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Source: https://www.goodmanallen.com/intellectual-property-in-employment-agreements/

Intellectual Property in Employment Agreements

 Jul 14th, 2020  Crux of the Matter Blog, Intellectual Property

One of your employees has developed a new method that substantially improves the efficiency of a process your company uses to manufacture one of its product lines. You want to file a patent application to cover the new method, but the employee refuses to cooperate and says that the invention belongs to him, not the company. Or, worse yet, the employee leaves the company and moves to your competitor. Shortly after commencing employment there, the competitor implements the improved method as well. So, who actually owns the intellectual property developed by an employee and how can a company protect itself from costly lawsuits or settlements regarding this issue?

Employment Agreements

For a company with substantial intellectual property in hand and under development, it is important to have employment agreements for new employees that include clauses for dealing with intellectual property rights.

When hiring new employees, be certain to have IP disclosure and assignment clauses in employment agreements for all employees. These clauses should require the new employee to promptly disclose new inventions or other intellectual property to the employer upon conception and to assign such inventions to the employer at that time. Be certain that the agreement is clear that the employee has an obligation to assign new inventions to the new employer as a part of the employment and that the employee has a duty to assist with the patenting process for such inventions.

Employment Agreements Should be Signed at the Start of Employment

Have all new employees sign such agreements prior to employment or at least on the first day. Some states may require additional consideration once employment has already commenced for such clauses to be valid. In those states, in order for the later signed agreements to be valid, the employer must provide a raise, bonus, or something else of value to the employee. Many companies do provide bonuses as incentives to produce patentable inventions, but these are not requirements for the validity of the employment agreement.

Use Common Legal Language in Employment Agreements

When preparing employment agreements, keep in mind that certain words have specific definitions or understandings in patent law.  For example, ambiguity could arise as to whether the employee would “conceive” and “make” an invention.  Try to stick with the definitions that are common to patent law.  “Conception” refers to “formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is thereafter to be applied to practice.” This is more than just a vague idea of an invention, as it requires definite plans for how to implement the invention. “Make” or “reduction to practice” refers to the act of actually making the invention work for its intended purpose.

Inventions Made Prior to Employment

Next, to avoid a dispute as to whether the invention was developed prior to employment, when executing the agreement, give the new employee the opportunity to indicate that he developed the invention prior to commencing employment. Require that he prove this development by providing sufficient detail so that he can’t later argue that vague statements constitute conception. Unless the parties agree otherwise, the employee should retain all rights in inventions that he conceived or invented prior to commencing employment. This can also reduce the potential for a dispute with a prior employer that it owns an unpatented invention the former employee developed while working for the previous employer.

IP Assignment Provisions

Finally, use language that requires the employee to promptly disclose inventions to the company and to “hereby assign” all future inventions. This way, an assignment is not required later once the employment has ended and you need to find the former employee and potentially sue him to obtain his cooperation. Instead, make the assignment effectual as soon as inventions are conceived.

Former employees are not always cooperative in the patent process for their former employers. You should probably include language the grants the employer at least a partial power of attorney to execute documents on behalf of the former employee inventor in cases where that becomes necessary.

Planning ahead by including intellectual property provisions in employment agreements can save a substantial amount of time and money in the event you later try to secure rights in inventions that are important to your company.

Intellectual Property (IP) clauses are a crucial component of modern employment agreements, often determining the ownership and rights to valuable innovations and creative works. As a corporate attorney with over two decades of experience in intellectual property law and employment agreements, I’ve seen firsthand how these clauses can significantly impact both employers and employees.

Whether you’re a business owner looking to protect your company’s innovations or an employee trying to understand your rights, navigating the complexities of IP clauses can be challenging. To help demystify this important topic, I’ve compiled a list of 20 frequently asked questions about IP clauses in employment agreements.

This FAQ covers issues from the basics of what IP clauses entail to more nuanced issues like handling open source contributions, the impact of remote work, and international considerations.

By the end of this guide, you’ll have a clearer understanding of how IP clauses work, what they typically cover, and how they might affect your rights and obligations in the workplace. Remember, while this information provides a solid foundation, it’s always advisable to seek personalized legal advice for your specific situation.

Let’s dive into the questions:

Contents

What exactly does “work made for hire” mean in an IP clause?

“Work made for hire” is a legal concept in copyright law that determines the authorship and ownership of copyrightable works created by employees or independent contractors. In the context of an employment agreement, works created by an employee within the scope of their employment are generally considered “works made for hire,” meaning the employer is considered the author and owner of the copyright from the moment of creation.

However, it’s important to note that the “work made for hire” doctrine only applies to copyrightable works and does not cover other forms of IP such as patents or trade secrets. Additionally, for independent contractors, only certain types of works can qualify as “works made for hire,” and this designation must be explicitly agreed upon in writing before the work begins.

Employers often include “work made for hire” language in IP clauses to ensure they own the copyright to employee-created works. However, this language alone may not be sufficient to transfer ownership of all types of IP, which is why comprehensive IP assignment provisions are typically included as well.

Can an employer claim ownership of an invention I created entirely at home and unrelated to my work?

Generally, an employer cannot claim ownership of an invention that you created entirely at home, using your own resources, and that is unrelated to your work or the employer’s business. However, the specific answer depends on the terms of your employment agreement and the laws of your jurisdiction.

Many states have laws that limit an employer’s ability to claim ownership of employee inventions. For example, California Labor Code Section 2870 specifically prohibits employers from requiring employees to assign inventions that the employee developed entirely on their own time without using the employer’s equipment, supplies, facilities, or trade secret information, unless the invention relates to the employer’s business or actual or demonstrably anticipated research or development, or results from any work performed by the employee for the employer.

However, even if your invention falls outside of what your employer can claim, most IP clauses require you to disclose all inventions to your employer. This allows the employer to determine whether they have any claim to the invention.

If you’re working on personal projects or inventions, it’s crucial to:

  1. Thoroughly review your employment agreement

  2. Keep detailed records of when and how you developed your invention

  3. Avoid using any company resources or confidential information

  4. Consider discussing the matter with a legal professional if you’re unsure about your rights

How does an IP clause typically handle improvements or modifications to existing company IP?

IP clauses often explicitly address improvements or modifications to existing company IP. Typically, these clauses will state that any improvements, modifications, or derivatives of company IP created by the employee during their employment are also assigned to the company.

For example, a clause might read: “Employee agrees to assign and hereby assigns to Company all rights, title, and interest in any improvements, modifications, or derivative works based on Company’s existing intellectual property, regardless of whether such improvements were created during working hours or using Company resources.”

