Whitewater West Industries v. Alleshouse ( 2020 )

Case: 19-1852 Document: 64 Page: 1 Filed: 11/19/2020
United States Court of Appeals
for the Federal Circuit
______________________
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
______________________
Appeals from the United States District Court for the
Southern District of California in No. 3:17-cv-00501-DMS-
NLS, Judge Dana M. Sabraw.
______________________
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 Ma-
nuel de la Cerra, Carlsbad, CA, argued for defendants-ap-
pellants. Also represented by JEFF RAMBIN, Fairchild,
Price, Haley & Smith, LLP, Nacogdoches, TX; JOHN
ROBERTS, Roberts IP Law, Columbus, IN.
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2 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
______________________
Before DYK, MOORE, and TARANTO, Circuit Judges.
TARANTO, Circuit Judge.
Richard Alleshouse and Yong Yeh are named as the in-
ventors 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 pa-
tented 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 un-
der 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 de-
fendants’ patent interests, and (b) Mr. Yeh was improperly
joined as an inventor. Whitewater West Indus., Inc. v. Al-
leshouse, No. 17-cv-00501, 2019 WL 4261884 (S.D. Cal.
Mar. 27, 2019) (March Decision); Whitewater West Indus.,
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 3
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 de-
fendants are entitled to judgment in their favor in this ac-
tion.
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 ex-
cept for those inventions that either:
(1) Relate at the time of conception or reduction
to practice of the invention to the employer’s busi-
ness, or actual or demonstrably anticipated re-
search or development of the employer; or
(2) Result from any work performed by the em-
ployee for the employer.
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4 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
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 in-
volving 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 ap-
plication 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 Flow-
ing 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 re-
sponsibilities at Wave Loch included, in part, “assessing
and documenting the physical condition of each ride vis-
ited, along with its operating parameters,” and “work[ing]
closely with the WaveLoch engineering staff doing research
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 5
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 “Cove-
nant Against Disclosure and Covenant Not to Compete”
with Wave Loch (Agreement). J.A. 1021–25. The Agree-
ment 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 pa-
tentable 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 prop-
erty of Company as soon as made or conceived, and
Employee agrees to assign to Company, its succes-
sors, assigns, or nominees, all of Employee’s rights
and interests in said inventions, improvements,
and developments in all countries worldwide. Em-
ployee’s obligation to assign the rights to such in-
ventions 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.
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6 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
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 attrac-
tion 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 noz-
zles 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 ri-
val 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 dis-
cussed the possibility of starting their own venture, to be-
come 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 re-
sulted in the ’433 patent.
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 7
C
On March 13, 2017, Whitewater brought this action
against Messrs. Alleshouse and Yeh and Pacific Surf De-
signs. 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 defendants. 1
After a bench trial, the district court ruled for White-
water. The court first rejected the defendants’ contention
that the Agreement’s assignment provision is invalid under
California law—specifically, under California Labor Code
§§ 2870, 2872, and under California Business and Profes-
sions Code § 16600. March Decision at *6–9. The court
then held that Mr. Alleshouse breached the assignment
provision by failing to assign the patent rights at issue (and
rejected defenses of equitable estoppel and laches). Id. at
*9–11. Finally, the court held that Mr. Yeh was not
properly listed as an inventor on the patents. Id. at *12–
13.
As to invalidity of the assignment provision (the dis-
positive issue on appeal), the district court began by reject-
ing the defense of invalidity under California Labor Code
§§ 2870 and 2872. Addressing § 2870, the district court
stated that Alleshouse “fail[ed] to explain how requiring an
employee to assign inventions ‘suggested by’ his work for
1 Whitewater also asserted claims for intentional in-
terference with contract and violation of California Busi-
ness and Professions Code § 17200. The district court
rejected those claims, March Decision at *11, and White-
water has not sought to revive them on appeal.
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8 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
the employer exceeds the scope of Section 2870, which per-
mits an employer to require an employee assign inventions
‘[r]elate[d] to’ the employer’s business.” Id. at *7–8 (second
alteration in original). Relying on Cadence Design Sys-
tems, Inc. v. Bhandari, No. 07-823, 2007 WL 3343085, at *5
(N.D. Cal. Nov. 8, 2007), the district court stated that
§ 2870 “permits the assignment of inventions conceived af-
ter employment, so long as the inventive idea relates to the
employer’s business . . . or results from work performed by
the employee for the employer.” Id. at *8. As for § 2872’s
requirement of a notification, the district court concluded
that the section states no remedy for its violation and that
absence of a § 2872 notification from Wave Loch was “not
determinative” because “the subject matter of the patents
in suit was integral to Mr. Alleshouse’s work at Wave Loch
and would not have been subject to the notice requirements
of Section 2872.” Id. at *7. The district court later added
that it had considered the absence of notification but
deemed it insufficient for an invalidity conclusion. August
Decision at *4.
