Intellectual Property in Employment Agreements

One of your employees has developed a new method that substantially improves the efficiency of a process your company uses to manufacture one of its product lines. You want to file a patent application to cover the new method, but the employee refuses to cooperate and says that the invention belongs to him, not the company. Or, worse yet, the employee leaves the company and moves to your competitor. Shortly after commencing employment there, the competitor implements the improved method as well. So, who actually owns the intellectual property developed by an employee and how can a company protect itself from costly lawsuits or settlements regarding this issue?

Employment Agreements

For a company with substantial intellectual property in hand and under development, it is important to have employment agreements for new employees that include clauses for dealing with intellectual property rights.

When hiring new employees, be certain to have IP disclosure and assignment clauses in employment agreements for all employees. These clauses should require the new employee to promptly disclose new inventions or other intellectual property to the employer upon conception and to assign such inventions to the employer at that time. Be certain that the agreement is clear that the employee has an obligation to assign new inventions to the new employer as a part of the employment and that the employee has a duty to assist with the patenting process for such inventions.

Employment Agreements Should be Signed at the Start of Employment

Have all new employees sign such agreements prior to employment or at least on the first day. Some states may require additional consideration once employment has already commenced for such clauses to be valid. In those states, in order for the later signed agreements to be valid, the employer must provide a raise, bonus, or something else of value to the employee. Many companies do provide bonuses as incentives to produce patentable inventions, but these are not requirements for the validity of the employment agreement.

Use Common Legal Language in Employment Agreements

When preparing employment agreements, keep in mind that certain words have specific definitions or understandings in patent law.  For example, ambiguity could arise as to whether the employee would “conceive” and “make” an invention.  Try to stick with the definitions that are common to patent law.  “Conception” refers to “formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is thereafter to be applied to practice.” This is more than just a vague idea of an invention, as it requires definite plans for how to implement the invention. “Make” or “reduction to practice” refers to the act of actually making the invention work for its intended purpose.

Inventions Made Prior to Employment

Next, to avoid a dispute as to whether the invention was developed prior to employment, when executing the agreement, give the new employee the opportunity to indicate that he developed the invention prior to commencing employment. Require that he prove this development by providing sufficient detail so that he can’t later argue that vague statements constitute conception. Unless the parties agree otherwise, the employee should retain all rights in inventions that he conceived or invented prior to commencing employment. This can also reduce the potential for a dispute with a prior employer that it owns an unpatented invention the former employee developed while working for the previous employer.

IP Assignment Provisions

Finally, use language that requires the employee to promptly disclose inventions to the company and to “hereby assign” all future inventions. This way, an assignment is not required later once the employment has ended and you need to find the former employee and potentially sue him to obtain his cooperation. Instead, make the assignment effectual as soon as inventions are conceived.

Former employees are not always cooperative in the patent process for their former employers. You should probably include language the grants the employer at least a partial power of attorney to execute documents on behalf of the former employee inventor in cases where that becomes necessary.

Planning ahead by including intellectual property provisions in employment agreements can save a substantial amount of time and money in the event you later try to secure rights in inventions that are important to your company.

This blog is made available by Goodman Allen Donnelly for general information, and does not constitute legal advice. By reading this blog, you understand that there is no attorney-client relationship between you and the firm. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.