By Lawrence Hoffman
Part II Employment Contract Provision Concepts:
In case it’s been a while since you read Part I, let’s review the two Golden Rules:
- Anything and everything related to ownership of IP must be covered in a written employment contract to minimize the risk of later conflict and to avoid nasty surprises;
- There is no “one size fits all” employment agreement; what needs to be in an agreement will be determined by facts in a particular situation and laws related to employees’ rights which vary from jurisdiction to jurisdiction.
Employment Agreement Templates:
Having your attorney draft an employment agreement from scratch for each employee is obviously not a good idea. Therefore, an agreement template may be useful as long as it doesn’t become a tail that wags the dog. Templates can take any convenient form, e.g. a word processor merge file or other interactive file.
Bear in mind that it might be a good idea to have several templates depending on where your workplace(s) are located. For example, as described in Part I, in the U.S., state laws largely govern employees’ rights. Therefore, for example, if you have employees in Israel and in the U.S., and your U.S. employees are located in New York and California, you should have a template in Hebrew for Israel, and one in English flexible enough to take account of the laws in both states as alternatives.
If you have multiple employees in different states, it may be more convenient (and may avoid possible problems if the single U.S. template is incorrectly edited) to have separate templates for each state. These are issues to be discussed with your lawyer(s).
Balancing Protection and Public Relations:
The people you will want to hire (or their attorneys) are likely to recognize contract terms that effectively sell their intellect into slavery. In a seller’s market, talented people won’t want to work under such conditions. Therefore, a balance must be struck between protecting a company’s investment in its IP and making you an attractive employer. Some have even suggested that liberality here will inspire an employee’s creativity.
One way to consider achieving this balance is allow the employee to retain ownership of inventions made on his own time that are not related to the company’s business, even if the law permits you to take title to such inventions. You can also consider providing compensation for inventions for which the company does take title more generous than legally required, and even provide compensation in the U.S. where this is not required by law.
For these reasons, we are not providing “sample agreements” though many can be found from a quick online search. In this connection, there are several online interactive applications that offer to prepare a draft agreement based on your answers to a series of questions. Your attorney may use an a word processor merge application or the like based on previous work done in his or her office, but that will involve person-to-person interaction that addresses your specific needs. Writing an employment agreement is just not a do-it-yourself project.
Apart from provisions related to compensation (covered in Part III) and provisions related to protection of trade secrets and post-employment competition (covered in Part IV) we will now discuss the types of provisions that should be considered for inclusion in an employment contract. Note that the “concepts” presented below are not contract provisions as such, but rather expressions of important issues that should be addressed.
Introductory Section of the Agreement:
This should address at least:
- Identity of the parties (e.g., to be referred to as ‘Employer’ or ‘Company’ and ‘Employee’ or ‘I/me’ in the text of the agreement);
- Definition of “course of my employment” or “scope of my employment”, etc. by description of the employee’s duties and other terms of employment;
- Consideration (e.g., “In consideration of my employment by the Company, and other good and valuable consideration, receipt of which I hereby acknowledge and agree as follows:”); and
- Other provisions as suggested by the employment law specialist drafting the agreement.
Detailed Description of what IP is Employment-Related:
A possible format to consider:
An introductory phrase such as “I hereby agree that the following shall be Employment-Related Intellectual Property for purposes of this agreement:” followed by subparagraphs addressing each type of covered IP as discussed below.
(Concept) “Trademarks”, including word marks, slogans, symbols, logos, service marks, trade names, and trade dress to the extent protectable under applicable law in which I played any part, including in the creation, development, adoption, promotion or use thereof.
(Rationale) This one is easy. Unless a Trademark is licensed from another party, it is property of the user. Because Trademark rights arise from use or bona fide intent to use, ownership of a mark cannot be transferred independent of the good will associated with its use. Employer-employee disputes over Trademark ownership are thus not common, but to avoid any issues, a comprehensive definition should be considered.
