Intellectual Property Rights of Employees: Who Owns IP?
An imaginative employee can benefit a company when developing exciting — and profitable — inventions, products, logos, or other forms of intellectual property (IP). New IP can improve a company’s balance sheet and may elevate the employee’s status among the rank and file. But what happens when that employee decides to leave the company to join another? Can they take their IP with them, or does it stay with the company? As is true in so many areas of law, the answer is: it depends.
Intellectual Property (IP) Defined
The United States Patent and Trademark Office (USPTO) describes IP as “creative works or ideas embodied in a form that can be shared or enable others to recreate, emulate, or manufacture them.” Put another way, IP refers to creations of the mind such as literary works, artistic works, inventions, designs, symbols, or names. IP is considered to be an intangible asset, which means it doesn’t necessarily have an actual physical presence that tangible assets (a company’s warehouse or machinery, for example) do, but it still provides value.
Patents and Trademarks and Copyrights, Oh My! Major Types of IP
Though they don’t all fit into the rhythm of The Wizard of Oz line, there are 4 major types of IP:
Patents
What they are: According to the USPTO, patents protect inventions such as machines, products, and processes by giving the patent holder “the right to exclude others from making, using, offering for sale, or selling” an invention. The USPTO acknowledges 3 types of patents:
Utility patents: Used to invent or improve useful processes, machines, or products. Utility patents have a 20-year term.
Design patents: Used to invent product designs. Design patents have a 15-year term.
Plant patents: Used to invent, discover, or reproduce new varieties of plants. Plant patents have a 20-year term.
How to acquire ownership rights: Have a patent issued by the USPTO after submitting an application.
What laws apply: Patents are governed by federal law, including:
U.S. Patent Act: The U.S. Patent Act — and the USPTO created by the Act — governs all patents and directs how to file patent applications.
U.S. Constitution IP Clause (Section 8, Clause 8) (also known as the “Patent and Copyright Clause”): This clause gives Congress the power to “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
Copyrights
What they are: A copyright protects original works of authorship such as books, poems, plays, paintings, and other types of works for a certain period of time, after which the copyrighted work is considered to be in the public domain, meaning anyone can use it.
How to acquire ownership rights: By creating the original work. For instance, once you write a novel, you own the rights to it, even if you don’t register it. However, registering a copyright with the U.S. Copyright Office will provide you with extra protections, including making it easier to win a copyright infringement case.
What laws apply: Like patents, copyrights are governed by federal law, including:
U.S. Copyright Act. This law provides authors of original works the exclusive right to control how those rights are used.
U.S. Constitution, IP Clause. The clause is discussed above.
Trademarks
What they are: The USPTO defines a trademark as “any word, symbol, design, or a combination of these things that identifies your goods or services.” Even colors can be trademarked in the right circumstances. The term trademark refers to trademarks (used for goods) and service marks (used for services).
Note that trademarking a certain word provides you with legal protections only with respect to how that word relates to your specific company and product. For example, Coca-Cola owns the trademark Coke, but only in connection with its particular product, Coca-Cola (a term for which it also owns a trademark). It doesn’t own the word “coke” in all instances.
How to acquire ownership rights: By using the mark. You don’t have to register a trademark to claim it; however, registering it with the USPTO will provide greater protections.
What laws apply: Trademarks are governed by both federal and state law, including:
The Lanham Act: This federal law protects registered marks and provides a system for registration.
Some states have their own trademark laws, such as California’s Model State Trademark Law.
Trade Secrets
What they are: Trade secrets include confidential or proprietary business information such as customer lists, product formulas, and business processes.
How to acquire ownership rights: Unlike the other 3 types of IP, there is no process for applying for or registering a trade secret. To gain rights to a trade secret, simply develop the trade secret through lawful means (as opposed to stealing it from your competition) and keep it a secret.
