When Employee Ideas Become Employer Property

A clear maxim of our time is that intellectual property ownership is crucial to competing in the marketplace, especially in tech industries. A company can be defined not only by the genius of its employees, but also by its patent and brand portfolio. But where does this portfolio come from? Most often, it comes from the company’s employees—their skill, inventiveness, and creativity. But how do companies come to own their employees’ ideas? Most often, companies acquire rights to what their employees invent according to the provisions of the employment contract.

In fact, many of us may already be subject to clauses that require us to assign rights to our ideas and creations through our employment as well as in other settings. For example, until this year, students at the University of Minnesota did not own the rights to what they created through schoolwork and other campus activities.[i] Intellectual property assignment clauses are becoming more and more common in parts of life other than employment. But are these surprisingly-intrusive and seemingly-unfair clauses enforceable?

In most cases, intellectual property assignment clauses in employment and other contracts are enforceable. Although some states have attempted to curtail assignment clause validity, the federal courts have determined that federal law governs the interpretation of all patent assignments.[ii] Other forms of intellectual property, such as trademarks and copyrights, may be governed by state law, however. Often, whether under state or federal law, clauses assigning the employee’s intellectual property rights to all creations made while at work, using the employer’s materials, and/or related to the employer’s business, are enforceable.

But even though employers can insert these clauses into employment contracts, the benefits may not outweigh the costs. Although owning patents and ideas is often lucrative and necessary to succeed in business, assignment clauses can reduce employee motivation to be creative.[iii] For a tech company working in the Internet industry, for example, a lack of employee creativity could be devastating to the business. Worst, the clause may create an incentive for employees to resign and form their own ventures, which may eventually compete with the original employer. Depending on the circumstances, a modest assignment clause may be better than a strong one.

If you operate a company, you should consider whether or not an assignment clause in employment contracts may be beneficial to your company. A trusted legal advisory can help you make strategic contracting decisions. This article was sponsored by Vlodaver Law Offices, LLC, a business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation about electronic contracting or any of your legal needs, contact us.

 

[i] Nicolas Hallett, Fighting to Keep Ideas, Minnesota Daily (Apr. 17, 2014), http://www.mndaily.com/news/campus/2014/04/17/fighting-keep-ideas.

[ii]Shannon H. Hedvat, A New Age of Pro-Employer Rights: Are Automatic Assignments the Standard?, 13 U. Pa. J. Bus. L. 817 (2011).

[iii] Orly Lobel, My Ideas, My Boss’s Property, New York Times (Apr. 13, 2014), http://www.nytimes.com/2014/04/14/opinion/my-ideas-my-bosss-property.html?_r=0.