(Concept – for U.S. agreements) All works subject to copyright protection, including computer software and all written, graphic, and audiovisual works related in any way to the Company or to its products or services or placed on a Website of the Company that are prepared by me, alone or with others, within the scope of my employment. Such works shall be considered as “works made for hire”, as to which the Company shall be the author for purposes of copyright law.
(Rationale) §201(b) of the U.S. Copyright Law provides that for “works made for hire”, the employer is considered the author and therefore the owner of the copyright. In respect to employees, §101(1) defines the term works made for hire as “a work prepared by an employee within the scope of his or her employment”.
(Concept for Israeli agreements) All works subject to copyright protection, including computer software and all written, graphic and audiovisual works related in any way to the Company or to its products or services or placed on a Website of the Company that are prepared by me, alone or with other employees, in the course of my service and during the period of my service.
(Rationale) The U.S. definition needs to be modified because neither the term “works made for hire” nor the fiction of designating the employer as the “author” is part of Israeli copyright law. Moreover, §34 of the Israeli Copyright Law more broadly provides that “[T]he employer is the first owner of copyright in a work made by an employee in the course of his service and during the period of his service, unless otherwise agreed.”
(Concept for Other Countries) As in the U.S. and Israel, the laws of other countries specify the kinds of works by employees for which the copyrights do and do not belong to the employer unless otherwise provided for in an employment agreement. Consideration should therefore be given to including in the definition of copyrights that are “employment related” the copyrights for all works made during the course of the employment which relate to the employer or its business. Terminology should be consistent with that used in the applicable laws.
(Concept) Employee hereby waives all moral rights as to employment related works created in whole or in part by him or her to the extent permitted by applicable law.
(Rationale) This concept is found in the laws of many countries. §§45 and 46 of the Israeli Copyright Law are a typical expression of moral rights:
- Moral Right as Personal Right – (a) The author of an artistic work, a dramatic work, a musical work or a literary work, excepting computer programs, in which copyright subsists, shall have moral rights in relation to his work, during the entire period of copyright in that work.
(b) The moral right is personal and not transferable, and shall be available to the author even if said author does not have copyright in the work or if he has assigned the copyright in the work, partly or wholly, to another person.
- Moral Right Defined – A moral right in relation to a work is the right of its author
(1) To have his name identified with his work to the extent and in the manner suitable in the circumstances;
(2) That no distortion shall be made of his work, nor mutilation or other modification, or any other derogatory act in relation to the work, where any aforesaid act would be prejudicial to his honor or reputation.
Moral rights are sometimes not referred to as such but are just listed among the author’s rights, in which case they should be specifically listed. However expressed, moral rights are personal, and cannot be assigned. However, these rights can usually be waived, and consideration should be given to obtaining such a waiver in all employment agreements where permitted by law. Note that the moral rights concept does not exist under U.S. law.
(Concept) Any and all ideas and embodiments of ideas of a technical nature, whether at the point of conception or at a further state of development, including articles of manufacture, machines, computer-implemented methods or processes and all other methods or processes, and industrial designs, and all improvements therein, whether protectable under patent law or under any other laws for protection of intellectual property other than trademarks and copyrights.
(Rationale) Patent laws often use the term ‘invention’ without actually defining it, and typical dictionary definitions are too general to be of much use. Industrial designs, plant varieties, and other biological materials and processes are protected under patent laws in some countries and under separate laws in other countries. Utility models (sometimes referred to as ‘petty inventions’) may also be protected separately from patentable inventions. Software per se is generally not patentable subject matter except as part of some other patent eligible subject matter. The example definition takes account of such variations but still needs to be framed in terms that are consistent with applicable law.
Definition of Employment-Related (or Service) Inventions:
(Concept): (1) any invention as defined herein made by me alone or jointly with others that relates (i) directly to the business of the Company, or (ii) to the Company’s actual or demonstrably anticipated research or development; (2) any invention that results from any work performed by me for the employer; (3) any other invention for which equipment, supplies, facilities, or trade secret information of the Company was used, even if developed entirely on my own time.
