutes a nonstatutory exception to this presumption of exclusivity otherwise accorded persons who properly secure protection for their inventions under the patent laws. As such, the doctrine should be carefully confined to the type of situation for which it was created: where the inventor is an employee working at the employer's direction, and the invention is made possible by the employer's liberal, informal attitude toward on-the-job experimentation. Here, the inventor controlled the employing corporation, and the invention resulted from a negotiated transaction in which the employing corporation received appropriate consideration. The district court erred in concluding that Mechmetals acquired a shop right in the capstan invented under these circumstances. 7 25 Because we reverse the threshold ruling that Mechmetals acquired a shop right in the capstan invention, we need not consider the other claims of error raised by Telex with respect to the district court's determination on this issue. 26