Works-for-Hire and Invention Assignment Clauses in Employment Agreements: Are You Sure It’s Your Property?

This week we start exploring one last building block that employers should consider including in their employment agreements: invention assignment and works-for-hire clauses. What are they and why might you need them in your contract? The short answer is that even though you now know to have provisions guarding against disclosure and use of confidential information and/or trade secrets, what good do they do if you have not established that such information really is your (the employer’s) property in the first place. If you include well-written provisions addressing this issue, then you should be “good to go”. So, let’s getting going and learn what we can about this last building block!

First, let’s clear up some confusion. I tend to hear people using the terms “Works-made-for-hire” and Invention Assignment clauses interchangeably. In fact they neither mean nor do the same thing. What is a works-made-for-hire clause and how does it apply in the employment relationship? A works-made-for-hire clause essentially provides that works of original authorship belong to the employer, or whoever commissioned the work(s). A typical works-made-for-hire clause will read as follows:

Employee acknowledges that any original works of authorship s/he creates, whether alone or jointly with others, within the scope and during the period of employment with Company, shall be deemed a “work made for hire” as defined by the United States Copyright Act and are protected in accordance therewith. To the extent that such work is not, by operation of law, a work made for hire, Employee herby transfers and assigns to Company all his/her right, title and interest therein, up to and including copyright.

As we are about to see, this type of clause will be irrelevant (read “useless”?) to most employers. Why? First, a work-made-for hire applies to works protected by copyright law. What types of works will copyright law protect? Examples would be artwork, work that is part of a video or motion picture, other audiovisual work, music, work that may be included in a textbook, atlas, etc. Why then would a work-made-for hire clause be irrelevant if not useless to many employers? Employers whose employees create these types of work would still want to claim property rights to them, no? The answer is that the law presumes that such works created by an employee in the course and scope of his or her employment relationship are the employer’s property. We know that because the U.S. Supreme Court has told us so in Bleistein v. Donaldson Lithography Co., 188 U.S. 239 (1903). Does that mean that businesses never need a works-made-for-hire clause in a contract? Not quite. If you own a business and you use independent contractors to create the types of works created by copyright law, then you will need a works-made-for hire clause. Some businesses will still want to include a works-for-hire clause in their employment agreements, to put the employee on notice that such works are the property of the employer. While not necessary, some employers feel the psychological value renders it worthwhile.

Since employers do not need a works-made-for-hire clause in their employment agreements, you can all rest easily now; your inventions are protected by law, right? I am sorry to say that is not so. If you have a secret formula or process or anything else that would be a trade secret (Click here for review of what constitutes a trade secret) you will want to know that such information is your property. Information of this type is not protected by copyright law. Similarly, inventions are not either. It may be protected by patent law, but the question will still remain: who will be entitled to the patent? Who owns the invention, process, or other trade secret information? A well-written invention assignment clause will settle that issue.

As you may have guessed, invention assignment clauses assign the inventor’s right title and interest in the invention to another party. In the employment relationship, the clause will assign and transfer all rights to the employer. As always, however, you will want to consult with an attorney in the state in which you do business, because eight states including California (surprise!) impose restrictions on invention assignment clauses. Here is an example of how an invention assignment clause might read:

Employee agrees that all inventions s/he develops a) using Company’s equipment, supplies or trade secrets; b) resulting from work s/he performs for Company or c) relate to Company’s current or anticipated research and development will be Company’s sole and exclusive property, and I hereby assign all right, title and interest in same to Company.

Note that the assignment does not cover inventions made by the employee on his or her own time, using his or her own resources that do not involve any misappropriation of the employer’s trade secrets or other confidential information. Note also that while the above only covers actual inventions, a properly worded assignment can also cover ideas.

Here is some other language employers might want to include with their invention assignment provisions:

1. Disclosure language: An employer may not be aware of or may not recall all the employee’s inventions made during the course and in the scope of employment. Disclosure language should require the employee to promptly disclose all details of all inventions, discoveries, improvements and innovations, even if they are not patentable or copyrightable that s/he conceives or develops that relate to the employer’s business, that result from use of the employer’s facilities, equipment, materials, personnel or trade secrets or are otherwise connected with work s/he does for the employer.
2. Power of Attorney: This provision allows the employer to exercise ownership rights, including applying for a patent without the employee’s help. Essentially the employee agrees that if s/he for any reason is unable to provide a signature on documents necessary for establishment or protection of proprietary rights, s/he designates the employer to execute all such documents.
3. Holdover clause: This type of provision seems to combine some of the points in the previous two. It requires the employee to disclose inventions and ideas within and up to a certain period of time after termination and to assign right title and interest to them in the employer. As long as they are for a limited time and they limit protected inventions and ideas to those invented during the course and scope of employment, they are likely enforceable. If they are written too broadly however, they may not be.

What happens when there is no pre-invention assignment in an employment agreement? Aren’t there patent laws and procedures that significantly impact the employer that we have not covered? Guess what? Next week The Emplawyerologist brings you an exciting program, featuring guest blogger Judy Naamat, Esq., a patent attorney (Hoo Ha!) who will discuss some of those issues as well as the American Invents Act and its impact on employers. Don’t miss it!

Click here to learn more about Janette Levey Frisch, author of The Emplawyerologist.

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Disclaimer: The content of this post and of all posts on The Emplawyerologist is not legal advice and does not create an attorney-client relationship. Always consult with competent local employment counsel on any employment law issue.