Companies seeking to avoid employment disputes and to secure intellectual property rights to their employees’ inventions should make sure that all employees have signed confidentiality and inventions assignment agreements.  These agreements are often referred to as Proprietary Information and Inventions Assignment Agreements, or “PIIAAs” (sometimes also known as Confidential Information and Inventions Assignment Agreements, or “CIIAAs“). You can generate your own agreement via Cooley GO Docs: Form of Employee Confidential Information and Inventions Assignment Agreement

Strong PIIAAs should include the following provisions:

Definitions of Confidential Information and IP Rights

PIIAAs should address fundamental questions such as:  (1) What type of proprietary information, inventions and intellectual property does the agreement cover, and (2) What are the employee’s obligations and the employer’s rights with respect to such information and IP?  Ideally, you should tailor the definition of “proprietary” or “confidential” information to your particular industry—what is confidential information is likely to differ between, say, software companies and life sciences companies.  At a very general level, proprietary information should include all confidential knowledge, data, and information of your company.  Inventions should include all ideas, concepts, materials, processes, data, programs, designs, and copyrightable works, including all intellectual property rights in such inventions, and intellectual property rights include the patents, copyrights, trademarks, trade secrets, mask works and other rights recognized by the laws of any state or country.

Nondisclosure

Confidentiality provisions serve as a cornerstone of a good PIIAA.  A PIIAA should require employees to hold the company’s proprietary information in the strictest confidence and forbid them from using or disclosing that information.

Assigning IP:  The Magic Words

To properly protect yourself, your company must ensure that the PIIAA includes an assignment from the employee to the company of any right, title, or interest in the company’s inventions and IP.  The provision should cover inventions created by the employee during his or her employment with the company.  Note that in some states, such as California, an employer cannot require an employee to assign all inventions created during his or her employment.  As a result, in California, the PIIAA should require assignment of those inventions that the employee generates using any of the company’s time or resources, or that fall within the company’s business or research and development.  The key language—i.e., the “magic words”—that we want to see in every PIIAA is the actual assignment by the employee of his or her IP rights to the company, coupled with an agreement to assign in the future (when any such inventions are made, conceived or reduced to practice.  For example, “I hereby assign, and agree to assign in the future (when any such inventions or intellectual property rights are first reduced to practice or fixed in a tangible medium, as applicable), to ABC Corp. all my right, title, and interest in any inventions made, conceived, reduced to practice, or learned by me, alone or with others.”

Carve-Outs

Most PIIAAs contain a “carve-out” provision by which employees list all of their prior inventions (before starting work with your company) that they intend to specifically exclude from their assignment of IP to the company.  You should take a close look—and engage IP counsel as necessary—at what a prospective employee intends to carve out as prior inventions to make sure that there is no overlap between those prior inventions and the type of IP your company is aiming to produce.  You can be sure that prospective investors, acquirers, and the like will be doing the same.  In addition, your PIIAA should grant your company a broad license to any prior inventions that the employee uses in any company machine, process or other work.

Nonsolicitation

All employees should agree to refrain from certain activities that could put your company at a competitive disadvantage in the marketplace.  Specifically, they should agree, during the term of employment and for some reasonable period of time thereafter, not to solicit or encourage any of your employees to leave their employment with your company; hire or engage your employees; or solicit your customers or prospective customers.  You want to protect against former employees using contacts or confidential information they acquired while working for your company to steal your business or goodwill.  Note, an agreement to “not hire” an employee may not be enforceable in all states (as opposed to agreeing to “not solicit” an employee).

Noncompetition

PIIAAs should also prevent employees from engaging in business activities that compete with your company.  At a bare minimum, this prohibition should last through the entire term of the employee’s relationship with the company.  In some instances, you will want the non-compete to extend for a year or more past the employee’s time with the company (going far beyond a year may backfire, because unreasonable durations may be held unenforceable in court).  Beware that covenants not to compete are not enforceable everywhere—for example, they are not enforceable in California except in very narrowly defined circumstances.   State law governs these agreements, and states view non-competes in different ways.  Accordingly, you should consult with employment counsel to make sure you use the appropriate agreement for each of your employees.

Tailoring and Enforcing PIIAAs

Many emerging companies ask how much to vary their PIIAAs, depending on the incoming employee’s role.  For example, a non-compete is likely more important for a CTO than a new secretary.  One approach is to use two different forms—one for use with high level employees, engineers, software developers and other employees who are hired to design or create the company’s products and technologies and another form for use with lower level employees and employees who provide general administrative services.   Most companies, however, have all employees sign the same form.  Bear in mind that you should use different versions of your form agreements which have been vetted by local counsel for use with employees in different states and consult with counsel to determine the optimal approach for tailoring and enforcing PIIAAs to best suit your company’s needs.  Best practice, however, is that once you have developed your form PIIAA, you do not negotiate that form with each individual employee.

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