Articles on Law, Science, and Engineering

PART II: Contract Liability

In Part 1 (see June 1986) we asked, "Is an engineer personally liable for injuries resulting from services or a devise s/he helps to develop?" The Answer was, "Yes." There are a least three distinct ways that legal liability can arise for engineers.

The first is breach of contract. As described in Part 1, engineers are innovators of modern technology. Most engineers enter into agreements to provide technology, products, and other engineering services. Usually, the transfer of engineering technology is governed by contracts involving assignments of rights, licensing arrangements, and other technology transfer agreements.

About Assignments and Licenses

An assignment is the conveyance of part or all of the rights that comprise a patent, copyright, or other intellectual property. When only a part of the rights are assigned, a co-ownership is crated. Unlike co-ownership of most other property, co-ownership of patent rights enables each co-owner to exploit the patent without accounting to the other owners. A patent or copyright assignment must be in writing, and, in order for the assignee to sue for infringement, the assignment must be recorded in the Patent and Trademark Office (PTO) or Copyright Office, whichever is appropriate.

A license is an agreement in which an owner of intellectual property grants others permission to use some or all of the rights, usually in return for royalties. Unlike an assignor, a licensor retains full title to the intellectual property and therefore to all remaining rights to the property. Licenses may be granted for patents, trade secrets, or copyrights. Exclusive licenses grant the licensee the sole right to us rights in the property, whereas under a nonexclusive license, the owner retains these rights, including the right to grant licenses to any number of other nonexclusive licensees. Licenses may grant rights for a specified period of time, including the term of a patent or copyright. Obviously, an exclusive license granting all rights for the duration of a patent or copyright is equivalent to an assignment.

Assignments may be made for a cash payment or other consideration. Assignments of copyrights for works created by an employee in the scope of his/her employment are unnecessary because copyright law recognizes the employer as the "author" of such works. Patents are different, however, in that the employer is not recognized by patent law as the "inventor" merely because of the employer status. This is why many employment contracts require engineers to promise to assign patent rights to their employers and cooperate in the application process as a condition of their employment. During the period the patent is pending, the engineer-employee often works closely with a patent attorney who actually drafts the application and communicates with the PTO. The employee should understand that his attorney represents his/her employer, not the employee. Before entering into a relationship with an employee-inventor, the attorney should make it clear that s/he does not represent the inventor, and that where the interests of the employer and the employee conflict, the attorney will represent the interest of the employer, because that is who s/he represents.

Licenses usually require payment of some type of royalty, which, according to the U.S. Supreme Court, may be "as high as [the owner] can negotiate with the leverage of that monopoly." Royalties are commonly calculated as a percentage of total sales, the number of units made, used or sold, or otherwise based on the use of the license, often with incentives to maximize use by the licensee.

The courts have had little difficulty in interpreting a license for technical assistance as a "sale." Thus, assignments and licenses are "sales" contracts that can provide the basis of breach of contract liability for engineers and other providers of technology. Where the contract is between the engineer and the injured party, warranties provide the usual basis for liability.

Even where no express contract (see below) exists between the licensor of technology and the injured party, the potential for breach of contract liability for engineers may exist if the courts find that implied warranties (see below) inure to the benefit of third parties who are affected by the licensor's performance under the contract, or if the licensee is acting with the apparent of the engineer. For example, if the licensee advertised that a licensed product is patented by the engineer, it would not be unreasonable for the public to conclude that the licensee is acting for the engineer. If a court were to find that apparent authority existed, the engineer could be held accountable for contractual obligations made by the licensee.

These characteristics of assignments and licenses make the matter of contract liability important to engineers.

Next - About Contracts and Warranties