Intellectual Property Overview Section C

C. OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS

1. PATENTS

The law has established fairly standard guidelines regarding the ownership of patent rights in the business setting. In those instances in which an employment agreement deals with the subject, it will typically control with certain limitations. In the absence of an agreement, the manner of developing the patentable subject matter will determine the outcome.

An employee hired to invent, or assigned the responsibility of solving a particular problem, is obligated to assign patent rights to the employer. This is true regardless of where or how the invention was made. No contractual obligation, such as an employment agreement, is necessary to vest the employer with ownership of the patent rights in this circumstance. If the employee is neither hired to invent nor assigned a particular problem, and there is no employment agreement pertaining to inventions, then any invention he makes on his own time and with his own resources will be owned by the employee.

An employer and employee may agree, typically in an employment contract, that inventions made by the employee during his period of employment will be owned by the employer. Such agreements, however, are usually read restrictively. For example, "home inventions" may only be included if they relate to the work of the employee or if they are derived from trade secrets obtained by virtue of the employment.

Inventions made prior to the term of employment do not become property of the employer merely by virtue of the employment. Further, application of such inventions to a problem of the employer does not instill the employer with any claim of ownership, though it may give the employer an implied license to continue use of the invention, even after termination of the employee. This result is based on the theory that the employee is estopped to bar the employer 40 after inducing the employer to use the invention.

Termination of the employment relationship does not affect rights established during employment. If the employer is entitled to ownership of the patent rights due to the nature of the employee's job status or due to an employment contract, then title remains with the employer when the employee leaves.

Some employment contracts provide that the former employee will assign rights back to the employer for any invention made after termination, usually within a fixed time period such as one year. One reason for such a provision is to prevent the employee from conceiving an invention, and then terminating employment intentionally to avoid having to assign rights to the employer. Courts have treated these provisions variously, sometimes holding them invalid as against public policy, sometimes strictly enforcing them, and frequently seeking to determine the applicability of the provision based upon the particular facts. Statutes in some states specifically limit these provisions to a prescribed time period and only to inventions relating to the former work of the employee.

Absent a post-termination obligation to assign, an employee owns rights in any invention made after leaving his employer. However, when the invention is "made" is a common issue in such cases. The prevalent view is that an invention is made only when the invention has been both conceived and "reduced to practice." This is the standard used in the patent laws, and refers to the two step process of (1) thinking of the invention, and then (2) constructing it and showing it to be workable. This interpretation can give even the employee hired to invent the power to terminate employment after the invention has been conceived (but before reduction to practice), and thereby avoid the obligation to assign rights to the employer.

Non-competition provisions in an employment contract, although usually related to trade secrets, can have an impact on patent rights. A former employee under such a restriction may be limited to selling or licensing patent rights, rather than practicing the rights himself. Conveying patent rights generally is not considered "competition" within the meaning of these types of clauses.

2. SHOP RIGHTS

A "shop right" gives to the employer the non-exclusive right to use an invention under certain circumstances. This shop right entitles the employer to use the invention for his own business purposes (i.e. in his "shop"). The employer can not assign this right to another and can not prevent others, including the employee/inventor, from using the invention.

The shop right arises if the invention is developed on the employer's time, utilizing the employer's money, property and labor. This is an equitable right based on the theory that the employee has impliedly consented to use of the invention by the employer since it was the employer's resources that enabled the invention to be completed. If the invention becomes patented, the employer has an implied (non-exclusive) license to practice under the patent. However, ownership of the patent lies in the employee, and he retains ownership even if he leaves his employment. If the employer has a shop right, then it may continue to exercise that right after the employee has left.

The shop right arises regardless of the relationship of the invention to the employer's business or the employee's responsibilities. It is not necessary that there be an employment agreement or that the employee be hired to invent for the shop right to exist.

3. TRADE SECRETS

The employer will generally be the owner of any trade secrets used in its business, including those developed by an employee in the ordinary course of business. However, the employer must take necessary steps to preserve the secrecy of the information. Jurisdictions vary as to the steps necessary, but a common thread is that the circumstances must be such as to reasonably protect the secrecy and also to convey to the employee the confidentiality of the information. An employment agreement is not essential to impose a restriction on disclosure of trade secrets, since the employment relationship is presumed to be one requiring confidentiality.

