IP Issues in Employment Law

IP Issues in Employment Law

By Sherry H. Flax

Every business has a strong interest in protecting the assets that allow it to maintain its competitive advantage, including good employees, good will, confidential information and intellectual property (IP). Businesses must take the appropriate steps to ensure that their intellectual property is kept safe from competing businesses and defecting employees. Putting an IP protection policy in place gives the employer the upper hand in court, and it may also deter errant employees who may be otherwise tempted to benefit personally from the company's knowledge.

» New employees. Exposure to trade secrets may occur in advance of the employment relationship. Even in the interviewing process, prospects who take a tour of the company's premises should sign a nondisclosure agreement.

An employer can be open to lawsuits for IP theft without even knowing it if a new employee brings trade secrets from a former employer. The new employee should be required to sign a statement guaranteeing that he has not brought confidential or proprietary information from his old company.

» Trade secrets. The obligation of a former employee to maintain the confidentiality of his former employer's trade secrets is well recognized. The Maryland Uniform Trade Secrets Act imposes tort liability for misappropriation of a trade secret, defined broadly as valuable information that is the subject of reasonable efforts to maintain its secrecy. Md. Code (1975, 1990 Repl. Vol.), § 11-1201 of the Commercial Law Article.

Cautious employers include a non-disclosure covenant in their employment agreements with employees who are exposed to confidential information. A comprehensive trade secret policy begins with an audit of restrictive covenants currently in place and identification of the proprietary information to be protected. Of course, the agreement must contain a strict nondisclosure provision that requires the employee a duty to maintain trade secrets and other proprietary information in confidence. Evidence of security measures to protect trade secrets, such as "Confidential" marking, limiting accessing and password authentication, must be demonstrated before a claim of misappropriation can be established.

» Copyright. Any work of original expression in a tangible medium is owned by its creator. A "work made for hire" is "a work prepared by an employee within the scope of his or her employment," 17 U.S.C. § 101, that is owned by the employer, id. § 201. The "work for hire" doctrine does not apply to works created by independent contractors, such as freelance software programmers and website developers. Community for Creative Nonviolence v. Reid, 490 U.S. 730 (1989). Employers concerned with protecting their ownership rights in copyrights should obtain written agreements with employees and independent contractors acknowledging that copyright in any works will belong to and be assigned to the employer.

Copyright gives the owner of written materials, including websites and computer software, the exclusive right to make and distribute copies and to create derivative works such as updates, new versions and translations. It also gives the copyright owner the ability to prevent others from creating and selling works that are "substantially similar" to the copyrighted work.

Most importantly, once assigned, the business should register its copyrights with the U.S. Copyright Office. Registration is a prerequisite to filing suit to enforce your copyright, entitling the business to federal court jurisdiction, statutory damages and attorneys' fees. Registering a work is simple and inexpensive – an ounce of prevention that will deter infringement and bolster the employer's ability to seek meaningful redress for infringement and maintain its competitive advantage.

» Trademarks. Trademarks, service marks, slogans, logos and the like need not be registered in order to be protected. However, the national right to exclusive use granted via registration with the U.S. Patent and Trademark Office provides a powerful means to redress trademark infringement and unfair competition. Also, a trademark policy that restricts casual use of a company's marks, such as in e-mail correspondence, will assist in maintaining the strength of the marks and prevent against inadvertent dilution and genericization.

» Patents and shop rights. If an employee is hired to create or innovate, patents on inventions relevant to the employer's business are owned by the employer. Nonetheless, an express agreement requiring an employee to transfer to his employer any rights to inventions developed by the employee is the safest course. Under the "shop right" doctrine, an employee who uses his employer's resources to conceive an invention or reduce it to practice must afford to his employer a nonexclusive, royalty-free, irrevocable and nontransferable license to make use of the invention.

» Employee awareness. Employees should be educated about intellectual property issues so that inadvertent misuse or public disclosure does not destroy the company's ability to protect its IP. Providing an intellectual property seminar is extremely helpful for educating employees regarding the protection of intellectual property.

Sherry Flax, a partner in the Baltimore office of Saul Ewing LLP, concentrates her practice on matters dealing with intellectual property law, with an emphasis on trademark and copyright counseling, registration and litigation.