This article is written by Hannah Boban pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from Lawsikho.

Introduction

Innovative minds often come up with innovative ideas and intellectual property is a creation of such ideas in the mind. As per law, the owner of such an idea is the person which brings it into existence unless there is a contract to the contrary. Many of us think that the employer owns the intellectual property that an employee creates in the course of his employment. However, an employer assuming that all rights of the employee over such intellectual property are extinguished might be careless in his approach. The employee still owns the claim rights of an author, moral rights and rights to object to alterations to work. So, it becomes crucial to include the conditions determining the ownership of intellectual property in the contracts of employment, agreements of independent contractors or in agreements of a designer or consultant.

Hence, it becomes critical to include terms determining the ownership of intellectual property in employment contracts, independent contractor agreements or agreements with a consultant or designer. In this article, we will understand the concept of an employee’s intellectual property and what are the important clauses that should be drafted in an employee’s intellectual property agreement. 

What is the meaning of “in the course of employment?”

If an employee brings any innovative ideas in the course of business or employment, the employer can claim the same if it was already mentioned in the contract and the employee also agreed to the same. But in case the intellectual property is created outside the course of the employment, an employer cannot claim the rights over it. For example, if an employee is hired in the accounting team of a designing company and if that employee designs a new pattern for a product of the company, he can be entitled to the intellectual property right in that design as he has done something outside the course of his employment, i.e. he has done something outside the terms of the employment of an accountant post. So it is necessary to have clarity on the duties of the employees to differentiate the scope of and what will constitute “in the course of employment” in the agreement agreed upon by both the parties. 

Now let’s see what all should be stated in the terms of an agreement between the employer and the employee. 

It should be always remembered that an agreement with an employee should not be an oral agreement, it should always be a written agreement. It will be always best if the employer gets the agreement signed by the employee before the date of commencement of the employment. Most of the companies have their own standard template of employment agreements for various kinds of jobs in the company. For example, the agreement for a designer will be different from that of a developer or a tester.

In a case where the employment agreement is not signed before the commencement of the employment due to any valid reasons, all the rights and liabilities will be affected from the date of commencement of the employment.

Terms that must be included employee intellectual property agreement

Now let’s look into the broad terms that must be included in any agreements that define intellectual property right:

1. The intellectual property created by an employee or by an independent contractor or a consultant during the course of employment  will be owned by the employer;
2. Terms to the effect that the employee/independent contractor/consultant will sign any documents reasonably required (such as a deed of assignment) to record the employer’s ownership of the intellectual property created during his employment. This obligation should continue during and after employment. An employer should ensure that any assignment or license deals with existing rights and future rights;
3. The confidentiality clause requires the employee or the consultant or the independent contractor to keep any information of the employer to be confidential and neither disclose the same nor use it in any matter outside the course of the employment;
4. A clause should also be drafted for the employee or the consultant about whether they should disclose the new inventions and should a record be maintained to prove the originality of the work and the date of its creation;
5. A clause where all the scope and definition of confidential information must be mentioned in the agreement. It must include the intellectual property created by the employee in the course of their employment, all the business information and any other intellectual property of the employer itself. The business information includes business plans, marketing strategies and plans, the company’s financial information, customer lists and any other details of the company necessary to be stated in the agreement. 
6. It must also include a term which states whether there is any waiver of moral rights by the employee during the employment over the intellectual property.
7. It must be made sure that a term for restraining the former employee on the competition for a specified period of time and in a specific geographical area. It should be made sure that such restraints are reasonable.

Key points for drafting the agreement

For the best legal document it should be kept in mind to draft the agreement with the following key points:

• Any ideas, discoveries or inventions must be properly disclosed to the company by the employee if such ideas, discoveries or inventions are related to the business of the company and is during the course or period of employment.
• The company will be considered as the owner of such ideas, discoveries or inventions.
• If an employee is hired particularly for any invention, or for developing a work product, then the right on such invention or work products are the employers since it was created out of the employer’s expense and request.

Let’s look into an example: If an app developer is strictly appointed by an employer for the development of a particular app, then once the app is developed and the course of employment of the employee has come to an end, the intellectual property right belongs to the employer.

It should be also kept in mind by the employer to get the signature of the employee appointed in an intellectual property assignment agreement to avoid any future problem of the same. 