The district court then briefly rejected the defense of
invalidity under California Business and Professions Code
§ 16600. Relying on Board of Trustees of Leland Stanford
Junior University v. Roche Molecular Systems, Inc., 583
F.3d 832, 845 (Fed. Cir. 2009), aff’d on other grounds, 563
U.S. 776 (2011), the district court concluded that “the
Agreement does not restrain Mr. Alleshouse from engaging
in the sheet wave profession.” March Decision at *9. The
district court reasoned that the Agreement “only requires
him to assign inventions resulting from his work at Wave
Loch or relating to Wave Loch’s business at the time he was
there.” Id.
Having held the Agreement’s assignment provision to
be valid, the district court went on to find a breach. It ex-
plained that the “evidence shows Mr. Alleshouse’s half-
pipe/quarter-pipe invention was related to, and emanated
from, Wave Loch’s business and research.” Id. at *10.
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 9
Citing Mr. Alleshouse’s responsibility as the “product man-
ager for the Flowrider attraction at Wave Loch”; Wave
Loch’s development of “radial, non-planar nozzles for its
WaveOz attraction”; and Mr. Alleshouse’s access to “mod-
els and drawings,” as well as “complete diagrams of similar
nozzle structures,” the district court stated that “[c]ommon
sense shows that the inventions at issue resulted from Mr.
Alleshouse’s work at Wave Loch.” Id. On appeal, the de-
fendants do not dispute the finding that the inventions
come under the Agreement’s assignment provision (or the
rejection of the equitable estoppel and laches defenses).
The district court next ruled for Whitewater on its
claim that Mr. Yeh was improperly named as an inventor
on the three patents at issue. Id. at *12–13. The court
determined that “Mr. Alleshouse alone conceived of the in-
ventions” and that “Mr. Yeh’s contributions occurred there-
after and are insufficient under the law.” Id. at *12. The
district court later amended—largely supplemented—its
findings on this issue. August Decision at *2–3.
The defendants timely appealed. We have jurisdiction
under 28 U.S.C. § 1295(a)(1).
II
On appeal, the defendants challenge the Agreement’s
assignment provision as invalid both under § 16600 and
under §§ 2870 and 2872. On appeal, the parties accept two
important factual premises: first, the inventions at issue
were not conceived until after Mr. Alleshouse left his job at
Wave Loch; second, Mr. Alleshouse did not use any trade-
secret or other confidential information belonging to Wave
Loch (now Whitewater) in arriving at the patented inven-
tions. The defendants, who do not appeal the determina-
tion of breach, also now accept that the assignment
provision applies to post-employment inventions. Relying
on those now-undisputed premises, we conclude that the
assignment provision is invalid under § 16600, and we re-
ject Whitewater’s argument that § 2870 saves the provision
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10 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
from invalidity under § 16600. We need not address the
defendants’ argument for invalidation under § 2872, which
Whitewater does not contend saves the assignment provi-
sion from invalidity under § 16600. We therefore reverse
the district court’s ruling on breach of contract.
A
The parties have not cited any decision of California’s
Supreme Court or of its intermediate appellate courts that
directly address how broadly, if at all, employment contract
provisions may require assignment of inventions conceived
post-employment and without use of the former employer’s
confidential information. In this situation, we must try to
predict, based on precedents that are relevant but not di-
rectly on point, how the State’s highest court would rule on
the issue before us. See Comm’r of Internal Revenue v.
Bosch’s Estate, 387 U.S. 456, 465 (1967); see also Golden v.
Cal. Emergency Physicians Med. Grp., 782 F.3d 1083, 1089
(9th Cir. 2015) (Golden I) (same); Johnson v. Riddle, 305
F.3d 1107, 1118 (10th Cir. 2002) (same).
We review a district court’s interpretation of a State’s
statutes de novo. Salve Regina Coll. v. Russell, 499 U.S.
225, 239 (1991). In doing so, we give weight to decisions of
federal courts that are “better schooled in” the law of the
particular State involved. See Brockett v. Spokane Arcades,
Inc., 472 U.S. 491, 500 (1985) (“district courts and courts of
appeals are better schooled in and more able to interpret
the laws of their respective States”); Propper v. Clark, 337
U.S. 472, 486–87 (1949) (“In dealing with issues of state
law that enter into judgments of federal courts, we are hes-
itant to overrule decisions by federal courts skilled in the
law of particular states unless their conclusions are shown
to be unreasonable.”); see also, e.g., In re SuperValu, Inc.,
925 F.3d 955, 963 (8th Cir. 2019) (discussing recent Sev-
enth Circuit interpretation of Illinois law and “adopt[ing]
its conclusion”); Factors Etc., Inc. v. Pro Arts, Inc., 652 F.2d
278, 281 (2d Cir. 1981) (“It has frequently been observed
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 11
that a court of appeals should give considerable weight to
state law rulings made by district judges, within the cir-
cuit, who possess familiarity with the law of the state in
which their district is located.”). In this case, the most on-
point California federal-court decisions rendered before the
ruling under review here support the defendants in their
challenge to the contrary ruling of the California district
court in this case.
