Employee IP Assignment Agreements Explained: What You Should Know

What Exactly is an Employee IP Assignment Agreement?

A company or business needing to hire new employees may request that a potential new employee sign an Employee IP Assignment Agreement, which will give the business ownership of any intellectual property created by the employee at the new business. While it may be surprising to a potential new employee that they will be signing over complete ownership rights to any ideas and inventions that they come up with while at the business, an Employee IP Assignment Agreement is standard business practice that helps to protect the new business’s rights over the property created by the employee.
To protect a company’s interests, the agreements will usually require the employee to assign to the new company all of their rights to such intellectual property , meaning that any interests that an employee has in any inventions that they came up with while working for the new business should become the property of their new employer. An employee’s claim for their own rights to any intellectual property created on the job would most likely be legally disputed by their new employer as a violation of their employment contract and the Employee IP Assignment Agreement that they signed.
In some cases, an Employee IP Assignment Agreement will contain language that provides a small reward to employees who have been instrumental in the development of successful intellectual property in order to incentivize performance.

Reasons Why Companies Seek IP Assignment Agreements

Companies mandate IP assignment agreements in order to protect their trade secrets, patents and other intellectual property created by their employees. An IP assignment agreement is an agreement between a company and employee that assigns, or sells, the intellectual property rights developed by the employee in the course of his or her employment to the company. It can also require that the employee keep any information they have learned about the company’s business a secret while they are employed and forever after. Some companies will require a form known as a Nondisclosure Agreement and Assignment of Inventions Agreement that combines both of these.
The legal doctrine of employee invention assignability, where an employer automatically gains any employment-created intellectual property, exists under typical common law in most jurisdictions but varies state by state. This means that the employer may be limited in its ability to claim the intellectual property for which it has not provided with consideration. To avoid litigation and ensuring that the company covered most of the potential "gray areas" of the law, companies require employees to sign a formal written agreement assigning the intellectual property rights to the employer as a condition of the employee’s employment.

Essential Elements of IP Assignment Agreements

The key elements of an employee’s IP assignment agreement can generally be divided into the assignment clauses, definitions, and obligations of the employee.
Assignment of IP Generally
The agreement will generally contain clauses assigning each of the IP rights owned at the time of the agreement by the employee to the company. This assignment will typically be accompanied by several exceptions, such as retaining certain specified prior inventions, the right to the actual consideration for the assignment (e.g., salary), and any rights to compensation under applicable labor legislation.
Though there may be a recognition of pre-existing IP rights, the IP assignment agreement should also contain a clause that assigns and purports to assign all IP rights that may arise at any time in the future, whether or not the company existed at the time the rights were created.
The same general assignment sections of the IP assignment agreement may also be used to assign IP that is created during the course of employment, with the assignment being contingent on the invention meeting certain criteria. Some factors that may be customized in this situation may include the type of IP to be assigned, e.g., ESA, copyright, patent or otherwise, and the threshold for contribution to the invention.
Definitions
A definition section in the IP assignment agreement is of immense importance. This section should define the following types of IP terms and similar terms: "the company"; "the field of the company’s business"; "the company’s business"; "company computer system"; inventions; related rights; (optional) confidential information; "take any necessary actions"; "the company’s other employees"; "employee", "manager", "work of authorship," "work of authorship made for hire"; "the company’s trade secrets"; "technical information"; "trade marks"; and "the company’s customer contacts". We will discuss the confidential information provisions further below.
Other Obligations of the Employee
An IP Assignment Agreement can also contain an obligation of the employee to disclose his/her inventions to the company, (usually during the period of employment) and, if required, to provide any assistance to the company for the purposes of preparing patent applications. It may also be advisable to include a representation of the employee that the employee has disclosed to the company all IP rights that either existed or may have arisen prior to the execution of the agreement.

