Whitewater W. Indus., Ltd. v. Alleshouse

981 F.3d 1045

WHITEWATER WEST INDUSTRIES, LTD., a Canadian Corporation, Plaintiff-Appellee

v.Richard ALLESHOUSE, an Individual, Yong Yeh, an Individual, Pacific Surf Designs, Inc., a Delaware Corporation, Defendants-Appellants

2019-1852

2019-2323

United States Court of Appeals, Federal Circuit.

Decided: November 19, 2020

Joseph Rick Tache and Roger L. Scott, Buchalter, A Professional Corporation, Irvine, CA, argued for plaintiff-appellee. Also represented by Kari Barnes.

Manuel Federico de la Cerra, The Law Office of Manuel de la Cerra, Carlsbad, CA, argued for defendants-appellants. Also represented by Jeff Rambin, Fairchild, Price, Haley & Smith, LLP, Nacogdoches, TX; John Roberts, Roberts IP Law, Columbus, IN.

Before Dyk, Moore, and Taranto, Circuit Judges.

Taranto, Circuit Judge.

Richard Alleshouse and Yong Yeh are named as the inventors on U.S. Patent Nos. 9,044,685 and 9,302,189, which claim water-park attractions that individuals may ride as if surfing, and on U.S. Patent No. 9,592,433, which claims nozzle configurations for regulating water flow in such surfing attractions. Pacific Surf Designs Inc., the company Messrs. Alleshouse and Yeh formed and operate to develop and market such attractions, is the assignee of the three patents. Whitewater West Industries, Ltd. (Whitewater) is the successor, for present purposes, of Wave Loch, Inc., which employed Mr. Alleshouse until just before he went into business with Mr. Yeh and the patented inventions were conceived.

Whitewater sued Mr. Alleshouse, Mr. Yeh, and Pacific Surf Design in the United States District Court for the Southern District of California, asserting claims for breach of contract and correction of inventorship. Specifically, Whitewater claimed that Mr. Alleshouse had to assign each of the ’685, ’189, and ’433 patents to Whitewater, as Wave Loch's successor, under the terms of Mr. Alleshouse's employment contract with Wave Loch. Whitewater also claimed that Mr. Yeh—who had not been employed by Whitewater or its predecessors and therefore was not under any alleged assignment duty—was improperly listed as an inventor on each of the three patents. The district court held that (a) Mr. Alleshouse breached the employment agreement, the agreement was valid under state law, and Whitewater was therefore entitled to assignment of the defendants’ patent interests, and (b) Mr. Yeh was improperly joined as an inventor. Whitewater West Indus., Inc. v. Alleshouse , No. 17-cv-00501, 2019 WL 4261884 (S.D. Cal. Mar. 27, 2019) ( March Decision ); Whitewater West Indus., Inc. v. Alleshouse , No. 17-cv-00501, 2019 WL 4261883 (S.D. Cal. Aug. 1, 2019) ( August Decision ).

We reverse. In particular, we reverse the judgment of breach of contract because we hold that the assignment provision is void under California law. It follows from that holding, as Whitewater does not dispute, that Whitewater lacks standing to contest inventorship. We therefore also reverse the judgment on the inventorship count without separately addressing the merits of inventorship. The defendants are entitled to judgment in their favor in this action.

I

A

Two provisions of California law are central on appeal. First, California Business and Professions Code § 16600 states: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Second, California Labor Code § 2870(a) provides:

Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

Related to § 2870, California Labor Code § 2872 requires that an employer must "provide a written notification" to an employee that any assignment provision "does not apply to an invention which qualifies fully under the provisions of Section 2870."

B

The ’685 and ’189 patents, which share a specification and are both titled "Water Attractions Involving a Flowing Body of Water," describe and claim "water attractions involving a flowing body of water on a surface" that allows riders "to engage in boardriding maneuvers" that differ from "naturally occurring ocean wave shapes." ’685 patent, col. 1, lines 52–56. Mr. Alleshouse and Mr. Yeh applied for the ’685 patent in October 2013, based on a provisional application filed in October 2012, and it was issued in June 2015; they filed a continuing application in May 2015 that issued as the ’189 patent in April 2016. The ’433 patent, which issued in March 2017 and is titled "Nozzle Shapes and Configurations for Water Attractions Involving a Flowing Body of Water," describes and claims "nozzle shapes and configurations which create a flowing body of water over a surface in a substantially uniform, radial orientation over a substantially changing ride surface." ’433 patent, col. 2, lines 17–20. Mr. Alleshouse and Mr. Yeh filed the application that issued as the ’433 patent in October 2013 based on a provisional application filed in October 2012.

