This article was written by Apoorv Tiwari, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution Course from LawSikho, and edited by Koushik Chittella.

This article has been published by Shashwat Kaushik.

Introduction

The ever-increasing scope of intellectual property rights is not an unknown phenomenon anymore. The importance of IP law and the protection of the same is the paramount reason for the success of any organisation. Without the implementation of IP law, a business can face setbacks in any form, be it financially or in reputation. The importance of intellectual property rights is very vast, from the protection of innovations to the preservation of competitive advantage.

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Intellectual property Rights, such as copyrights, patents, and trademarks, protect a company’s innovations, inventions, and creative works from unauthorised use or exploitation by competitors. This protection encourages companies to invest resources in research, development, and innovation, knowing that their intellectual property will be safeguarded and they can reap the benefits of their investments. If there is no protection given to the creative mind about his creativity, he will lack motivation for further innovations. Thus, IP rights provide benefits to the inventor in many forms, be it monetary, social recognition, royalty, etc. Intellectual property rights allow companies to maintain a competitive edge in the marketplace by preventing competitors from replicating or imitating their products, services, or brands. By securing exclusive rights to their innovations and branding elements, companies can differentiate themselves from competitors and command higher prices for their unique offerings.

Employee invention agreements: meaning and use

It can very much happen in any business that an employee switches jobs and begins to work for a company that is a competitor of the previous employer. Since the employee knows every detail of his previous company, the same can be disclosed to the new employer, which can cause heavy losses to the company whose trade secret has been disclosed by its ex-employee. To combat the same situation, companies usually have to enter into employee invention agreements. This article seeks to shed light on the details regarding employee invention agreements.

Employee invention agreement

Definition 

An Employee Invention Agreement (EIA), also known as an Intellectual Property (IP) agreement or invention assignment agreement, is a legal contract between an employer and an employee regarding ownership and control of intellectual property created during the course of employment. Generally, in an employee invention agreement, the terms of the agreement are made in such a way that the work done by the employee during his course of employment shall exclusively belong to the employer and not to the employee. 

Purpose of the EIA

The purpose of an EIA is to establish clear guidelines and obligations related to intellectual property rights, ensuring that inventions, innovations, and creative works developed by employees within the scope of their employment belong to the employer rather than the individual employee.

Key Components of the EIA 

  • Confidentiality Obligations: The agreement typically includes provisions requiring employees to maintain confidentiality regarding proprietary information and trade secrets of the employer. This helps prevent the unauthorised disclosure or misuse of sensitive company information, protecting the employer’s competitive advantage.
  • Remedies for Breach: The EIA outlines the consequences of breach, including termination of employment, injunctive relief, and legal remedies for the unauthorised use or disclosure of confidential information. By specifying the potential consequences of non-compliance, the agreement encourages employees to adhere to its terms.
  • Assignment of Rights: The assignment clause stipulates that the employee agrees to assign all rights, title, and interest in their inventions to the employer. This ensures that the employer has the legal authority to exploit, licence, or enforce intellectual property rights as needed.
  • Ownership of Intellectual Property: The ownership clause specifies that any inventions or intellectual property developed by the employee during their employment belong to the employer. This clause ensures that the employer retains full control and ownership of the intellectual property.

Legal framework governing the EIA agreements

The legal framework governing the employee invention agreement differs from nation to nation as it should adhere to the law of the land where the agreement is made and executed, so it is pertinent for the business to make sure the agreement entered into should comply with the appropriate legislature; it can be a federal or state law or a union law. Also, the industry-specific rules and code of conduct determine the outline and content of the employee invention agreement. EIAs are generally governed by employment law, which regulates the relationship between employers and employees. Employment laws may address issues such as the rights and obligations of employers and employees, termination of employment, non-compete agreements, and confidentiality provisions. Some relevant legislation governing the employment laws in India include the Minimum Wages Act, 1948; the Factories Act, 1948; and many more. 