B
The Agreement’s assignment provision has a broad re-
straining effect that renders it invalid under § 16600 as
that statute has been applied to employment contracts in a
manner highly protective of former employees. We assess
the provision based on its broad terms. Whitewater did not
timely make any argument in this court that the provision
could be upheld if we concluded that § 16600 might permit
a narrower provision that covered Mr. Alleshouse’s partic-
ular circumstance. 2
1
The Agreement’s assignment provision is broad. It re-
quires, among other things, that Mr. Alleshouse, as a
2 Whitewater made no such argument in its brief in
this court. See SmithKline Beecham Corp. v. Apotex Corp.,
439 F.3d 1312, 1319 (Fed. Cir. 2006) (“Our law is well es-
tablished that arguments not raised in the opening brief
are waived.”). It has not addressed whether § 16600 allows
such a judicial approach to overbroad agreements. See
Kolani v. Gluska, 64 Cal. App. 4th 402, 406–07 (1998); Ap-
plied Materials, Inc. v. Advanced Micro-Fabrication Equip-
ment (Shanghai) Co., 630 F. Supp. 2d 1084, 1091 (N.D. Cal.
2009); cf. Guth v. Minnesota Min. & Mfg. Co., 72 F.2d 385,
389 (7th Cir. 1934) (discussing question of parsing agree-
ment having invalid and valid parts).
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12 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
former employee, assign to Wave Loch (or its successors,
assignees, or nominees) all of his rights or interests in any
invention he “may make or conceive,” “whether solely or
jointly with others,” if the invention is either “resulting
from or suggested by” his “work for” Wave Loch or “in any
way connected to any subject matter within the existing or
contemplated business of” Wave Loch. J.A. 1022. The as-
signment duty applies to all of Mr. Alleshouse’s “rights and
interests in said inventions . . . in all countries worldwide.”
Id.
No trade-secret or other confidential information need
have been used to conceive the invention or reduce it to
practice for the assignment provision to apply. The obliga-
tion is unlimited in time and geography. It applies when
Mr. Alleshouse’s post-employment invention is merely
“suggested by” his work for Wave Loch. It applies, too,
when his post-employment invention is “in any way con-
nected to any subject matter” that was within Wave Loch’s
“existing or contemplated” business when Mr. Alleshouse
worked for Wave Loch.
The restraining effect of these requirements is evident.
For a number of years, Mr. Alleshouse worked for Wave
Loch in a wide variety of capacities involving design and
implementation of water attractions. Anyone in his posi-
tion would have developed useful, specialized knowledge of
the business of water attractions, wholly apart from any
confidential information. Work in the same line of business
was necessarily among the best and likeliest prospects for
such an individual to pursue when leaving the employer.
Yet under the Agreement’s assignment provision, pur-
suit of the very prospects for which the individual “is par-
ticularly fitted,” as the Seventh Circuit noted in 1934,
carries a heavy price. Guth, 72 F.2d at 389. A wide range
of inventions made after leaving the employer, for all time,
would have to be assigned to that (now former) employer.
The individual, and the individual’s new employer or
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 13
enterprise, would lose the likely competitive benefits of the
exclusivity rights provided by patents on such new inven-
tions—or, worse, could be subject to being sued by the for-
mer employer, as assignee, for infringement of those very
patents. The impairment of the individual’s ability to pur-
sue his profession, trade, or business would be significant.
A century ago, the Second Circuit explained that even
an agreement providing just for an “exclusive license to use
all other future patents and inventions devised or ac-
quired” by a former employee—short of an actual assign-
ment—“would be an extremely harsh one; it might even be
found unconscionable, for it mortgages his inventive facul-
ties to complainant for an indefinite period subsequent to
employment.” Standard Plunger Elevator Co. v. Stokes,
212 F. 893, 896 (2d Cir. 1914). A requirement of assign-
ment, like the one at issue here, imposes an even harsher
penalty on post-employment professional, trade, or busi-
ness prospects—a penalty that has undoubted restraining
effect on those prospects and that a number of courts have
long held to invalidate certain broad agreements with
those effects. See, e.g., Guth, 72 F.2d at 388–89 (partly in-
validating, as “conflict[ing] with the public policy of the
land,” broad agreement that required former employee to
“turn over the children of his inventive genius” conceived
after employment); id. at 387–89 (collecting case law); TLS
Mgmt. & Mktg. Servs., LLC v. Rodriguez-Toledo, 966 F.3d
46, 57–58 (1st Cir. 2020) (applying policy against overbroad
non-compete clauses to overbroad non-disclosure agree-
ments and collecting cases).
