Don’t Let Your Consulting Agreement Give Away Your Rights

Businesses often choose to hire consultants to help develop new products. The Business and the Consultant typically enter into a written contract like a “Consulting Agreement,” which covers many issues like scope of work, compensation, confidentiality and the ownership of developments during the term of the Consulting Agreement.

However, one important issue is often neglected—relevant work performed by the consultant prior to being formally retained by the Business. Oftentimes, a consultant will informally begin work on a project before a formal Consulting Agreement is signed. A recent case highlights the importance of having experienced Intellectual Property counsel draft a Consulting Agreement, address any work conducted before the execution of the Consulting Agreement AND review the inventorship and assignment of any developments.

A recent case, TriReme Med., LLC v. AngioScore, Inc., 812 F.3d 1050 (Fed. Cir. 2016), highlights the importance of addressing pre-agreement and post-agreement work in Consulting Agreements. Assignments should be obtained for ANY work for the Business, whenever conducted. AngioScore entered into a Consulting Agreement with their consultant, Dr. Lotan, to help develop a medical device. Prior to the “effective date” of Angioscore’s Consulting Agreement, Dr. Lotan had already done some analysis of AngioScore products. Certain recommendations in that analysis were later developed into patentable inventions and led to AngioScore’s Patents.

AngioScore’s Consulting Agreement did envision that Dr. Lotan may have had previous inventions or other work, but it relied on him to provide a list of that work. If such a list were provided, AngioScore would get a non-exclusive license to that listed work. However, Dr. Lotan did not provide a list. According to the Consulting Agreement, failure to provide a list equaled a representation, or warranty, that no prior inventions existed. Dr. Lotan didn’t list anything because he didn’t realize that his analysis constituted prior inventions. In this case, the research was conducted for AngioScore itself, but was before the “effective date” of the Consulting Agreement. Dr. Lotan performed his services under the Consulting Agreement and moved on.

Several years later, TriReme, AngioScore’s competitor, became concerned that AngioScore’s Patents might be used against TriReme. TriReme entered into an agreement with Dr. Lotan to obtain any personal rights that arose from his earlier work with AngioScore; rights that may not have been assigned to AngioScore under the Consulting Agreement. TriReme then filed suit, arguing that it had received an assignment of rights to AngioScore’s Patents from AngioScore’s own consultant/inventor.

AngioScore defended by claiming that the Consulting Agreement had assigned all of Dr. Lotan’s rights to AngioScore; that there should be nothing left for Dr. Lotan to assign to TriReme.

Upon appeal, the United States’ Court of Appeals for the Federal Circuit reviewed the Consulting Agreement between AngioScore and Dr. Lotan. Dr. Lotan had not listed any prior inventions, and the Consulting Agreement treated this absence as a representation that there were no prior inventions. The court could make “little sense” of AngioScore’s argument that prior inventions not listed were licensed to them. The Federal Circuit found that absent specific limiting language, the Consulting Agreement did not prevent the assignment of Dr. Lotan’s inventive contribution rights to TriReme.

TriReme provides Businesses and lawyers alike a reminder of the importance of addressing pre-agreement and post-agreement work in Consulting Agreements, and of having experienced Intellectual Property counsel help protect the rights to inventions being developed. Language covering pre-agreement work should clearly indicate that relevant rights should be assigned. That assignment should also deal with post-agreement developments related to the underlying work. Any requirement for exclusive ownership of patents resulting from a consultant’s work should be unambiguous. The language should also identify a quantifiable period of work, either measured in years or by discussing the work related to the specific project’s scope of work, or both.

Finally, the Consultant may not understand the legal result of previous work, such as whether it constitutes a prior invention. Therefore, both the Business and the Consultant should have a mutual and clear understanding of the legal status of prior work. By carefully considering and addressing these issues, Businesses can ensure that they get the intended benefit of a Consultant’s work related to their research and development.