Enforcement of IP Assignment Agreements

Employee IP Assignment Agreements, their Enforcement and Legal Consequences
In order to place an employer in the advantaged position of being able to pursue any present or future inventions as a result of employment, most employers will ask each employee to assign to the company (i.e., present and future) any and all intellectual property created by the employee in the course of the employment. Such agreements, known as Intellectual Property Assignment Agreements, may provide that the employee must assign the relevant intellectual property upon request, such as when it is adopted by the employer (e.g., in the form of a patent application, copyright registration, or trademark registration).
Commonly, an employee must also sign an additional invention agreement, under which the employee confirms that all existing (as of the date of the agreement) and future inventions that are related to the employer’s business, or that use the employer’s resources, (i.e., computers, facilities, or materials), are also owned by the employer. It has been held that a mere acknowledgment of the agreement is sufficient, so long as the acknowledgment is voluntary and the acknowledgment and invention assignment agreement are reasonably separate.
Employees who refuse to sign such agreement(s) work under the threat of unemployment, and therefore many employees have no choice but to sign the agreement(s).
It is a well-established rule that an employee’s obligation to assign an invention to an employer will be enforceable if:

(1) the invention is made in the course of employment and is related to the employer’s business; and
(2) the duty to assign is supported by the promise of compensation separate from the normal compensation paid in exchange for the work performed.

Payment of such additional compensation is a significant factor for the court’s determination.
To the extent an employee refuses to cooperate in a transfer of rights to the employer, the employer can sue the employee for a "declaratory judgment" to obtain a court order assigning the intellectual property.
An employee can also be held responsible for damages for any tangible or intangible losses arising from the employee’s refusal to assign or cooperate with respect to the inventions to the employer.
In addition to an action for damages, an employer can obtain an injunction to prevent further infringement by the former employee. The standard for injunctive relief in federal courts requires that the employer prove: (i) that it has suffered an irreparable harm, and (ii) that the harm suffered as a result of the continued violation outweighs any harm that incurred in the employee’s trade secrets in the absence of an injunction.
Further, the employer should contact the employee’s new employer and seek a settlement agreement whereby the new employer agrees to not use or disclose any of the former employer’s confidential information, intellectual property or trade secrets.

Negotiation of an IP Assignment Agreement

Whether before a new hire starts or after the fact, negotiating the terms in an employee IP assignment agreement is important for both parties. First and foremost, an employee often needs as broad of protection and as long of a term as possible entering into a workforce. For the employer, if drafted fairly, the mutual risks can be reduced.
Meaningful compensation is one area of negotiation that is often overlooked. Equity in the company is another. While the majority of employee IP assignment agreements include the promise of assigned IP in exchange for the employment, many state that the consideration is "in addition to" any compensation. With at-will employment, which means termination for any reason, an assumption of a contract can still create significant costs for the employer.
Another area of negotiation often overlooked is protection of the employer’s own IP. For example , in some cases, employees might be asked to assign IP developed outside the employer’s business. Negotiating a specific schedule of pre-existing patents, copyrights, trademarks, software, and other IP to make sure that what is already owned by the employer is not subject to a potential assignment can be key to a cost-effective hiring process while protecting the existing IP.
For an IP assignment agreement to be mutually fair, some parameters should be enumerated and defined. For instance, prohibiting an employee from competing with the employer is generally going to be too broad, even (and sometimes especially) where it does not seem to be. Over-spilling IP protections are another area of risk. Inviting an employee to be creative while sharing in that reward is beneficial for both the employee and employer.

Common IP Assignment Agreement Issues

One of the most common disputes involving IP assignments and assignments of IP rights arise in connection with inventions. Take for example the typical employment agreement where the company may use the phrase "all inventions, discoveries, creations, designs, know-how, computer programs, processes, procedures and improvements and copyright works". These phrases are then supplemented by one or more paragraphs of the employment agreement or an attached policy (which would be incorporated by reference into the employment agreement), and/or an affirmation of some sort (usually in the context of a signing bonus program).
The problems that ultimately may arise from an IP assignment like this include: All of the above situations lead to potential litigation down the line between the company, the former employee and sometimes, the new employer of the former employee. The situation becomes oftentimes more complex if there are multiple parties involved as well as issues relating to the relative weight of different agreements.
To mitigate these and related concerns, it is best practice to ensure that the agreement: We recommend that companies consult with counsel experienced in employment law, and IP licensing to determine how to best balance all of the legal, practical and business considerations in each situation.