Identifying this substantial restraining effect on for-
mer employees does not suffice to answer the question
whether a particular law-making authority has chosen to
invalidate an agreement having such an effect. A law-mak-
ing authority, in deciding on a policy to govern the issue,
presumably would consider a variety of facially pertinent
interests, among them the interests of former employees,
the interests of employers, the overall societal interest, and
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14 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
practicalities of implementing any policy chosen. 3 The
question for us is how California has resolved the issue—
where there is no use of confidential information and the
conceptions of the inventions post-date employment.
2
Our best assessment of California law on the subject is
that California has chosen, in § 16600, to forbid the re-
straint on former employees imposed by the agreement in
this case. We begin with the California Supreme Court’s
relevant pronouncements. That court recently reiterated
that “[t]he language of section 16600 is broad on its face.”
Ixchel Pharma, LLC v. Biogen, Inc., 470 P.3d 571, 582 (Cal.
2020). 4 And in that decision, the court, in adopting a flex-
ible rule-of-reason approach to assess certain contracts be-
tween businesses, distinguished and emphasized just how
“strictly,” id. at 586, 588, § 16600 forbids agreements that
impair the post-employment liberty of former employees,
relying on a long line of cases culminating in Edwards v.
3 For example, Whitewater notes a concern about the
potential for “dishonest employees to withhold their best
efforts and ideas from their current employers.” White-
water Resp. Br. 16. That concern could be a part of the
balance of relevant considerations, and it also might be ad-
dressed by means other than assignment provisions, e.g.,
disclosure requirements, see California Labor Code § 2871,
or a duty of loyalty, see California Labor Code § 2859. See
Iconix, Inc. v. Tokuda, 457 F. Supp. 2d 969, 997 (N.D. Cal.
2006) (acknowledging assignment under duty of loyalty to
employer); Cubic Corp., 185 Cal. App. 3d at 444, 451 (dis-
cussing implications of disclosure requirement as part of
employment contract). Whitewater asserted no such sepa-
rate basis of liability in this case.
4 Section 16600 is subject to exceptions “provided in
this chapter,” i.e., §§ 16601, 16602, and 16602.5. Those ex-
ceptions have not been invoked here.
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 15
Arthur Andersen LLP, 189 P.3d 285 (Cal. 2008). Ixchel, 470
P.3d at 583–88.
In Edwards, the California Supreme Court invalidated
contractual provisions barring a former employee from
working for or soliciting certain clients of his previous em-
ployer for limited periods following his termination. 189
P.3d at 288. In reaching its conclusion, the court rejected
the notion that “a mere limitation on an employee’s ability
to practice his or her vocation would be permissible under
section 16600, as long as it was reasonably based,” explain-
ing that the statute’s use of the word “restrain” does not
“mean simply to ‘prohibit,’” id. at 291, and that the statute
“evinces a settled legislative policy in favor of open compe-
tition and employee mobility,” id., and “embodies the orig-
inal, strict common law antipathy toward restraints of
trade,” id. at 292–93. The court also rejected a “narrow-
restraint exception” test for § 16600, articulated by the
Ninth Circuit, as contravening California’s protection of
employees. Id. at 293. The court emphasized that “Cali-
fornia courts have been clear in their expression that sec-
tion 16600 represents a strong public policy of the state
which should not be diluted by judicial fiat.” Id. at 293 (in-
ternal quotation marks omitted).
In Ixchel, the California Supreme Court reiterated
§ 16600’s special protectiveness of employees. It held that
courts should apply “a reasonableness standard to contrac-
tual restraints on business operations and commercial
dealings,” but explained that its holding “do[es] not disturb
the holding in Edwards and other decisions strictly inter-
preting section 16600 to invalidate noncompetition agree-
ments following the termination of employment or sale of
interest in a business.” Ixchel, 470 P.3d at 588. Specifi-
cally, the court explained that “the rationale in Edwards
focused on policy considerations specific to employment
mobility and competition: ‘The law protects Californians
and ensures “that every citizen shall retain the right to
pursue any lawful employment and enterprise of their
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16 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
choice.”’” Id. at 587 (quoting Edwards, 189 P.3d at 291).
This strict approach to § 16600 as applied to contracts re-
straining former employees condemns the assignment re-
quirement at issue here given the significant restraining
effect the requirement has on former employees like Mr.
