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The importance of intellectual property in employment agreements and traps for the unwary

Employment agreements are commonly implemented and often address the day to day aspects of employment, such as compensation, benefits, and vacation. Some employment agreements will go further and address commonly considered issues such as termination and non-compete agreements. What often gets overlooked, however, is treatment of intellectual property rights; patents, trade secrets, copyrights, and trademarks. It is important to watch out for some common issues regarding the treatment of IP in connection with your employment agreements program.

Patent Rights in Employment Agreements

Under U.S. law, an invention is presumed to be owned by the inventor, e.g., the employee who creates an invention while on the job.

Clayton Zak

Zak

Therefore, it is important to utilize an employment agreement to ensure that the business owns the intellectual property associated with an employee’s invention. This is not a simple matter and care must be taken when drafting the terms of the employment agreement.

For example, an obligation of an employee “to assign” an invention or patent application to the business will not be effectual by itself. With this language, if the employee or former employee refuses to sign an assignment document, the business will not be recognized as the owner of the invention, and the only recourse of the business to obtain ownership will be a lawsuit (asserting breach of contract or that the invention was made in the course of employment).

The language should operate presently such as the employee “hereby assigns” any invention or patent application. Courts treat this present assignment as transferring ownership to the business immediately, even for future inventions. Thus to avoid a fight over ownership of any invention, it is vital to address intellectual property in an employment agreement and to use the correct language.

Ownership is just one issue to address in an employment agreement. Another important consideration is facilitating acquisition of patent rights. Here, it is useful to include a provision in the employment agreement that obligates the employee to sign any documents required for prosecution of a patent application and to otherwise cooperate with the business in acquiring intellectual property rights. Absent this type of obligation, it may be difficult to get signatures from an employee or former employee on assignment documents, application documents, or other documents which facilitate or may be necessary in acquiring patent protection for an invention.

Failing to adequately address patent rights and inventions in an employment agreement does not necessarily prevent a business from obtaining ownership in an invention. But, it is likely to drastically increase the cost. Take care when implementing an employment agreement.

Trade Secrets

With trade secrets, the key to an effective employment agreement is spelling out ownership and the duties of the employee with respect to the trade secret. The employment agreement should specify that the employee has a continuing duty, even when no longer employed, to maintain trade secrets in confidence.

Copyrights in Employment Agreements

Copyrights are typically overlooked in employment agreements as they are governed by the “work made for hire” doctrine. Generally, this doctrine provides that any copyright resulting from an employee’s duties is owned by the business. But, copyrights should not be ignored in an employment agreement. Ownership should be spelled out if only for the practical concern of informing employees and avoiding conflict with employees and former employees over copyright ownership. It is also useful to include language in the agreement that obligates the employee, even after employment, to assist in registering any copyrights resulting from employment.

Trademarks

As with copyrights, ownership of the intellectual property rights is not the main concern when drafting an employment agreement. The employment agreement should be used as a mechanism to avoid future disputes with employees or former employees. For example, by specifying ownership of any trademarks, it may be possible to avoid future disputes over trademark ownership or usage. In this case, think of an employee who comes up with a product or business line name and later leaves the business to start a competing firm. By specifying in the employment agreement that the business owns any trademarks, it may be easier to prevent the former employee from adopting the trademark or a confusingly similar name by pointing to the agreement.

Fixing Deficiencies in Your Employment Agreement

It may be tempting to assume that any deficiencies in an employment agreement can easily be fixed by merely implementing an updated agreement or employee handbook. However, Courts look at these actions with skepticism and will often find a lack of consideration.

These types of agreement updates are of questionable enforceability. Therefore, it is best practice, when making a change to an employment agreement, to provide consideration. This may take the form of a raise, promotion, bonus, or the like. Continuing employment, or making the signing of the new agreement a condition of continued employment, is typically viewed as insufficient consideration as employees are already at will employees.

These are but a few issues common to the treatment of intellectual property in employment agreements. Given the value of intellectual property, care should be taken when putting in place an employment agreement to protect the business’s intellectual property. As with all legal matters, it is important to have a licensed attorney’s advice on each specific agreement or issue.

Clayton Zak is an Associate with Sandberg Phoenix. Clayton works with clients to obtain meaningful, business-focused intellectual property rights and to enforce those rights around the world. Start a conversation with Clayton at czak@sandbergphoenix.com

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