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Caputo v. Nice-Pak Products, Inc.

300 N.J. Super. 498, 693 A.2d 494 (App. Div. 1997)

PATENTS; SHOP RULE; ASSIGNMENTS—The “shop rule” precludes a consultant from claiming a patent royalty for an invention devised within the scope of his engagement and created with substantial assistance from the client. Consultant’s claim the language in the assignment reading, “and other good and valuable consideration,” that he was to get a royalty fell on the court’s deaf ears.

An employer told his consultant that the consultant would receive a royalty of 10% of the gross sales of a product embodying a process he had invented. The consultant then signed a written assignment in favor of the employer for a recited consideration of $1.00. The consultant filed suit for unjust enrichment and recovery of patent royalties based on the oral promise to compensate him for the assignment. The employer received a directed verdict and the consultant appealed. The consultant claimed that the assignment implicitly included the 10% royalty he was promised by use of language which stated, “...and other good and valuable consideration, the receipt of which is hereby acknowledged.” The company denied ever promising a 10% royalty.

The Appellate Division found that after he had executed the assignment, the consultant neither sought enforcement of the oral promise, nor mentioned it to anyone, except in response to employer’s summary judgment motion. He did not assert the existence of the promise when communicating with the company prior to filing suit, in the complaint itself, or in later settlement negotiations. Accordingly, the Court found no basis for the breach of contract claim. The Court also dismissed the unjust enrichment claim, upholding the motion judge’s ruling based on the “shop right” rule, which holds that when a consultant invents something he was hired to invent, the employer retains the right to use the invention without paying additional compensation to the consultant. The Court found the “shop right” rule applicable not only because the process the consultant invented was the result of his employment, but also because he did his work with substantial assistance from the company. [Note: Certification has been denied.]


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