Federal Circuit Warns Google To Actively Monitor Departing Employees For Potential Causes Of Action

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The departure of a key employee can be a stressful time for many employers, especially when that employee had access to the employer’s trade secret or confidential information. Unsurprisingly, employers spend significant time and energy trying to protect themselves from the risks posed by employee departures. The United States Court of Appeals for the Federal Circuit recently confirmed what every employer should know – employers should not forgo certain investigative protocols when handling employee departures. Specifically, Personalized User Model, LLP v. Google, Inc., No. 14-1841 (Fed. Cir. 2015)I provides guidance to employers on how to proactively monitor departing employees, both before and after they leave, so that the employer is not precluded from protecting its proprietary information.

Here are the relevant facts. Yochai Konig was employed by SRI International until late 1999. When he started with SRI, he signed an employment agreement obligating him to “disclose to SRI all discoveries, improvements, and inventions, including software, conceived or made by me during the period of my employment . . . .” About three months before the end of his employment, Konig and a friend generated documents relating to a personalized information services idea they called “Personal Web.” Konig and his friend then formed a new business venture, after which Konig resigned from SRI.

Konig then applied patents relating to the Personal Web products, which ultimately issued as the ’040 and ’276 patents. Both patents were assigned to Personalized User Model, LLC (“PUM”). In July 2009, PUM sued Google in Delaware, asserting infringement of the ’040 and ’276 patents.

During discovery, PUM disclosed that the conception date for the invention claimed in the asserted patents was in July 1999, while Konig was still at SRI. Based on that information, Google then contacted SRI and acquired “any rights” that SRI had in the asserted patents (for $40,000) and then filed a counterclaim against Konig and PUM for breach of contract.II Google argued that Konig owed a duty to transfer ownership to SRI of any inventions conceived during his employment with SRI; that Konig breached the employment agreement by failing to assign his interest in the asserted patents to SRI; and that Google (by way of SRI) therefore was a rightful co-owner of said patents. PUM and Konig responded that the counterclaim was barred by the statute of limitation because it was filed more than three years after the claim first accrued.III

The jury found that Google did not infringe the asserted patents and that the asserted claims were invalid. The jury also found that the three-year statute of limitations period for Google’s counterclaim was tolledIV based on Delaware’s delayed discovery ruleV and out-of-state defendant tolling statuteVI and that Konig breached his employment contract. After the court entered judgment, PUM and Konig moved for judgment as a matter of law (“JMOL”) on Goggle’s breach of contract counterclaim, arguing that the jury was wrong, and that, as a matter of law, the statute of limitations could not have been tolled.

The district court granted the JMOL motion, finding that Google was barred from pursuing its breach of contract counterclaim because the claim was not “inherently unknowable” and SRI and Google were not “blamelessly ignorant.” The court reasoned that had SRI performed a reasonable investigation after Konig gave notice ending his employment, it could have discovered that Konig’s invention was conceived during his employment at SRI. Both Google and PUM/Konig appealed.

The Federal Circuit affirmed the district court’s JMOL ruling. In so doing, the court used a medical malpractice distinction to explain why Google’s breach of contact claim was not “inherently unknowable”:

“[u]nlike a situation in which a patient after surgery has virtually no way of knowing that a surgical instrument was negligently left inside, (citation omitted), SRI knew that Konig was leaving to immediately work at a start-up technology company. Considering the competitiveness of companies and institutes in the technical world and, as Google has argued, that the technology was related to Konig’s work at SRI, his departure and new venture could well have been a ‘red flag’ that should have generated an inquiry whether Konig had conceived an invention during his employment with SRI that he might intend to develop and commercialize with his new company.”

The Court also explained why Google (and SRI) was not “blamelessly ignorant”: “Despite the opportunities for SRI to have inquired about Konig’s departure and his new venture—the obvious one being an exit interview, at which an inquiry might have been made regarding whether Konig had made any inventions at SRI that had not been reported to SRI—the record is critically deficient on the minimum quantum of evidence necessary to show that SRI did anything to protect its interests.” (Emphasis added.) The Court further noted that SRI’s inquiry into Konig’s post-employment activities should have entailed broader measures, such as questioning Konig’s colleagues and monitoring his new employer’s activities and competitive patent filings. The Court concluded that, “[e]ven if a reasonable investigation might not have given SRI definitive proof of a breach of contract, we agree . . . that such actions could have uncovered clues as to a potential claim.”

The Personal User Model case teaches that employers must proactively question departing employees and monitor their activities after departure. Employers should start as soon as the employee provides notice. At her exit interview, the employee should be questioned about her subsequent employment and any previously undisclosed inventions. The employer, however, should not stop there and should broaden its investigation to the employee’s co-workers and proactively monitor the departing employee’s new employer after her departure.

References   [ + ]

I. http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/14-1841.Opinion.8-14-2015.1.PDF. There are two components to the Personal User Model opinion: the patent infringement/validity portion and the departing employee and breach of contract portion. This article will focus on the latter.
II. Game recognizes game, Google. Game recognizes game. http://www.urbandictionary.com/define.php?term=Game+recognizes+game
III. Statutes of limitations are laws that set the maximum time after an event when legal proceedings may be initiated regarding that event. When the time specified in a statute of limitations passes, a claim can no longer be filed.
IV. “Tolling” is a legal doctrine which allows, under certain limited circumstances, for the pausing or delaying of the running of the statute of limitations’ time period, thereby extending the time period in which a legal proceeding may be brought.
V. The discovery rule in Delaware provides that the statute of limitations period is tolled while “the injury is inherently unknowable” and “the claimant is blamelessly ignorant of the wrongful act and the injury complained of.” Coleman v. PriceWaterhouseCoopers, LLC, 854 A.2d 838, 842 (Del. 2004). Even if an injury is inherently unknowable, the discovery rule does not toll the limitations period unless the claimant is blamelessly ignorant. See Kaufman v. C.L. McCabe & Sons, Inc., 603 A.2d 831, 835 (Del. 1992) (stating that discovery rule requires both elements to toll statute of limitations); accord David B. Lilly Co. v. Fisher, 18 F.3d 1112, 1117 (3d Cir. 1994).

California has a similar rule. See Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110 (“Under the [delayed] discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her”); see also California Jury Instruction 455 (Statute of Limitations—Delayed Discovery). A plaintiff is required to investigate and is charged with what a reasonable investigation would have discovered. Slovensky v. Friedman (2006)142 Cal.App.4th 1518, 1529.

VI. 10 Del. C. § 8117 states, “[i]f at the time when a cause of action accrues against any person, such person is out of the State, the action may be commenced, within the time limited therefor in this chapter, after such person comes into the State in such manner that by reasonable diligence, such person may be served with process. If, after a cause of action shall have accrued against any person, such person departs from and resides or remains out of the State, the time of such person’s absence until such person shall have returned into the State in the manner provided in this section, shall not be taken as any part of the time limited for the commencement of the action.” (emphasis added).

California has a similar statute. See CCP Section 351 (“If, when the cause of action accrues against a person, he is out of the State, the action may be commenced within the term herein limited, after his return to the State, and if, after the cause of action accrues, he departs from the State, the time of his absence is not part of the time limited for the commencement of the action.”).

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