Mr. Alleshouse had begun working in the field of large-scale, sheet-wave attractions when he was hired by Wave Loch as a Field Engineer in October 2007. A sheet wave is a formation of water in a planar "sheet flow" with sufficient depth to replicate characteristics of a naturally occurring wave. ’685 patent, col. 1, lines 24–33. Mr. Alleshouse's responsibilities at Wave Loch included, in part, "assessing and documenting the physical condition of each ride visited, along with its operating parameters," and "work[ing] closely with the WaveLoch engineering staff doing research and design work improving existing rides, and developing new rides utilizing 3D parametric modeling, numerical analysis, and other engineering principles." J.A. 2257.

On September 8, 2008, Mr. Alleshouse signed a "Covenant Against Disclosure and Covenant Not to Compete" with Wave Loch (Agreement). J.A. 1021–25. The Agreement includes the following assignment provision:

a. Assignment: In consideration of compensation paid by Company, Employee agrees that all right, title and interest in all inventions, improvements, developments, trade-secret, copyrightable or patentable material that Employee conceives or here-after may make or conceive, whether solely or jointly with others:

(a) with the use of Company's time, materials, or facilities; or

(b) resulting from or suggested by Employee's work for Company; or

(c) in any way connected to any subject matter within the existing or contemplated business of Company

shall automatically be deemed to become the property of Company as soon as made or conceived, and Employee agrees to assign to Company, its successors, assigns, or nominees, all of Employee's rights and interests in said inventions, improvements, and developments in all countries worldwide. Employee's obligation to assign the rights to such inventions shall survive the discontinuance or termination of this Agreement for any reason.

J.A. 1022. The Agreement is governed by California law. J.A. 1024. It is undisputed on appeal that Whitewater, as successor to Wave Loch, is now Mr. Alleshouse's counter-party on this Agreement.

Beyond the responsibilities stated in his job description at Wave Loch, Mr. Alleshouse was the product manager for Wave Loch's FlowRider attraction—a sheet wave attraction that uses a rectangular flow nozzle to direct water up-hill within a rectangular footprint—and was responsible for design drawings for that product. He also worked on Wave Loch's WaveOz attraction—a 180-degree bowl-shaped water riding attraction that uses an array of nozzles directed outward along the bowl radius. In addition, Mr. Alleshouse participated in discussions about potential attractions the company might produce, including one the company decided not to pursue, namely, an attraction that might compete with the Stingray attraction released by rival Murphy Waves in 2010 or 2011—a sheet-wave ride in the shape of a halfpipe, traditionally associated with skate-boarding, that would allow individuals to ride the water along the side walls.

In early July 2012, Mr. Alleshouse contacted Mr. Yeh, a licensed attorney, to discuss Mr. Alleshouse's obligations under the Agreement, and a few days later, the two discussed the possibility of starting their own venture, to become known as Pacific Surf Designs. On July 27, 2012, Mr. Alleshouse resigned from Wave Loch, indicating that his last day with the company would be August 3, 2012. On August 4, 2012, Mr. Alleshouse began keeping a notebook of ideas for potential products to be sold by his and Mr. Yeh's new venture. In early September, Mr. Yeh joined Mr. Alleshouse to "start testing out models, concepts, [and] ideas, in person."

On October 13, 2012, Messrs. Alleshouse and Yeh filed a provisional application that ultimately culminated in the issued ’685 and ’189 patents. On October 24, 2012, Messrs. Alleshouse and Yeh filed a provisional application that resulted in the ’433 patent.

C

On March 13, 2017, Whitewater brought this action against Messrs. Alleshouse and Yeh and Pacific Surf Designs. In its amended complaint, Whitewater alleged that the Agreement required Mr. Alleshouse to assign his rights in the three patents to Whitewater and that Mr. Yeh should be removed from inventorship status on all three patents. J.A. 78–91. It is undisputed that the result of Whitewater's prevailing on these claims would be that Whitewater alone would own the three patents, which it could enforce against the...