Alleshouse.
Since the California Supreme Court decided Edwards,
the Ninth Circuit has confirmed the strictness and breadth
of § 16600’s prohibition on contracts restraining former
employees, especially but not only as to competition with
the former employer. In Golden I, the Ninth Circuit con-
sidered a “no-employment” provision from a settlement
agreement stating that the former employee “shall not be
entitled to work or be reinstated at any [former-employer]-
contracted facility or at any facility owned or managed by”
the former employer. 782 F.3d at 1085. The court ex-
plained that § 16600 is not limited to non-competition pro-
visions, noting that “the legislature adopted categorical
language: ‘every contract’ that ‘restrain[s]’ anyone ‘from en-
gaging in lawful profession . . . of any kind’ is ‘void.’”
Golden I, 782 F.3d at 1090 (brackets and ellipsis in origi-
nal). Recounting the California Supreme Court’s decision
in Chamberlain v. Augustine, 156 P. 479 (Cal. 1916), the
Ninth Circuit highlighted the “canonical statement” that
“the crux of the inquiry under section 16600 is not whether
the contract constituted a covenant not to compete, but ra-
ther whether it imposes ‘a restraint of a substantial char-
acter’ regardless of ‘the form in which it is cast.’” Golden I,
782 F.3d at 1091. The Ninth Circuit concluded that all con-
tract provisions that “constitute[] a restraint of a substan-
tial character” on a former employee’s ability to engage in
a legal profession are prohibited under § 16600. Id. at
1092–93.
The Ninth Circuit elaborated when the Golden I case
returned to the court. In Golden v. Cal. Emergency Physi-
cians Med. Grp. (Golden II), the Ninth Circuit explained
that “a contractual provision imposes a restraint of a
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 17
substantial character if it significantly or materially im-
pedes a person’s lawful profession, trade, or business” and
that “it will be the rare contractual restraint whose effect
is so insubstantial that it escapes scrutiny under section
16600.” 896 F.3d 1018, 1024 (9th Cir. 2018). Ultimately,
considering the scope of the no-employment provision, the
Ninth Circuit held that the restraint was “of a substantial
character” because the former employee “would be ineligi-
ble for employment in any department of a hospital where
[the former employer] has a contract” and “easily [rose] to
the level of a substantial restraint” when considering the
market presence of the former employer. Id. at 1025–26.
The assignment provision in the present case has a re-
straining effect of a substantial character under the Ninth
Circuit’s approach.
The California Supreme Court and Ninth Circuit deci-
sions just discussed address § 16600 in its application to
restrictions on former employees, but they do not specifi-
cally address contracts requiring assignments of rights in
inventions conceived after employment. Three federal dis-
trict courts in California did address that particular situa-
tion before the district court decided the present case.
Those decisions are in line with the principles of the Cali-
fornia Supreme Court and Ninth Circuit and support our
rejection of the ruling now before us.
In Armorlite Lens Co. v. Campbell, the district court
applied § 16600 to a contractual provision requiring assign-
ment of “all new ideas and concepts” that an employee de-
veloped “during the period of [his] employment, or within
one (1) year after the termination thereof.” 340 F. Supp.
273, 274 (S.D. Cal. 1972). The court explained that an
agreement “which requires a former employee to turn over
to his former employer all new ideas and concepts concern-
ing the field of work or the products of the employer” within
one year after termination “is unnecessarily broad.” Id. at
275. Noting that the provision covered “ideas and concepts
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18 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
not based on . . . confidential information,” the court held
the provision “void and unenforceable” under § 16600. Id.
Similarly, in Applied Materials, Inc. v. Advanced Mi-
cro-Fabrication Equipment (Shanghai) Co., the district
court considered, and held invalid under § 16600, an as-
signment provision that required assignment of “any in-
vention . . . described in a patent application or . . .
disclosed . . . within one (1) year after terminating my em-
ployment” based on a presumption “that the invention was
conceived or made during the period of [the] employment.”
630 F. Supp. 2d 1084, 1086 (N.D. Cal. 2009). The court
explained that “[a]ssignment clauses function as unlawful
non-compete provisions where they require an employee to
assign an invention conceived after departing from an em-
ployer’s service.” Id. at 1090. Applied to the specific as-
signment provision at issue, the district court observed
that it “broadly target[ed] any inventions ‘relate[d] to’ for-
mer employees’ ‘work’” with the former employer and was
“in no way limited” to subject matter based on confidential
material. Id. (second alteration in original). The court also
noted that the provision covered “any invention disclosed
by former employees, regardless of when or where they
were conceived,” so the provision was “overly broad with
respect to both subject matter and temporal scope.” Id. at
1090–91.
