Intellectual Property Traps and
Opportunities for
Employed Future Entrepreneurs
Presented by Orin Laney, PE NCE
orin@orinlaney.com
July 21st, 2011
Intellectual property law defines
the legal essence of engineering.
Upon creation, legal rights attach
to every schematic, code listing, or
other creative output.
These rights are the legal essence
of engineering output. If a drive
crashes or a prototype is lost, the
work can be redone. But, if the
legal rights are lost the code or
prototype is worthless, even if
securely in hand.
Manufacturing employees cannot
stuff their pockets with product to
keep at the end of the day.
Similarly, engineers are proscribed
in the use of their knowledge and
creativity.
Ask Evan Brown!
• “I had an idea that I had developed
on my own time over many years.
My idea had not been written down
or recorded in any way.”
While he was employed by DSC
Communications of Plano, Texas
(1987-1997), Brown mentioned the
idea to his employer in 1996, who
then decided they own the rights
to Brown's thoughts
It was unrelated to the work he
was doing at DSC and was not
along the lines of DSC's business.
The company demanded Brown
disclose his idea to them, and
when Brown refused, DSC fired
him and filed a lawsuit against him.
“DSC/Alcatel paid the lawfirm Lynn
Tillotson & Pinker nearly $500,000
to litigate this case over the past
seven years. I gained an education
in the legal system, DSC/Alcatel
gained nothing.”
“In January 2000 I filed for Chapter
13 bankruptcy with a 5 year payout
plan. DSC/Alcatel was one of the
listed creditors and when the debts
were discharged the other day,
DSC/Alcatel's judgment against me
for $332,000 was included.”
Evan Concluded:
• If you are a creative thinker and problem
solver, you are much better off working in
California where you have some protection
from your employer.
Work in Texas at
your own risk
State Laws re Employee Inventions
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California CA Labor 2870 - 2872
Delaware 19 Del.C. s 805
Illinois 765 I.L.C.S. 1060/2
Kansas K.S.A. 44-130
Minnesota M.S.A. 181.78
North Carolina G.S. s 66-57.1
Washington RCWA 49.44.140, 150
Utah UT ST s 34-39-3
CALIFORNIA LABOR CODE
SECTION 2870-2872
• 2870. (a) Any provision in an employment
agreement which provides that an employee
shall assign, or offer to assign, any of his or her
rights in an invention to his or her employer
shall not apply to an invention that the
employee developed entirely on his or her
own time without using the employer's
equipment, supplies, facilities, or trade secret
information…
except…
• except for those inventions that either:
• (1) Relate at the time of conception or
reduction to practice of the invention to the
employer's business, or actual or
demonstrably anticipated research or
development of the employer; or
• (2) Result from any work performed by the
employee for the employer.
• (b) To the extent a provision in an
employment agreement purports to require
an employee to assign an invention otherwise
excluded from being required to be assigned
under subdivision (a), the provision is against
the public policy of this state and is
unenforceable.
Section 2871
• No employer shall require a provision made
void and unenforceable by Section 2870 as a
condition of employment or continued
employment.
However…
• Nothing in this article shall be construed to forbid
or restrict the right of an employer to provide in
contracts of employment for disclosure, provided
that any such disclosures be received in
confidence, of all of the employee's inventions
made solely or jointly with others during the term
of his or her employment, a review process by
the employer to determine such issues as may
arise, and for full title to certain patents and
inventions to be in the United States, as required
by contracts between the employer and the
United States or any of its agencies.
Section 2872
• If an employment agreement entered into
after January 1, 1980, contains a provision
requiring the employee to assign or offer to
assign any of his or her rights in any invention
to his or her employer, the employer must
also, at the time the agreement is made,
provide a written notification to the
employee that the agreement does not apply
to an invention which qualifies fully under the
provisions of Section 2870.
Final Note…
• In any suit or action arising thereunder, the
burden of proof shall be on the employee
claiming the benefits of its provisions.
The United States is virtually the
only industrialized nation that has
not implemented a uniform preinvention assignment agreement
policy at the national level.
