In the 21st century, intellectual property (IP) represents one of the most important assets for companies. The amount of trade secret misappropriation alone is staggering. According to Thomas Heed in “Trade Secret Misappropriation: The Latest RICO Civil Action That Works” published in The John Marshall Law Review, “Various sources estimate corporate losses from trade secret misappropriation to range from $1.8 billion to $100 billion annually, and the frequency of incidents appears to be increasing.”
One of the best ways a business can protect its IP is through employment agreements with employees and service agreements with independent contractors. The following summarizes why each particular type of intellectual property should be protected through a written agreement and practical suggestions for addressing these concerns.
1. Patents – Contrary to popular belief, a company does not automatically own the rights to inventions developed by an employee in the course and scope of their duties. Generally, the employee owns the invention and subsequent patent rights, while the employer obtains a special license called “workshop rights” to practice the invention. In addition, patent law generally requires that an assignment of patent rights be in writing. To address this, employment and independent contractor contracts should include an invention/patent assignment provision to ensure that the company owns all of these rights.
2. Copyright – Like patents, urban myths about copyright ownership created by employers’ employees and independent contractors abound. While the work-for-hire doctrine applies in many cases, it is best to include an express release of copyright in agreements with employees and, in particular, independent contractors. Also, like patents, a copyright assignment generally must be in writing.
3. Trademarks/Trade Dress/Trade Names – These intellectual property rights require their use in commerce, so they are not usually an issue for current or former employees and independent contractors. However, the risk can be avoided by requiring employees and contractors to assign the rights to a trademark, trade dress, and trade name idea. Employees and contractors should also be limited from using similar marks that are likely to cause confusion to the competition while employed.
4.Trade secrets – Of all forms of intellectual property, trade secrets are the most vulnerable to theft and employee misconduct. Because non-compete agreements are sometimes difficult to enforce, an employment contract should have separate confidentiality/non-disclosure, non-solicitation, and non-compete provisions. The failure of employees to agree to a confidentiality policy in writing, whether in a formal employment agreement or an employee handbook, can be fatal later when a company seeks to protect its confidential information, depending on the circumstances.
5. Electronic files – Electronic files and their ownership fall into a gray area. It is best for companies to confirm in writing that all electronic files and data created in the course and scope of employment of an employee or independent contractor are the property of the company. Care must be taken that the company owns these rights regardless of the medium and location in which the files are stored. This type of provision is necessary to address electronic files created by employees on personal electronic devices such as home computers, iPads, and smartphones.
6. Domain names – Cases involving disgruntled former employees and contractors registering a company’s domain names, registering domain names that a company would likely want to use in the future, or maintaining control over existing domain names are countless. For unknown reasons, domain names are a favorite target of departing IT employees. To avoid all of these problems, a company’s agreements should make it clear that it owns all of its domain names and prevent employees from registering domain names that are confusingly similar to company trademarks or current domain names.
7. Passwords and other sensitive information – Like domain names, an employment contract should make it clear that all passwords and other sensitive information is company property and require an employee to provide that information if needed after employment ends.
8. Social media accounts – Like all emerging technologies, the law has not caught up with the unique problems created by social media. A company doesn’t want to know that its Twitter account and its thousands of followers are owned by a former employee or, worse yet, a former freelancer. Therefore, the agreements must state that the company owns all of its social media accounts.
A final recommendation is to conduct a formal exit interview with departing employees to remind them of their previous duties and get them to commit in writing not to take any information or materials with them. This can be a crucial step if litigation arises later on whether the employee stole company property or violated agreements.