This approach ensures that the company maintains control over the evolution of its intellectual property. It prevents situations where an employee could claim ownership over an improved version of a company product or process, which could potentially compete with or devalue the original.

However, the enforceability of such clauses can sometimes be challenged, particularly if the improvement is substantial and arguably constitutes a new invention. Some jurisdictions may require additional compensation for significant improvements, especially in the case of patentable inventions.

Employees should be aware of these provisions and consider their implications, especially if they’re in a role where they’re likely to be improving or building upon existing company IP. If an employee believes they’ve created a significant, novel improvement, they may want to discuss the situation with their employer and possibly negotiate separate terms for that specific innovation.

What rights do I retain if I assign my intellectual property to my employer?

When you assign your intellectual property to your employer, you’re essentially transferring ownership of that IP to the company. However, you may retain certain rights, depending on the specific terms of your agreement and applicable laws. Here are some rights you might retain:

  1. Moral Rights: In many countries, creators retain certain “moral rights” to their work, such as the right to be identified as the creator or to object to derogatory treatment of the work. In the US, moral rights are limited and mainly apply to visual arts.

  2. Right to Be Named as Inventor: For patentable inventions, you generally retain the right to be named as the inventor on the patent application, even if you’ve assigned the rights to your employer.

  3. Right to Use General Knowledge and Skills: You typically retain the right to use the general knowledge and skills you’ve gained during your employment, even if you developed them while working on projects you’ve assigned to your employer.

  4. Limited License or Use Rights: Some agreements may grant you limited rights to use or reference the assigned IP, particularly for non-commercial purposes like including it in a portfolio.

  5. Revenue Sharing or Bonuses: Some employment agreements, particularly in research-intensive fields, may include provisions for the employee to receive a share of revenues or bonuses related to successful commercialization of their assigned IP.

  6. Rights to Personal Projects: If your agreement includes exceptions for personal projects or prior inventions, you would retain rights to these.

It’s important to carefully review your employment agreement and any separate IP assignment agreements to understand exactly what rights you’re retaining. If you’re concerned about retaining certain rights, you may be able to negotiate specific carve-outs or licenses as part of your agreement.

How do IP clauses typically handle open source contributions?

The treatment of open source contributions in IP clauses can vary significantly between companies. Generally, there are a few common approaches:

  1. Explicit Permission: Some IP clauses explicitly allow employees to contribute to open source projects, often with certain conditions. For example: “Employee may contribute to open source projects that are not competitive with Company’s business, provided that such contributions are made outside of working hours and without use of Company resources.”

  2. Case-by-Case Approval: Many companies require employees to obtain approval before making any open source contributions. The clause might state: “Employee must obtain written approval from Company before contributing to any open source project.”

  3. Blanket Prohibition: Some conservative companies may prohibit all open source contributions without exception.

  4. Limited Scope: The IP clause might limit the company’s claim to IP that’s related to its business, implicitly allowing open source contributions that fall outside this scope.

  5. Separate Policy: Instead of addressing open source in the IP clause itself, some companies refer to a separate open source policy that provides more detailed guidelines.

For companies that do allow open source contributions, common conditions include:

  • The contribution must not involve company confidential information or trade secrets

  • The contribution must not be directly related to the company’s products or services

  • The employee must not use company time or resources for the contribution

  • The contribution must not conflict with the employee’s duties to the company

It’s important for employees who wish to contribute to open source projects to carefully review their employment agreement and any relevant company policies. If the agreement is unclear or overly restrictive, employees may want to discuss the matter with their employer and potentially negotiate more favorable terms.

Companies, especially in the tech sector, are increasingly recognizing the value of allowing and even encouraging open source contributions, as it can enhance employees’ skills, contribute to the company’s reputation, and foster innovation. However, they must balance this with protecting their proprietary IP and ensuring employees’ primary focus remains on their work duties.

Can my employer claim ownership of IP I created before joining the company?

Generally, an employer cannot claim ownership of IP you created before joining the company. Your pre-existing IP, often referred to as “prior inventions” or “background IP,” remains your property unless you explicitly agree to transfer ownership.

However, there are several important considerations:

  1. Disclosure Requirement: Many employment agreements require you to disclose all relevant prior inventions. This helps prevent future disputes about whether something was created before or during your employment.

  2. Related IP: If your prior IP is closely related to your work for the new employer, the situation can become complex. The employer might claim that improvements or modifications made during your employment belong to them.

  3. License Rights: Some agreements may require you to grant the employer a license to use your prior IP if it’s relevant to your work for them.

  4. Broad Assignment Clauses: Be cautious of overly broad IP assignment clauses that seem to cover all IP, including prior inventions. These are generally not enforceable for truly pre-existing IP, but they can create confusion and potential legal issues.

  5. Use in New Role: If you use your prior IP in your new role, it could potentially become intermingled with your employer’s IP, creating a complex ownership situation.

To protect your pre-existing IP:

  1. Carefully review the IP clause in your employment agreement before signing.

  2. Create a clear, detailed list of your prior inventions and attach it to your employment agreement.

  3. Ensure the agreement explicitly excludes your listed prior inventions from any IP assignment.

  4. If you plan to use or further develop your prior IP in your new role, discuss this with your employer upfront and consider negotiating specific terms.

  5. Keep thorough records of the development of your prior IP, including dates and use of resources.

Remember, while employers generally can’t claim your pre-existing IP, they may have legitimate concerns about its use or further development during your employment. Open communication and clear documentation are key to avoiding conflicts in this area.

How do IP clauses apply to independent contractors versus employees?

IP clauses can differ significantly for independent contractors compared to employees. Here are the key differences:

Default Ownership:

  • For employees, works created within the scope of employment are generally considered “work made for hire,” with the employer automatically owning the copyright.

  • For independent contractors, the default is that the contractor owns the IP they create, unless there’s a written agreement stating otherwise.

Scope of Assignment:

  • Employee IP clauses often cover a broad range of IP created during employment.

  • Contractor IP clauses are typically more narrowly focused on the specific work product defined in the contract.

“Work Made for Hire” Doctrine:

  • This automatically applies to employees for works created within their employment.

  • For contractors, only certain types of works can be considered “work made for hire,” and this must be explicitly agreed to in writing.

Duration:

  • Employee IP clauses often cover the entire period of employment.

  • Contractor IP clauses usually only cover the duration of the specific project or contract.

Use of Resources:

  • Employee IP clauses often claim ownership of IP created using company resources.

  • Contractor agreements typically assume the contractor is using their own resources unless specified otherwise.

Disclosure Requirements:

  • Employees are often required to disclose all inventions, whether or not related to their work.

