The intellectual property of a business – such as patents, trademarks, copyrights, and/or trade secrets – may be its most important assets. Consequently, a savvy business owner should take steps to protect those assets and maximize the business' value. An owner should be aware of potential events that can result in loss of ownership of valuable intellectual property (IP). One such trap is failing to contract with employees for ownership of IP assets developed during their work for the business.
Much of the law governing enforcement of ownership rights is based in federal law. For instance, the law regarding who is an inventor on a patent is defined by federal law. Disputes regarding these rights are also litigated in federal courts: A company whose patent rights have been infringed by another must sue the infringer in federal court to stop the infringement and to recover damages. Likewise, an architect whose copyrighted designs have been copied by another must enforce rights in the design in federal court. But when the debate is over asset ownership, the dispute generally falls to the laws of the state where the asset was created.
The most common scenario arises in the employment context where an employee invents something during "off hours" and wants to own it free of the employer. In cases when an employee's invention is unrelated to work, the person's sole ownership is rarely disputed. But employers tend to claim ownership the closer that the invention is to the employer's own area of work, even when the invention occurred during nonworking hours.
Disputes of this type often end up resolved through litigation between the parties. Such litigation generally is lengthy and expensive because of the many facts that must be determined in order for the fact finder (judge or jury) to conclude who is the owner of the asset. Because of the uncertainty of the process, as well as the costs and time required to settle disputes by trial, many states have enacted laws to assist parties in resolution of the question of ownership. However, Oregon has not.
Accordingly, ownership disputes in Oregon are generally resolved through litigation with the parties finding facts through discovery to determine when the asset was developed (e.g., during work hours or at home), what resources were used by the employee to develop the asset (e.g., employer's laptop and software programs or the employee's own equipment), and whether the asset is in the same or a similar field as the employee's job (e.g., did the computer programmer employee invent a computer program or a bread machine?).
Very generally, when employees develop an asset that is unrelated to their employment, on their own time and with their own (rather than their employer's) resources, they own the asset. When the facts are not clear, the determination may result in a split of the rights between the parties, such as ownership by the employee with a mandatory, cost-free license to the employer, called a "shop right." This result may not be satisfactory to either party in a competitive industry.
There are steps a savvy business owner can take to avoid such litigation. To begin, an employer can require an employee to sign a contract requiring the employee to assign rights in any asset developed during employment to the employer, provided that the asset relates to the work for which the employee was hired. The contract should be signed before the start of employment or upon a bona fide advancement of the employee within the company. The parties can contract for joint ownership of inventions if desired, but such terms should be quite clear, including what happens in the event that the employee leaves the employer's business.
Many employers require their employees to sign a noncompetition agreement that would preclude competition with the employer in the same industry for up to two years after leaving employment. However, a departing employee who co-owns an asset with the company may frustrate the purpose of the noncompetition agreement by assigning rights in the asset to a third party who is not precluded from competing with the employer.
It also merits mentioning that noncompetition agreements are governed by Oregon law and are severely restricted. For instance, employers must provide new employees with adequate notice before employment that a noncompetition agreement will be required and the term is limited by law to two years. For these reasons, the employment contract remains the best means by which to protect the business' assets.
Businesses should also evaluate the potential IP implications of joint ventures with other businesses. Consider the following example: An architecture firm and a construction company collaborate to build a building. The companies enter the partnership with a written agreement covering only the funding by each of 50 percent of the cost of the "spec" building.
During the planning, one of the architects has an idea for a new way of installing windows to increase their heat-efficiency, and mentions it to members of the construction company during a meeting. Inspired by the discussion, a construction company employee locates a building material that has never before been used for window installations, and he and the architect collaborate to perfect the idea.
This wonderful scenario can lead to a hornet's nest when it comes to determining who owns the rights to the window installation method and design, and who has permission to use this IP asset going forward. Assuming that both the architect and the construction employee are joint inventors of an idea that may be suitable for a patent, who would own the patent and who should pay for the application? If both employees have a contractual duty to assign their inventions to their respective employers, does each company own 50 percent of the invention? What if the architecture firm wants to use the invention in future projects with the construction company's biggest competitor?
Proper planning with thorough written agreements can keep the assets of a business squarely within its control.
As published, Daily Journal of Commerce, Feb. 6, 2014