Copyright Act, 1957

The Copyright Act, 1957, prescribes certain provisions for a valid assignment of copyright developed in India. Under the Act, the deed of assignment of copyright must identify the work and specify the duration, territorial extent, and nature of the rights assigned to the assignee. If the duration is not specified, the term will be limited to five years from the date of assignment. Whereas, if the territory is not identified, the assignment will only be valid for the Indian territory. So, the deed must specify that it is a worldwide and perpetual assignment.

Further, if the assignee does not exercise his rights within a year from the date of assignment, the assigned rights will lapse, unless otherwise agreed upon by the parties. Hence, the deed must specify that the assignment won’t lapse even after a year of non-use. The assignment of copyright to future works will only take effect when the work comes into existence. To avoid future disagreement, the future work to be assigned should be identified in the deed and agreements at the time of the commencement of the project. 

Intellectual property (IP) laws play a significant role in EIAs, as they govern the ownership, protection, and exploitation of intellectual property rights. Specific laws and regulations apply to determine the ownership, disclosure requirements, and enforcement mechanisms, depending on the type of intellectual property involved. In the case of Thomas v. Manorama, it was held that the employee is entitled to the ownership of works created by him after his employment is terminated by the employer, and in such a case, the previous employer has no copyright over the subsequent work so created.

Patent Act, 1970

Under the Patent Act, 1970, patents are granted for inventions. It governs the requirements for patentability, the process of patent application and examination, and the rights and obligations of patent holders. EIAs often include provisions related to the assignment of patent rights to the employer and the employee’s obligation to assist in patent prosecution. In the course of their employment, the employee owns any invention created by them in the absence of a clause regarding assignment. Section 6 of the Patents Act, 1970, provides for the persons who can apply for patents. They are:

  • The first and true inventor.
  • An assignee claiming rights.
  • A deceased inventor’s legal heir. But there are no provisions vesting title in the favour of employers under the Patent Act, 1970.

Contract Act, 1872

EIAs are contractual agreements between employers and employees, and as such, they are subject to contract law principles. The Contract Act, 1872, governs the formation, interpretation, and enforcement of agreements, including issues such as offer and acceptance, consideration, mutual assent, and contract remedies.

Benefits of an employee invention agreement 

An employee invention agreement offers multiple benefits to both the employee and employer, as it builds trust and harmony between the two by ensuring the protection of IP rights while promoting innovation. It assures the employer about the protection of his IP rights and also the employee that the work created by him during his course of employment shall have the exclusive ownership of the employer and not him, owing to the very nature of EIA. This also helps in avoiding any future disputes. Here are several other benefits of an employee invention agreement:

  • Protects the company’s intellectual property: EIAs protect a company’s intellectual property by ensuring that inventions, innovations, and other creative works developed by employees belong to the company. This protection prevents competitors from exploiting or misappropriating company-owned intellectual property, preserving the company’s competitive advantage and market position.
  • Promotes innovation and creativity: By providing a framework for the protection and recognition of employee inventions, EIAs promote a culture of innovation and creativity within the company. Employees are encouraged to pursue new ideas and solutions, knowing that their contributions will be valued and protected by the company.
  • Encourages disclosure of inventions: EIAs typically include provisions requiring employees to promptly disclose any inventions or innovations to the company. This encourages open communication and transparency between employees and management, facilitating the timely evaluation and protection of valuable intellectual property.

Challenges and considerations 

Employee invention agreements are very essential for upholding intellectual property rights and supporting innovation in any business, yet they also come up with some challenges and considerations that both parties should have agreed to in the same consensus so as to avoid disputes arising in the future.