  • Contractors typically only need to disclose IP directly related to the contracted work.

Future Developments:

  • Employee agreements might claim rights to future developments related to work done during employment.

  • Contractor agreements usually don’t extend to future developments beyond the scope of the contract.

Compensation:

  • For employees, IP assignment is usually considered part of their regular compensation.

  • Contractors often negotiate separate compensation for IP rights, especially for ongoing use or exclusive rights.

Enforcement:

  • Employee IP clauses are generally easier to enforce due to the nature of the employment relationship.

  • Contractor IP clauses may require more careful drafting to ensure enforceability.

Given these differences, it’s crucial for both companies and contractors to carefully review and negotiate IP clauses in their agreements. Companies working with contractors should ensure they secure the necessary rights to the work product. Contractors should be clear about what rights they’re transferring and consider retaining rights for portfolio use or future projects unrelated to the client’s business.

What happens to my rights under an IP clause if my employer goes bankrupt?

The fate of IP rights in the event of an employer’s bankruptcy can be complex and depends on various factors. Here’s a general overview:

  1. IP as Company Asset: Intellectual property that has been properly assigned to the company is considered a company asset. In bankruptcy, these assets become part of the bankruptcy estate.

  2. Chapter 7 Liquidation:

  • If the company undergoes Chapter 7 liquidation, its assets (including IP) may be sold to pay creditors.

  • The purchaser of the IP would generally acquire the rights the company held, including rights to employee-created IP.

Chapter 11 Reorganization:

  • In Chapter 11 reorganization, the company may continue to operate and retain its IP.

  • The reorganization plan may involve selling or licensing some IP assets.

Incomplete Assignments:

  • If the IP assignment was incomplete or flawed, there might be questions about whether the IP is actually a company asset.

  • In some cases, rights might revert to the employee-creator if the assignment was contingent on conditions the bankrupt company can no longer meet.

Executory Contracts:

  • Some IP agreements might be considered “executory contracts” in bankruptcy, which the company can choose to assume or reject.

  • If rejected, this could potentially result in rights reverting to the employee-creator.

License Agreements:

  • If you’ve retained some license rights to your assigned IP, these rights might be affected by the bankruptcy proceedings.

  • The treatment of these licenses can vary depending on whether they’re considered executory contracts and whether the company assumes or rejects them.

Moral Rights:

  • In jurisdictions that recognize moral rights, these typically remain with the creator regardless of bankruptcy.

Ongoing Obligations:

  • You may still have ongoing obligations, such as assisting with IP protection, even if your employer is bankrupt.

Unpaid Wages or Promised Compensation:

  • If you’re owed wages or promised compensation related to IP creation, you might become a creditor in the bankruptcy proceedings.

Future Improvements:

  • Rights to improvements or derivatives of the IP post-bankruptcy can become complicated and may depend on the terms of the original agreement and the nature of the bankruptcy resolution.

Given the complexity of these situations, if you find yourself in this scenario, it’s advisable to:

  1. Review your employment agreement and any separate IP assignments carefully.

  2. Consider seeking legal advice to understand your specific rights and obligations.

  3. Keep records of all your IP contributions and any related agreements or communications.

  4. Stay informed about the bankruptcy proceedings, as you may need to file claims or respond to notices.

  5. Be cautious about using or further developing any IP that might be subject to dispute.

Remember, while bankruptcy can complicate IP ownership and rights, it doesn’t necessarily mean you lose all rights or that the IP becomes public domain. The specific outcome will depend on the nature of the bankruptcy, the terms of your agreements, and the decisions made during the bankruptcy process.

How do IP clauses typically handle inventions or creations made during unpaid leave or sabbaticals?

The treatment of IP created during unpaid leave or sabbaticals can vary depending on the specific terms of the employment agreement and the nature of the leave. Here’s how IP clauses typically handle these situations:

  1. Explicit Provisions: Some employment agreements explicitly address IP creation during leaves of absence. These provisions might state whether the regular IP assignment clause applies during such periods.

  2. Continued Employment Relationship: Even during unpaid leave, the employment relationship often continues. Some IP clauses are written broadly enough to cover any IP created during the period of employment, which could include leaves of absence.

  3. Use of Company Resources: If the employee uses company resources or confidential information during their leave to create IP, the employer may have a stronger claim to ownership, even if the leave is unpaid.

  4. Nature of the Leave: The purpose of the leave can be relevant. For example:

  • A sabbatical granted for academic or research purposes might have different IP implications than personal leave.

  • Leave taken to work on a specific project for the employer would likely result in IP ownership by the employer.

  1. Relevance to Employer’s Business: Some IP clauses only claim ownership of inventions related to the employer’s business or the employee’s work. In these cases, unrelated inventions created during leave might remain the employee’s property.

  2. Disclosure Requirements: Many agreements require employees to disclose all inventions, even those created during leave, allowing the employer to assess any potential claims.

  3. Jurisdiction-Specific Laws: Some jurisdictions have laws that limit an employer’s ability to claim inventions made without use of employer resources, which could apply to unpaid leave periods.

  4. Negotiated Exceptions: Employees planning a sabbatical or extended leave might negotiate specific exceptions to the IP clause for that period.

Best practices for handling IP during unpaid leave or sabbaticals:

  1. Review Your Agreement: Carefully review your employment agreement and any sabbatical or leave policies before your leave begins.

  2. Seek Clarification: If the agreement is unclear about IP created during leave, ask for written clarification from your employer.

  3. Negotiate if Necessary: If you plan to work on potentially valuable IP during your leave, consider negotiating specific terms before the leave begins.

  4. Document Your Work: Keep clear records of when and how you develop any IP during your leave. This can help establish ownership if questions arise later.

  5. Avoid Using Company Resources: To strengthen your claim to personal ownership, avoid using any company resources, including equipment, software, or confidential information, while on leave.

  6. Consider the Purpose of Leave: Be mindful of the stated purpose of your leave. If it’s a sabbatical for personal projects, make sure your activities align with that purpose.

  7. Disclose Appropriately: Follow any disclosure requirements in your agreement, but be strategic about what and when you disclose.

  8. Separate Unrelated Work: If possible, work on projects unrelated to your employer’s business to reduce the likelihood of ownership disputes.

  9. Be Aware of Ongoing Obligations: Remember that confidentiality and non-compete clauses may still apply during leave periods.

  10. Seek Legal Advice: If you’re planning to work on potentially valuable IP during leave, consider getting legal advice to understand your rights and obligations.

