Intellectual Property Traps and Opportunities for

Employed Future Entrepreneurs

Presented by Orin Laney, PE NCE orin@orinlaney.com

July 21st, 2011

Intellectual property law defines the legal essence of engineering. Upon creation, legal rights attach

to every schematic, code listing, or other creative output.

These rights are the legal essence of engineering output. If a drive crashes or a prototype is lost, the work can be redone. But, if the legal rights are lost the code or prototype is worthless, even if

securely in hand.

Manufacturing employees cannot stuff their pockets with product to keep at the end of the day. Similarly, engineers are proscribed in the use of their knowledge and creativity.

Ask Evan Brown!

• “I had an idea that I had developed on my own time over many years. My idea had not been written down or recorded in any way.”

While he was employed by DSC Communications of Plano, Texas

(1987-1997), Brown mentioned the idea to his employer in 1996, who then decided they own the rights

to Brown's thoughts

It was unrelated to the work he was doing at DSC and was not

along the lines of DSC's business.

The company demanded Brown disclose his idea to them, and

when Brown refused, DSC fired him and filed a lawsuit against him.

“DSC/Alcatel paid the lawfirm Lynn Tillotson & Pinker nearly $500,000 to litigate this case over the past

seven years. I gained an education in the legal system, DSC/Alcatel

gained nothing.”

“In January 2000 I filed for Chapter 13 bankruptcy with a 5 year payout

plan. DSC/Alcatel was one of the listed creditors and when the debts

were discharged the other day, DSC/Alcatel's judgment against me

for $332,000 was included.”

Evan Concluded:• If you are a creative thinker and problem

solver, you are much better off working in California where you have some protection from your employer.

Work in Texas at your own risk

State Laws re Employee Inventions• California CA Labor 2870 - 2872• Delaware 19 Del.C. s 805• Illinois 765 I.L.C.S. 1060/2• Kansas K.S.A. 44-130• Minnesota M.S.A. 181.78• North Carolina G.S. s 66-57.1• Washington RCWA 49.44.140, 150• Utah UT ST s 34-39-3

CALIFORNIA LABOR CODE SECTION 2870-2872

• 2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information…

except…• except for those inventions that either: • (1) Relate at the time of conception or

reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or

• (2) Result from any work performed by the employee for the employer.

• (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

Section 2871

• No employer shall require a provision made void and unenforceable by Section 2870 as a condition of employment or continued employment.

However…

• Nothing in this article shall be construed to forbid or restrict the right of an employer to provide in contracts of employment for disclosure, provided that any such disclosures be received in confidence, of all of the employee's inventions made solely or jointly with others during the term of his or her employment, a review process by the employer to determine such issues as may arise, and for full title to certain patents and inventions to be in the United States, as required by contracts between the employer and the United States or any of its agencies.

Section 2872

• If an employment agreement entered into after January 1, 1980, contains a provision requiring the employee to assign or offer to assign any of his or her rights in any invention to his or her employer, the employer must also, at the time the agreement is made, provide a written notification to the employee that the agreement does not apply to an invention which qualifies fully under the provisions of Section 2870.

Final Note…

• In any suit or action arising thereunder, the burden of proof shall be on the employee claiming the benefits of its provisions.

The United States is virtually the only industrialized nation that has not implemented a uniform pre-invention assignment agreement

policy at the national level.

A Personal Experience

• In 1984, my business went through a temporary cash crunch. “Going captive” looked like a viable option…

Recommended Readinghttp://www.ieeeusa.org/members/IPandtheengineer.pdf

Common Law Shop Rights• Even in the complete absence of any formal agreements between

engineers and their employers, courts will generally hold that:• 1) confidential information and inventions or other creations made during

the course of employment as a normal part of job duties belong to the employer;

• 2) inventions made by the employee off the job, using the employee's own time and materials, will generally belong to the employee (absent fraud, related in-plant work of which the employee might be aware, or other special circumstances); and

• 3) inventions not related to work duties, but created with some nontrivial use of the employer's time, funds or materials still belong to the employee, but the employer has limited rights to exploit the invention without payment of royalties or other compensation.

21st Century Needs

• Today, few attorneys consider common law to be adequate for the needs of modern technology-based corporations. For instance, no common law barrier exists against an employee creating job-related inventions at home during nonworking hours without use of the employer's confidential information, time, materials, or funds, and selling them to the highest bidder.

Pre-invention Assignments

• Technology-based industries explicitly substitute private agreements in place of the general and loose controls of common law. The private agreement will expressly provide for assignment of inventions (or other intellectual property) to the corporation. The intent is to claim everyday work output, not just the special case of patentable inventions.

Birth of an IP Assignment Agreement• The charter of the corporate attorney is to protect

the company. Absent guidance from the executive suite, this will be done without regard for morale, productivity, or effects on creativity or employee retention. The only restriction in scope is the outer boundaries of what a court might enforce. Such agreements are typically drafted in the privacy of the attorney’s office and not as the result of any negotiation, therefore some agreements are grossly overreaching.

Nota Bene• A pre-invention assignment agreement will likely require that:• (1) all inventions or discoveries, patentable or not, and

whether related to the employee's job responsibilities or not, be promptly disclosed in writing to the corporate counsel;

• (2) the company shall be the sole arbiter of whether said invention or discovery falls within the scope of the agreement; and

• (3) the employee must assist in securing any intellectual property rights without additional compensation, even beyond the termination of employment. Some agreements include a "trailing clause" that continues to claim job related inventions for a period after the end of employment.

Rugs, Chickens, and Automobiles!

The Dilbert Boycott

• Many companies have moribund IP systems that exist mostly in the company manual.

• If you use it, you become visible.• There are essentially no case histories of

companies ripping an invention out of the hands of an employee.

• At the same time, there are essentially no employees who bother to submit for scrutiny what they consider theirs.

Experiences

Step 1

• Find a job that appeals to you. Obtain a written offer signed by someone of sufficient authority.

Step 2

• Inspect the entire offer, not just what is in the offer letter. The letter specifies what the company promises to you, but the employment agreement specifies what you promise to the company. Ask for a copy. Pay attention to the reaction. Do not sign anything prior to reporting to work.

Step 3

• If the total offer, including the employment agreement, is not acceptable, you have an opportunity to explain. HR made the offer, but discuss the problems with your prospective manager. This is a case of nothing ventured = nothing gained.

Step 4

• If you accept the total offer, make sure you understand and follow the terms in it. Prepare a list of inventions excluded by reason of conception prior to employment, and attach it to your agreement at time of signing. Provide only enough information to tag the invention, not details. Be aware that reduction to practice during employment might create a claim.

Step 5• During employment, follow the terms of your agreement,

but treat your personal IP with the same confidentiality as the company demands for its proprietary information.

• Do NOT try to sell any IP to your employer, and certainly not to a competitor!

• Remember that the corporate counsel is likely the only employee trained in the intricacies of IP ownership, and he represents the company, not you.

Step 6

• Upon leaving employment, make sure that all proprietary or confidential information stays behind. This includes customer lists, pricing and supplier information, and similar data.

• If you are starting a business, be cautious about soliciting colleagues and meeting with them. If you become a competitor, consider moving elsewhere.

A Former Employer Cannot…

• Claim normal growth in your profession. Generic skills learned on the job are yours to keep.

• Force you to keep working for them or prevent you from earning a living using your skills. Under some circumstances, they can pay you not to work for a period in order to withhold your talents from a competitor.

Thank You!

It’s time for your questions and

war stories