Employee IP: Who Owns Your Company’s Intellectual Property?

Employee IP: Who Owns Your Company's Intellectual Property
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Digitalization is changing the world and driving innovation at an incredible pace. Technologies and concepts such as artificial intelligence, machine learning, and predictive technology have truly transformed every aspect of our personal and work lives. Such technological innovations give rise to an important question— who owns the intellectual property created in a work context? The employee who made it or the company for which it was made?

Rapacke Law Group gives you all the necessary information you need to smoothly navigate the area of employee IP.

Who Owns the IP for Products Created by an Employee?

Companies that offer IP software and solutions often have a team of employees and independent consultants who work together to develop, implement, and enhance intellectual property. IP ownership may depend on who developed it.

Any intellectual property created by regular employees throughout the course of their employment and developed within their working hours will belong to the employer. U.S. copyright law states that the employer is entitled to have ownership of any intellectual property that employees have worked on as part of their regular duties.

Meanwhile, the creators of patentable inventions are automatically deemed the owner of patent rights unless the said rights are properly assigned to the employer.

Companies can avoid IP ownership claims by employees by having them sign a written document with specific provisions, such as the following:

  • Granting the employer a perpetual and royalty-free license to use any work product the employee developed for the employer during their employment
  • Assigning all IP rights in any product developed by the employee — including those that were made on or off work premises and during outside work hours — to the employer
  • Assisting the employer in protecting the IP rights in any product they developed for the company

Independent Consultants & IP

On the other hand, companies might deal with slightly more complex cases when they’re working with independent consultants for innovations and solutions. This is because consultants generally own the IP rights to anything they create, regardless for whom they create it, and whether it’s within the scope of their engagement with the company.

Employers can avoid these complexities by having independent consultants sign a work-for-hire agreement. These agreements contain provisions that the independent consultant hand over IP rights to the company for any and all work they create throughout the engagement.

Founders & IP

Another thing companies will consider is the intellectual property that was used before the respective companies were incorporated. This usually includes the brand or business name, logo, or slogan, algorithms, inventions, and other types of intellectual property that company founders used to establish a stable footing.

It’s important to make a formal agreement with company founders that transfer ownership of the business-related intellectual property to the company. This allows the company to maintain control of any IP to which the founders contributed in the case the founders leave the company to establish a competing brand or other business that may use similar products or solutions.

A company that does not claim ownership to IP rights provided through any founder, employee, or independent contractor may find themselves vulnerable as:

  • Failing to secure ownership of intellectual property means your company can’t prevent competitors and counterfeiters from using it to their advantage
  • If an employment contract or employment agreement ends and the employee or consultant is not willing to transfer ownership of the IP they created, the company might have to pay a huge sum just to regain sole rights to said IP
  • The company might find itself involved in a lawsuit filed by an employee or an independent consultant on the basis of infringement claims

Furthermore, companies must do their due diligence to secure IP ownership so they can attract more investors and acquisitions. If a company doesn’t own the IP created by employees or consultants for the business, the potential investment may be seen as risky or of lower value. Investors may also renegotiate the terms or delay their decisions.

Additionally, your company is protecting its rights to existing and future intellectual property by having founders, employees, and consultants sign agreements that transfer IP rights to you. Cover all your bases by making sure there is language in your employment or work-for-hire agreements that prevents them from disclosing company IP without proper authorization.

Does an Employee Have Intellectual Property Rights?

In the case of employee-created intellectual property, the employee almost never retains rights to the IP after they leave the company or terminate their contract. However, employees might still have IP rights or find ways to protect their work depending on unique circumstances — particularly when they use non-company resources in developing or researching the product, or when they develop it outside of work hours or work premises.

The employer usually owns all IP developed using company technology and funding. So, employees who are specifically hired to create, develop, or research a specific intellectual property will not get the opportunity to claim ownership rights as long as their contract has an ownership clause with regards to any IP they handle.

Nevertheless, it doesn’t hurt to prepare comprehensive employee agreements to erase any doubts and assumptions about ownership.

Let’s look at employee ownership rights for different types of intellectual property.

Copyrights

If an employee creates any original work throughout the course of their employment and within the scope of their employment, the employer will likely remain the legal owner of the copyrighted work. Of course, employment contracts and non-disclosure agreements should address copyright concerns to eliminate any doubt about ownership should the employee leave the company.

Copyrights for work created by independent consultants might be a different story. The company might be paying for the work to be completed, but it doesn’t automatically grant copyright ownership. In this case, there must be a written agreement transferring IP rights from the independent consultant to the company, such as a work-for-hire agreement. Otherwise, the consultant remains the first owner of the IP as the independent consultant is not presumed to be under an employment contract with the employer.

Trademarks

Trademark ownership typically depends on who uses the trademark rather than who invented or designed it. In this case, an employee who was tasked to create a logo or a design mark specifically for the company will not have ownership of their work.

The trademark aspect aside, this does not prevent disputes over copyright ownership. Specifically, companies that engage independent consultants or contractors to create logos for their brands must obtain an assignment of a logo copyright. This way, they can clearly define who has IP ownership and the right to use and reproduce it.

Patents

A patent is the issuance of a property right to an inventor. The inventor receives exclusive rights to the patented technique, design, or invention for a specific length of time.

