Steps Every Company Should Take to Protect One of Their Most Valuable Assets
By Darin Klemchuk, Managing Partner, Klemchuk LLP
In the 21st Century, intellectual property (IP) represents one of the most important assets for companies. The amount of trade secret misappropriation alone is staggering. According to Thomas Heed in Misappropriation of Trade Secrets: The Last Civil RICO Cause of Action that Works published in The John Marshall Law Review, “Corporate loss estimates from misappropriated trade secrets are estimated by various sources to be between $1.8 billion and $100 billion annually, and the frequency of incidents seems to be rising.”
One of the best ways a company can protect its IP is through employment agreements with employees and service agreements with independent contractors. The following summarizes why each particular type of IP needs to be protected by a written agreement and practical suggestions for addressing these concerns.
1. Patents – Contrary to popular belief, a company does not automatically own the rights to inventions developed by an employee in the course and scope of their duties. Generally, the employee owns the invention and later patent rights, while the employer obtains a special license called “shop rights” to practice the invention. Additionally, patent law generally requires that an assignment of patent rights must be in writing. To address this, employment and independent contractor agreements should include an assignment of inventions/patents provision to ensure that the company owns all these rights.
2. Copyrights – Like patents, urban myths abound regarding employer ownership of copyrights created by employees and independent contractors. While the work made for hire doctrine applies in many instances, it is best to include an express copyright assignment in agreements with employees and, particularly, independent contractors. Also, like patents, a copyright assignment generally must be in writing.
3. Trademarks/Trade Dress/Trade Names – These intellectual property rights require use in commerce, so they are not usually an issue with current or former employees and independent contractors. However, risk can be avoided by requiring employees and contractors assign the rights to a trademark, trade dress, and trade name ideas. Employees and contractors should also be limited from using confusingly similar marks in competition while employed.
4. Trade Secrets – Of all forms of IP, trade secrets are most vulnerable to employee theft and malfeasance. Because non-compete agreements are sometimes difficult to enforce, an employment agreement should have separate provisions for confidentiality/non-disclosure, non-solicitation, and non-competition. Failing to have employees agree to a written non-disclosure policy, whether in a formal employment agreement or employee manual, can be fatal later when a company seeks to protect its confidential information, depending on the circumstances.
5. Electronic Files – Electronic files and their ownership fall into a gray area. Companies are better off confirming in writing that all electronic files and data created in the course and scope of an employee’s or independent contractor’s employment are owned by the company. Care should be taken that the company owns these rights despite the medium and location in which the files are stored. This type of provision is needed to address electronic files created by employees on personal electronics, such as home computers, iPads, and smart phones.
6. Domain Names – Cases involving ex-employees and disgruntled contractors registering a company’s domain names, registering domain names a company foreseeably would want to use in the future, or maintaining control over existing domain names are legion. For unknown reasons, domain names are a favorite target of departing IT employees. To avoid all these problems, a company’s agreements should clarify that it owns all of its domain names and preclude employees from registering domain names that are confusingly similar to the company’s trademarks or current domain names.
7. Passwords and Other Sensitive Information – Similar to domain names, an employment agreement should make clear that all passwords and other sensitive information is owned by the company and require that an employee provide that information if needed after employment has ended.
8. Social Media Accounts – Like all emerging technologies, the law has not caught up with the unique problems created by social media. A company does not want to find out that its Twitter account and thousands of followers are owned by an ex-employee or worse, an ex-independent contractor. Therefore, agreements should establish that the company owns all of its social media accounts.
One final recommendation is to conduct a formal exit interview with departing employees to remind them of their obligations above and to get them to commit in writing that they have not taken any information or materials with them. This can be a crucial step if litigation erupts later over whether the employee stole company property or violated agreements.
For more information on this topic, please visit our Confidentiality & Employment Agreements service page.
Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm located in Dallas, TX. The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights. The firm also provides a wide range of technology, internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution. Additional information about the firm and its attorneys may be found at www.klemchuk.com.