Common Employment Issues on Intellectual Property? Most employers will not be surprised to learn that questions will eventually arise as to the obligations of employees and employers regarding protection of company trade secrets, ownership of documents and inventions made by employees.  

Starting the Employment Relationship? It is a good idea to start off an employer/employee relationship with the employee understanding that the company’s intellectual property assets include such things as customer lists, vendor lists, inventions conceived by the employee, materials written by the employee, electronic documents transferred to a home computer, or taken, or written at, home on company business, company know-how and trade secrets.  It should be made clear that an employee has a legal responsibility and obligation not to transmit the company’s intellectual property to unauthorized third parties though electronic means both prior to and following a termination of employment. The employer should explain and implement written computer policies establishing that the company may be monitoring employee electronic email and other transmissions.

Common Misconceptions? Many times an employee will think that documents written by him may legitimately be taken home upon termination of employment.  While an employer may permit this, any misconception about employer/employee ownership should be clarified early on to avoid problems upon the employee’s subsequent termination.  The employee should be told that if he locates any of such information outside the workplace, he has an obligation to return it to the employer upon termination of employment.

No Employee Agreement? Not every employee will have an employment agreement.  Many will be “at will” employees, meaning they can be fired at any time by the employer with or without cause.  So, it is a good idea that whether or not a written agreement is in place, the employee should be told of his obligations with respect to the employer’s intellectual property.   It is also a good practice to have a written set of internal policies or guidelines on these matters.  Early communication will help avoid misunderstandings, hard feelings, and possibly litigation.

Written Employment Agreement. For senior-level employees, who may have a significantly greater role in an employer’s trade secret or confidential information holdings, it is a good practice to include intellectual property provisions in a written employment agreement.  One should also recognize that trade secrets and confidential information are two different things and the law can treat them differently.

Having each employee sign a “confidentiality and assignment agreement” as a condition of future employment is a good start. Also, having a trade secret and confidential information policy is a good idea. But these alone are not good enough, even for documents, such as customer lists, that you might expect employees to know are trade secrets and confidential. For proprietary information, an employer should take reasonable efforts under the circumstances to keep its information secret, such as —

  1. mark a proprietary document with the word “confidential” or “proprietary” or an equivalent word when it is given to employees;
  2. direct employees to maintain the secrecy of the document; and,
  3. track use of the proprietary document.

Incentivizing Innovation. It is common for an employer to incentivize or reward employee inventors through employment contract provisions that specify fixed payments, royalties or other incentives such as stock options. Addressing this component of compensation in advance can eliminate the potential for later hard feelings with employees. It also gives the parties a chance to define what category of inventions fall within the field of the employer’s business and which do not and are owned by the employee. Other matters important to a business include the employee inventor’s obligation to notify the employer of inventions, to document all inventions and concepts for inventions, the employer’s procedures for handling such notifications, confidentiality requirements, assignment of interest, patent prosecution, the rights of the employee if the company rejects investing in a patent, obligation to use invention notebooks to document research results, etc.

Related Outsourcing Intellectual Property Issues. Outsourcing research and development can create uncertainties over ownership of intellectual property. A company might be facing surprises in assuming that it would always own the product of a consultant or other third party just because the company paid for the product. If other persons besides the employees of the company participate in research and development activities, it is important to ensure that all such persons sign an agreement before work is started whereby they give the company sufficient rights to the results of their works. It is common that such persons transfer any and all rights to the results of the project to the company, including the right to re-transfer the rights and especially the right to alter the works if the R&D project produces works or other materials eligible for copyright protection. Apart from inventions, the R&D agreements should also contain provisions conferring the rights to know-how, copyright for the research reports and results, and rights over the physical material involved in research activities, such as micro-organisms or other biological material, as well as intellectual property rights over any background information which is not within the public domain. All this should also be kept confidential.

Provisions Requiring Employees to Keep Trade Secrets? An employee should be required to execute a confidentiality agreement, non-disclosure agreement and non-compete agreement as a precaution and deterrent to the temptation to take and share with a new employer, that which is valuable to the company’s competitors. A high-level employee with access to the company’s secrets should have an employment agreement with a narrowly defined restrictive covenant not to compete with the Company and prohibiting such employee from soliciting former co-workers, who also have trade secret information, or customers to join him or her at his next employer.

However, some states, such as California and Georgia, have enacted a policy severely restricting non-compete agreements, particularly those outside the context of protecting trade secrets.  This trend continues in an August 30, 2006 decision by the California 2nd District Court of Appeal, which held that California statutory law prevents companies from making employees sign non-competition contracts promising not to work for a competitor, unless they fall within the statutory or trade secret exceptions.  Raymond Edwards II v. Arthur Andersen LLP, No. B178246.  To achieve the broadest acceptability, a non-competition provision should be narrowly drawn to protect the employer’s legitimate business interest; but in California even a narrowly drawn provision will not be valid unless it is closely tied to trade secret protection.  For most other states, such provision should not be unduly burdensome on the employee’s ability to earn a living.

Exit Interviews. Upon leaving a job, an exit interview should be conducted and the employee should be asked to return any company proprietary information or destroy any such information on his home computer after a copy is given to the company.   He should be asked to sign an acknowledgment that during employment the employee had access to confidential information, that the employee kept it secret and that the employee will not  take any written materials on such secrets with him.   In addition, employees who maintain invention notebooks should be asked to confirm the location of all such notebooks and that all notebooks are up to date, witnessed, dated and signed.

How Can This Firm Help? Attorney Louis Ventre, Jr. could prepare intellectual property provisions for your employee agreement, or a complete employee agreement for your use can be drafted.  In addition, Attorney Louis Ventre, Jr. could prepare a company policy statement and an exit interview acknowledgment to remind departing employees of their intellectual property obligations. A fixed price quote for services is available upon request. Continuing advice concerning policies, procedures and protection of company property is provided at a rate of $250 per hour.

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