With careful planning and implementation you can hire employees who will make major contributions to your business while creating and protecting intellectual property that will be essential to your company.
An important part of your intellectual property strategy is implementing best practices in the area of employee policies and procedures. So what do we mean by this? Really think of it in three major aspects; employee intake, employment agreements, and employee exit interviews.
New employee intake, it’s an exciting time. You’re bringing new people on. But you have to think about baggage. You have to think about contamination. You’re hiring someone because you have faith they are going do a good job for you. Probably they have some experience in the area. What you need to be sure is that they are not bringing with them for example trade secrets of a former employer. Because their former employer is probably going to notice and they are going to do something about it. So there’s that due diligence aspect when you bring somebody in. Make sure you’re not contaminating yourself. Make sure you’re not buying a problem.
Another aspect important to employee intake is policies that you have in place from the beginning. And most important is the policy that you will not take advantage of trade secrets brought to your company in the minds of the employees that you hire. You want in place something that you can show people, a policy that says we don’t want them to disclose those trade secrets, we won’t use them. Do intake interviews, formal intake interviews. It may seem a little tedious. But call this out, there are probably a number of things you want to talk to a new employee about, of course. One of them should be this policy, don’t bring with you trade secrets or other materials from a former employer. Just leave them behind. We have confidence that you’re going to do a good job because you’re a smart person and you have experience in the field. We don’t want secret information from another employer.
Your company’s employment agreement for employees will probably be prepared by a general counsel. Make sure that it has provisions in it that will adequately protect on the I.P. side. There’s several provisions that it really should have. There might be some specialty to your business, but at least it should have these. First it should have a confidentiality obligation. It stands to reason employees shouldn’t really be telling the trade secrets of their employer, but put it into the agreement anyway. Have an obligation out loud that the employee, even after they leave employment, will not disclose the trade secrets of the company. A confidentiality provision in an agreement is an enforceable aspect of the contract. And we’ve had cases where we’ve had to use them. We had a client who lost several employees, several key employees to a competitor. And suddenly the competitor knew our bidding practices and our bidding points and price points. And seemingly knew our technology because they came out with a product awfully close to our client’s. So unfortunately we had to go to the courts for justice. And we were successful. And having the confidentially and noncompete provisions in the contract were very, very useful.
Also, it should have a noncompetition provision. It has to be reasonable, not too long in duration of time and not too broad in terms of scope. But it should be reasonable. And it can extend for some time after they leave employment. That’s not too much to ask. You can’t enforce that in some jurisdictions. California is notorious. But most jurisdictions will enforce a noncompetition provision.
Also obviously, you should have an agreement provision that says that inventions made by the employee are owned by the company. They are assigned automatically at the time they are made. And it should be clear that we’re talking about inventions made 9:00 to 5:00 of course. But who works 9:00 to 5:00 anymore? Any time during their employment, even if they are watching a sunset, they have a bright idea, it relates to their work for the company, that invention is owned by the company. The provision should say that in the employment agreement.
Also an obligation to disclose. It may not be self‑evident, but the employment agreement should obligate the employee to disclose inventions that they make to the employer promptly.
Finally, there should be a provision requiring the employee to assist in obtaining I.P. protection. Not talking about heavy lifting here. Signing documents for the U.S. patent office or other agencies. Perhaps assisting and understanding some of the invention as it is being prepared in a patent application, that sort of thing, for some little period after they leave employment. It’s not unfair to ask. It’s really a fairly common provision in a lot of agreements.
And of course, require immediate signature of an employment agreement. Especially in the very early days of a business sometimes this gets left for later. Don’t leave it for later. Have the employment agreement signed right away.
So it does sometimes happen, employees decide to leave. You need to have policies in place and procedures in place that make sure that you’re protected when an employee does leave who’s important to your business. First, do an exit interview. Exit interview isn’t complicated. They wouldn’t leave without saying good‑bye. Talk to them a little bit. Remind them about the obligations they have even after they leave under their employment agreement. Just because they are leaving, the employment agreement doesn’t end. It goes on. Confidentiality, obligation to assign, obligation to assist, remind them of these things. It will make it easier if you ever need to call on them to fulfill some of those obligation.