For employers:

  1. Clear Policies: Develop clear policies about IP creation during various types of leave.

  2. Specific Leave Agreements: Consider creating specific IP agreements for sabbaticals or extended leaves.

  3. Regular Reviews: Regularly review and update IP clauses to ensure they adequately address leave scenarios.

  4. Balanced Approach: Strive for a balance between protecting company interests and allowing employees freedom during their leave.

Both parties should be aware that the enforceability of IP clauses for work done during unpaid leave can vary by jurisdiction. Some courts might view attempts to claim ownership of IP created during unpaid personal leave as overreaching, especially if no company resources were used.

Ultimately, clear communication and mutually agreed-upon terms before the leave begins can prevent misunderstandings and potential disputes over IP created during unpaid leave or sabbaticals.

How do IP clauses typically address collaborative work with colleagues from other companies?

Collaborative work across company lines can create complex IP ownership scenarios. Typically, IP clauses address this issue in several ways:

  1. Pre-existing Agreements: Many companies have inter-company agreements in place before allowing collaborative work. These agreements often specify how IP resulting from the collaboration will be owned or shared.

  2. Joint Ownership: Some IP clauses may allow for joint ownership of IP created through collaboration, with each company having rights to use and potentially license the IP.

  3. Project-specific Agreements: For specific collaborative projects, companies might create separate agreements that override or supplement the standard IP clauses in employment agreements.

  4. Disclosure Requirements: Employees are often required to disclose any collaborative work that could result in IP creation, allowing the employer to assess and manage potential IP issues.

  5. Approval Processes: Some IP clauses require employees to obtain approval before engaging in collaborative work that could result in IP creation.

  6. Distinction of Contributions: Clauses may specify that the company claims ownership only of the portion of collaborative work directly contributed by their employee.

  7. Licensing Provisions: In some cases, the IP clause might allow for cross-licensing of collaboratively created IP between the involved companies.

It’s crucial for employees involved in cross-company collaborations to:

  1. Understand their company’s policies on collaborative work

  2. Seek clarification and potentially written approval before engaging in such work

  3. Keep clear records of their specific contributions to collaborative projects

  4. Be aware of any agreements between the companies regarding the collaboration

Companies should ensure their IP clauses and collaboration policies are clear and comprehensive to avoid disputes over ownership of collaboratively created IP. They should also have processes in place for quickly establishing project-specific IP agreements when needed for collaborations.

What are the implications of IP clauses for academic researchers who also work in industry?

Academic researchers who also work in industry often face unique challenges when it comes to IP clauses. The implications can be significant:

  1. Potential Conflicts: There may be conflicts between the IP policies of the academic institution and the industry employer. Academic institutions typically allow researchers more freedom to publish and share findings, while industry employers often prioritize confidentiality and exclusive rights.

  2. Ownership Disputes: Both the academic institution and the industry employer may claim ownership of IP created by the researcher, especially if the work relates to both roles.

  3. Publication Rights: Industry IP clauses may restrict the researcher’s ability to publish findings, which can conflict with academic requirements and norms.

  4. Use of Resources: The use of resources from both the academic institution and the industry employer can complicate IP ownership claims.

  5. Disclosure Requirements: Researchers may face competing disclosure requirements from both entities.

  6. Funding Implications: The source of funding for research can impact IP ownership and the researcher’s rights.

  7. Technology Transfer: There may be complications in transferring technology between the academic and industry settings.

  8. Academic Freedom: Overly restrictive IP clauses from industry employment could potentially infringe on academic freedom.

To navigate these challenges:

  1. Clear Communication: Researchers should clearly communicate their dual roles to both the academic institution and industry employer.

  2. Review Both Agreements: Carefully review and compare the IP clauses and policies of both the academic institution and industry employer.

  3. Negotiate Exceptions: Consider negotiating exceptions or clarifications in the industry IP clause to accommodate academic responsibilities.

  4. Segregate Work: When possible, keep academic and industry work clearly separated.

  5. Understand Funding Sources: Be aware of how different funding sources (grants, industry funding, etc.) affect IP rights.

  6. Seek Institutional Support: Many academic institutions have offices to help researchers navigate these issues.

  7. Consider Conflict of Interest Policies: Be aware of and comply with conflict of interest policies at both institutions.

  8. Document Everything: Keep clear records of when and where work is done, and what resources are used.

  9. Collaborative Agreements: For projects involving both academia and industry, consider establishing specific collaborative agreements that address IP rights.

Academic researchers working in industry should be proactive in understanding and managing their IP obligations to both entities. It’s often advisable to seek legal counsel to help navigate these complex situations and ensure compliance with all relevant policies and agreements.

How do IP clauses typically handle employee-created improvements to public domain technologies?

The treatment of employee-created improvements to public domain technologies in IP clauses can be nuanced. Here’s how these situations are typically handled:

  1. Derivative Works: While the original public domain technology remains free for anyone to use, improvements or derivative works based on it can be subject to new IP rights. Many IP clauses are written broadly enough to claim ownership of such improvements.

  2. Scope of Employment: If the improvement was created within the scope of employment or using company resources, most IP clauses would claim ownership for the employer.

  3. Relevance to Company Business: Some IP clauses only claim ownership of innovations related to the company’s business. If the improvement falls within this scope, the company would likely claim ownership.

  4. Novel Elements: IP clauses often focus on the novel elements contributed by the employee. While they can’t claim the public domain aspects, they may claim rights to the specific improvements.

  5. Patent Potential: If the improvement is significant enough to be potentially patentable, many IP clauses would require the employee to assign rights to the employer.

  6. Open Source Considerations: If the public domain technology is often used in open source contexts, some companies have specific policies about contributing improvements back to the community.

  7. Disclosure Requirements: Most IP clauses require employees to disclose all potentially valuable innovations, which would include improvements to public domain technologies.

  8. Use of Company Resources: If company resources were used to create the improvement, most IP clauses would claim ownership, even if the base technology is in the public domain.

  9. Distinguishing Improvements: It’s important to clearly distinguish the employee’s improvements from the underlying public domain technology. This can affect what the company can claim ownership over.

Considerations for employees and employers:

For Employees:

  1. Clearly document the public domain elements and your specific improvements.

  2. Understand your company’s policy on improvements to public domain or open source technologies.

  3. If you’re working on such improvements in your personal time, be cautious about using any company resources.

For Employers:

  1. Ensure IP clauses clearly address improvements to existing technologies, including those in the public domain.

  2. Consider implementing a policy specifically for handling improvements to public domain or open source technologies.

  3. Provide guidance to employees on how to document and disclose such improvements.

Both parties should be aware that while the original public domain technology remains free for anyone to use, new, non-obvious improvements could potentially be subject to new IP rights. The key is to clearly delineate the novel improvements from the underlying public domain elements.

