Protecting intellectual property - Legal Trends: Practical Insights - human resources management

HR Magazine, Oct, 1999 by Alan N. Sutin, Ellen Goldberg

Unless you take protective measures, your company's intellectual property might walk out the door with your employees.

The recent shortage in skilled high-tech workers has created a dynamic marketplace in which employees who have access to a company's valuable trade secrets and proprietary information often leave to work for competitors. This creates two concerns for employers.

The first is the danger that companies will lose valuable intellectual property and proprietary business information when their employees resign. The second is that employers may become liable for infringement and theft of trade secrets if they hire employees who had access to the trade secrets of competitors.

In large part, the recent surge in lawsuits relating to workers who take proprietary information with them from one job to another is driving these concerns. In one well-publicized case, the state of California indicted eight employees of a software company, alleging that they stole software code from their former employer. (People v. Avant, No. 206394, Santa Clara County)

Although such criminal prosecutions are rare, private disputes between parties over the ownership of intellectual property rights and trade secrets are occurring with increasing frequency:

* Borland and Microsoft settled a lawsuit stemming from Microsoft's hiring of 34 Borland employees early this year.

* Since then, Wal-Mart and Amazon.com settled a trade secret lawsuit stemming from Amazon's hiring of 14 Wal-Mart executives.

* And in another recent suit, Motorola accused Intel of stealing trade secrets when it hired a former Motorola executive.

As these cases illustrate, when a company loses an employee who developed or had access to proprietary information, it is vital that the ownership of the intellectual property be vested in the company.

It is equally important to ensure that proprietary trade secrets are not compromised. When hiring new employees, care must be taken to ensure that they do not bring with them proprietary intellectual property or trade secrets of a former employer.

Following are the key intellectual property issues and strategies for avoiding costly and disruptive legal battles.

Patents and Copyrights

The term "intellectual property" refers to a variety of distinct rights. Some of these rights are protected by copyrights, others by patents. As a result, it is important to understand the difference between the two.

Patent laws protect ideas, inventions or processes. In contrast, copyrights protect only specific expressions of an idea. For example, a new method for distributing music via the Internet would be protected by a patent, whereas a particular musical recording would be protected by copyright.

When an employee develops an idea, invention or process, he or she generally owns the patent rights - unless the employee agrees in writing to assign those rights to the corporation. Accordingly, companies should consider having employees sign agreements expressly stating that the employer retains all rights, titles and interests in ideas that are subject to patent laws and developed during the employees' period of employment. Such agreements can prevent employers from losing critical technologies or processes when their employees/inventors leave.

The rules relating to copyright ownership are somewhat more complicated. In general, copyright vests with the individual author of a work. However, a key issue is whether an employee or an independent contractor created the work.

Employers often believe they own the intellectual property rights to products created by independent contractors because the employers paid for the development. This is a common misconception. Under U.S. copyright laws - and in the absence of a written agreement to the contrary - works such as computer code, photographs and written text created by independent contractors belong to the contractor, not the company.

In such cases, a company that has paid an independent contractor has little recourse when the contractor resells substantially similar work to competitors. The contractor is the lawful owner of the copyright.

Copyright ownership shifts, however, when the person who created the work was an employee who was "acting within the scope of his or her employment." In such cases, the employer owns the copyright.

How can you tell if an employee's work falls within the scope of his or her employment?

Courts typically rely on three issues to answer that question:

* Was the work in question the type of work the employee was hired to perform?

* Did the work occur substantially within authorized work hours and space?

* Did the employee perform the work to serve the employer?

In many situations, unclear facts can result in a protracted dispute over the scope and subject matter of the employee's duties. Litigation can be avoided by requiring each employee to sign a written agreement stating that all original works of authorship that relate in any way to the company's existing or planned business activities are considered "works for hire." Works for hire are owned exclusively by the company.