Posts Tagged: "Employment Agreements"

Last week, the U.S. Court of Appeals for the First Circuit affirmed a district court ruling denying a request for declaratory judgment by Covidien LP and Covidien Holding Inc. (collectively, “Covidien”) against appellee Brady Esch, a former employee who assigned a medical device patent to a company he founded. After a nine-day trial, the jury awarded Covidien nearly $800,000, finding Esch incurred in a breach of confidential information. Covidien subsequently moved for a declaratory judgment asking the court to require Esch to assign later inventions. The district court denied this request. The First Circuit was tasked with determining whether the district court abused its discretion. Finding it did not, they affirmed.

In 2011, Advanced Video filed suit against HTC for patent infringement in the Southern District of New York. The district court dismissed the suit for lack of standing, finding that Advanced Video did not have an ownership interest in the patent. The Federal Circuit affirmed. Judge Newman dissented, arguing that Advanced Video had full ownership of the ?788 Patent and standing to sue for infringement. She found that the Employment Agreement, including the “will assign,” trust and quitclaim provisions, demonstrated a mutual intent and understanding that any inventions created during Ms. Hsiun’s employment at Infochips would be owned by Infochips.

The basement inventor is increasingly rare, although I am old enough (and lucky enough) to know several. Invention in the “real world” is often a messy, team effort of multiple inventors, employers, contracts, research agreements, and funding agreements. As the complexity of invention multiplies, so do opportunities for unintentionally losing or jeopardizing intellectual property rights… There is often more than meets the eye when it comes to ownership of inventions. The benefits of collaboration far outweigh the disadvantages. However, you can take steps to ensure a smooth collaboration by keeping a few legal principles in mind…

There are not many things an employer can do to prevent unfettered competition by a former employee. B&P Section 16600 states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute provides three exceptions, none of which apply to the typical employer/employee relationship: (1) a person who sells the goodwill of a business or sells substantially all of its operating assets may lawfully agree to refrain from carrying on a similar business; (2) a partner may, upon the anticipation of the partnership dissolution or disassociation from the partnership, lawfully agree not to carry on a similar business; and (3) any member of a limited liability company may lawfully agree not to carry on a similar business.

As discussed elsewhere in this Take 5, although California employers generally cannot restrict an employee’s ability to work elsewhere, California employers can protect their trade secrets and confidential information. One pillar of a successful plan to do so is having an employee departure protocol.

In the past, employers typically only needed to be concerned that confidentiality and non-compete clauses in their employment agreements may be challenged either by departing employees who want to work for a competitor or by a competing company attempting to hire an employee or former employee. That tide is changing as an increasing level of government scrutiny has been directed at these employee restrictive covenants. Recently, federal and state agencies have been challenging the enforceability of confidentiality provisions and non-competes that the agencies claim are not supported by legitimate business interests. Given this change-in-tide and the New Year, now is the perfect time for employers to engage counsel to review their confidentiality and non-compete provisions.