[Legal Q&A] Critical Elements of IP Assignment Agreements

Question: What are Important key points for IP Assignment Agreements between employer/service purchasers and employee/independent contractors?

Answer: For startup companies, or any company for that matter, that values its intellectual property, making sure that it owns the intellectual property that is created for it by employees and independent contractors is key. Many companies think that they can rely on “common law” or state and federal statutes alone to protect their rights in intellectual property created by employees or independent contractors, but that is not the case.

Although an employee’s work product belongs to his or her employer under state and federal laws, there is always a definitional question concerning that work product. It is not controversial to assume that intellectual property developed during regular business hours by an employee, using an employer’s resources (e.g., the employee’s office computer), would belong to the employer. But who owns intellectual property developed by the same employee, during the period of his or her employment, at home and using personal resources? Does it matter if the intellectual property developed at home is related to the employee’s employer-related duties? These are the types of questions the answers to which are murky if all you do is rely on state and federal statutes for guidance. Agreements entered into by the employer and its employee, at the time that employment commences, are essential tools in making certain that the employer owns, and gets an assignment from the employee, of all intellectual property developed by the employee during the “scope of employment” –which is a term defined in that employer/employee agreement.  For example, in many such agreements, intellectual property developed during the scope of employment would include the employee’s work product created while at home, whether or not using the employer’s resources, if that work product related to the type of projects that the employee worked on during office hours expressly for the employer. However, such work product developed by the employee during his or her “personal time” and that did not relate to matters that the employee worked on “at the office” would be considered outside the “scope of employment” and the employer would have no rights to it. Where the line on “scope of employment” gets drawn is a matter of contract—and is sometimes hotly contested. Employers that are overly aggressive in this area are apt to have a problem employing the best, most creative employees.

The situation for independent contractors is quite different. While the state and federal law presumes that an employee’s work product belongs to the employer, unless an independent contractor makes an express statement that his or her work product created in connection with the performance under a consulting agreement belongs to the purchaser of that performance as “work for hire”—it doesn’t belong to the purchaser.  Rather ownership stays with the developer: not the situation that is typically desired by the purchaser of the services. As a result, where the purchaser of the services wants ownership of the product of the independent contractor’s work, the consulting agreement must clearly state that the results of the performance under that agreement by the developer is a “work for hire” that belongs to the purchaser. The conversation surrounding the nature of the “work for hire”—much like that concerning the “scope of employment”—must be worked out in the developer agreement. For example, perhaps only part of the intellectual property developed under the contract will belong to the purchaser of the services, with the balance being owned by the developer. But in such instances perhaps the developer who retains such ownership will license the retained work product, or other intellectual property owned by the developer, to the purchaser of services under the contract to permit full utilization of the work product produced under the contract and owned by the purchaser. Again, these terms can be highly combustible, and one size does not fit all. Independent contractors who are over- zealous in retaining ownership rights to the work product produced under the terms of development contracts may find themselves without clients.

Answer provided by – Peter Rothberg, Partner at Duane Morris, Ultra Light Startups sponsor and counsel.