Patent applications are normally handled and approved by government bodies. The US Patent and Trademark Office (USPTO) is in charge of processing applications and granting approvals for both patent and trademark applications.

Patent law states that the inventor of a patentable invention should own the rights to the said invention — unless there is a pre-existing agreement assigning those rights to another. Such terms can be found in most employment agreements. Without this assignment, some courts may consider employees’ implied consent to the assignment of rights to a patentable invention to their employer.

Creating an Intellectual Property Policy for Employees

Intellectual property is the most commonly employed collection of instruments by businesses to defend their competitive edge. This includes trade secrets, copyrights, trademarks, and patents, to name the most common types of IP. This is true for all businesses, from startups to established major corporations.

An intellectual property policy should include all critical operations in your company that may be related to the creation or use of the intellectual property. The policy must consider any person tasked with creating and innovating as well as any person whose job description requires them to use the company’s IP, such as for marketing of the company’s brand or goods and services.

So, what should be included in the policy? Here is a list of many areas that might be included in your IP Policy. These components will differ based on your strategic goals.

  • Purpose, goals, and value of intellectual property
  • Strategic alignment between IP and business strategy
  • Scope of intellectual property needs and opportunities
  • Creation, administration, and enforcement of intellectual property
  • Intellectual property-related terminology and definitions
  • IP committee and committee functions
  • Licensing terms

Adding an Intellectual Property Clause in an Employment Contract

Protect your rights as an employer by adding IP-related terms and conditions in employment contracts. Here are some reminders for a thorough contract:

  • Add clauses indicating that any intellectual property rights created by the employee belong to the company. Patent and non-patent IP rights should be treated differently, especially in jurisdictions where there is no statutory ownership assumption
  • The contract should spell out exactly what workers’ typical responsibilities are. Furthermore, it should expressly state the type of IP to be safeguarded so that any prospective work created by workers as part of their obligations is recorded
  • Additional terms in the contract may require workers to notify any IP arising from their job to the employer, as well as assist the business with any connected information or paperwork while the employer pursues IP rights

Employee IP Assignment Agreements

It’s important for companies to have employment agreements that include an assignment of invention or any created works that may be eligible for copyright protection. The agreements should also confine signatories to confidentiality, noncompetition, or other conditions.

Ideally, the assignment should include a clause to cooperate after leaving the organization. It may also be beneficial to include a clause granting the employee limited power of attorney to sign documents proving inventorship and ownership. This avoids the need to track down and acquire signatures from uncooperative former employees.

Generally, invention assignment agreements must include terminology that matches the requirements of the jurisdiction in which the business is located, as this will secure the agreement’s enforceability in those states and most others. Variations can be created for different jurisdictions with specific requirements.

Agreements should also be established to cover as much intellectual property as possible. The agreement should include an assignment of “know-how” and “ideas” learned or developed by the employee throughout their employment, in addition to inventions, concepts, findings, innovations, and original works of authorship.

Intellectual Property Rights After Termination of Employment

IP ownership can be tricky, which is why it is critical for both parties to explicitly define ownership of intellectual property both during the employment relationship and after it ends. The remote work environment in which many businesses now operate adds complications, particularly when the activities involved in creating, designing, or developing the IP were carried out using the departing employee’s personal resources — such as technology, Wi-Fi, and home office — rather than the employer’s resources.

Most IP employment agreements include provisions that describe what rights a worker has to any creative ideas they’ve developed while at work, and virtually all agreements in this sector include an obligation to assign work-related IP rights to the employer.

Identify the IP work and agreements that the employee is engaged with. Moreover, develop and execute IP assignment agreements or alter existing arrangements to guarantee that the employer keeps the IP once the employee leaves.

Failure to do so can result in unnecessarily costly consequences.

Does a Company Have a Right to IP Created by an Employee in Their Spare Time?

When an employee develops the work as part of their job, or when the employer directly orders or commissions the work from the employee, the employer is regarded as the creator of the work in issue. Even if an employee creates new intellectual property as part of their job, the employer owns that intellectual property.

Things get more complicated if a worker produces a work or innovation not within the scope of or during their employment. In cases when an innovation that an employee developed during their spare time (this is hyperlinked to nothing) is of “exceptional advantage” to the employer, it may be conceivable for the employee to claim some sort of remuneration. One example is when an employee’s invention results in significant financial gain for the business, or would directly compete with it.

Can Employers Waive Intellectual Property Rights?

The employer will need to get the employee’s signature on a release of rights to the intellectual property before using any of the employee’s creative work. It is advisable to get a waiver to avoid legal complexities. Issues like permissible usage, royalties, and other disputes should be covered by the waiver.

Speak with an Experienced IP Attorney

Have questions about who can claim ownership over intellectual property created by an employee, or if you’re the rights to your innovation will be automatically assigned to your employer? Our intellectual property attorneys at Rapacke Law Group will guide you every step of the way when it comes to protecting your IP. Schedule a free consultation.

Andrew Rapacke

Andrew Rapacke

Andrew Rapacke is a registered patent attorney and serves as Managing Partner at The Rapacke Law Group, a full service intellectual property law firm. If you would like to speak with Andrew Rapacke, click here to schedule your free consultation.

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