  1. Scope of employment: Determining the scope of employment covered by the EIA can be challenging, especially in roles where employees may engage in creative or innovative activities outside of their primary job duties. Employers must clearly define the scope of employment to ensure that the agreement covers all relevant activities and inventions developed by employees during their tenure.
  2. Acknowledgement of employee contribution: The scope and purpose of EIA itself can make an employee feel unmotivated to not contribute enough to the new innovations, so an employer should make enough efforts and try to recognise the efforts made by the employee to keep him in the loop and make him feel motivated for further innovations. 
  3. International challenges: Employers with businesses in multiple nations may find it difficult to adhere to specific legal requirements or cultural practices that obviously differ from nation to nation. Therefore, an employer should always seek legal advice from the local legal advisor before entering into the EIA.
  4. Dispute Resolution Mechanisms: EIAs should include provisions for resolving disputes that may arise between employers and employees regarding intellectual property ownership, disclosure obligations, or breach of contract. Employers and employees should consider ADR mechanisms, such as arbitration or mediation, to resolve the conflicts cost effectively and efficiently.
  5. Confidentiality and Trade Secrets: EIAs often include confidentiality provisions requiring employees to maintain the confidentiality of proprietary information and trade secrets. Employers must take appropriate measures to ensure that the employees know their duties regarding non-disclosure and confidentiality to safeguard sensitive information. 

Important case laws 

Chidambaraiyer and Others vs. P. S. Renga Iyer and Others (1965)

In this case, it was held that when a person rests under an obligation to do something in the discharge of such obligation, he transfers a certain interest for valuable consideration. It was further held that in cases where an author created a work as part of their employment/ apprenticeship, the employer owns the copyright as the first owner by default under Section 17(c) of the Copyright Act. If an author creates a work independently, or if he creates a work under a contract for service, he will hold the copyright.

V.T. Thomas & Ors. vs. Malayala Manorama Co. Ltd. (1987)

In this case, an employee created a cartoon named Boban and Molly, which was created before the start of his employment at Manorama. Thus, the copyright is absolutely held by the author, that is, VT Thomas, and not the employer. 

Charian P. Joseph vs. K. Prabhakaran Prabkaran Nair (1967) 

It was held in this case that when the work is not a literary, dramatic, or artistic work made by the author in the course of employment by the proprietor or newspaper, magazine, or similar periodical, or in the case of a photograph taken or painted, or portrait drawn, or an engraving or cinematograph film made for valuable considerations at the instance of the person, but is the kind of work made in the course of the author’s employment under a contract of service or apprenticeship, the employer shall be the first owner of the copyright therein. But the provision would be applicable only when there is no agreement to the contrary.

University of London Press Ltd. vs. University Tutorial Press Ltd. (1916)

In this case, it was held that an employee is someone who follows the employer’s commands in the manner in which he shall work. The direct control of the employer, the independence of the person who renders services, and the place where the work is done determine whether there is a contract of service between the employee and employer.

Microsoft Corporation vs. Deepak Raval (2016) 

In this case, Microsoft Corporation, a US-based company, sues for copyright infringement against defendants in India. Plaintiff’s software and hardware, including Microsoft Windows and Office, are protected under Indian law via international copyright conventions. Plaintiff seeks injunctions against copying, manufacturing, and selling unlicensed versions of their software and hardware. They also requested the delivery of infringing copies, accounts of profits, and damages. The Court grants injunctions and awards damages of Rs. 5 lakhs, limited to a higher estimate, acknowledging the defendant’s lack of knowledge. 

Warner Bros. Entertainment Inc. and Mr. Santosh V.G. (2009): 

This case involves a dispute over the distribution of films by the plaintiffs and their licencing agreements. Plaintiffs release films in the USA first, possibly on home video, before theatrical releases in other countries. Defendants argue for broader freedom of speech and expression in providing entertainment, citing their role as a film club promoting discussion and appreciation of cinema. They claim prominent members and societal value in their activities. The case raises issues of copyright infringement and the balance between commercial interests and fundamental rights to free expression.

Conclusion 

Employee Invention Agreements (EIAs) play an important role in safeguarding intellectual property rights and fostering innovation. These agreements establish clear guidelines for ownership and control of inventions and creative works developed by employees during their tenure. By ensuring that intellectual property belongs to the employer, EIAs protect the company’s competitive advantage and promote a culture of innovation. However, challenges such as defining the scope of employment, acknowledging employee contributions, and navigating international legal requirements must be addressed to mitigate potential disputes. Overall, EIAs offer numerous benefits to both employers and employees, promoting trust, transparency, and the effective management of intellectual property assets.

References

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