In Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment (Shanghai) Co., No. C 07-05248 JW, 2009 WL 1481147 (N.D. Cal. May 20, 2009), the Northern District of California held that Applied Materials’ use of inventions agreements constituted unfair business practices under California law. Applied Materials, a California-based semiconductor company, brought claims for trade secret misappropriation and unfair competition against Advanced Micro-Fabrication Equipment, a start-up competitor. In the action, Applied Materials asserted that a number of its former employees had moved to AMEC and conceived inventions that belonged to Applied Materials pursuant to assignment clauses in the former employees’ employment agreements. The clauses stated as follows:

In case any invention is described in a patent application or is disclosed to third parties by me within one (1) year after terminating my employment with APPLIED, it is to be presumed that the invention was conceived or made during the period of my employment for APPLIED, and the invention will be assigned to APPLIED as provided by this Agreement, provided it relates to my work with APPLIED or any of its subsidiaries.

AMEC brought counterclaims for declaratory judgment and unfair competition, arguing that the assignment clauses are unenforceable non-compete agreements under California Business & Professions Code § 16600. AMEC then moved for summary judgment on its counterclaims.

The Northern District of California granted AMEC’s motion for summary judgment. Applied Materials argued that the assignment clauses merely created a rebuttable presumption that it owns its former employees inventions conceived in the first year after the end of their employment. The District Court rejected this interpretation, holding that the clauses plainly state that all such inventions “will be assigned” to Applied Materials. The district court further noted that the clauses state neither that an employee can rebut the presumption nor how an employee would do so.

The District Court went on to hold that the assignment clauses were unenforceable under California law for two reasons. First, the clauses are not limited to inventions using Applied Materials’ confidential information. Second, the clauses were not limited to inventions conceived by former Applied Materials employees while they were employed at Applied Materials, but instead extended to inventions conceived up to a full year after the end of employment.

Once the Court found that the assignment clauses were unenforceable, it therefore followed that it would grant AMEC’s claim for declaratory judgment. It also granted AMEC’s claim for unfair competition. The California Court of Appeal has held that the use of non-compete provisions that violate section 16600 of the Business & Professions Code constitutes an unlawful business practice under section 17200 of the Code. Thus, the Court held that Applied Materials’ use of the assignment clauses were unfair business practices as a matter of California law.