Insights

Employee-Employer IP Ownership Rights

Many companies operate under the belief that the employer automatically owns inventions made by employees or contractors during the course of their employment, but the rules are more complicated and there are several factors that will effect ownership. In this episode, Cecilia Vega and Lyndsey Kruzer discuss the complexities of ownership rights over inventions, trade secrets and the work product by employees and independent contractors who are working on behalf of a company or organization.

In this episode, Cecilia Vega and Lyndsey Kruzer discuss the complexities of ownership rights over inventions, trade secrets and the work product by employees and independent contractors who are working on behalf of a company or organization.


Transcript

Welcome to the Choate Business Insights Podcast. On this show we deliver compelling perspectives on trending topics at the intersection of business and law. Each episode provides a discussion with Choate attorneys on the important issues that matter most to our clients. 

Cecilia Vega: Hello everyone, in this podcast we’re going to be talking about who owns the work product, trade secrets and inventions made by employees and independent contractors when they work for an organization. I’m Cecilia Vega, a Choate partner in intellectual property licensing and strategic transactions, and I’m joined by Lyndsey Kruzer, a principal at Choate, who specializes in labor and employment. We plan to discuss who owns intellectual property or “IP” made by contractors and employees in the workplace including: (1.) what kinds of protections should an employer put in place if it wants to own that work product, (2.) what are the risks of failing to plan for ownership issues, and (3.) under what circumstances do employees or consultants own their innovations. Many companies operate under the belief that the employer will automatically own inventions made by employees or contractors during the course of their employment, but the rules are more complicated and there are several factors that will effect ownership. Lindsey do you think there are steps that employers can take to protect themselves against inadvertent loss of work product from employees and contractors?

Lyndsey Kruzer: Yes, definitely, as you mentioned, I’m a principal in the Litigation Department, and I focus on labor and employment, so I see these types of questions and situations frequently. It’s really important for most employers to spend time thinking about and then documenting that they will own future work product or inventions. In order to protect the company, it is extremely important for the employer to have a written agreement with employees who are likely to invent or to create works or develop trade secrets for the company. The agreement should specifically assign future intellectual property created by that employee to the company. Sometimes such agreements are called invention assignment agreements, although we see them with a wide variety of different names. Even if there is no such agreement, the employer may have ownership rights in employee-created IP anyway, but it’s far easier and more prudent to have a system of requiring a written agreement dating from the time the employee or contractor is first hired or engaged; and the agreement document itself will be evidence of the intent of both parties with respect to IP ownership. The agreement must be supported by consideration or some payment. If the signed agreement is a requirement of starting work with the company, the offer of new employment is typically the consideration. In most states, continued employment is also sufficient consideration for these agreements. In some instances, though, some payment of more than a nominal amount may be required or prudent to insure sufficient consideration for the employee to enter into an invention assignment agreement after the employee has already started working with that employer. 

CV: I agree Lyndsey. Having a policy to require each new employee or contractor to sign a written invention assignment agreement can help an employer make sure that the employee or contractor are on the same page as the employer about the future innovations. These written agreements can cover different types of work products such as trade secrets, inventions, copyrightable works, software and other kinds of innovations, all of which may be IP. Regardless of when the employee signs the agreement, it should include an attached schedule that lists all the IP that the employee or contractor believes he owns before coming to the company. This would be a list of all that the employee believes they already own before they start the job and it can help the company sort out and prevent later claims of conflicting IP ownership. It’s also important that a knowledgeable company employee, such as the employee’s manager, vet the attached schedule. In other words, that person should review the items on the schedule that the employee listed and make sure that the employee and the company agree on the contents. The agreement itself should say that if nothing is listed on that schedule, that means the employee doesn’t own any such IP. It’s also critical that each employee invention assignment agreement have present assignment language to ensure that the agreement itself results in obligation to assign. Present assignment language is language that says: the employee hereby assigns its rights in the IP it will create and it isn’t for example, nearly an agreement to assign rights in the future. So even though the IP doesn’t exist yet because hopefully the employee is signing it on the first day of work, the obligation to assign should be a present obligation and take effect as soon as the invention assignment agreement is signed. What else do you think a good invention assignment agreement should include Lyndsey?