• In the case of a startup company, in order to protect the important assets and to inform the investors of a startup company, which has an intellectual property which will be used as the pillar of the company for its success, the start-up must draft an intellectual property clause in its agreement which will be signed by everyone involved in the start-up which will also include the promoters, developers and the employees. 

Now let’s see some of the provisions that must be included in the employee intellectual property agreement:

Provisions to be included in the employee intellectual property agreement

First of all, we should understand that there is no standard form for employee intellectual property agreement. So it must be carefully drafted and signed by the employee for its legal binding. No matter what the situation is, or where the agreement is made it should be made legally binding

Mostly the employee intellectual property agreement has at least the following three clauses in common:

1. Assignment clause

Generally speaking, an assignment clause is where the rights, duties, or contractual obligations are transferred from one party/person to another person/party. The assignment may be wholly or partly. The clause must also mention the conditions under which a party/person can assign these rights, duties or obligations. 

In an employee, intellectual property agreement the assignment provision, the employee assigns to the employer his/her inventions/discoveries/ideas and also transfer the true and total ownership of the intellectual property. In this provision, it can either narrow down or broaden any inventions/ discoveries/ ideas or nearly anything the employee creates.

Example of an assignment clause in employee intellectual property agreement:

“I agree that all inventions that are (a) developed using equipment, supplies, facilities, or trade secrets of the company; or (b) result from work performed by me for the company; or (c) related to the Company’s current or anticipated research and development will be the Company’s sole and exclusive property and are hereby assigned by me to the Company.”

2. Disclosure clause

A disclosure clause in an employee intellectual property agreement is drafted in such a way that the employee informs the employer of the intellectual property that was developed as per the assignment clause. It should be noted that everything must be clearly and properly disclosed in this clause.

Example of a disclosure clause in employee intellectual property agreement:

“While I am employed by the Company, I will promptly inform the Company of the full details of all inventions, discoveries, improvements, and innovations, whether or not patentable, copyrightable, or otherwise protectable, that I conceive, complete, or reduce to practice (whether jointly or with others) and which: (a) relate to the Company’s present or prospective business, or actual or demonstrably anticipated research and development or (b) result from any work I do use any equipment, facilities, materials, trade secrets, or personnel of the Company or (c) result from or are suggested by any work that I may do for the Company.”

3. Power of attorney clause

Finally, there’s a clause where the employee appointed in the company appoints the company as an employee’s power of attorney to execute documents or take actions on behalf of them. The benefit of this clause is that the company will then have the power to sign documents or execute any other agreements on behalf of the employee to assign the intellectual property right to the business.

Usually, every company have this clause as a fairly standard one. The power of attorney provision guarantees the employer can register and administer the ownership rights without the employee, regardless of whether the employee is willing and able to assist.

Example of the power of attorney clause in employee intellectual property agreement:

“If the Company is unable to secure my signature on any document necessary to obtain or maintain any patent, copyright, trademark, or other proprietary rights, whether due to my mental or physical capacity or any other cause, I hereby irrevocably designate and appoint the Company and its duly authorized offers and agents as my agents and attorneys-in-fact to execute and file such documents and do all other lawfully permitted acts to further the prosecution, issuance, and enforcement of patents, copyrights, and other proprietary rights with the same force and effect as if executed by me.”

Sample of an employee intellectual property agreement

Employee confidentiality and intellectual property assignment agreement

This EMPLOYEE CONFIDENTIALITY AND INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT (the “Agreement”) is made and entered into by and between [Company name] and [NAME] (“Employee”), as of [DATE] (the “Effective Date”). 

Each of Company and Employee hereinafter may be referred to individually as a “Party” or, collectively, as the “Parties.” 

