Part 1 of this three-part series discusses intellectual property ownership rights in the absence of another agreement. Part 2 addresses some of the common ways that parties can allocate the ownership of intellectual property in a contract. This third part covers a few best practices that will help ensure that a company owns its intellectual property.
Discussions with third parties about future business relationships and hiring of employees and consultants are routine business activities that can have detrimental effects on a company’s intellectual property if not managed properly. Appropriate non-disclosure agreements, employee confidential/proprietary information and invention assignment agreements, and consulting agreements are an important part of a company’s business operations.
Before providing any confidential information to a potential business partner, companies should enter into a written non-disclosure agreement (NDA). An NDA will define the bounds of what is considered confidential information and provide limitations on what each party can do with the confidential information of the other party. The essence of the definition of “Confidential Information” is that it is the non-public information of a company. Under a typical mutual NDA, the party that receives the information is generally only allowed to use the disclosing party’s confidential information for purposes of evaluating a further potential business relationship between the parties. In addition to providing for a potential remedy against unauthorized disclosure of confidential information, NDAs are an important means of showing that a company is using reasonable efforts to protect its trade secrets.
Employee Confidential/Proprietary Information and Invention Assignment Agreements
Many companies will require all employees—regardless of position and regardless of whether the employee is part-time or full-time, hourly or exempt—to sign what is commonly known as a confidential or proprietary information and invention assignment agreement (CIIA or PIIA).
These agreements not only protect a company’s trade secrets, but they also expressly address intellectual property ownership. The default intellectual property ownership laws in the United States include some provisions that allow employers to own or have rights to use the intellectual property rights developed by employees during their term of employment. However, the default rights do not offer employers sufficient protection. It is a best practice to have employees sign a CIIA/PIIA that expressly states that all intellectual property developed by an employee during the term of the employee’s employment will be owned by the company—keeping in mind that such agreements may need to be tailored to, among other things, address state statutes that protect an employee’s ownership of intellectual property developed solely on an employee’s own time and without use of any company resources.
In addition, a CIIA or PIIA will typically require an employee to sign any documents or take any actions necessary for the company to perfect its intellectual property ownership (even after the employee leaves the company), prohibit the employee from using any confidential information of a third party, prohibit the employee from incorporating any intellectual property owned by the employee or a third party into any employee work without the prior written consent of the company, and if an employee does incorporate any such intellectual property without permission, the employee grants the company a broad right to use that intellectual property.
Absent an appropriate consulting agreement, consultants are presumed to own all of the intellectual property rights they develop, even when a company is paying for the work. To secure ownership of those rights, companies should ensure that consultants sign an agreement requiring assignment of any intellectual property created for the hiring company. We note that, in the context of consultants, the “works made for hire” doctrine covers only certain specific types of copyrightable work. For many companies, one of the most important types of copyrightable work created by consultants is software, but software is not one of the works made for hire categories for consultants. To avoid this and other issues, language covering ownership and use of intellectual property rights delivered by a consultant should be comprehensive but appropriately address those differences between the consult-company relationship and the employee-employer relationship.