(Rationale) The definition of employment related inventions in the Washington statute quoted in Part I is so comprehensive that consideration should be given to using it in all U.S. employment agreements, and elsewhere, modified as needed to match the terminology of applicable laws. Although the default rule is generally that the employer bears the burden of proof that an invention is employment related, shifting the burden to the employee is generally not forbidden.
Notice the reference to inventions made “alone or jointly with others”. A problem can arise if the employment agreement is not carefully drafted with the result that the rights of one joint inventor become the employer’s property while the rights of the other joint inventor do not. We will discuss how to address this in the next section.
Assignment of Employment-Related Inventions:
(Concept) “I hereby assign my entire right, title, and interest in and to all employment related inventions as defined herein, including the right to file provisional applications in the U.S. and non-provisional and continuing applications and other applications in the U.S. and throughout the world”. I further agree that I shall bear the burden of proof that an invention is not employment related in case of any dispute.
In the event that I jointly make an invention with another employee whose rights are assigned to the Company pursuant to the previous paragraph, I agree that, irrespective of any rights I may have in and to the invention, I will not attempt to file patent applications for the invention, nor seek to license or otherwise commercialize the invention except jointly with the Company and at the Company’s sole discretion. I also agree that I will join with the Company in any action brought by the Company to enforce a patent on the invention.
I further agree that if the Company offers to purchase my rights to the joint invention, I will negotiate in good faith with the Company to arrive at a reasonable compensation to me for transferring such rights to the Company. In the event that we are not able to reach an acceptable payment for my rights, I agree that the matter shall be submitted to binding arbitration.
(Rationale) Pre-invention assignment clauses (‘I hereby assign…’) are a must in the U.S. The well-known Supreme Court decision in Stanford University v. Roche Molecular Systems clearly demonstrates the dangers of not doing this.
Pre-invention assignment clauses should be considered for use elsewhere as permitted by applicable law. Such provisions result in an automatic assignment at the time a covered invention is made and avoids the need for a separate assignment. That may be crucial in case it later becomes necessary to prove ownership and the inventor refuses to or is unavailable to provide a separate assignment document.
By specifically mentioning U.S. provisional applications, possible priority issues are avoided, especially in the case of joint inventorship. It also avoids possible failure-of-consideration issues if an assignment is requested after employment has begun.
Pre-invention assignment provisions are not permitted under German law and possibly not in the UK.
In France, as noted in Part I, inventions that are made “in the execution of a work contract comprising an inventive mission corresponding to his effective functions or of studies and research which have been explicitly entrusted to him” automatically belong to the employer so pre-invention assignment clauses are not needed. However, they are not prohibited. All other inventions belong to the employee, and as to these, pre-invention assignment clauses are prohibited.
In Israel, as noted In Part I above, service inventions belong to the employer, but pre-invention assignment clauses can be used.
As to inventions for which pre-invention assignments are not permitted, a phrase such as ‘I agree to assign’ should be used.
Assigning the burden of proof to the employee in case of disputes as to ownership is quite common and generally permitted.
The second and third clause in the concept deals with the possibility of one joint inventor retaining rights while the rights of another joint inventor become the property of the employer. This can easily happen if the employment agreement for, say, a manufacturing supervisor does not include an invention assignment provision and such an employee is found to be a joint inventor with someone whose agreement does provide for assignment of employment related inventions.
Almost universally, unless otherwise provided by a contract, joint inventors are free to exploit the invention separately. For example, according to §262 of the U.S. Patent Act:
In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.
A situation of this kind has the built-in likelihood for several kinds of conflicts ranging from inability of the employer to exploit the invention, to being unable to sue an infringer if the employee-owner or a successor to his interest refuses to participate in the litigation. All this possible aggravation can be avoided by a properly comprehensive definition of a service invention and by having all employees sign an employment agreement including an assignment clause.
