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Khalid v. Microsoft Corp.

United States District Court, W.D. Washington, Seattle

September 4, 2019

ATM SHAFIQUL KHALID, an individual and on behalf of similarly situated, XENCARE SOFTWARE, INC., Plaintiff,
v.
MICROSOFT CORP., a Washington Corporation, and JOHN DOE n, Defendants.

          ORDER GRANTING DEFENDANT MICROSOFT CORPORATION'S MOTION TO DISMISS

          RICARDO S. MARTINEZ CHIEF UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         This matter comes before the Court on Defendant Microsoft Corporation (“Microsoft”)'s Motion to Dismiss Plaintiff ATM Shafiqul Khalid's amended complaint for failure to state a claim. Dkt. #14. Plaintiff opposes the motion in entirety. Dkt. #17. The Court finds oral argument unnecessary to resolve the underlying issues. Having reviewed Defendant's Motion, Plaintiff's Response, Defendant's Reply, and the remainder of the record, the Court GRANTS Defendant's Motion to Dismiss with leave to amend certain claims as set forth below.

         II. BACKGROUND

         On December 16, 2011, Plaintiff received a job offer from Microsoft as a Senior Program Manager in its Bing division. Dkt. #7 at ¶ 13. Upon accepting the position, Plaintiff was required by Microsoft recruiter Shannon Carlsen to sign a Microsoft Employee Agreement (the “Employee Agreement”) which included a provision under Section 5 regarding assignment of certain intellectual property rights:

5. Inventions.
I will promptly and fully disclose to MICROSOFT any and all inventions . . . whether or not patentable (collectively “Inventions”) that I solely or jointly may conceive, develop, reduce to practice or otherwise produce during my employment with MICROSOFT, including those Inventions I contend that MICROSOFT does not own. Subject to the NOTICE below, I agree to grant and I hereby grant, transfer and assign to MICROSOFT or its designee all my rights, title and interest in and to such Inventions. . . .
NOTICE:
My obligation to assign shall not apply to any Invention that I can establish:
a) was developed entirely on my own time without using any equipment, supplies, facilities, or trade secret information owned or supplied to me by Microsoft;
b) does not relate (i) directly to the business of MICROSOFT or (ii) to the actual or demonstrably anticipated research or development of MICROSOFT; and
c) does not result, in whole or in part, from any work performed by me for MICROSOFT.
. . . . In addition to the rights provided to MICROSOFT under paragraph 6 below, as to any Invention complying with 5(a)-(c) above that results in any product, service or development with potential commercial application, MICROSOFT shall be given the right of first refusal to obtain exclusive rights to the Invention and such product, service or development . . . .

Dkt. #7-1 at 2-3. Section 6 of the Employee Agreement asked Plaintiff to attach a list “describing all Inventions belonging to me and made by me prior to my employment with MICROSOFT that I wish to have excluded from this Agreement. If no such list is attached, I represent that there are no such Inventions.” Id. at 3. The Employment Agreement further noted on its first page: “If you wish to attach a list of inventions, per paragraph 6, below, please contact your recruiter.” Id. at 2.

         On December 19, 2011, Plaintiff accepted Microsoft's employment offer and signed the Employment Agreement. Dkt. #7 at ¶ 16. Plaintiff claims that because there was no way to attach a list of inventions to the online agreement pursuant to Section 6, he sent a separate email to Ms. Carlsen attaching an invention exclusion list (the “Exclusion List”) denoting nine patentable items. Id. at ¶¶ 13, 16, 18. This Exclusion List included inventions for a mini-cloud subscription service (“the Mini Cloud”) and a framework to protect computer systems from viruses and spyware (“the Safe and Secure”) that he had filed prior to starting work at Microsoft. Id. at ¶¶ 18-19. At his Microsoft employee orientation program in January 2012, Plaintiff claims he signed a hard copy of the Employee Agreement, submitted his Exclusion List for the second time and noted by hand in the hard copy Employee Agreement that he submitted additional pages. Id. at ¶ 17.

         Plaintiff worked at Microsoft from January 9, 2012 until February 2015. Id. at ¶¶ 17, 21. Plaintiff claims that during his employment, the United States Patent and Trademark Office issued patents for the Mini Cloud (patent number 8, 782, 637) and the Safe and Secure (patent number 8, 286, 219) on July 15, 2014 and October 9, 2012, respectively. Id. at ¶¶, 19, 28. Plaintiff further claims that during his employment, he met with various Microsoft executives who declined Plaintiff's proposals for business models based on his invention ideas. Id. at ¶¶ 32-37. In early February 2015, Microsoft terminated Plaintiff's employment. Id. at ¶ 38.

         On February 19, 2015, Microsoft's in-house counsel notified Plaintiff that he had not listed any inventions under Section 6 of the Employment Agreement. Id. at ¶ 40-41. For that reason, in-house counsel stated, Microsoft retained an assignment right in the patents for the Mini Cloud and the Safe and Secure. Plaintiff claims that Microsoft continued to deny receipt of his Exclusion List, despite Plaintiff's requests to various employees for hard copies of his signed Employee Agreement. Id. at ¶¶ 42-45. On July 9, 2015, in response to Plaintiff's correspondence regarding his Mini Cloud and Safe and Secure patents, in-house counsel for Microsoft allegedly offered to put together an agreement if Plaintiff “agreed to give Microsoft royalty free access to all present and future patents related to the Mini-cloud systems in exchange for resolving all disputes.” Id. at ¶ 46. Plaintiff claims he declined this offer.

         On May 27, 2016, Plaintiff received a letter from Microsoft's outside counsel re-stating Microsoft's position that Plaintiff had granted Microsoft a “royalty-free license, irrevocable, worldwide license” to those inventions. Id. at ¶ 49 (quoting Dkt. #7-7 at 4). Outside counsel offered to transfer to Plaintiff all of Microsoft's ownership interest in the Safe and Secure and Mini Cloud patent families in exchange for his granting Microsoft a non-exclusive, royalty-free license to the disputed patent families and fully releasing Microsoft from all claims and liability. Dkt. #7-7 at 4.

         On January 28, 2019, Plaintiff filed this action against Microsoft. Dkt. #1. In addition to alleging fraud in his particular case, Plaintiff seeks to challenge the general legality of Microsoft's Employee Agreement on behalf of all Microsoft employees who signed similar agreements with Microsoft. Under Plaintiff's theory, Microsoft obtains an employee's patent rights through an overly-broad patent rights assignment provision under Section 5. Dkt. #7 at ¶ 65-67. When the employee leaves Microsoft, Plaintiff claims that Microsoft then disregards or destroys their exclusion list submitted under Section 6, thereby “contaminating” the employee's patent and requiring the employee to invest tremendous financial resources to clear their patent right through court. Id. at ¶¶ 71-72. As a result, Microsoft employees-who cannot afford to litigate Microsoft, nor want to abandon their patent work-hand over their patent rights from the time they sign their employment agreements yet continue working to develop their patents. Id. at ¶¶ 75, 85-89. Plaintiff claims that Microsoft's scheme specifically violates laws under antitrust, forced labor, racketeering, civil rights, and fraud. Id. at ¶ 64.

         III. DISCUSSION

         A. Relevant Legal Standards

         1. Motion to Dismiss

         In making a 12(b)(6) assessment, the court accepts all facts alleged in the complaint as true and makes all inferences in the light most favorable to the non-moving party. Baker v. Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (internal citations omitted). However, the court is not required to accept as true a “legal conclusion couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. at 678. This requirement is met when the plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The complaint need not include detailed allegations, but it must ...


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