Agreements Vital to Intellectual Property Protection Program
Each business should have a set of agreements designed to secure and protect its intellectual property. These agreements define who owns the intellectual property developed at the business’ expense and govern how the business’ intellectual property may be used.
Agreements with employees and independent contractors should contain provisions requiring inventions created at the business’ expense to be assigned to the business. Otherwise, those inventions are likely owned (or co-owned) by the people who made or contributed to the invention.
In Minnesota, invention assignment provisions in employment contracts must be drafted with particular care. Minnesota law provides any such provision “shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable.” Minn. Stat § 181.78, Subd. 1.
Further, if an employment agreement contains a provision requiring the employee to assign (or offer to assign) any of the employee's rights in any invention to an 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 for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer.” Minn. Stat § 181.78, Subd. 3 (emphasis added).
An agreement with an independent contractor imposing a duty to assign inventions should also require the independent contractor to secure assignments from any employees and subcontractors it hires.
Writings, Software, and other Artistic Works
Ownership of copyrights initially vests in the author or authors of a work. Owners of a joint work are co-owners. 17 U.S.C. § 201(a). A work prepared by an employee within the scope of the employee’s employment is considered a “work made for hire” and the employer for whom the work was prepared is considered the author and owner of the copyrights unless the employer and employee have agreed otherwise in writing. 17 U.S.C. §§ 101 and 201(b).
The rules are different for consultants and other independent contractors. 17 U.S.C. § 101. Nothing created by an independent contractor is a “work made for hire” unless the parties agree that it is in writing prior to the time of creation. Even then, only certain types of contributions are a “work made for hire.” Agreements with independent contractors should be in writing, identify the work being specially ordered or commissioned, use the magic words “work made for hire,” and include an obligation on the part of the consultant to assign the copyrights if for any reason the work is deemed not to be a “work made for hire.” The agreement should also require the independent contractor to secure “work made for hire” agreements and assignments from any employees and permitted subcontractors it hires.
Confidential Information and Trade Secrets
Trade secrets and non-disclosure agreements (including non-disclosure provisions in employment agreements and consulting agreements) go together. A trade secret can be any information─a formula, pattern, compilation, program, device, method, technique, or process. The information must (a) derive independent economic value from not being generally known and not being readily ascertainable by proper means; and (b) be the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Minn. Stat. § 325C.01. Securing a non-disclosure agreement before disclosing confidential or trade secret information to others is a step that is reasonable to maintain secrecy. Also, a non-disclosure agreement may be more restrictive and offer greater protection than the trade secret laws alone. A viable breach of contract claim may exist even if trade secrets are not stolen.
Securing non-disclosure agreements and then putting the agreement in a file cabinet is not enough. It is necessary to also follow the letter of the agreement. Failure by the disclosing party to do so may jeopardize the ability to assert a claim for trade secret misappropriation or breach. Various courts have found that such a failure to follow the procedures outlined in the agreement is evidence that the disclosing party failed to engage in efforts that were reasonable to maintain secrecy.
It is important to only disclose confidential information to people authorized by the agreement to receive the information and who are bound by the agreement’s terms. Only disclose information those individuals need to know to achieve the purpose of the agreement and nothing more. Document the disclosure internally and with the recipient. Mark “confidential” documents containing confidential information. Promptly document in a follow-up communication when other transfers of confidential information made orally or by inspection occur. Monitor compliance by all recipients of confidential information. If the agreement calls for a return or destruction of confidential information, make sure the recipient does so.
Many companies have a general policy stating that they will not enter into non-disclosure agreements protecting the confidential information of another party. However, if a patent application has been filed and the company is interested in learning about the technology, the company may enter into a non-disclosure agreement despite the company’s general policy.
The quid pro quo for obtaining a patent is disclosure of the invention. Serious thought needs to be given as to how best to protect the invention. Patent protection may be the way to go if the secret will become readily ascertainable by proper means as soon as a product incorporating the secret is introduced. Formulas or ingredients that can be kept secret may be better protected by using the trade secret laws. A patent expires twenty years after the application for the patent is filed and enters the public domain whereas a properly protected trade secret may never enter the public domain. For example, a patent covering the Coca-Cola formula would have been exposed to the public upon the grant of a patent covering the formula and would have entered the public domain as soon as the patent expired, i.e., more that 100 years ago. That formula was kept as a trade secret and is still secret today. Even when the decision is made to file a patent application, one needs to decide what to include in the patent application and what to preserve as a trade secret.
In most cases, the patent application will be published and its contents will be made public eighteen months after the patent application is filed even if no patent has yet been granted. In certain cases, it is possible to request non-publication. Even when non-publication is granted, the application is still published when the patent issues.
Licensing and Transfer Agreements
Licensing and transfer agreements take many forms. Generally, such agreements grant someone the right to use intellectual property subject to various restrictions and in exchange for some form of compensation. Transfer agreements are used to convey ownership of intellectual property to someone else for a fair and reasonable price.
Trademark licensing agreements can be particularly tricky. Such an agreement may be considered a “franchise” under Minn. Stat. § 80C.01 in which case the franchise registration requirements imposed by Minn. Stat. Chapter 80C come into play.
Whether the agreement relates to patent, copyright, trademarks, trade secrets, or other types of intellectual property, consideration must be given to the scope of the license or transfer, how compensation will be determined and paid, and how compliance will be monitored. DeWitt’s business and intellectual property lawyers can help you develop negotiation strategies and agreements uniquely tailored to meet your needs.
DeWitt takes an integrated approach to protecting the intellectual property of our clients and is experienced with the formulation of business agreements designed to protect the intellectual property rights of its clients. Please contact us for assistance developing a comprehensive intellectual property protection strategy and agreements to match that strategy.
About the Author
James Nikolai is an intellectual property attorney in DeWitt’s Minneapolis office. Jim has substantial experience representing clients in the areas of patents, trademarks, copyrights, trade secrets, software protection and licensing. He has successfully represented both plaintiffs and defendants in litigating intellectual property claims. If you have any intellectual property questions, you can reach Jim by email or at (612) 305-1518.
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