This article has been written by Aditya Rastogi, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. This article has been edited by Zigishu Singh (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho).
Companies are often into hiring and investing in employees in order to develop new products, improve the processes and create new kinds of technologies, inclusive of developing new markets. With this kind of investment, it should not be surprising that employers are generally into owning the intellectual properties that are created by the employees in the due course of employment. However, intellectual property which is created by the employee, other than the ones made in the course of employment of the employee, is generally owned by the employee and not the respective employer.
Employers should not make assumptions with regard to ownership
Intellectual property created during the period of an employee’s employment is not equal to the employer’s automatic and exclusive ownership of any and all kinds of intellectual property. In fact, employers who believe that they own such developed property automatically might pay an expensive price – through loss of inventions or improvements as a result of failing to protect such intellectual property or for not effectively being able to secure the rights from employees.
Critical to the employer’s own towards the intellectual property, an agreement is entered into with the employee as a party, especially one that is specifically assigned to the company with regard to all kinds of intellectual property created by the employee during the course of his or her employment in the company. Such an agreement is often known as an “assignment of inventions” or “ownership of discoveries” agreement. If such an agreement is absent, then the employee may have ownership rights in the intellectual property which he or she created while working in the company, even if the individual was specifically hired to invent a particular product or process.
In order to avoid disputes over whether sufficient consideration exists to support the validity of the agreement, employers should always make sure that the agreement is executed prior to that of the commencement of the employee-employer relationship, and the agreement should also clearly reflect that respectively. In the case where the agreement was not entered in accordance with the start of the employment period, the employer should also provide additional and sufficient consideration in order to support the agreement. It is also important to the agreement that an addendum is included, where the individual identifies all kinds of intellectual property in which he or she has an ownership interest prior to the commencement of his or her employment with the company.
If the agreement is executed once the employment has commenced, the employee should consider such property to be of the employer. Also, employers should make sure to use similar “assignment of inventions” or “ownership of discoveries” provisions in agreements when they are working with independent contractors. The independent contractor agreement should clearly mention that the independent contractor’s work related to authorship, finishing of the product, all inventions, or other intellectual property will be exclusively owned by the company which will be free of any royalty fee or license. The agreement should also state the independent contractor “hereby assigns” all possible rights in the intellectual property in order to eliminate any kind of issues if and when the company pursues a patent or copyright for the developed products or the inventions.
Risk management strategy to be adopted by employers
- Determine if there is a written agreement with his employees and all independent contractors. If such agreement exists, then is it inclusive of an “assignment of inventions” or “ownership of discoveries” clauses or, does that provision clearly mention the employee “hereby assigns” all kinds of rights and ownership in the intellectual property, trademarks or, copyrights.
- Also, make sure that the written agreement is always supported by sufficient consideration. Is the agreement executed prior to that of the commencement of the employee employment or later and if later, then what all additional considerations did the company conclusively provide to the employee in exchange for his or her execution of the particular agreement.
- Have an idea of the kind of prospective employees and/or independent contractors in order to clearly identify, in writing, those who will own such Intellectual property.
- Periodically conduct employee surveys in order to update and identify, in writing, the intellectual property which they believe to be of their own and make sure that such intellectual property is created independently by the company’s resources.
- Conduct exit interviews with employees and independent contractors, reminding them of their all-possible contractual obligations.
Opportunities exist for employees to own their ideas
Where there exists no employment agreement in order to assign rights to the employer, employers can still successfully impose ownership rights upon the employee inventions which are created during the period of the employee’s employment.
The primary focus of this analysis should be the reason for the hiring of a particular employee. If the employee is hired to create the intellectual property as a core part of their job, the employer should be the owner of the intellectual property. Thus, appropriate examination of the employment contract and the relative duties described therein can be worth determining of the ownership inquiry. In absence of a written agreement, the courts will look into whether the employer gave directives for the employee to achieve the respective goals. Ideas that come from these directions will generally belong to the employer. Consideration needs to be given in all kinds of circumstances.
One must also make sure to consider whether there exists an employee-employer relationship between them or not. In many cases, the hiring is of independent contractors. This too is a factor ripe for analysis, and with significant consequences.
Patent ownership, like copyright, is presumably owned by the inventor. Agreements like employment agreements usually require assignment of several ideas, which includes patentable ones, with respect to the employer. Even if such an agreement is not in existence, generally employee ownership may not result in the exclusivity of use or exploitation of that particular idea. The employer may still have certain rights in the process or invention whose development is employer-supported. The idea of providing such rights to the employer simply gives the respective employer who is providing funding, materials, tools, or work time with respect to the project pertaining to nonexclusive royalty-free rights to use such invention by the employee. The employer may or may not assign or transfer any particular kind of rights to another unless it is expressly allowed, with the kind of exception of a transfer of the employer’s business as part of a business sale.
Contracts play a major role in the ownership of trade secrets as well. In case of the absence of a contract, state laws will govern the ownership. This is a major patchwork of associated laws and decisions which may be of assistance to the employee to assert the ownership relatively over a trade secret or attack pertaining to the relative notion that the particular idea is a trade secret, in the cases where a contract is not existing or is not enough specific with respect to the idea which is at issue. In the cases where the idea is not protected by copyright, patent, or trade secret law, the idea is considered to be free for all to take, regardless of one’s former or current employment relationship.
Finally, slogans and trademarks are typically not the subjects of ownership-related disputes. Trademarks generally belong to those who usually use them and not those who create them. Thus, the respective company usually uses a mark that is used to promote a particular service or the goodwill owns the respective mark and the goodwill which is associated with that mark. Disputes over trademark ownership in an employee-employer relationship would be atypical.
Risk management strategy to be adapted by employees
- Examine the employment agreement. Understand what you sign before you sign it and seek legal advice if you are unsure of what rights you have retained.
- Look at any other agreements executed and determine whether consideration was paid for the execution of those agreements. Agreements signed after the employee are employed will be open to challenge if additional, insufficient and consideration was not provided for the respective obligations.
- Keep the records that document the creation of certain ideas on your own time, with the funds and your own equipment. Never rely upon memory and never assume that these ideas worked on at home or on your own time belong to you.
- Review all kinds of non-compete agreements to assess enforceability and reasonableness. Certain kinds of matters will not be enforceable under all non-compete agreements even if those agreements have a hindering effect in case of employees changing jobs and which are not really labelled as “non-compete” kind of agreements.
- Were you an employee or an independent contractor? The difference matters in determining the ownership and should be consistently reviewed by a legal professional.
For the intellectual properties invented by the employees, they have full ownership rights over the same, pertaining to the policies of the respective organisation. Ensuring the ownership rights on the inventions it is very important for both the employees and employers to understand the contracts or the respective agreement which particularly mentions the clause related to the inventions which are done or developed during the course of employment. Hence, it is very important to adapt certain risk management strategies with regard to intellectual properties.
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