Examples of IP Assignment Agreements in Practice

There are several high-profile situations where IP Assignment Agreements have become the focus of legal action, and they are illustrative of how important it is to be aware of this issue and have a strong agreement in place.
A recent case that went to the US Court of Appeals for the Second Circuit found an exception to the work-for-hire doctrine. In the case, cabinets invented by an engineer for his employer were held not to be works made for hire because the employee was not "specifically and strictly" instructed to create them. While this case was about patent rights, it clearly illustrates the importance of having a well worded IP assignment agreement in place, preferably one that specifically lays out expectations and the parameters for what happens when a character who was created for a game is no longer needed.
Again, a dispute surrounding trademark assignment agreements illustrated how complex the whole issue can be, but also how simple these are to prevent when everyone is on the same page. This case was a suit brought against Activision because the company had not continued its use of a certain trademark. The trademark was attached to the James Bond video game franchise, and when a lawsuit was filed against Activision alleging that Activision had breached the trademark assignment agreement with the owners of the intellectual property, the court found that Activision held clear title to the gaming franchise after its assignment.
An LAPD officer filed a civil lawsuit in September 2017 accusing Ubisoft of violating California’s 2015 law that requires employers to pay royalties to employees who have worked on successful products, either individually or as part of a group. The game at the center of this conflict is featuring LAPD officers and the player gets to shoot it out with suspected criminals. The reward from the game helped to fund the Legal Defense Fund for the PayDaily Police Officers Association (PDPOA). The PDPOA announced in July 2017 that it would be pursuing legal action against Ubisoft for breach of contract and violation of the new law, as their officers were the subject of this game and they were not compensated for their images. While the outcome of this case is still pending, it will be interesting to see how it plays out and what parameters the courts will place around who owns the rights to an employee’s image and likeness, as well as the details around the contract terms and conditions.

Conclusion: The Future of Employee IP Assignment Agreements

Across the industry, we are seeing the tech sector shifting its relationship with employees. Google’s parent company Alphabet recently announced that they planned to treat employees more like customers (e.g. more lenient rules on office décor and the like). More generally, companies are embracing collaborative cultures. Individual genius is no longer valued the way it once was. For today’s corporations, a creative team – a group of employees who can draw from each other’s strengths – is increasingly seen as the "soul" of the company.
Obviously, this shift has important implications for employee IP assignment agreements, not the least of which being that these more relaxed company cultures tend to translate into more relaxed laws. When employees are more loyal and feel more empowered by their work environment, they tend to concede more rather than go looking for loopholes paid attorneys to exploit. Of course, there is always the possibility of a new and competitive company stealing away talent. In fact , one of the reasons why Google secretly bought mobile security firm Shape Security was to keep a competitor from poaching an engineering team responsible for much of the technology behind the Google Pixel smartphone lineup. You’re also more likely to attract customers if your employees are happy and engaged in their work.
It follows then that we are likely to see a steady decline in the use of overly broad assignment agreements that sweep up unrelated assignments, particularly those made outside of the workplace such as a garage project or on the weekend. Employees who know their extraneous projects will not be owned by the company are going to be more likely to join under relaxed and favorable terms. That said, companies still need to invest in their core teams and protect their intellectual property. An employment agreement often includes other IP rights far beyond assignments such as non-disclosures, and assigning patents may still be appropriate in the right situations. Ultimately, IP assignment agreements will continue to strike a balance between corporate interests and employee empowerment.