In consideration of Employee’s employment with Company, the compensation Employee will earn in connection with such employment, Company providing Employee with access to Confidential Information (as defined below), and other good and valuable consideration, the sufficiency and receipt of which Employee acknowledges, Employee agrees as follows:

1. Confidential Information:

i. Confidential information and trade secrets defined. Employee hereby acknowledges and understands the term “Confidential Information” means any data, information, or material of Company or its owners or its affiliates relating directly or indirectly to Company or its owners or Affiliates: clients and customers or potential clients and customers (collectively “Customer(s)”); competitors; vendors; advertisers; employees; contractors; suppliers; or business partners, that is discovered or developed by, or disclosed to, Employee through Employee’s relationship with Company, that is not generally ascertainable from public information, whether it is expressly identified as “confidential” or “trade secret,” that includes, but is not limited to: financial information; invoices; business plans; business and contract applications; contracts; forms; research; price lists; marketing materials; advertising materials and developments; sales materials and reports; copyrighted materials; Trade Secrets; the particular needs and requirements of Customers; identities of potential Customers; and all accompanying Customer data. Employee hereby acknowledges and understands the term “Trade Secret(s)” includes, but is not limited to, a confidential, proprietary, and/or sensitive: formula; software; methodology; model; architecture; pattern; compilation; program; device; method; technique; or process, that is discovered, developed in whole or part by Employee, or disclosed to Employee, through Employee’s relationship with Company, including any information, data, or material concerning the business of the Company, and all other information related to Company and its owner and Affiliates businesses, that is not generally known and readily ascertainable by proper means by any other person and/or Employee. This includes, but is not limited to, all inventions or discoveries made by Employee and/or Company (or its owners or Affiliates) resulting in whole or part from Employee’s relationship with Company. The term “Trade Secret(s)” also includes, but is not limited to, Customer lists, invoices and reports containing specifically developed information, such as the name, address, phone number, buying history and other traits of Customers, along with any other information that Company derives a competitive advantage from and that Company makes reasonable efforts to maintain a secret. For purposes of this Agreement, “Affiliates” means an individual, a partnership, a corporation, a limited liability company, an association, a joint-stock company, a trust, a joint venture, or an unincorporated organization, that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, Company.

ii. Use and restriction. Employee acknowledges that Employee will have access to and be provided with Confidential Information in connection with performing services for Company. Employee expressly recognizes that the efficacy and profitability of Company and its owners and Affiliates is dependent in part upon Employee’s protection of the Confidential Information. Employees may use the Confidential Information solely in connection with performing services for Company and its owners and Affiliates. To ensure the continued confidentiality of the Confidential Information, the Employee agrees to hold the Confidential Information in strict confidence. Employee shall not, either during Employee’s relationship with Company or for such period as such information remains Confidential Information after termination, disclose or use for Employee’s own benefit or for the benefit of any other individual or third party, directly or indirectly, any of the Confidential Information, except as such disclosure or use is expressly authorized by Company in writing. Employee hereby agrees to adhere to the method and form of protection of Confidential Information required by Company, subject to change at Company’s sole discretion. Employee shall not communicate any Confidential Information, even in furtherance of Company’s business, to any individual or third party not privy to the Confidential Information, without express consent by Company and the individual or third party’s agreement to be bound by confidentiality terms that adequately protect Company’s Confidential Information.

iii. Exceptions. The confidentiality and restriction on the use of Confidential Information under this Agreement shall not apply to Confidential Information to the extent that such Confidential Information: is now, or hereafter becomes, through no breach of this Agreement by Employee, generally known or available to the public; was known to Employee without an obligation to hold it in confidence prior to the time such Confidential Information was disclosed to Employee by Company; is disclosed or used, as applicable, with the prior written consent of Company and in accordance with any limitations or conditions on such disclosure or use that may be imposed in such written consent; or was or is independently developed by Employee without any use of or reference to the Confidential Information. In addition, notwithstanding any other language in this Agreement to the contrary, Employee understands that Employee may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (a) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney if such disclosure is made solely for the purpose of reporting or investigating a suspected violation of law or for pursuing an anti-retaliation lawsuit; or (b) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal and Employee does not disclose the trade secret except pursuant to a court order.

iv. Required disclosure. The confidentiality obligations under this Agreement shall not apply to Confidential Information to the extent that such Confidential Information is required to be disclosed pursuant to the order or requirement of a court, administrative agency, or other authority, or otherwise by operation of applicable law. In the event of such order or requirement, Employee, if and to the extent permitted by law, shall give Company written notice thereof and of the Confidential Information to be disclosed as soon as practicable prior to the disclosure of such Confidential Information and shall provide such reasonable assistance as Company may reasonably request, at Company’s sole expense, in seeking a protective order or other appropriate relief in order to protect the confidentiality of the Confidential Information.