What are the implications of IP clauses for employee-created content on personal social media accounts?

The intersection of IP clauses and employee-created content on personal social media accounts can be a complex area. Here are some key implications:

  1. Scope of Employment: If the social media content is created as part of the employee’s job duties, most IP clauses would claim ownership for the employer, even if posted on a personal account.

  2. Use of Company Resources: Content created using company resources (e.g., during work hours, using company equipment) might fall under the employer’s IP claim, depending on the clause’s wording.

  3. Relevant Subject Matter: Some IP clauses only claim ownership of content related to the company’s business. Personal posts unrelated to work may not be covered.

  4. Company Reputation: While not strictly an IP issue, many employment agreements have clauses about social media use that can interact with IP considerations.

  5. Confidentiality: IP clauses often work in conjunction with confidentiality provisions, which could restrict sharing certain information on social media.

  6. Personal Brand vs. Company Brand: There can be gray areas when an employee’s personal brand overlaps significantly with their professional role.

  7. Account Ownership: In some cases, companies might claim ownership of social media accounts used for work purposes, even if they were originally personal.

  8. Influencer Activities: For employees who are also influencers, there might be conflicts between personal sponsorship deals and company IP claims.

  9. Post-Employment Use: Some IP clauses extend to a period after employment ends, which could affect an employee’s ability to use certain content post-employment.

Key considerations:

For Employees:

  1. Understand your company’s social media policy and how it interacts with the IP clause in your contract.

  2. Be cautious about posting work-related content on personal accounts without approval.

  3. Clearly separate personal and professional social media activities where possible.

  4. Be aware that building a personal brand around your professional expertise could potentially lead to IP conflicts.

For Employers:

  1. Clearly define expectations around personal social media use in relation to work.

  2. Consider implementing a specific social media policy that addresses IP concerns.

  3. Provide guidelines on what types of work-related content can and cannot be shared on personal accounts.

  4. Be clear about any claims on social media accounts or content post-employment.

Both parties should be aware that the law in this area is still evolving, and there have been legal disputes over ownership of social media accounts and content. Clear policies and open communication can help prevent misunderstandings and potential conflicts.

It’s also worth noting that overly restrictive policies on personal social media use can potentially impact employee morale and could, in some cases, run afoul of labor laws protecting certain types of employee communication. Therefore, a balanced approach that respects both the company’s IP interests and the employee’s personal expression is often the most effective strategy.

How do IP clauses typically address employee-created intellectual property that uses AI or machine learning tools?

The rapid advancement of AI and machine learning technologies has introduced new complexities into IP clauses. Here’s how these clauses typically address employee-created IP using AI or ML tools:

  1. Broad Language: Many IP clauses use broad language that would encompass any creation by an employee, regardless of the tools used. This could include AI-assisted creations.

  2. Tool-Agnostic Clauses: Some clauses are intentionally tool-agnostic, focusing on the output rather than the means of creation. These would typically claim ownership of AI-generated content just like any other employee creation.

  3. Specific AI Provisions: More recent or updated IP clauses might include specific provisions addressing AI-created or AI-assisted work.

  4. Use of Company Resources: If the AI or ML tool is a company resource, the use of this tool would typically strengthen the company’s claim to the resulting IP.

  5. Training Data Considerations: Some clauses may address the ownership and use of data used to train AI models, as this can be a valuable form of IP.

  6. Novel vs. Derivative Works: There may be distinctions made between entirely novel AI-generated works and those that are more derivative of existing company IP.

  7. Disclosure Requirements: Employees may be required to disclose the use of AI tools in their creative or inventive processes.

  8. Authorship and Inventorship: Some clauses may address the complex question of authorship or inventorship when AI is heavily involved in the creative process.

Key considerations:

For Employees:

  1. Understand your company’s policy on the use of AI tools, especially if using personal or third-party AI services for work-related tasks.

  2. Be transparent about the use of AI in your work processes.

  3. Keep clear records of your inputs and the AI’s outputs to delineate your contributions.

  4. Be aware that using external AI services could potentially expose company data or IP, which might violate other clauses in your agreement.

For Employers:

  1. Update IP clauses to specifically address AI-created or AI-assisted work.

  2. Develop clear policies on the use of AI tools, both company-provided and external services.

  3. Consider the implications of employees using general-purpose AI tools that may retain data or learnings.

  4. Address ownership of AI models or algorithms developed by employees using company data or resources.

Both parties should be aware that the legal landscape around AI-generated IP is still evolving. There are ongoing debates and potential future legislation about authorship, inventorship, and ownership of AI-generated content.

It’s also worth noting that some jurisdictions are grappling with whether AI can be considered an “inventor” or “author” in a legal sense. This could have implications for how employee-created IP using AI is treated.

As AI tools become more prevalent in various fields, it’s likely that IP clauses will continue to evolve to more explicitly address these technologies. Regular review and updating of these clauses will be important to keep pace with technological advancements and legal developments in this area.

How do IP clauses typically handle employee-created intellectual property in highly regulated industries (e.g., pharmaceuticals, finance)?

IP clauses in highly regulated industries often have additional complexities due to the nature of the work and the regulatory environment. Here’s how these clauses typically address employee-created IP in such industries:

  1. Regulatory Compliance: IP clauses often include language ensuring that all IP creation and assignment complies with relevant regulations. This is particularly important in industries like pharmaceuticals or finance where there are strict rules about information handling and disclosure.

  2. Broader Scope: These clauses may be broader in scope, covering not just traditional IP but also things like regulatory filings, compliance procedures, or risk management strategies that might not be considered IP in other industries.

  3. Mandatory Disclosures: There may be provisions requiring immediate disclosure of any innovation or discovery, not just for IP purposes but also for regulatory compliance (e.g., adverse drug reactions in pharmaceuticals).

  4. Government Rights: In some regulated industries, particularly those with government contracts or funding (like defense or some areas of healthcare), IP clauses may need to acknowledge potential government rights to certain innovations.

  5. Data Ownership: Given the value and sensitivity of data in many regulated industries, IP clauses often have specific provisions about data ownership and usage rights.

  6. Ethical Considerations: In fields like healthcare or finance, IP clauses may intersect with ethical guidelines, potentially limiting what can be claimed as proprietary.

  7. Post-Employment Restrictions: These may be more stringent in regulated industries due to the sensitive nature of the information involved.

  8. Collaboration and Sharing: There may be specific provisions about how IP can be shared or used in collaborative projects, given the regulatory restrictions on information sharing.

  9. Approval Processes: IP clauses might stipulate internal approval processes before any IP can be disclosed or used, to ensure regulatory compliance.