Trade secrets do not encompass the general knowledge, skill and experience gained by an employee during his employment. Upon termination, the employee is entitled to the continued use of this "personal equipment" acquired by virtue of his employment. However, this does not permit the employee to use or disclose the employer's trade secrets.

The interplay of trade secrets with other intellectual property rights can quickly lead to a complicated situation. For example, under the earlier discussion it may be concluded that an employee owns the patent rights to a given invention made during his employment. However, it may not be possible to use or disclose the invention, or to file a patent application, without necessarily disclosing trade secrets of the employer. In this instance, the employee's conceptual right to the invention must yield to the limitations imposed by the trade secret restrictions.

4. COPYRIGHTS

The owner of the copyright in a work is generally the author. Joint authorship arises when two or more authors collaborate to produce a work or intend that the product of one will be merged with the other's to form a single work. 101 Owners of copyright may convey the five separate rights either individually or in combination.

Joint owners have the right to free use of the joint work, but must account to the other for profits. This leaves the possibility that one joint owner will dedicate the work to the public, thus effectively preventing other joint owners from profiting from the work. This may be avoided by having the joint owners agree in writing not to convey any rights without the others' consent.

In an employment situation, the owner of the copyright in a work prepared by the employee in the ordinary course of business will be the employer. Such works are referred to as "works for hire," and the term of the copyright will be the shorter of 95 years after first publication or 120 years after creation. The determination of the "employee" status is the same as in differentiating between an employee and an independent contractor, looking for example to how supplies, work area, tools, hours and payment are provided. The employer and employee may contract to provide ownership of a work for hire to the employee, but such a contract must be in writing and signed by the parties.

A commissioned work is one which is prepared by an independent contractor (analogous to the employee) for a commissioner (analogous to the employer). In contrast to a work for hire, the owner of the copyright in a commissioned work is the creator, i.e. the independent contractor. The parties may agree that the work shall be considered a work for hire only for a few limited types of works such as collective works (e.g. encyclopedias), translations, illustrations, supplementary works (e.g., illustrations), compilations, and instructional texts. Of course, the ownership of the copyright may be conveyed to the commissioner, or another, by a suitable agreement.

5. SOURCE IDENTIFIERS

Rights in trademarks, service marks, trade names and trade dress stem from the use of such in commerce. Thus, the ownership will be in the employer. Creation of the fanciful word or logo will not instill the employee with rights in the trademark. However, in appropriate circumstances an ownership question may arise under another theory, such as copyright. This could occur, for example, in the case of a logo designed by an independent contractor. Any trademark rights arising from use of the logo would be in the employer, but there may also be copyright in the design, which would remain with the contractor. Consequently, such situations require resolution by contract.

An interesting situation arises from the use of an employee's name as a trademark (e.g., Gallo wine). However, the same rules apply, and the employer is the owner of the mark. While the employee may thereafter wish to leave and argue entitlement to use his own name, courts are willing to either deny this request or impose restrictions to avoid any potential confusion.

6. MISCELLANEOUS ISSUES REGARDING EMPLOYEES

A "breach of a fiduciary obligation" is a legal concept that imposes on certain employees an obligation not to violate the trust given the employees. The fiduciary obligation generally resides only in employees at and above a certain level of authority, such as officers and directors of a corporation. The fiduciary obligation is breached when the employee violates the trust, such as by conveying confidential information to a competitor or using it for his own benefit. When this legal theory applies, it typically has a counterpart under one of the intellectual property rights, such as a claim for misappropriation of trade secrets.

"Usurping a corporate opportunity" is another legal theory under which employees may become liable for misusing intellectual property of the employer. The typical scenario is that an employee learns of a business opportunity available to the company, and pursues the opportunity for personal gain. The opportunity may, for example, be the acquisition of another company, or the entry into a new product market. Again, the theory is generally restricted to officers and directors, and there is usually a correlative theory under intellectual property rights, such as the misuse of trade secrets.