In the 21st Century, intellectual property (IP) represents one of the most important assets for companies. The amount of trade secret misappropriation alone is staggering. According to Thomas Heed in Misappropriation of Trade Secrets: The Last Civil RICO Cause of Action that Works published in The John Marshall Law Review, "Corporate loss estimates from misappropriated trade secrets are estimated by various sources to be between $1.8 billion and $100 billion annually, and the frequency of incidents seems to be rising." Protecting company assets is detrimental. 

One of the best ways a company can protect its IP is through employment agreements with employees and service agreements with independent contractors. The following summarizes why each particular type of IP needs to be protected by a written agreement and practical suggestions for addressing these concerns.

1. Patents - Contrary to popular belief, a company does not automatically own the rights to inventions developed by an employee in the course and scope of their duties. Generally, the employee owns the invention and later patent rights, while the employer obtains a special license called "shop rights" to practice the invention. Additionally, patent law generally requires that an assignment of patent rights must be in writing. To address this and for protecting company assets, employment and independent contractor agreements should include an assignment of inventions/patents provision to ensure that the company owns all these rights. After all, companies hired the employees to help create these assets for them!

2. Copyrights - Like patents, urban myths abound regarding employer ownership of copyrights created by employees and independent contractors. While the work made for hire doctrine applies in many instances, it is best to include an express copyright assignment in agreements with employees and, particularly, independent contractors, for properly protecting company assets surrounding copyright. Also, like patents, a copyright assignment generally must be in writing.

3. Trademarks/Trade Dress/Trade Names - These intellectual property rights require use in commerce, so they are not usually an issue with current or former employees and independent contractors. However, risk can be avoided by requiring employees and contractors assign the rights to a trademark, trade dress, and trade name ideas. Employees and contractors should also be limited from using confusingly similar marks in competition while employed.

4. Trade Secrets - Of all forms of IP, trade secrets are most vulnerable to employee theft and malfeasance. Protecting company assets related to trade secrets is of great importance. Because non-compete agreements are sometimes difficult to enforce, an employment agreement should have separate provisions for confidentiality/non-disclosure, non-solicitation, and non-competition. Failing to have employees agree to a written non-disclosure policy, whether in a formal employment agreement or employee manual, can be fatal later when a company seeks to protect its confidential information, depending on the circumstances.

5. Electronic Files - Electronic files and their ownership fall into a gray area. Companies are better off confirming in writing that all electronic files and data created in the course and scope of an employee's or independent contractor's employment are owned by the company. Care should be taken that the company owns these rights despite the medium and location in which the files are stored. This type of provision is needed to address electronic files created by employees on personal electronics, such as home computers, iPads, and smart phones.

6. Domain Names - Protecting company assets in domain names is an often non-thought of consideration. Cases involving ex-employees and disgruntled contractors registering a company's domain names, registering domain names a company foreseeably would want to use in the future, or maintaining control over existing domain names are legion. For unknown reasons, domain names are a favorite target of departing IT employees. To avoid all these problems, a company's agreements should clarify that it owns all of its domain names and preclude employees from registering domain names that are confusingly similar to the company's trademarks or current domain names.

7. Passwords and Other Sensitive Information - Similar to domain names, an employment agreement should make clear that all passwords and other sensitive information is owned by the company and require that an employee provide that information if needed after employment has ended. Moreover, in proactively protecting company assets, companies should consider distributing passwords to employees and changing them on a regular basis, so the company knows the passwords to begin with. There can be numerous circumstances an employee doesn't come back to work unexpectedly, for a while, or ever. 

8. Social Media Accounts - Like all emerging technologies, the law has not caught up with the unique problems created by social media. A company does not want to find out that its Twitter account and thousands of followers are owned by an ex-employee or worse, an ex-independent contractor. Therefore, in protecting company assets, company agreements should establish that the company owns all of its social media accounts.

One final recommendation is to conduct a formal exit interview with departing employees to remind them of their obligations above and to get them to commit in writing that they have not taken any information or materials with them. This can be a crucial step if litigation erupts later over whether the employee stole company property or violated agreements.

About the Firm:

Klemchuk LLP is a litigation, intellectual property, transactional, and international business law firm dedicated to protecting innovation. The firm provides tailored legal solutions to industries including software, technology, retail, real estate, consumer goods, ecommerce, telecommunications, restaurant, energy, media, and professional services. The firm focuses on serving mid-market companies seeking long-term, value-added relationships with a law firm. Learn more about experiencing law practiced differently and our local counsel practice.

The firm publishes Intellectual Property Trends (latest developments in IP law), Conversations with Innovators (interviews with thought leaders), Leaders in Law (insights from law leaders), Culture Counts (thoughts on law firm culture and business), and Legal Insights (in-depth analysis of IP, litigation, and transactional law).