A Personal Experience
• In 1984, my business went through a
temporary cash crunch. “Going captive”
looked like a viable option…
Recommended Reading
http://www.ieeeusa.org/members/IPandtheengineer.pdf
Common Law Shop Rights
• Even in the complete absence of any formal agreements between
engineers and their employers, courts will generally hold that:
• 1) confidential information and inventions or other creations made during
the course of employment as a normal part of job duties belong to the
employer;
• 2) inventions made by the employee off the job, using the employee's own
time and materials, will generally belong to the employee (absent fraud,
related in-plant work of which the employee might be aware, or other
special circumstances); and
• 3) inventions not related to work duties, but created with some nontrivial
use of the employer's time, funds or materials still belong to the
employee, but the employer has limited rights to exploit the invention
without payment of royalties or other compensation.
21st Century Needs
• Today, few attorneys consider common law to
be adequate for the needs of modern
technology-based corporations. For instance,
no common law barrier exists against an
employee creating job-related inventions at
home during nonworking hours without use of
the employer's confidential information, time,
materials, or funds, and selling them to the
highest bidder.
Pre-invention Assignments
• Technology-based industries explicitly
substitute private agreements in place of the
general and loose controls of common law.
The private agreement will expressly provide
for assignment of inventions (or other
intellectual property) to the corporation. The
intent is to claim everyday work output, not
just the special case of patentable inventions.
Birth of an IP Assignment Agreement
• The charter of the corporate attorney is to
protect the company. Absent guidance from the
executive suite, this will be done without regard
for morale, productivity, or effects on creativity
or employee retention. The only restriction in
scope is the outer boundaries of what a court
might enforce. Such agreements are typically
drafted in the privacy of the attorney’s office and
not as the result of any negotiation, therefore
some agreements are grossly overreaching.
Nota Bene
• A pre-invention assignment agreement will likely require that:
• (1) all inventions or discoveries, patentable or not, and
whether related to the employee's job responsibilities or not,
be promptly disclosed in writing to the corporate counsel;
• (2) the company shall be the sole arbiter of whether said
invention or discovery falls within the scope of the
agreement; and
• (3) the employee must assist in securing any intellectual
property rights without additional compensation, even
beyond the termination of employment. Some agreements
include a "trailing clause" that continues to claim job related
inventions for a period after the end of employment.
Rugs, Chickens, and Automobiles!
The Dilbert Boycott
• Many companies have moribund IP systems
that exist mostly in the company manual.
• If you use it, you become visible.
• There are essentially no case histories of
companies ripping an invention out of the
hands of an employee.
• At the same time, there are essentially no
employees who bother to submit for scrutiny
what they consider theirs.
Experiences
Step 1
• Find a job that appeals to you. Obtain a
written offer signed by someone of sufficient
authority.
Step 2
• Inspect the entire offer, not just what is in the
offer letter. The letter specifies what the
company promises to you, but the
employment agreement specifies what you
promise to the company. Ask for a copy. Pay
attention to the reaction. Do not sign
anything prior to reporting to work.
Step 3
• If the total offer, including the employment
agreement, is not acceptable, you have an
opportunity to explain. HR made the offer,
but discuss the problems with your
prospective manager. This is a case of nothing
ventured = nothing gained.
Step 4
• If you accept the total offer, make sure you
understand and follow the terms in it.
Prepare a list of inventions excluded by reason
of conception prior to employment, and
attach it to your agreement at time of signing.
Provide only enough information to tag the
invention, not details. Be aware that
reduction to practice during employment
might create a claim.
Step 5
• During employment, follow the terms of your
agreement, but treat your personal IP with the same
confidentiality as the company demands for its
proprietary information.
• Do NOT try to sell any IP to your employer, and
certainly not to a competitor!
• Remember that the corporate counsel is likely the only
employee trained in the intricacies of IP ownership,
and he represents the company, not you.
Step 6
• Upon leaving employment, make sure that all
proprietary or confidential information stays
behind. This includes customer lists, pricing
and supplier information, and similar data.
• If you are starting a business, be cautious
about soliciting colleagues and meeting with
them. If you become a competitor, consider
moving elsewhere.
A Former Employer Cannot…
• Claim normal growth in your profession.
Generic skills learned on the job are yours to
keep.
• Force you to keep working for them or prevent
you from earning a living using your skills.
Under some circumstances, they can pay you
not to work for a period in order to withhold
your talents from a competitor.
Thank You!
It’s time for your
questions and
war stories