Employee-Created Intellectual Property: Protecting Employer Ownership

Highlights

• HR is essential in ensuring employer ownership of intellectual property through carefully crafted employee agreements.
• Strong confidentiality agreements and regular training are key to protecting trade secrets and sensitive information.
• Effective IP management involves not just securing new hires but also carefully managing departing employees.

The rules governing the ownership of employee-created intellectual property are simple once you know them. A company's human resources (HR) team is often in the best position to make sure these rules are followed so that the company owns all of the intellectual property it pays its employees to create.

Generally, employees own the inventions they make while employed, except where the employee was specifically hired or is later assigned the duty of making the particular invention, or where the employee has expressly agreed (preferably in writing) to assign the invention to the employer.

The same rules apply to employee inventions and developments that the employer decides to treat as trade secrets, although the employer should have a confidentiality agreement in place with the employee.

Copyrightable works of authorship made by employees in the scope of their employment belong to the employer – and, in fact, the employer is considered the author of those works. However, employee works made outside the scope of their employment, on their own initiative and on their own time, belong to the employee, so the employer should address this possibility in a written agreement with the employee.

Because trademark rights are established by use, trademarks created by an employee belong to the employer that uses them.

Drafting Employee Agreements

An employee agreement needs to address ownership of innovations. Ideally, it will:

• Require prompt disclosure of innovations.
• Require assignment of innovations to the employer.
• Comply with applicable employee-inventor laws. ¹
• Require the employee to execute additional documents.
• Provide a solution if the employee is unwilling or unable to sign additional documents.
• Authorize the company to file applications on the employee's invention.
• Prohibit the employee from challenging patents issued on the employee's invention.

An employee also needs to protect the confidentiality of the employer's information. This is important not only to prevent employee disclosures but also to demonstrate that the employer has taken reasonable steps under its confidential information – a critical element of a trade secret misappropriation claim. Thus, the agreement ideally will:

• Include a confidentiality agreement identifying the information covered.
• Be consistent with the Defend Trade Secrets Act (including the employee whistleblower notification).
• Require return of the employer's property and information.

Generally, the agreement should protect the employer and facilitate enforcement of the agreement. The agreement should:

• Not guarantee employment for a specific term.
• Restrict solicitation of other employees.
• Require the employee to disclose subsequent employers.
• Restrict use of the employer's computers, computer systems and networks, and data.
• Authorize monitoring of the employee (as permitted by state law).
• Restrict use of the company email.
• Restrict references to the company's name and products on social media without permission.
• Contain a choice-of-law clause selecting the law that governs the agreement.
• Contain a choice-of-venue clause selecting the place where any related litigation will occur.
• Address prior inventions by the employee.
• Address agreements the employee may have made with previous employers.
• Address the ability to get a court order to enforce the agreement.
• Include an integration clause that prevents the employee from contradicting the terms or adding additional terms from prior agreements.

Special Attention to Confidential Information

An important part of every trade secret case is demonstrating to the court that the owner has taken reasonable steps under the circumstances to protect the confidentiality of the trade secret. Basic security measures, employee education and, of course, employee confidentiality agreements are crucial to proving the existence of a trade secret, particularly since most trade secret disputes involve former employees.

Periodic reminders in the form of posters, written warnings and training sessions can help ensure that employees appreciate the protected status of the information to which they have access.

An exit interview gives an employer one last chance to remind a departing employee of the continuing obligation to protect the employer's confidential information.

Addressing Confidentiality with a Remote Workforce

A remote workforce presents many challenges to employers, not the least of which is the protection of the employer's confidential information. Remotely working employees may not appreciate the vulnerability of confidential information they handle. Improperly disposing of documents, leaving computers and cell phones unattended, and taking telephone calls in front of others all put confidential information in jeopardy.

Employers should implement policies that:

• Require employees to secure documents containing confidential information and properly dispose of them when they are no longer needed.
• Restrict employees from putting employer confidential information on their personal devices.
• Require employees to ensure that their telephone communications (including Teams and Zoom meetings) are secure.

In addition, employers should password-protect key documents and monitor remote workers' document downloads.

Preparing for Transactions

An employee agreement is critical to ensuring that an employer owns the intellectual property created by the workforce it employs, and to protecting the employer's confidential information, including that of the employer's suppliers and customers. Human resources staff should maintain signed copies of these critical agreements in a secure location, and should periodically review them for changes in circumstance, including the employee's status and changes in the law.

Several years ago, the Defend Trade Secrets Act extended federal protection to trade secrets but required specific language in employee agreements that protect whistleblowers who disclose secrets while reporting allegations to authorities. ²An ever-increasing number of states also are enacting employee-invention laws that should be accounted for.

Finally, the Federal Trade Commission and many states are imposing limitations on non-compete agreements, which should also be taken into account.

The employer should organize employee agreements, invention assignments and other relevant documents to be ready for due diligence investigations relating to financing or transactions. It is much easier to correct defects while the parties are still employed than after they have departed.

Dealing with a Fluid Workforce

A fluid workforce is a business reality that must be addressed. A business must be sure that new employees do not have obligations to previous employers or other parties that would bar or interfere with their new employee's work.

The business must also make sure that new employees are instructed not to use any of their previous employers' confidential information. Whenever a business considers hiring a competitor's employee, it should conduct a thorough risk-benefit analysis to reduce the likelihood of complications with the former employer.

When a current employee departs, the employer should:

• Recover all company equipment, documents and confidential information.
• Hold an exit interview to ensure that all information and equipment have been recovered and remind the departing employee about their continuing obligations to the business.
• Contact the new employer solely to make them aware of the departing employee's continuing obligations (although be aware that this can result in a tortious interference claim that the employer improperly interfered with its ex-employee's new employment).

It is very important that management take the high road with conduct beyond reproach. This can be difficult because a departing employee's manager may feel betrayed and be tempted to act vindictively. However, even entirely legal actions that appear to be harsh can make the employer appear to be the wrongdoer. Court cases over employer-employee relationships are very much about who appears to be the "good guy," and the best thing the employer can do is act reasonably and avoid any action that would appear underhanded to a judge or jury, even if the employer is within its rights to take such action – just because you can doesn't always mean that you should.

Conclusion

The HR department's responsibility for the protection of its company's intellectual property starts with a good employee agreement that ensures that the employer owns the intellectual property that it pays its employees to create. Careful organization of agreements and assignments keeps the business ready to enforce its rights or use those rights in business transactions. A set of intellectual property policies and regular employee training ensure that employees remain on mission. Finally, due diligence with new hires and an established exit interview process protects the business as employees come and go.

Footnotes

1. California, Delaware, Illinois, Kansas, Minnesota, Nevada. North Carolina, Utah, and Washington have such statutes, and employers operating in these states or having employees in these states should take those statutes into account.

2. "Pursuant to 18 USC § 1833(b), an individual may not be held criminally or civilly liable under any federal or state trade secret law for disclosure of a trade secret: (i) made in confidence to a government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law; and/or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Additionally, an individual suing an employer for retaliation based on the reporting of a suspected violation of law may disclose a trade secret to his or her attorney and use the trade secret information in the court proceeding, so long as any document containing the trade secret is filed under seal and the individual does not disclose the trade secret except pursuant to court order."

Originally Published by HR.com

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.