Most recently, in Conversion Logic, Inc. v. Measured,
Inc., the district court addressed, and invalidated under
§ 16600, three consulting agreements that, reflecting the
language of the agreements, the court treated as employ-
ment agreements for purposes of § 16600. No. 2:19-cv-
05546, 2019 WL 6828283, at *6 (C.D. Cal. 2019). The
agreements required assignment of “all Inventions . . . con-
ceived or developed by Employee while employed with the
Company or within one (1) year following termination of
such employment.” Id. The agreements extended “beyond
the length of the employment” and “include[d] broad
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 19
language sweeping up inventions and discoveries unre-
lated to” the companies’ proprietary information. Id. at *6–
7.
Those decisions, all from federal district courts in Cal-
ifornia, confirm that invention-assignment provisions that
go beyond protection of proprietary information and en-
snare post-employment inventions are to be judged under
the strict § 16600 standards that protect former employees.
As far as we have been shown, there is no contrary decision
of a California federal court except for the district court’s
decision in this case. As explained, the agreement in this
case is invalid under § 16600’s strict standards governing
restraints on former employees.
3
This conclusion is not undermined by the sole authority
on § 16600 cited by the district court, namely, this court’s
decision in Board of Trustees of the Leland Stanford Junior
University v. Roche Molecular Systems, Inc., which rejected
a § 16600 challenge to an assignment provision. 583 F.3d
832, 837 (Fed. Cir. 2009), aff’d on other grounds, 563 U.S.
776 (2011). A researcher employed by Stanford, Holodniy,
in the course of that employment, arranged to spend time
at Cetus, as a visitor, to learn certain laboratory techniques
as part of a Stanford-Cetus collaboration on efforts to quan-
tify amounts of Human Immunodeficiency Virus (HIV) in
human blood samples. Id. The researcher signed a “Visi-
tor’s Confidentiality Agreement” (VCA) with Cetus that in-
cluded a patent-assignment provision granting various
invention rights to Cetus. Id. at 837, 842. Stanford even-
tually secured certain patents naming the researcher as an
inventor, and when Stanford sued Cetus’s successor,
Roche, for infringement by its marketing of certain detec-
tion kits, Roche defended on the ground, among others,
that it owned the interest of the Stanford researcher based
on the assignment provision. Id. at 839. This court agreed,
in the process rejecting one of Stanford’s responses,
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20 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
namely, that the agreement was invalid under § 16600. Id.
at 845–46.
One ground on which we rejected the § 16600 challenge
was that there was simply no evidence of a restraining ef-
fect on Holodniy’s ability to engage in his profession.
“Stanford provides no evidence that the VCA restrained
Holodniy from engaging in any profession. Indeed, the rec-
ord shows that Holodniy freely continued his HIV research
at Stanford, publishing articles and using the knowledge
he obtained from Cetus to further the science behind the
patents-in-suit.” Id. at 845. That ground, essentially a
threshold ground for application of § 16600, readily distin-
guishes the present case.
This court also stated that “California courts apply sec-
tion 16600 to employment restrictions on departing em-
ployees, not to patent assignments.” Id. at 846 (citing
Thompson v. Impaxx, Inc., 7 Cal. Rptr. 3d 427 (Ct. App.
2003), and D’Sa v. Playhut, 102 Cal. Rptr. 2d 495 (Ct. App.
2000)). Given that the two cited cases did not hold that a
patent-assignment provision in an employment agreement
cannot be subject to § 16600, the absence of discussion of
what were already two decisions by California federal dis-
trict courts holding otherwise, and the post-Stanford clari-
fications of § 16600 law, we interpret that sentence to
reflect the fact that Holodniy’s relationship with Cetus was
not one of employment. It was a visitor relationship while
Holodniy was employed at Stanford, and it was part of an
overall relationship between the two institutions—Stan-
ford and Cetus. Those are not the employment-agreement
circumstances for which § 16600 prescribes a strict ap-
proach, as the California Supreme Court has recently con-
firmed; indeed, the Stanford circumstances are more akin
to the business-to-business dealings for which Ixchel holds
that § 16600 prescribes a much less strict approach. The
present case, in contrast, falls squarely under the strict em-
ployment-agreement standard.
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 21
Those aspects of Stanford made it unnecessary for this
court to resolve definitively whether the inventions at issue
were conceived while Holodniy was learning techniques at
Cetus or later. The district court in the case had ruled, on
summary judgment, that they were conceived while Holod-
niy was visiting Cetus. Bd. of Trustees of Leland Stanford
Junior Univ. v. Roche Molecular Sys., Inc., 487 F. Supp. 2d
1099, 1107–08, 1116–17 (N.D. Cal. 2007), aff’d, 583 F.3d
832 (Fed. Cir. 2009), aff’d, 563 U.S. 776 (2011). We did not
set aside that ruling or pronounce it correct or incorrect.
