Companies & Industries

Intellectual Property Law and Employees


What rights does your company or academic institution have to a product created on an employee's "own time?"

Intellectual property—the general term for patents, trademarks, and copyrights—is an increasingly important asset in corporate and university settings. As industries and markets globalize, U.S. employers rely more on generating revenue through innovation and brand recognition and less on manufacturing and physical location. The explosion of online business opportunities has even spawned a generation of virtual companies that often have no assets other than intellectual property (IP). Regardless of a company's business model, its IP assets are important in sustaining growth and fostering robust employment. For example, high-tech companies use revenues generated by patented products to fund the development of next-generation devices and to pay the salaries of researchers. Universities use licensing revenues from patented technology to fund future research products and supplement government grants. Overly controlling a company's ownership of the intellectual product of its employees, however, can stifle the creativity of the workforce responsible for innovation. In its most productive form, the relationship between companies or universities and their innovators is not one-sided, but is a symbiotic interaction that benefits both the organization and the innovators. Understanding the legal and contractual principles that apply to ownership of IP is the first step toward achieving this essential balance. Ownership issues between organizations and their innovators are most likely to arise in the areas of patent and copyright law. Under these laws, the owners of a patentable idea—a formula, chemical composition, Internet innovation, and so forth—can exclude others from exploiting that asset without their permission and, like tangible assets, IP assets can be bought, licensed, or sold. Although there are exceptions, corporations and universities generally own all IP assets created by an employee within the scope of his or her employment. This includes work product developed by an employee at home, during off-the-clock time. Effective Employment Contracts

Without the obligation to assign off-the-clock creations to the company, each member of the creative workforce becomes a competitor as soon as he or she leaves the lobby. The prospect of this competition is undesirable, particularly in industries characterized by a long and costly lag time between the initial invention and its commercialization. For example, it may take a biotech company 5 to 10 years to obtain allowance from the U.S. Patent Office and approval from the FDA for a medical device. It often takes another 10 to 15 years (the full life of the patent) to recoup the costs of research and development. A key objective of securing patent protection in such industries is to permit the company to sell its products without facing challenges from competitors. An ambitious employee might even design an improvement of a product—a good development, of course, but one that could draw away the market share of the original if he or she departs and launches a competing venture. Effective employment agreements and technology transfer policies can prevent competition from within while encouraging entrepreneurial ambition in the creative workforce. The corporation or university should remind employees that it provides the facilities and environment needed to foster their creativity. It assumes the cost and risks associated with securing IP: licensing, commercializing the invention, and asserting and defending those IP rights. When employee salaries are not enough compensation for off-the-clock efforts, employment contracts can provide for royalty payments when an invention is successfully commercialized. In the specific context of patents, under U.S. law, the inventor is deemed the owner of his or her invention and any resulting patent that may be granted. To preempt this default rule, corporations may require their employees to assign to the corporation the rights to their inventions. This is typically accomplished through employment contracts or company employment policies. Universities work under a similar system, but with a few caveats. First, for inventions made under federally sponsored agreements, such as NIH research grants, the federal government has the first right to future use of the resulting invention. The government rarely takes advantage of this right, however, and most often the university that received the grant retains the title to inventions developed with federal funds. In contrast to the corporate situation, if the university declines to pursue commercialization of the technology, the inventor may ask for return of ownership in the invention. For inventions made under nongovernmental grants, such as those from private foundations or companies, ownership expectation may vary, but the granting institution generally requires assignment of rights as a condition of funding. Copyright Protection Variables

A copyright, on the other hand, is a form of IP that covers creative works such as poetry or prose, art works, musical compositions and performances, dance, and architecture. The author of a copyrighted work can prevent others from copying or otherwise using the work without consent. Copyright is best viewed as a bundle of rights: the right to copy, the right to make derivative works, the right to perform, and the right to display. These rights are divisible and can be separately assigned or licensed by the owner. In the corporate setting, work created by a regular employee within the scope of his or her employment belongs to the employer unless there is an agreement to the contrary. In the university setting, scholarly works and writings by university faculty, researchers, and students remain the property of their creators unless significant university resources are used in their creation, in which case universities may require special assignment of rights in copyright. Outside these settings, the general rule regarding copyright is that unless there is a written agreement to the contrary—known as a "work-for-hire agreement"—the work belongs to its creator. Work-for-hire agreements are typically between a company and its consultant or subcontractor. Such agreements provide that work product created in the course of the consulting or contracting belongs to the contracting organization. Ownership of IP created by independent contractors—for example, software, websites, and website designs, logos for advertising campaigns, and technical guides—provides fertile ground for disputes; such disputes often turn on what constitutes the scope of employment. It is imperative that employers, employees, and independent contractors alike pay attention to the "scope language" in employment agreements and in company policies published in many employee handbooks. Additionally employers, employees, and independent contractors should ensure that employment agreements or contracts adequately address the issue of intellectual property. Agreeing beforehand about ownership issues protects companies, universities, and innovators. Best: Clear, Written Agreements

Here are a few additional guidelines for drafting employment agreements that promote productive relationships among employers, employees, and contractors: Make sure there is a written agreement that spells out the ownership of the IP rights to all of your employees' or contractors' creations, who has the right to use that IP, whether ownership of the IP will transfer from employee to employer, and who will pay for securing rights in the IP. Have the agreement prepared and signed by the parties before the work begins. Formulate internal policies regarding IP ownership and management of IP. Companies should make their policies known to employees, and employees should familiarize themselves with such policies. Universities should make sure that students and younger researchers understand their institution's IP policy and know that the university may have rights in any inventions, particularly those made under federally sponsored research agreements. Address IP ownership in any agreements under which research and development is outsourced to another company or university. Ensure that all agreements with companies or contractors in different countries are drafted in conformity with applicable foreign intellectual property law. Finally, remember that all of these guidelines apply to achieving a symbiotic relationship within the scope of employment. Companies generally cannot restrict what employees create on their own time if the creation is developed outside the scope of their employment. Work that falls within the scope of employment is related to an employee's job responsibilities, created for an employee's use on the job, or created for use by other employees or clients. It need not be performed at the work site or during working hours. On the other hand, work product created on an employee's own time that does not relate to the job and is not for use at the job belongs to the employee.


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