v. Other Nondisclosure Agreements. In the event that Company is subject to the terms of any confidentiality or nondisclosure agreement relating to some or all of the Confidential Information that imposes greater restrictions on the disclosure and/or use of such Confidential Information, then Employee shall comply with such greater restrictions to the extent that Employee is made aware of them in advance and in writing.

vi. Property of Company. Employee specifically acknowledges and understands that all Confidential Information and all of Company’s and its owners and its Affiliates strategies and files, including, but not limited to, computer data, reports, materials, records, documents, notes, memoranda, and other items, and any originals or copies thereof, related to the business of Company or its owners or its Affiliates, which Employee either is provided, prepares, uses, or simply acquires during the term of this Agreement, are and shall remain the sole and exclusive property of Company and, to the extent applicable, shall not be removed from Company’s premises without the prior consent of Company.

vii. Return or Destroy Confidential Information. Employee agrees, immediately upon the termination of the relationship between Employee and Company for any reason or upon earlier request by Company to make a diligent search for any and all documents, computer discs, electronic files, software, tapes, computer printouts, or any other material constituting Confidential Information described in this Section 1, and shall: cease using the Confidential Information; promptly return to Company or destroy all Confidential Information and any copies thereof; certify in writing (if requested in writing by the Company) that Employee has complied with the obligations of this Subsection vii.

viii. Return of Company Property. Employee agrees, immediately upon the termination of the relationship between Employee and Company for any reason or upon earlier request by Company to promptly deliver to Company all Company property not covered by Subsection vii.

2. Intellectual Property

i. Prior Inventions. Any intellectual property, including, but not limited to, any ideas, inventions, patents, trademarks, service marks, copyrights, creations, know-how, work product, and other developments or improvements, if any, patented or unpatented, that Employee, alone or with others, conceived, created, invented, developed, reduced to practice, or caused to be conceived and or caused to be reduced to practice prior to the earlier of (a) commencement of Employee’s employment with Company or (b) when Employee first provided services to Company, is listed on Schedule I attached hereto (“Prior Inventions”).

ii. Pre-Existing Work. If, in the course of Employee’s relationship with Company, Employee uses, relies upon, provides, or incorporates any Prior Invention or any other intellectual property Employee owns, or in which Employee has an interest, into any idea, invention, patent, trademark, service mark, copyright, creation, know-how, work product, and other development or improvement conceived, created, invented, written, developed, furnished, produced, or disclosed in whole or in part, alone or with others, whether or not during working hours, by Employee during the term of Employee’s employment with Company, Employee hereby grants Company, under all of Employee’s intellectual property and proprietary rights, the following worldwide non-exclusive, perpetual, irrevocable, royalty free, fully paid up rights: (a) to make, use, copy, modify, create derivative works of such intellectual property; (b) to publicly perform or display, import, broadcast, transmit, distribute, license, offer to sell, and sell, rent, lease or lend copies of the intellectual property, and derivative works of the intellectual property; and (c) to sublicense the rights in this Subsection 2(iii) to third parties.

iii. Work made for hire. Any work of Employee for which copyright could be claimed developed in the course of Employee’s employment with Company will be deemed “work made for hire” under federal copyright law and all ownership rights to such work belongs exclusively to Company. To the extent any invention does not qualify as a work for hire under applicable law, and to the extent, any invention is subject to copyright, patent, trade secret, or other proprietary right protection, Employee hereby assigns, and agrees to assign, all rights therein to Company.

iv. Required undertakings. Employee agrees, both while an employee of Company and thereafter, to assist Company and its owners and Affiliates, at Company’s sole expense, in any and all attempts to obtain patents, copyrights, and/or trademarks or other intellectual property protection on any work Employee participated in developing and agrees to execute all documents necessary to obtain such rights in the name of or to transfer such rights to Company. If, because of Employee’s mental or physical incapacity or for any other reason whatsoever, after the Company’s reasonable effort to secure Employee’s signature, Company is unable to secure Employee’s signature to apply for or pursue any patents, copyrights, or other protection for any invention assigned to Company under this Agreement or otherwise, Employee irrevocably designates and appoints Company and its duly authorized officers as Employee’s agent and attorney-in-fact to act for Employee and on Employee’s behalf and stead to file any applications and to do all other lawfully permitted acts to further the prosecution and issuance of any patents, copyrights, or other protections with the same legal force and effect as if executed by Employee.

v. Limited Exclusion. This Section 2 does not apply to any inventions or intellectual property for which no equipment, supplies, facility or Confidential Information of Company was used, and which was developed entirely on Employee’s own time, and (a) which does not relate (i) directly or indirectly to the business of Company or (ii) to Company’s actual or demonstrably anticipated research or development, or (b) which does not result from any work performed by Employee for Company.