LK: Those are all really great points. In addition, the invention assignment agreement should also have provisions that specify the remedies and relief, such as an injunction or attorneys’ fees that would be available if the employee or contractor breaches his or her obligations under the agreement. The agreement should also obligate the contractor or employee to assist with paperwork or take other steps necessary for the company to obtain legal rights in patents, copyrights or other IP that the employee/contractor may create in the course of their work for the company. There are also important state law considerations that apply. Many invention assignment provisions with employees are included within a general employment agreement or other type of restrictive covenant agreement that a new employee is expected to sign. In that general agreement, the employee or contractor may, for example, undertake obligations to protect proprietary or confidential information of the employer, to return company property when departing from the company, and to provide assistance to vest legal title in the company for any patents, copyrights or other IP that the employee creates. Sometimes, a non-solicitation or non-competition agreement is included as part of the contract the employee is asked to sign. In each case, the employer should make sure that the overall agreement complies with state law. In some states, for example, the employer must include affirmative language that IP created by the employee entirely on his or her own time, without use of any company property, belongs to the employee. Other states do not recognize non-competition provisions except in really limited circumstances. While the inclusion of a void provision loan is likely not fatal to the agreement with the employee especially with respect to assignment, it is best to provide an agreement that is enforceable in all aspects. There are also several key considerations employers should keep in mind in securing ownership of the innovations of workers who are independent contractors rather than employees. The contractor versus employee is an important distinction because different rules can apply to persons who work at, but are not employed by, the company. Therefore, having a written agreement covering IP ownership is even more important in any agreement with a person who is not an employee, who may invent for the company, and an independent contractor will generally own what he or she conceives of in the absence of a written agreement specifically transferring ownership to the company. The written agreement with a contractor should describe which copyrighted works, innovations, or other IP will be owned by the company and it should delineate IP that the contractor brings to the engagement, if any. Cecelia, are there other areas that you think should be covered in a written agreement with an independent contractor?

CV: Thanks Lyndsey. Yes, I think that an agreement with a contractor should also have present assignment language and it should obligate the contractor to assist with paperwork for the company to perfect the legal rights in patents, copyrights and so forth for all the IP assets that it will be contributing, and it should provide a section listing the remedies of relief if the contractor breaches the obligation. Pretty much the same as it would be for an employee. However, there’s another type of work product that’s often referenced in invention assignment agreements and that’s “works made for hire.” First a bit of background, a “work made for hire,” applies to some copyrighted works. A copyrighted work is an original work of authorship in a fixed form. It could be a manuscript, sound recording, software program or the like. The general rule is that the author of a copyrighted work is the owner of the work, but “works made for hire” are limited exceptions to that rule: the copyrighted work author is the owner. So, “works made for hire” can be applied in a couple of ways. First, it could be either a work prepared by an employee within the scope of his or her employment or it could be a work made by a contractor who was commissioned by the company. If it’s a work made by an employee, it can be a copyrighted work prepared by the employee, but has to be within the scope of their employment. If it’s a commissioned work from a contractor, it must fall within nine fairly narrow categories of copyright, and even the copyright office has acknowledged that determining whether something is a “work made for hire” can be a bit tricky. In part that’s because the meaning of employee in that context of “work made for hire” can be somewhat different than the typical usage and it relies on agency law. Importantly, if the work is made by someone who is an independent contractor, it must fall within the nine enumerated categories and there must be a written agreement between the employer and the contractor specifying that the work is a “work made for hire.” Finally, it’s important to keep in mind that “work made for hire” applies to copyrightable works only. It doesn’t cover, for example, other kinds of IP such as patented inventions. The complications of the “work made for hire” doctrine, I think, demonstrate why the best practice is to have a written agreement with employees and contractors. The best approach is for the invention assignment agreement to say explicitly that any employee or contractor invention is a “work made for hire” and if not deemed a “work made for hire,” the employee or contractor hereby assigns the work exclusively to the company for no additional consideration. Lyndsay are there any last thoughts that employers should keep in mind about employee or contractor rights to innovations in the workplace?

LK: Thank you Cecilia. Yes, it’s important to keep in mind that state law will come into play regarding the scope of an employee’s right to retain ownership of ideas that he or she conceived of at home or during non-working hours using personal resources and not company resources.  Usually, the analysis requires careful consideration of what the employee was hired to do and the nature of his or her invention in relation to work scope. It may also include considering whether the employee used company resources to work on or even to test the invention. All of this analysis should be done with the knowledge of the state’s position on employee ownership of inventions which can vary considerably from state to state. In addition, I can’t underscore enough the importance of thinking broadly about which employees or contractors should sign these types of agreements, and also to ensure that the agreements, especially pertaining to assignment, are actually signed by each employee or contractor. On that note, I would like to thank you Cecilia for joining me today to discuss this interesting topic, and also thank you to our audience for listening.

CV:  Thank you everyone.

The information presented in this recording is for educational purposes only, it does not constitute legal advice for a specific situation.  If you wish to obtain legal advice, you should retain an attorney and explain the facts of your particular situation.