Prompt Disclosure of All Inventions:
(Concept) I agree that I will promptly disclose to the Company (on the Company’s invention Disclosure Form) all inventions conceived by me during the term of my employment and for a period of (e.g., six or twelve months) after termination of my employment, whether or not considered by me to be employment related, in sufficient detail as to permit the Company to determine if such inventions are employment related (or service) inventions. The requirement for post-employment disclosure shall not apply to an invention that is obviously unrelated to the business of the company
(Rationale) Such provisions are generally permitted as to inventions made during the term of employment to assure that the ownership issues are quickly determined and to allow both the employer and employee to take prompt action as necessary to protect their respective rights.
A provision covering post-employment disclosure clauses (sometimes referred to as a ‘holdover clause’ is important to help reduce the risk that an employee will leave without reporting an invention created while still employed and later attempt to patent it for his own benefit. However, holdover clauses are controversial because of the inhibiting effect they can have on an employee’s future employment possibilities.
China’s Patent Law appears to be unique in that it explicitly requires disclosure for a one year post-employment period. Elsewhere, courts enforce holdover clauses only if they are reasonably time-limited and restricted in subject matter reasonably related to the former employer’s business.
Even without a holdover clause, courts have sometimes required assignment of patents or applications filed shortly after termination of employment. In such cases the facts compellingly indicated that the inventions were made during employment. Nevertheless, a holdover clause should be considered when permitted by applicable law.
Alternative Dispute Resolution (ADR):
(Concept) I agree that all disputes arising under this agreement (or specifically as to invention ownership and compensation only) shall be submitted for mediation pursuant to (rules or procedures to be specified). I further agree that any dispute not resolved by mediation, shall be submitted for binding arbitration before (arbitration authority and/or rules to be specified) to the extent permitted by applicable law.
(Rationale) ADR is strongly favored in most jurisdictions as an alternative to litigation. If desired, pre-arbitration mediation can be dispensed with, allowing disputes to go directly to arbitration.
In some countries, special procedures exist for resolving disputes as to IP ownership and compensation. These can optionally be acknowledged in the agreement.
Applicable Law and Court Venue:
(Concept) All disputes arising under this agreement shall be decided according to the laws of (specify jurisdiction). An litigation arising from such disputes shall be heard by (specify the court).
(Rationale) Despite required ADR and mechanisms for resolution of ownership and/or compensation disputes, some disputes will still need to be litigated. Additional disputes as to applicable law and court venue are an unwelcome distraction that should be avoided. Specifying what jurisdiction’s law will govern (to the extent that local law permits a choice) contract and the venue for litigation can avoid this problem.
Disclosure of Pre-Employment Inventions:
(Concept) Attached to this agreement is a list of all inventions and other IP, which I made or conceived alone or with others and owned or had an interest in before the start of my employment. Any inventions or other IP not so listed shall be presumed to have been made or conceived during my employment I agree that I shall have the burden of proof to overcome this presumption by clear and convincing evidence. Demonstration that I obtained protection for such inventions or other IP before the start of my employment shall satisfy my burden of proof .
(Rationale) A provision of this kind can avoid a potential source of disagreement down the road and are generally considered to be legal. Creating a presumption that unlisted IP was created during employment provides an incentive for the employee to prepare the list diligently for his or her own protection.
Pre-existing Confidentiality Obligations:
(Concept) I hereby acknowledge that I am obligated to honor a non-disclosure provision in an employment agreement with a (named) former employer and/or pursuant to an agreement with (a named third party). I agree that I will comply fully with that obligation.
(Rationale) This kind of provision may help reinforce the employee’s resolve to abide by a confidentiality obligation to a former employer and may help isolate the new employer from a charge of trade secret misappropriation. Needless to say, under circumstances indicating a new employee’s violation of a pre-existing obligation, great care must be taken to avoid use of the wrongfully disclosed information.
This article is intended only as general information and is not and should not be considered as legal advice. Advice of counsel should be obtained so that necessary agreements can be prepared to take account of specific facts and the applicable laws.