With the days of patent and copyrights applying mainly to tangible objects being long gone, data and patent rights are becoming more important than ever. Now, every process, software, procedure, and other intellectual property (“IP”) created by your company has real value and is often patentable or copyrightable. Most companies likely assume that if an employee creates IP within the scope of his/her employment then the rights to that property vest with the employer. This, however, is a dangerous assumption. Recently, we have come across a few situations where companies believed that they owned certain IP, and began marketing that IP only to learn their handbooks and employment agreements lacked the necessary language to ensure that the ownership in IP created by company employees – even during working hours – truly vested with the company.

Many employment agreements, handbooks, and offer letters have language stating that employees “will assign,” “shall assign,” or “agree to assign” their right and title in inventions or IP resulting from their employment to their employer, but in certain cases such language is insufficient to actually vest the ownership rights to that IP with the company. If certain IP is the original conception of the employee alone, then the only way the rights to that IP could be assigned to the employer is with the express written consent of the employee. Many companies fail to realize that promises to do something in the future (such as “will assign,” “shall assign,” or “agree to assign”) is not effective unless the assignment actually occurs. Thus, if you have a handbook or employment agreement that uses those future-looking terms but you have not made the employee actually assign his/her rights, then there is a very real risk that your employee, not your company, owns the IP he/she created while working for you.

This failure to actually assign the rights to IP can create a number of problems completely unrelated to the employer/employee relationship. For example, if you submit a proposal to the government or a prime contractor offering to provide or use that IP in performing the work, you may be setting yourself up for a patent or copyright violation and you could find yourself being sued by your own employee. Or, if you are forced to pay license fees to your employee to use the IP he/she created, that could eat up all of your profits on the contract. Lastly, and worst of all, if the employee refuses to allow you to use the IP, then your contract could be terminated for default.

The good news, however, is that these problems are easily avoidable. Instead of having your handbooks, employment agreements, or cover letters use language about what employees will do in the future, specifically state that employees “hereby assign” or “will and do hereby assign” their rights. In most circumstances, this simple change in language will protect your company’s IP and avoid the traps that ensnare the unwary.

About the author: Cy Alba is a partner with PilieroMazza and is a member of the Government Contracts and Small Business Programs Groups.  He may be reached at [email protected].