Employee Invention Assignment Agreements

Start-up companies that are looking to raise funds will often need to answer questions regarding the intellectual property ownership rights of the company.  These questions often arise in the due diligence phase of an equity financing and investor’s counsel will want to see clear evidence that the company owns (or licenses) the intellectual property it utilizes.

In order to avoid any intellectual property issues (at the financing stage or otherwise), companies should ensure that each employee has signed an invention assignment agreement.  No company wants to see intellectual property assets leave the company when an employee leaves. Employee invention assignment agreements are one crucial tool for protecting intellectual property.  Inventions are presumptively the property of the inventor so it is crucial to have an invention assignment agreement to ensure the company obtains the intellectual property rights to the greatest extent possible.  However, there are limits on the scope of what intellectual property can be assigned and, in California, California Labor Code Section 2870 provides that:

• “(a) [a]ny 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 for those inventions that either: (1) [r]elate 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) [r]esult 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 [California] and is unenforceable.”

In addition, pursuant to California Labor Code Section 2872, companies must, at the time the invention assignment agreement is entered into, provide a written notification to the employee that describes the statutory limits of the assignment under California Labor Code Section 2870.

It is best practice for companies that are employing people in California to include a provision in the invention assignment agreement that tracks the statutory limits set forth in California Labor Code Section 2870.  A company looking to have their invention assignment agreement encompass the widest range of intellectual property feasible, while still being enforceable and complying with the limitations imposed by California law, should reach out to a member of the firm’s intellectual property practice group for assistance in preparing the agreement.