Greater flexibility in remote working environments for employees has led to an increase in the revolving door of new and departing employees and greater challenges for employers to keep up with on-boarding and exiting procedures to protect corporate intellectual property (IP) rights. Such intellectual property rights typically include patents which protect inventions; trademarks which protect a company's brand and reputation; copyrights which protect works of authorship and creativity; and trade secrets which protect a company's confidential or propriety information.
The onboarding process serves as an ideal platform to identify any IP rights that may be owned by prior employers and to set the company's expectations regarding intellectual property rights utilized or developed during the course of employment. These processes should assist with screening for third party IP, and specifically protect the company's IP both during and after the term of employment. It is far more efficient to address these issues upfront with processes to posture the company in a favorable position with respect to protecting its IP in order to avoid costly litigation at a later date.
This article takes a look at some useful processes that can be implemented during the on-boarding phase to sort out any third party IP rights and protect the company's IP rights during the course of employment.
Screening for Third Party IP Rights
Prior to entering an employment agreement, it is important to inform potential employees that they may have knowledge of, or be in possession of, intellectual property rights belonging to a prior employer or third party. It is possible, and even likely, that an employee may not appreciate the full scope of any obligations owed to a prior employer or restrictive covenants that carry over. To reduce the risk of any IP theft, employers should proactively inform potential employees about IP rights that may be owned by a prior employer. The onboarding process should request that the potential employee disclose of all prior employers and positions, inventions that are assigned to another company, any continuing duties of confidentiality owed to a third party, and non-compete agreements.
IP Representations and Warranties for Employment Agreements
Every employee, particularly those that might utilize or contribute to the company's intellectual property, should sign an employment agreement as part of the onboarding process. The employment agreement should clearly define the company's expectations regarding IP owned by prior employers, company owned IP, including any IP developed by the employee over the course of employment, and include procedures that the employee should take to protect or maintain company owned IP during and after employment.
A good starting place for an employment agreement is to facilitate the identification of any third party IP that the employee may be in possession of and set expectations regarding company-owned IP. This can be accomplished through warranties or representations in the employee agreement that require:
- Identification of all prior relevant employers and positions held;
- Identification of all prior relevant agreements, particularly those involving, IP ownership, confidentiality provisions, and non-compete provisions;
- Representation that the employee is not aware of, or has disclosed, any restrictions in prior agreements that would limit the scope of employment;
- Agreement that the employee will not divulge or use any third party inventions or third-party confidential or proprietary information, and that the employee has returned all confidential or proprietary information to any prior employers or third parties;
- Agreement that the employee will notify the company of any concerns regarding third party IP that is relevant to the employee's scope of work; and
- Agreement that the employee will disclose and assign all relevant inventions, works, or trade secrets to the company during course of employment.
While having these representations and warranties does not indemnify the company, they can significantly strengthen the company's position if there are any accusations of IP theft resulting from the new employee's actions.
Next, the employment agreement should clearly spell out the company's expectations regarding confidential information. The confidentiality provisions should include obligations to protect the company's confidential and proprietary information which is utilized or created during the course of employment, and extends beyond the term of employment.
Confidentiality provisions are critical to maintaining company information as proprietary and trade secret. Under the Federal Defend Trade Secrets Act ("DTSA"), the owner of a trade secret must establish that it took reasonable measure to keep the information as secret. For example, in Freedom Med. Inc. v. Whitman, the United States District Court for the Eastern District of Pennsylvania 343 F. Supp. 3d 509, 519 (E.D. Pa. 2018), the court determined that the plaintiff company took reasonable measures to maintain its confidential information as secret as required by the DTSA by: (1) identifying the particular information as confidential to its employees, (2) expressly restricting its disclosure, and (3) including restrictive covenants in employee agreements to prohibit exiting employees from using the confidential information. Having a well-established confidentiality policy set forth in an employment agreement is an ideal place to lay the groundwork for protections of company trade secrets.
Confidentiality provisions should also contemplate use of confidential information in the digital world. For example, reasonable security measures should be taken place for employees accessing company systems using personal or mobile devices, and the confidentiality provisions should set the company's expectations regarding privacy settings for such remote access.
Ownership and Assignment of IP
An employment agreement should consider and specifically address anticipated IP-related issues regarding ownership and assignment of rights. While there is often an assumption that all IP rights created during the course of employment are owned by the employer, this may not always be the case. For example, in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, 563 U.S. 776 (2011), the Supreme Court emphasized the well-established law that intellectual property rights to an invention belong to the inventor (i.e., employee) absent an express grant of those rights to the employer.
Having the appropriate assignment language in an employment agreement is often critical to establishing ownership in the event of departing employment or an employee that is unwilling to sign a more specific assignment of rights to the specific invention. In addition, assignment provisions need to be drafted with express, nonconditional language. Assignment provisions with future or conditional provisions, such as "I will assign," may not be enforceable.
As an example, in Stanford University v. Roche Molecular Systems, 583 F.3d 832, 842 (Fed. Cir. 2009), a researcher signed an agreement upon joining Stanford stating that he "agree[d] to assign" his right, title and interest in inventions resulting from his employment to Stanford. The U.S. Court of Appeals for the Federal Circuit interpreted this clause as a promise to assign rights at some point in the future and not a present assignment. As a mere promise to assign rights in the future, such language was held to be unenforceable without a subsequent assignment to transfer legal title.
As a result, provisions that create a promise to assign future IP are problematic and may not be enforceable. Assignment language should be drafted with present, non-conditional language such as, "I do hereby assign," in order to be enforceable.
In addition to confidentiality and assignment provisions, an employment agreement should include an obligation to execute any future documents related to IP that was created during the course of employment. As an example, patent applications may require execution of a declaration from an employee/inventor post-termination of employment. Including this language upfront in an employment agreement can potentially reduce any problems with obtaining signatures on such documents post-termination.
Employee agreements should also include an obligation to return all confidential materials to the company prior to or at termination. Such a provision should require the return of all documents, electronically stored information, electronic devices or storage media, and other company property. In addition, the agreement should require the employee to confirm satisfaction of this obligation in writing prior to termination.
In summary, the employee onboarding process is the ideal time to lay the groundwork for protecting a company's intellectual property and to avoid treading on any third party intellectual property rights carried over from past employers. Adopting provisions in a company's employment agreements to screen for third party IP rights and to include appropriate confidentiality, ownership, and assignment provisions relating to intellectual property can help avoid costly litigation down the road. Most importantly, it is critical to implement and enforce these provisions at the onboarding phase, during employment, and post-termination.
Reprinted with permission from the February 23, 2021 issue of The Legal Intelligencer ©2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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