Written By Guest Author, Marks Gray Summer Law Clerk Corrine H. Bowden
Let’s say you develop a formula, method, or process, build a client list, or other compilation of information at work that derives independent economic value for the company and your employer takes reasonable steps to keep it secret. Who owns it – you or your employer?
What if you developed it for technology or equipment owned by your employer? Or if you developed it outside the course of your employment?
Assumptions by both employees and employers regarding trade secret ownership can be dangerous. Because of this, it is important that both parties understand the general ownership defaults and what rights they have specifically contracted for or away in the event the relationship ends.
Distinguishing Trade Secrets from Other Forms of IP
The Uniform Trade Secrets Act (“UTSA”) defines a “trade secret” as information, including a formula, pattern, compilation, program, device, method, technique, or process that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The UTSA codifies the basic principles of common law trade secret protection to preserve its distinctions from patent law. For instance, a patent protects non-obvious and novel inventions, whereas a trade secret protects valuable and secret information.
This means that a novel and non-obvious invention may be protected as a trade secret instead of the inventor obtaining a patent registration. A fundamental difference between a patent and a trade secret is that the patent must be disclosed to the public to gain legal protection, whereas the trade secret must remain – you guessed it – secret.
Furthermore, unlike copyrights, patents, and trademarks, trade secrets are not registered with a government agency and there is no administrative body to oversee them. As a result, it is largely private companies who bear the burden of monitoring and enforcing this form of intellectual property.
Determining ownership often turns on factual analysis as to whether the trade secret was created in the “course of employment.” And while intellectual property rights in the workplace largely favor employers, the terms of agreements signed between an employer and employee may defeat common law and statutory defaults.
Here is what typically happens. Agreements signed at the start of employment often require an employee to assign any intellectual property related to the business and created by the employee during the course of their employment with the employer.
This is due to the fact that it is common for employees to come up with processes or methods that improve the employer’s level of efficiency or help employees to keep up with the demands of their job. Even if those ideas are exclusively devised and developed by the employee, they are owned by the employer. It is widely accepted that employees are compensated for any work-related ideas they develop through their salary.
To overcome that presumption of ownership, the parties must have entered into a written agreement that expressly contradicts this norm.
Here are some tips for both employees and employers to consider:
Tips for Employees
- What did you agree to? Make sure you fully understand the terms of any agreements you signed with your current employer before transitioning to a new role or employer.
- Carefully read the terms of any agreements in a new or potential position and seek legal advice if you are uncertain about what the terms dictate.
Tips for Employers
- Ensure your employment contracts or other written agreements abide by applicable state laws and include sufficient consideration.
- Consider adding confidentiality, non-disclosure, or non-compete agreements to employee contracts.
- Ensure the terms of your employment contracts or other written agreements are unambiguous and clearly state any consequences of misappropriating or infringing upon your intellectual property.
- Implement measures informing employees about the existence of and restrict access to trade secrets.
- Consider an “audit” of trade secret protection, focusing on steps taken with respect to physical and electronic security, employees, and third parties.
If you have any questions about your ownership rights in a particular situation, the Marks Gray team is here to help.