Industry-specific considerations:

Pharmaceuticals:

  • Clauses may address ownership of drug discovery data, clinical trial results, and manufacturing processes.

  • There may be specific provisions about genetic data or biospecimens.

  • Clauses might need to align with regulations like HIPAA in the US.

Finance:

  • IP clauses might cover trading algorithms, risk models, and financial products.

  • There may be specific provisions about client data and financial models.

  • Clauses need to align with regulations like GDPR for data protection or industry-specific regulations like those from the SEC or FCA.

Key points for employees and employers:

For Employees:

  1. Understand the regulatory environment of your industry and how it affects IP rights.

  2. Be aware of any mandatory disclosure requirements for innovations or discoveries.

  3. Understand any ethical guidelines that might affect IP ownership in your field.

For Employers:

  1. Ensure IP clauses are aligned with all relevant industry regulations.

  2. Implement clear processes for IP disclosure that meet both IP protection and regulatory compliance needs.

  3. Regularly review and update IP clauses to keep pace with regulatory changes.

  4. Consider having separate IP policies for different departments or roles to address specific regulatory requirements.

Both parties should be aware that in highly regulated industries, there may be limitations on what can be claimed as IP or how it can be used. The public interest and regulatory compliance often take precedence over commercial interests in these sectors.

It’s also worth noting that in some regulated industries, there may be requirements for maintaining certain IP or data within national borders, which can complicate IP clauses for multinational companies.

Given the complexities involved, it’s particularly important in regulated industries to seek specialized legal advice when drafting or agreeing to IP clauses.

How do IP clauses typically address employee participation in standards-setting organizations or industry consortia?

Employee participation in standards-setting organizations or industry consortia can create unique IP challenges. Here’s how IP clauses typically address this situation:

  1. Explicit Permission: Some IP clauses explicitly address participation in standards organizations, either permitting it under certain conditions or requiring specific approval.

  2. Disclosure Requirements: Employees are often required to disclose their participation in such organizations, allowing the company to assess potential IP implications.

  3. Licensing Commitments: IP clauses may address the company’s stance on licensing commitments that are often required by standards organizations (e.g., FRAND – Fair, Reasonable, and Non-Discriminatory licensing terms).

  4. Ownership of Contributions: Clauses typically assert the company’s ownership of any IP contributed to standards or consortia by employees.

  5. Approval Processes: There may be stipulations requiring employees to get approval before making any IP commitments in standards discussions.

  6. Separation of Company and Personal Contributions: Some clauses distinguish between contributions made as a company representative versus personal contributions.

  7. Confidentiality Considerations: IP clauses often interact with confidentiality provisions, limiting what information can be shared in standards discussions.

  8. Patent Pools: For industries where patent pools are common, IP clauses might address how the company’s patents can be included in these pools.

  9. Defensive Provisions: Some clauses include language to protect the company from potential patent litigation resulting from standards participation.

  10. Post-Employment Implications: There may be provisions addressing continued participation in standards organizations after leaving the company.

Key considerations for employees and employers:

For Employees:

  1. Understand your company’s policy on standards participation before getting involved.

  2. Be clear about whether you’re participating as an individual or a company representative.

  3. Be cautious about making commitments that could affect company IP without proper authorization.

  4. Keep detailed records of your contributions to standards discussions.

For Employers:

  1. Develop clear policies on employee participation in standards organizations.

  2. Implement processes for reviewing and approving standards-related IP commitments.

  3. Consider the strategic value of influencing standards versus keeping certain IP proprietary.

  4. Ensure alignment between IP strategy and standards participation strategy.

Both parties should be aware that participation in standards-setting can have significant implications for a company’s IP strategy. While it can provide opportunities to influence industry direction and ensure compatibility, it can also require making valuable IP available on FRAND terms.

It’s also worth noting that antitrust concerns can arise in standards-setting contexts, so IP clauses and related policies should be crafted with these considerations in mind.

Given the complex interplay between IP rights, industry standards, and potential antitrust issues, it’s advisable to have specialized legal counsel review IP clauses and policies related to standards participation.

How do IP clauses typically handle employee-created intellectual property that builds on or interfaces with open source software?

The interaction between employee-created IP and open source software (OSS) is a complex area that many IP clauses address specifically. Here’s how these situations are typically handled:

  1. Explicit OSS Policies: Many companies have specific policies regarding the use of and contribution to open source software, which are often referenced in IP clauses.

  2. Usage vs. Contribution: IP clauses often distinguish between using OSS in company projects and contributing to OSS projects. Usage is typically more permissive, while contributions often require approval.

  3. License Compatibility: Clauses may require employees to ensure that any use of OSS is compatible with the company’s IP strategy and product licensing.

  4. Disclosure Requirements: Employees are typically required to disclose any use of OSS in their work, allowing the company to assess potential IP implications.

  5. Approval Processes: Many clauses stipulate that employees must get approval before incorporating OSS into company products or contributing to OSS projects.

  6. Derivative Works: IP clauses often address ownership of derivative works that build on OSS, taking into account the obligations of the original OSS license.

  7. Contamination Prevention: There may be provisions aimed at preventing “contamination” of proprietary code by copyleft-licensed OSS.

  8. Contribution Agreements: Some companies require employees to sign separate contribution agreements before participating in OSS projects.

  9. Licensing Obligations: Clauses often address how to handle the various licensing obligations that come with different OSS licenses.

  10. Separation of Work: There may be provisions requiring clear separation between OSS work and proprietary development.

Key considerations:

For Employees:

  1. Understand your company’s OSS policy before using or contributing to OSS projects.

  2. Be transparent about any OSS used in your work.

  3. Keep clear records of where OSS is used and under what license.

  4. Be cautious about mixing OSS and proprietary code without proper approval.

For Employers:

  1. Develop clear policies on OSS use and contribution.

  2. Implement processes for reviewing and approving OSS use in products.

  3. Provide training to employees on OSS licenses and their implications.

  4. Consider the strategic benefits of OSS participation versus potential IP risks.

Both parties should be aware that improper use of OSS can lead to significant IP issues, including the potential requirement to open-source proprietary code. Conversely, strategic use of and contribution to OSS can provide numerous benefits, including faster development cycles and community goodwill.

It’s also worth noting that the landscape of OSS licensing is complex and evolving. New licenses and legal interpretations can impact how companies need to handle OSS in relation to their IP.

Given the technical and legal complexities involved, it’s advisable to have both technical experts and specialized legal counsel involved in crafting and implementing policies around OSS use and contribution.

How do IP clauses typically address employee-created intellectual property that results from hobby projects or side hustles?

