The IP meme of the week has certainly been Twitter’s announcement that it’s in the process of adopting a new company-wide invention assignment policy that is aimed at keeping control of patents in the hands of inventors and ensuring Twitter patents are used for defensive purposes only. I’ve read lots of commentary on the web that simply misunderstands how the new policy works, so I’ve set out in this post to try and explain how the IPA functions. Usual disclaimers apply.  I am not your attorney. This is not legal advice. Errors are mine and mine alone.

Summary

Twitter’s inventors are the true winners. Twitter’s policy gives engineers unheard-of veto rights over the ways the company can enforce its patent rights in court. Twitter radically restricts the power of its board to enforce the company’s patent rights. The policy, and its implementing document, the IPA, would have the positive effect of reducing the likelihood that Twitter’s patents will end up in litigation in a scenario where a third-party acquires Twitter or purchases its patents outright. While it’s difficult to predict how a court will interpret the IPA or what the results will be in specific circumstances, it’s clear that the IPA is an inventor-friendly document that will go a long way to helping Twitter compete in the war for engineering talent in Silicon Valley.

Background

Companies need invention assignment policies, and the supporting agreements that implement them, because U.S. law says that an invention claimed in a patent is the property of the inventor by default. Grad students, scientists, engineers, designers, etc., are typically required to assign their inventions to their employers as a condition of employment. The agreements are so commonplace, that they’re on every investor’s due diligence list (consumer web investors being an important exception) and part of every startup lawyer’s package of agreements/docs every new company should have. As you might expect, invention assignment agreements are rarely negotiated. It’s usually a “take it or leave it” situation.

How the IPA works

Twitter’s new policy, which is embodied in a draft “Innovator’s Patent Assignment,” or IPA, represents a departure from standard invention assignment agreements in two key aspects:

• The IPA gives inventors certain veto rights.

Typical agreements vest complete control over the patents in the hands of the company/employer, but Section 4 of the IPA gives inventors residual rights to use and license others under the patents. In addition to this grant-back, Section 2 of the IPA gives inventors veto power over any decision Twitter’s board of directors might make to file a patent infringement lawsuit that is “offensive.” It's also noteworthy that any sub-license granted under the IPA is void if the inventor receives consideration (i.e., $$$).

• The IPA restricts Twitter’s right to assert patents in court.

Standard agreements almost never restrict the company’s ability to use the assigned patents. Section 2 of the IPA, in contrast, attempts to define a narrow set of “defensive” scenarios in which Twitter can assert its patents in court. Twitter binds itself to never asserting the assigned patents for a non-defensive purpose unless it receives written permission from the inventor.

How the IPA affects Twitter

As suggested above, the IPA puts Twitter at the mercy of its engineers if it ever wants to assert an assigned patent in a scenario that is not defensive in nature. In addition, it seems to me that the IPA actually divests Twitter of its right to assert the assigned patents in its own name in any scenario, even in one that is squarely within the range of scenarios considered “defensive” under the agreement. That’s because in order to assert a patent in court in his own name, the person or company doing the asserting needs to own “all substantial rights” in the patent. The right to sue infringers is a substantial right of patent ownership. Arguably, Twitter does not get all substantial rights in the assigned patents under the IPA, e.g., the right to sue infringers in offensive situations. It cannot bring any action under the assigned patents without also joining the inventors as parties to the litigation. The inventors might have an obligation to join the litigations under Section 3, but it’s not entirely clear. That’s an area of the IPA that needs to be tightened up in order to avoid side litigation in situations where the inventor doesn’t want to get involved.

How the IPA affects Non-Practicing Entities, "NPE" (sometimes called patent trolls)

Some stuff I've read on the web suggests that the IPA is an NPE or patent troll killer. It’s not. Twitter’s policy does not convert the assigned patents into weapons that can be used against NPEs in court. By definition, NPEs (or at least the ones people consider trolls) do not make things or provide services that patent owners can accuse of infringement. 

Twitter’s policy does make it less likely that its patents will end up in court. This is a good thing. The inventor grant-back and the restrictions on Twitter “run with the patent” according to Section 2 of the IPA. This means that anyone who acquires Twitter (and all of its patents) or who buys Twitter’s patents outright will be buying the restrictions the IPA places on asserting the patents.  NPEs are some of the most active purchasers of patents on the market for direct purchases of patents and patent portfolios. Because the inventors have the right to veto non-defensive uses of the assigned patents, NPEs are likely to heavily discount the value of any patents that are subject to the IPA.

In order to assert the patents offensively, NPEs will have to pay inventors not to exercise their veto option. And because the IPA doesn’t convey all substantial rights in the assigned patents, NPEs will have to pay inventors to voluntarily participate in any offensive lawsuits. If these deals become public, the inventors will likely suffer the wrath of the developer community, be ostracized, etc. It’s hard to say how all of this will play out without having the facts of any specific situation. Only time will tell.

How the IPA affects Twitter's Competitors

Twitter's competitors still have to take the company's patents into consideration if they're thinking of filing a lawsuit that clearly triggers one or more of the defensive scenarios defined in Section 2 of the IPA. There is always the possibility that Twitter could countersue on its own patents. However, because it's unclear whether Twitter would own all substantial rights in the assigned patents under the IPA, it's unclear whether or not Twitter would still need to involve the inventors in the countersuit or whether the inventors would have any recourse if they decided they didn't want to participate even in a defensive use of the assigned patents. 

Inventors are the true winners.

This is potentially a huge win for Twitter engineers. If the company adopts the draft IPA as its standard invention assignment policy, each time a Twitter employee invents something the company decides to patent, that person is going to walk away from the transaction with veto rights that are unheard-of in any industry, including tech.  As mentioned above, the veto right gives Twitter's inventors power over Twitter's board to nix any lawsuit that's outside the scope of the IPA-approved scenarios.  It also gives the inventors the power to diffuse suits brought by NPEs or trolls by granting the defendant a sub-license. The inventor can't get paid to do so (otherwise the sub-license is void), but an inventor who takes advantage of such a "poison pill" will likely be hailed as a hero by the independent developer and hacker communities.

Going forward, Twitter, or any other company that gives its employee similar rights, will have an advantage in hiring software engineers. In the world of employee perks, it’s the Google cafeteria on steroids. The market for talent in Silicon Valley is fierce, and Twitter has upped the ante.

Conclusion

It’ll be interesting to see what Twitter finally adopts as its company-wide invention assignment policy. I’m eager to see how the text of the IPA evolves, and to that end I’ve uploaded the draft IPA to Docracy for comment and mark-up. If I’ve made any major errors or omissions above, please let me know in the comments.