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Employment Contracts and Intellectual Property

March 4, 2020

by M. Steven Osborne


Many business owners do not realize the extensive role intellectual property plays in their business. For instance, every business that markets itself to the public has trademark issues, businesses that utilize unique procedures have trade secrets that are an essential part of what sets them apart from the competition, and businesses that involve creative content almost certainly need counsel on copyright matters. One area where intellectual property is often not considered is in employment contracts.

It is unfortunate how often this is missed because of how pervasive an employee’s contact with intellectual property can be. By one estimate, the average worker encounters copyright issues around 20 times per day. An employee will often encounter intellectual property either directly or as a consequence of their job. Intellectual property is an area that should be addressed in the employment contract. There are several types of intellectual property that could trigger issues between an employer and employee, and there are different standards to be aware of for each of these areas.

Do you have an inventive company that is preparing potentially patentable items? When intellectual property is not specifically addressed in an employment contract, the default standard is that a patent is presumed to be owned by the inventor. That could be a big problem if your employee invents something while working on your project and then leaves you to start a new business or join another company. While there are some qualifications to that default standard that could protect your company, for instance your business could qualify for “shop rights” if your company developed the invention by contributing to the process and context of its creation, this is not an argument you want to find your lawyer having to make. This scenario could lead to months of expensive litigation, and could easily be avoided with a well-worded employment contract.

If your business has unique processes that set you apart from the competition, you may have a “trade secret.” If you have not taken steps to secure your processes under copyright, patent, or trade secret laws, your information could be exposed to being appropriated by your employees and taken to their next place of employment to potentially benefit your competitors. This is why it is important to consider a non-disclosure clause in your employment contract that would prohibit employees from sharing that information with their next employer or with the public.

If your company involves a level of creativity in terms of products produced, copyrights could be an issue for your company. This is especially true if you are in the creative industry. If your employees are creating content, there could be ambiguity as to whether that content is owned by you or the employee. Absent an employment contract, in court you would have to establish that the content created by the employee was created “within the scope of employment.” Sometimes, that may be easy, but in other cases it will not be easy to make that case. It is those situations where an employment agreement that addresses intellectual property can be incredibly helpful. For patents and copyrights, the employment contract can contain a clause whereby the employee assigns ownership of intellectual property created during the course of employment to the employer. This clause can also clarify where the boundary lines are for “course of employment.” 

When an employee applies for a job that will require creative functions, it may be helpful to have the employee list items of intellectual property owned by the employee. This allows clarity before the employment agreement is ever signed and serves to put the employer on notice, which protects the employee while also assisting the employer in knowing what the parameters are from the beginning.

In order for the clause to be enforceable, the employee must receive compensation for the intellectual property he or she is assigning. This is called “consideration” and is essential to the formation of a contract. The job itself can be consideration, provided that the intellectual property provision is agreed to and signed by the employee before receiving employment. However, if the employee has already started with the company, he or she may argue that mere continued employment is not sufficient consideration to support an assignment of intellectual property rights. It should be noted that the efficacy of the continued employment argument varies from state to state.

As a business owner, it is important that you contact an attorney to assist you with preparing your employment contracts. A good attorney can provide you with a holistic picture of what the legal landscape looks like and what you need to do to navigate it. At the same time, that attorney can save you money and help you preserve the value of your intellectual property.