The treatment of IP created through hobby projects or side hustles can be a contentious area in employment agreements. Here’s how IP clauses typically address these situations:

  1. Scope of Employment: Many IP clauses are written to cover all IP created during the term of employment, which could potentially include hobby projects. However, more nuanced clauses may limit claims to IP created within the scope of employment or using company resources.

  2. Relevance to Company Business: Some clauses only claim ownership of IP that relates to the company’s business or the employee’s work responsibilities. Hobby projects in unrelated fields might not be covered.

  3. Use of Company Resources: IP clauses often claim ownership of anything created using company resources, which could include hobby projects if company time or equipment was used.

  4. Disclosure Requirements: Many agreements require employees to disclose all potentially valuable IP, even if created outside of work hours.

  5. Pre-existing Projects: Some clauses allow employees to exempt pre-existing projects by disclosing them at the start of employment.

  6. Time-based Considerations: Some agreements distinguish between IP created during working hours versus personal time.

  7. Competing Business Concerns: Clauses may specifically address side hustles that could potentially compete with the employer’s business.

  8. License-Back Provisions: Some agreements might claim ownership but grant the employee a license to use the IP for personal projects.

  9. Carve-out Clauses: More employee-friendly agreements might include carve-outs for personal projects that meet certain criteria.

  10. Post-Employment Implications: Some clauses extend the company’s claim to IP created shortly after employment ends, which could affect hobby projects continued after leaving the company.

Key considerations:

For Employees:

  1. Thoroughly review your employment agreement to understand its scope regarding personal projects.

  2. Consider negotiating carve-outs for personal projects, especially if you have ongoing hobbies or side hustles.

  3. Be cautious about using any company resources for personal projects.

  4. Keep clear records of when and how personal projects are developed.

  5. Disclose personal projects as required by your agreement, but be aware of the potential implications of disclosure.

For Employers:

  1. Clearly define the scope of IP claims in employment agreements.

  2. Consider allowing some flexibility for employee side projects to foster innovation and job satisfaction.

  3. Implement clear policies on the use of company resources for personal projects.

  4. Provide a process for employees to disclose and potentially get approval for side projects.

Both parties should be aware that overly broad IP clauses that claim all employee creations, even those unrelated to work, may not be enforceable in some jurisdictions. For example, California Labor Code Section 2870 limits an employer’s ability to claim IP that was developed entirely on an employee’s own time without using company resources.

It’s also worth noting that restrictive policies on side projects can potentially impact employee morale and innovation. Many companies are adopting more flexible approaches that allow for personal projects while protecting core business interests.

Given the potential for conflict in this area, it’s advisable for both employers and employees to seek legal counsel when drafting or negotiating these aspects of IP clauses. Clear communication and reasonable compromises can often prevent disputes and foster a more positive work environment.

How do IP clauses typically handle situations where an employee’s work intersects with their academic research or publications?

When an employee’s work intersects with their academic research or publications, IP clauses need to balance the interests of the employer with the academic freedom and career development of the employee. Here’s how these situations are typically addressed:

  1. Dual Affiliation Acknowledgment: Some IP clauses explicitly acknowledge that employees may have dual affiliations with academic institutions and provide guidelines for managing potential conflicts.

  2. Publication Rights: Clauses often address the employee’s right to publish research findings, typically requiring some form of company review or approval process before submission.

  3. Delayed Publication: There may be provisions allowing the company to delay publication for a specified period to allow for patent filings or to protect confidential information.

  4. Ownership vs. License: While companies typically claim ownership of work-related IP, some may grant employees a license to use the IP for academic purposes.

  5. Separation of Work: Clauses may require clear delineation between company work and academic research, especially regarding the use of resources and time.

  6. Disclosure Requirements: Employees are often required to disclose any academic work that may intersect with their company responsibilities.

  7. Collaborative Research Agreements: For more extensive academic collaborations, separate agreements may be referenced in the IP clause to govern these relationships.

  8. Conference Presentations: Guidelines for presenting work-related research at academic conferences are often included.

  9. Thesis and Dissertation Work: Special provisions may be made for employees pursuing advanced degrees, balancing company IP interests with the employee’s academic requirements.

  10. Open Access Considerations: With the growing emphasis on open access in academia, some clauses address how to handle requirements for making research publicly available.

Key considerations:

For Employees:

  1. Clearly understand the boundaries between company work and academic research.

  2. Disclose any potential overlaps between work projects and academic interests.

  3. Seek approval before using company data or resources for academic publications.

  4. Be aware of any review or approval processes required before submitting academic work.

  5. Consider negotiating specific terms for academic work when accepting employment, especially if maintaining an academic career is important.

For Employers:

  1. Develop clear policies that balance IP protection with support for employees’ academic endeavors.

  2. Implement efficient review processes for academic publications to avoid unnecessary delays.

  3. Consider the potential benefits of employees’ academic engagement, such as enhanced reputation and knowledge transfer.

  4. Provide guidance on how employees should affiliate themselves in academic publications.

  5. Be prepared to negotiate specific terms with employees who have significant academic commitments.

Both parties should be aware that overly restrictive policies on academic work can potentially hinder recruitment and retention of top talent, especially in research-intensive fields. Many companies are finding ways to support employees’ academic engagement while protecting core business interests.

It’s also worth noting that in some fields, particularly in STEM, there’s an increasing emphasis on industry-academia collaboration. IP clauses may need to evolve to facilitate these partnerships effectively.

Given the complexities involved, it’s advisable to have specialized legal counsel involved in drafting these aspects of IP clauses, especially for companies that frequently hire employees with active academic engagements. Clear communication between employers and employees about expectations and processes can help prevent conflicts and ensure a mutually beneficial arrangement.

How do IP clauses typically address employee-created intellectual property in the context of joint ventures or multi-company collaborations?

IP clauses dealing with joint ventures or multi-company collaborations often need to navigate complex scenarios of shared resources, mixed teams, and collaborative innovation. Here’s how these situations are typically addressed:

  1. Separate Agreements: IP clauses in employment contracts often refer to separate joint venture agreements or collaboration contracts that specifically govern IP in these scenarios.

  2. Pre-existing IP: Clauses typically distinguish between pre-existing IP brought into the collaboration and new IP created during the joint venture.

  3. Ownership Models: Different models may be specified for IP ownership:

  • Joint ownership

  • Ownership based on inventorship

  • Ownership by the party funding the specific work

  • Ownership by the party whose employee(s) created the IP

  1. Field of Use Restrictions: IP rights may be divided based on different fields of use for each collaborating company.

  2. Licensing Provisions: Clauses often include cross-licensing agreements or options for licensing collaborative IP.

  3. Disclosure Requirements: Employees are typically required to disclose all potentially valuable IP created during the collaboration.

