Turner Padget Insights

Protect Your Intellectual Property with Employment Agreements

Posted On Sep 09, 2015

In an era when confidential information can be secreted out the door on a thumb drive, business owners can’t depend on the goodwill of employees to keep their intellectual property safe. If you have any form of IP – and almost every business does – we recommend that you protect it with employee agreements. 

While many businesses have unique intellectual property concerns, here are some of the topics we often see emerge. 

Employees often misunderstand their rights to software they created

Copyright always vests with the employer unless the employee has an agreement that states otherwise. If you have employees who create brochures, take photos or draft marketing material, this is work-for-hire and they have no right to ownership. 

You don’t need an employment agreement to buttress your rights in court, but an agreement is still a good way to inform employees about copyrights and avoid misunderstandings about the ownership of creative works.

One of the problem areas we see in copyrights is with proprietary software. Code writers often believe they own anything they create, particularly reusable lines of code that may prove useful in another project. The law is clear that if code is written in the scope of employment it belongs to the employer.

Again, an employment agreement will spell it out with clarity to reduce the chances of misunderstandings. An exception is software – or any invention – that is subject to a patent. With one narrow exception, in order for patent rights to vest with an employer, there must be an agreement that assigns those rights.

Generally, if you have employees who you expect to create patentable works, you should have an agreement in place at the beginning of their employment that requires the employee to assign all patent rights arising from the employment.

Be careful if you use contractors or freelancers, whether it’s to write code, contribute to an invention or to write marketing material. Rights to intellectual property produced by contractors is a complex topic that deserves a separate discussion, but you should know that as an employer you don’t necessarily own full rights for work you paid contactors to produce. You will need an agreement that assigns you the rights.

Identify trade secrets

Intellectual property often encompasses trade secrets such as manufacturing processes, formulas and product technical data. In order to assert rights over a trade secret, you must have reasonable measures in place to protect it. 

We recommend that you identify trade secrets in the employment agreement, and then add a catch-all clause such as “anything else we designate as confidential or tell you in the course of your employment.”

Waiting can be costly 

In South Carolina, the law provides an incentive for employers to ask employees to sign agreements before they start work. After an employee starts work – even after day one – an employer must provide “additional consideration” to compensate the employee for signing an agreement. The courts have defined that as a meaningful raise or bonus or other significant benefit.  

While most new employees likely would sign an agreement after starting work without receiving a benefit, ignoring this rule could invalidate the agreement if it ever became the subject of litigation.

(“You get to keep your job,” by the way, is not considered a “benefit.”)

Deterrence is the best enforcement

The primary value of an agreement may be the deterrent effect that it has on employees by defining expectations for how they handle intellectual property and other confidential information, and reminding them of the potential consequences of not playing by the rules. Often times, we find that simply writing a letter to a former employee reminding them of the agreement is sufficient to obtain compliance. In extreme cases, that’s not enough, and we have to file a lawsuit against the former employee, as well as any business that is using the information. If it comes to that, an employee agreement or rights assignment may be the critical difference in whether a court will protect the valuable intellectual property that belongs to your business.

For additional discussion on ways to protect your business’ intellectual property, please view my recent blog post, Don’t Neglect Your Patents and Trademarks.

For more on non-compete agreements, my colleague Julie Jeffords Moose recently authored this post, How to Write a Workable Non-Compete Agreement.