On September 15, New York Governor Kathy Hochul signed New York Senate Bill S5640 (S5640) into law. S5640 contains a new section 203-f, which imposes limitations on the use of invention assignment clauses in employment agreements in New York. With S5640 taking effect immediately upon signing, it is prudent for employers to consider the impact that this new law may have on their IP portfolios.
Impact of S5640
A standard form employment agreement typically requires an employee to assign to their employer all inventions created during the course of their employment. These assignments have generally been interpreted broadly in favor of the employer. However, as a result of S5640, provisions of an employment agreement that deem a New York-based employee to have assigned inventions made on the employee's own time, and without using the employer's equipment, supplies, facilities, or trade secret information, are unenforceable, with some exceptions. The foregoing restriction does not apply to inventions (1) that relate to the employer's business or actual or reasonably anticipated research or development or (2) resulting from work performed by the employee for the employer.
Action items for employers
Employers may find themselves with non-compliant form employment
agreements as a result of S5640.
As a first step, employers may consider reviewing the invention
assignment provisions contained in their existing agreements and
forms, so that they do not enter into non-compliant agreements
going forward. This may start as a New York-specific review, but
employers with employees in multiple states should consider
carrying out the same review for each applicable jurisdiction, as
similar laws have been enacted in other states. To the extent any
invention assignment provision is overreaching, by purporting to
assign inventions in contravention of S5640 or similar law(s), it
may be found to be unenforceable. Such a finding could be
detrimental to the ownership of a business's IP assets and,
ultimately, its valuation.
In addition to ensuring compliance with various state laws,
employers may want to perform a holistic review of their policies,
including considering whether any remedial steps can be taken to
clarify the scope of their rights with respect to employee-created
IP. This may include expanding existing IP provisions in employment
agreements to reduce uncertainty relating to IP ownership. For
example, if they do not already, employers may consider requiring
employees to disclose all prior inventions at the time they enter
into the employment agreement and to proactively disclose to their
employer any inventions they may create during the course of their
employment on their own time and without the use of the
employer's resources. Employers may also consider whether it is
appropriate to incorporate a license grant from the employee to the
employer for any separately owned employee IP to the extent the
employee incorporates such IP into inventions they create for the
employer.
Other states
New York is not alone in taking a hard line against over-reaching invention assignments. Other states, including California, Illinois, and New Jersey, have enacted similar invention assignment laws, which prevent employers from requiring employees to assign inventions made outside of working hours and without the use of employer resources. Some states, including Kansas and Minnesota, have adopted stricter laws, which impose additional notice obligations on the employer to make the employee aware of any invention assignment provisions contained in the employment agreement in advance. S5640 does not presently contain any such notice requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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