  4. Confidentiality Considerations: IP clauses interact with confidentiality provisions to protect shared information during collaborations.

  5. Dispute Resolution: Specific procedures may be outlined for resolving IP ownership disputes in collaborative contexts.

  6. Post-Collaboration Rights: Clauses may address how IP rights are handled after the collaboration ends.

  7. Publication Rights: For collaborations involving academic institutions, publication rights and processes are often specified.

  8. Background IP Use: Terms for using each party’s background IP during and after the collaboration are typically defined.

  9. Improvements and Derivatives: Ownership and rights to improvements or derivative works based on collaborative IP are often addressed.

Key considerations:

For Employees:

  1. Understand which agreement (employment agreement or collaboration agreement) governs your work in a joint venture.

  2. Be clear about which company you’re representing in collaborative work.

  3. Maintain careful records of your contributions to collaborative projects.

  4. Be aware of any special disclosure or confidentiality requirements for joint venture work.

  5. Understand how your work in a collaboration might affect your IP rights and future employment opportunities.

For Employers:

  1. Ensure employment IP clauses align with joint venture or collaboration agreements.

  2. Clearly communicate to employees how IP is handled in collaborative projects.

  3. Implement systems to track employee contributions in joint ventures.

  4. Consider the long-term strategic implications of IP sharing in collaborations.

  5. Develop clear processes for managing confidentiality and IP disclosure in multi-company teams.

Both parties should be aware that IP created in joint ventures can lead to complex ownership and usage rights scenarios. Clear agreements and communication are crucial to prevent disputes and ensure all parties’ interests are protected.

It’s also worth noting that antitrust considerations can come into play in joint ventures and multi-company collaborations, particularly regarding IP sharing and licensing agreements.

Given the complexities involved, it’s highly advisable to have specialized legal counsel involved in drafting IP clauses related to joint ventures and in creating the specific collaboration agreements. These agreements need to balance protecting each company’s interests with fostering innovation and maintaining a productive collaborative environment.

Regular review and potential adjustments to these agreements may be necessary as the collaboration evolves and new IP is created. Flexibility and clear communication channels between all involved parties are key to managing IP effectively in these complex scenarios.

How do IP clauses typically handle situations where an employee’s work results in AI-generated or AI-assisted innovations?

As AI technology rapidly evolves, IP clauses are being adapted to address the unique challenges posed by AI-generated or AI-assisted innovations. Here’s how these situations are typically handled:

  1. Broad Definition of IP: Many modern IP clauses use broad language to encompass all types of creations, which would include AI-generated or AI-assisted work.

  2. Specific AI Provisions: Some clauses now explicitly mention AI-generated content, algorithms, or models as part of the IP covered by the agreement.

  3. Tool vs. Output Distinction: Clauses may distinguish between the AI tools used (which might be third-party owned) and the outputs generated, claiming ownership of the latter.

  4. Training Data Ownership: There may be provisions addressing the ownership and use of data used to train AI models, as this can be a valuable form of IP.

  5. Authorship and Inventorship: Clauses might address the complex question of authorship or inventorship when AI is heavily involved in the creative process.

  6. Disclosure Requirements: Employees may be required to disclose the use of AI tools in their work processes, especially for significant innovations.

  7. Use of Company AI Resources: Clauses often specify that work created using company-provided AI tools falls under company ownership.

  8. External AI Services: There may be provisions addressing the use of external AI services and the implications for IP ownership.

  9. Improvements to AI Systems: Ownership of improvements or modifications made to AI systems during the course of work is often explicitly addressed.

  10. Ethical Considerations: Some clauses include provisions about ethical use of AI and ownership of ethically-generated IP.

Key considerations:

For Employees:

  1. Understand your company’s policy on the use of AI tools, especially if using personal or third-party AI services for work.

  2. Be transparent about the use of AI in your work processes.

  3. Keep clear records of your inputs to AI systems and the resulting outputs.

  4. Be aware that using external AI services could potentially expose company data, which might violate other clauses in your agreement.

  5. Understand how your contributions to improving AI systems might be treated in terms of IP ownership.

For Employers:

  1. Update IP clauses to specifically address AI-generated or AI-assisted work.

  2. Develop clear policies on the use of AI tools, both company-provided and external services.

  3. Consider the implications of employees using general-purpose AI tools that may retain data or learnings.

  4. Address ownership of AI models or algorithms developed by employees using company data or resources.


A sample clause in an employee contract regarding trade secret protection could state: “Employee agrees to hold all confidential information, including trade secrets, relating to the Company’s business operations, products, services, customer lists, pricing strategies, and marketing plans as strictly confidential and will not disclose such information to any third party, either during employment or after termination, without prior written consent from the Company.”. 

Key elements to include in a trade secret litigation employee contract clause:

  • Definition of Trade Secrets:
    Clearly define what constitutes a trade secret for the company, including specific examples like proprietary formulas, customer data, marketing strategies, and unique technology. 

  • Confidentiality Obligation:
    Explicitly state that the employee is obligated to maintain the confidentiality of all trade secrets, both during employment and after termination. 

  • Non-Disclosure Agreement (NDA):
    Incorporate a non-disclosure agreement that outlines the restrictions on sharing confidential information with any third party. 

  • Use Restrictions:
    Specify how the employee is permitted to use trade secret information, emphasizing that it should only be used for company-related purposes. 

  • Return of Company Property:
    Require the employee to return all company documents, electronic files, and other materials containing trade secret information upon termination of employment. 

  • Notification Requirement:
    Mandate that the employee must notify the company immediately if they become aware of any potential breach of confidentiality regarding trade secrets. 

Example Clause:

“Employee acknowledges that the Company possesses valuable trade secrets, including but not limited to its product designs, manufacturing processes, customer lists, pricing strategies, and marketing plans. Employee agrees to hold all such confidential information in the strictest confidence and will not disclose, divulge, or use such information for any purpose other than in the course of their employment with the Company, without prior written consent.” 

Important Considerations:

  • State Laws:
    Ensure the trade secret clause complies with relevant state laws regarding employee confidentiality and non-compete agreements. 

  • Specificity:
    Clearly identify the trade secrets that are considered confidential to avoid ambiguity in enforcement. 

  • Reasonable Restrictions:
    Be mindful of overly broad restrictions that could be deemed unenforceable by courts. 

  • Legal Counsel:
    Consult with an attorney to draft a comprehensive trade secret clause tailored to your company’s specific needs and industry practices.