What laws apply: Federal and state laws govern trade secrets, including:
The Trade Secrets Act, which defines trade secrets and describes the types of claims a company can make in lawsuits for trade secret misappropriation
The Defend Trade Secrets Act, which protects trade secrets and creates a basis for a company to sue anyone who unlawfully uses its trade secrets
In California, the Uniform Trade Secrets Act, which protects companies’ trade secrets by allowing them to sue those who unlawfully use them
IP Ownership: Why It Matters to Companies
IP ownership provides value and legal protection for companies.
Value: IP ownership gives a company the exclusive right to use the IP, putting it at a competitive advantage. The ability to sell or license IP for a fee also creates a revenue stream. For these reasons, potential investors will be more interested in a company that properly owns its IP.
Legal protection: IP ownership protects a company’s rights to use and profit from the IP, and it allows a company to prevent competitors from doing the same through litigation (or the threat of litigation). It also prevents employees and others from taking IP with them when they leave.
Determining IP Ownership
Generally, IP relating to patents, copyrights, and trade secrets belongs to the creator; for trademarks, the first user of a trademark owns it, even if the first user isn’t the creator. However, these general rules may be superseded in the employment context.
Employer vs. Employee: Who Owns IP Created on the Job?
Despite the general rules of IP ownership (above), a few variables in the employment context may give the employer IP ownership rights to IP created by an employee. These variables include:
Employment contract: The employee agrees that any IP created as part of the job belongs to the company or will be assigned to the company by the employee.
A few words about employment contracts and IP ownership:
Employment contracts normally give IP ownership to the employer only when the IP is created by the employee on work property and during work hours. An invention created by someone in their own basement during off-work hours should be owned by them, not their employer.
Many employment contracts do not contain specific IP provisions. The mere fact that an employment contract exists won’t tilt the scales in favor of employer ownership of IP; there needs to be language specifically relating to IP ownership.
Employment contracts differ from non-disclosure agreements (NDAs), which often discuss the sharing of proprietary information. Like with employment contracts, though, an NDA will grant IP ownership to an employer only if it contains specific language that makes this clear.
Employee Invention Assignment Agreement: The employee agrees to assign to the employer any invention created as part of the employee’s job. Note these agreements may come with different titles, but the concept is the same: the employee agrees to assign IP.
Implied Ownership: This may be found in situations where the nature of the employee’s job is such that the employer would be the implicit IP owner.
Employee Policies: This may contain provisions specifying that all IP created on the job belongs to the company.
Independent Contractors and Company Founders
When it comes to these roles, specific written agreements can clarify who owns IP created on company time.
Independent Contractors: May sign agreements containing “works for hire” clauses that make clear certain IP will belong to the company.
Company Founders: May sign agreements granting IP ownership to the company or containing IP assignment clauses, giving the company a royalty-free license to use the IP.
What Do IP Lawyers Do?
IP lawyers can add tremendous value to companies through such services as:
Counseling companies about strategies for protecting their IP
Protecting company IP through registration of copyrights and trademarks, filing applications for patents, and creating written agreements clarifying the company’s ownership of IP created on the job
Enforcing a company’s IP ownership rights through litigation and other means and bringing or defending companies in lawsuits related to IP ownership disputes
Is IP Law in Your Future?
There are many facets to traditional IP law. Add new IP-related developments such as artificial intelligence, blockchain, and digital piracy, and the to-do list for an IP lawyer gets even longer. Future IP lawyers should stay informed about new trends in this area of law — a challenge made difficult by the constantly changing nature of technology.
Stay up to date on the latest legal developments in California, Connecticut, Indiana, and the rest of the nation with Purdue Global Law School.
Purdue Global Law School offers full-time and part-time online Juris Doctor programs. Graduates of our program are academically eligible to sit for the California or Connecticut bar or, with an approved petition, the Indiana bar. If you wish to advance your legal education but do not intend to become a practicing attorney, you may consider an online Executive Juris Doctor.
Single law courses, including several courses categorized as Intellectual Property and Technology Law courses, are also available to help you explore a particular area of law without committing to a full degree program. Request more information today.