3. Non-disparagement

Subject to Section 5, Employee agrees that during and after Employee’s period of employment with Company Employee will not, publicly or privately, disparage or defame Company or its Affiliates, or any of Company’s or its Affiliates’ employees, officers, governors, members or agents.

4. Injunctive Relief

In the event of a breach or threatened breach of any covenant in Sections 1, 2, or 3, Employee agrees that Company will be irreparably harmed, that money damages alone cannot adequately compensate Company, and that Company shall be entitled to temporary and injunctive relief as well as all applicable remedies at law or in equity available to Company against Employee including if the Company is the prevailing party in an action to enforce the terms of this Agreement, reasonable attorneys’ fees and costs incurred in bringing any action against Employee or otherwise enforcing the terms of this Agreement. Employee further agrees that in any such action, Company shall be entitled to relief without posting any bond or security.

 5. No Unlawful Restriction 

Employee understands and agrees that nothing in this Agreement or otherwise is intended to or will prevent or interfere with Employee’s ability or right to (a) provide truthful testimony if under subpoena to do so, (b) file any charge with or participate in any investigation or proceeding before the U.S. Equal Employment Opportunity Commission or any other federal, state or local governmental agency, (c) engage in any conduct protected under the National Labor Relations Act, or (d) respond to a subpoena, court order or as otherwise provided by law.

 6. Miscellaneous

i. At-will employment. Employee’s employment with Company is “at will,” which means it may be terminated at any time and for any or no reason, at the option of either Employee or Company.

ii. Assignment. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the Parties, except that the duties and responsibilities of Employee under this Agreement are of a personal nature and shall not be assignable or delegable in whole or in part by Employee.

iii. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances.

iv. Entire agreement. This Agreement together with the Employment Agreement effective as of [DATE] sets forth the entire agreement of the Parties and supersedes any and all prior agreements and understandings concerning Employee’s employment by Company. This Agreement may be changed only by a written document signed by Employee and an authorized representative of Company.

v. Governing law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive and procedural laws of the State of Minnesota without regard to rules governing conflicts of law.

vi. Jurisdiction. Employee irrevocably and unconditionally (a) agrees that any legal proceeding arising out of this Agreement shall be brought in a court of general jurisdiction in the State of [JURISDICTION], (b) consents to the non-exclusive jurisdiction of such court in any such proceeding, and (c) waives any objection to the laying of the venue of any such proceeding in any such court. The employee also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers.

vii. Attorneys’ Fees. In the event of any litigation or other proceeding concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement, the breach thereof or the interpretation hereof, the prevailing party will be entitled to recover from the other party reasonable expenses, attorneys’ fees, and costs incurred therein or in the enforcement or collection of any judgment or award rendered therein. The “prevailing party” means the party determined by the court to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the party in whose favour a judgment is rendered. Further, in the event of any breach by Employee under this Agreement, Employee shall pay all the expenses and reasonable attorneys’ fees incurred by Company in connection with such breach if the Company is the prevailing party.

viii. Counterparts. This Agreement may be executed in any number of counterparts (including facsimile counterparts or counterparts delivered by electronic transmission (e.g., PDF attachment)), each of which shall be an original, but all of which together shall constitute one instrument.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date first above written.

Employee Name

Signature

Company Name

Signature

Conclusion

So, now we understand the importance of an employee intellectual property agreement and how it can affect the company if such an agreement is not drafted. This agreement acts as a layer of protection to the company especially a new company in avoiding any future problems. Much care must be given to the intellectual property of an employee. It can either help in the growth or destruction of the company.

References

• https://www.startupindia.gov.in
• https://www.legawise.com
• https://info.vethanlaw.com
• https://www.businessnewsdaily.com
• https://www.sec.gov

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