See Stanford, 583 F.3d at 842. We could decide the § 16600
issue in Stanford without deciding the timing of the con-
ception only because the case did not involve the circum-
stance—an employment agreement with an assignment
requirement having a significant restraining effect on a for-
mer employee—in which that issue is critical. For the rea-
sons already discussed, this case involves just such an
agreement, and Stanford does not undermine the conclu-
sion that the agreement here is invalid under § 16600.
C
Whitewater suggests that we should reach a different
conclusion about § 16600 because of § 2870(a). In particu-
lar, it says that § 2870(a) clearly approves an agreement
like the one at issue here and, therefore, the general statu-
tory prescription, § 16600, should be applied narrowly so
as not to override that clear approval of such an agreement
by the more specific statutory prescription, § 2870(a).
Whitewater Resp. Br. 33–35. This argument relies on the
duty to harmonize statutes, a well-recognized principle of
California law. See State Dep’t of Public Health v. Superior
Court, 342 P.3d 1217, 1225 (Cal. 2015) (“We have recently
emphasized the importance of harmonizing potentially in-
consistent statutes. ‘A court must, where reasonably pos-
sible, harmonize statutes, reconcile seeming
inconsistencies in them, and construe them to give force
and effect to all of their provisions. [Citations.] This rule
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22 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
applies although one of the statutes involved deals gener-
ally with a subject and another relates specifically to par-
ticular aspects of the subject.’ [Citation.]”) (internal
quotation marks omitted) (citing authorities).
We part company with Whitewater not over the harmo-
nization principle but over its application in this case. Spe-
cifically, we reject Whitewater’s premise that § 2870(a)
clearly covers, and through its exceptions clearly approves,
an agreement requiring assignment of post-employment
inventions. We conclude that § 2870(a) does not clearly
cover agreements requiring assignments of post-employ-
ment inventions. From that conclusion it follows that the
proper way to fulfill the duty to harmonize the two statu-
tory prescriptions is by reading § 2870(a) not to override
what we think is a clear application of § 16600 (rather
than, as Whitewater argues, reading § 16600 narrowly to
avoid overriding § 2870).
To begin with, the exceptions in § 2870(a) cannot be
broader in scope than the restriction to which they are ex-
ceptions. The subsection states a restriction, followed by
exceptions. It states that certain provisions of employment
agreements “shall not apply” to certain inventions, “except
for” certain inventions that meet any of several criteria.
The “except for” structure means that the exceptions are
necessarily a subset of the initial scope of the restriction.
The key question, then, is whether the restriction reaches
agreements to assign post-employment inventions.
Whitewater has not cited, and the district court did not
cite, any cases that apply § 2870(a) to a post-employment
invention. 5 We must consider the statute without the aid
5 The only case cited by the district court, Cadence
Design, involved an assignment requirement for an inven-
tion conceived during employment. 2007 WL 3343085,
at *4. The contractual provision also declared expressly
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 23
of any on-point case law. We conclude that § 2870(a) does
not support Whitewater’s premise. To the contrary, it is at
least a fair reading of § 2870(a)—and given the duty to har-
monize it with § 16600, we think it is ultimately a neces-
sary reading—that it simply does not apply to post-
employment inventions, much less affirmatively authorize
all agreements that require assignment of post-employ-
ment inventions as long as they meet the “except for” crite-
ria, regardless of other characteristics, such as the absence
of any temporal limit on the contractual assignment duty.
The opening clause of § 2870(a) defines the subsection’s
outer limits—before exceptions are stated that narrow the
scope within those limits—by confining its scope to a “pro-
vision 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.” It is only
such a provision that the subsection restricts—declaring
that it “shall not apply to an invention that the employee
developed on his or her own time without using the em-
ployer’s equipment, supplies, facilities, or trade secret in-
formation.” It then creates an exception to that restriction
in two circumstances—namely, for “inventions that either
“(1) [r]elate at the time of conception or reduction to prac-
tice of the invention to the employer’s business, or actual
or demonstrably anticipated research or development of
the employer” or “(2) [r]esult from any work performed by
the employee for the employer.” 6
that it did not reach beyond what § 2870 approved. Id. at
*5 (relying on that declaration to find the provision con-
sistent with § 2870).