In some cases you may suspect that an employee is leaving to form a competing company. That’s a problem. Or join an existing competitor, that can be a problem. You might consider monitoring that new company for a while just to make sure that they are not using your trade secrets, your technology. It wouldn’t be the first time that it happened. And it wouldn’t be the first time that an employer had to go to court to stop the practice. So with careful planning and implementation you can hire employees that will contribute hugely to your business while creating and protecting intellectual property that will be essential to your company.
All of your R&D personnel, and that might be very few of you of course in a young company, and maybe it’s everybody in a young company, should be keeping regular logs, regular records of their work and of the thoughts that they have, the ideas they come up with, of the inventions that they make or they may not know it at the time that it’s an invention. They should record robustly. And it should be in an organized fashion, dated and all the rest of it.
So a lot of companies use invention disclosure forms. These are forms that are available on the internet. You could probably find some. We’ve got some in the materials attached to this. It simply provides information that the patent lawyer can work with to begin the conversation to determine what is the invention and what do we want to try to protect here. It doesn’t have to be The Great American Novel. Usually the names of the people involved in that particular work, some brief description of what they think the invention is, what they think the new part is. And maybe a few other bits of information such as how they think it’s going to be applied in the business, maybe what they know of prior art, remember, things that have gone before, what did they start with, what did they work from.
Invention disclosure forms do something else for you, too. Sometimes employees leave. And when they do sometimes they forget that they had an idea back when they worked for the company. Well if they did fill out an invention disclosure form, that’s an easy way to solve the problem. We have a record of it. This is an idea that you had while you were here and we own it. It’s a valuable tool. Some companies go further and have an invention disclosure incentive program. It comes under different names. Basically some kind of incentive to the people who submit invention disclosures. At some point, perhaps the invention disclosure itself doesn’t garner a reward, but when a patent application is filed it is. That can be significant. Perhaps when a patent issues that’s when the reward happens. And the reward doesn’t have to be monetary. The reward can be a dinner with the CEO. The reward can be the closest parking spot for a month. Whatever it might be that suits your particular needs, but it’s some incentive that sends the signal that this is important, we do really need you to fill out invention disclosure forms regularly and file them with us, with the company. That becomes part of the records of the company that then get evaluated periodically to determine what inventions, what technology we want to protect and how do we want to protect it.
World Intellectual Property Organization, Trade Secrets and Employee Loyalty.
Gilman, Hank. What To Do When Your Star Employees Quit, Fortune, March 9, 2011.
The appeals court decision in PepsiCo, Inc. v. Redmond (1995) affirmed a preliminary injunction preventing a former PepsiCo upper management employee from working at a similar position at a competing company, Quaker. The former employee had signed a confidentiality agreement, and PepsiCo brought suit over concerns his duties at Quaker would inevitably involve divulging PepsiCo trade secrets, such as sales, marketing, logistics and financial information. In a twist of fate, PepsiCo now owns Quaker.
Many companies have programs designed to incentivize certain employee actions or behavior. Consider including incentives for productivity in the IP arena, such as monetary or social rewards for inventions, productivity improvements, issued patents (or even patent application filings), etc.
Questions for You
What good policies and procedures with respect to IP do you currently employ when it comes to recruiting and hiring? Do they include reviewing a prospective new employee’s employment agreement with his or her current and former employers? Do they include expressly telling each new employee not to use or divulge trade secrets of a former employer? If necessary, could you demonstrate that your company has been consistent in following these good practices with all new employees? What do you need to change, and how will you do it?
Does your company have robust employment agreements and require immediate signature as a condition of employment? Does the agreement include a non-compete clause and, if so, would it be enforceable in your state? Does it require disclosure of inventions and assistance in obtaining IP protection – even after departure from the company and without further compensation? Does it include an automatic and immediate assignment of inventions and other work product? Advice of counsel is important here.
Does your jurisdiction require a renewed employment agreement in the event of a significant promotion or other change in position?
What good policies and procedures with respect to IP do you have in place for departing employees? What do you need to change, and how will you do it?
Tools and exercises
There are on-line resources, such as model employment agreements, employee policies, and new employee and exiting employee interview outlines. This is an area where advice of counsel can be valuable to ensure that your company’s paperwork, policies and procedures are appropriately tailored to your particular circumstances and needs.