6 Subsection (b) then declares unenforceable any
provision in an employment agreement to the extent the
provision “purports to require an employee to assign an
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24 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
Various features of the language of § 2870(a) at least
suggest that it is referring only to inventions made by a
person who, at the time of the making of the inventions,
was an employee of the employer. 7 The subsection refers
to “employees” and “employers,” and it never refers either
to “former employees” or “former employers” or to a post-
employment period. In its wording and structure, it is nat-
urally understood to be addressing only an employer’s de-
fault right to insist on assignments from its employees of
inventions they make while they are employees, and then
narrowing that right so as to benefit employees. Nothing
in the statutory language positively indicates, let alone re-
quires the conclusion, that the California Legislature, in
§ 2870, was addressing requirements to assign post-em-
ployment inventions—which present what have long been
recognized as presenting significant additional policy con-
cerns, over and above those presented by assignment re-
quirements for inventions made during employment. See
Guth, 72 F.2d at 387–89 (1934 decision noting case-law
recognition of distinction). Nor has Whitewater cited any
legislative history suggesting that the California Legisla-
ture was doing so.
The subsection states that its subject is a “provision”
that requires “an employee” to make certain assignments.
It then declares that such a provision “shall not apply” to a
group (to be further limited in the exceptions) of inventions
which the “employee developed entirely on his or her own
time without using the employer’s equipment, supplies, fa-
cilities, or trade secret information.” That initial definition
of the employee protection suggests a presupposition of
invention otherwise excluded from being required to be as-
signed under subdivision (a).”
7 That reading does not preclude a breach of the duty
to assign during employment from being remedied post-
employment.
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 25
current employee status because the definition focuses pre-
cisely on excluding use of employer resources (temporal,
physical, or informational) to which current employees
commonly have ready access. Section 2870(a) proceeds to
further define which among such own-time/own-resources
inventions of an employee the employer can still claim
through mandated assignment—those which “relate at the
time of conception or reduction to practice” to certain cur-
rent or sufficiently anticipated activities of the employer,
and those which “result from” any work of the employee for
the employer. Neither exception contains any pointer to-
ward post-employment inventions, and such a temporal ex-
tension (with no further temporal limit) would raise
obvious issues. If such inventions were covered, the excep-
tions would, by their terms, seem to expand as the former
employer’s activities change over time (indefinitely into the
future) and call for ever-less-certain determinations of the
causal connection (“result from”) back to work during em-
ployment. 8
For such reasons, we think that § 2870(a)’s own terms
suggest that it is sensibly, perhaps even best, understood
to be restricted in its reach to inventions conceived during
employment. That understanding, moreover, fits well with
neighboring § 2871. That section authorizes employers to
require employees to disclose “all of the employee’s inven-
tions made . . . during the term of his or her employment.”
Cal. Lab. Code § 2871. Although Whitewater contrasts the
temporal language in § 2871 with the absence of similar
words in § 2870, the language is just as easily understood
8Section 2870 is part of California Labor Code Article
3.5, which is titled “Inventions Made by an Employee.”
That title tends to reinforce—and does not run counter to—
what is already suggested by the language of the sections
within Article 3.5.
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26 WHITEWATER WEST INDUSTRIES v. ALLESHOUSE
as making explicit what is already implicit in § 2870, form-
ing a coherent whole.
We conclude that, at a minimum, § 2870(a) is nowhere
close to clear in applying to post-employment inventions.
No case law supports such an interpretation. Moreover, to
read it as applying to such inventions, and authorizing
temporally unlimited assignment requirements through
its exceptions, would produce a conflict with what we think
is otherwise the clear prohibition of § 16600 on agreements
like the one at issue here. In these circumstances, the duty
to harmonize statutes requires reading § 2870(a) not to ap-
ply to post-employment inventions. 9
***
For the foregoing reasons, the assignment provision is
invalid under § 16600. Accordingly, we reverse the district
court’s decision that Mr. Alleshouse breached his contract
by failing to assign each of the ’685, ’189, and ’433 patents
to Whitewater.
III
The district court entered judgment in Whitewater’s fa-
vor not only on the contract claim but also on Whitewater’s
claim for correction of inventorship on the three patents at
issue under 35 U.S.C. § 256. Whitewater does not dispute
that its interest in correcting inventorship under § 256 de-
pends, in this case, on its acquisition of an ownership in-
terest in the patents based on the assignment provision on
which its contract claim rests. Because the assignment
provision is invalid, Whitewater’s claim under § 256
9 We need not address the defendants’ argument
that the Agreement’s assignment provision in this case,
with its “in any way connected to” and “suggested by” lan-
guage, extends beyond the exceptions stated in § 2870(a).
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WHITEWATER WEST INDUSTRIES v. ALLESHOUSE 27
necessarily fails. On that basis, we reverse the judgment
on the inventorship claim.
IV
The judgment of the district court is reversed. Judg-
ment shall be entered in favor of the defendants.
Costs are awarded to the defendants.
REVERSED