When Does an Employer’s Intellectual Property Policy Go Too Far?

Many companies require their employees to agree to written policies that clarify Intellectual Property ownership of employment-related work product.

The typical form of such a written policy provides that all Intellectual Property such as patentable inventions, copyrightable works of authorship or trade secrets, that are created by an employee in the course of his or her employment, are fully assigned to — and therefore owned exclusively — by the employer.

Additionally, other companies, particularly those engaged in software development or the creation of media content, have recently gone even further.

Some businesses have demanded that their employees agree to policies that assign and transfer complete right, title and interest to all Intellectual Property created during the entire time of employment – regardless of whether such inventions were created within the scope or course of employment.

One potential rationale for the recent proliferation of such policies is the growing difficulty in drawing clear technological lines between “on-duty” and “off-duty” creative activities. With the ubiquity of smart phones, laptops, netbooks, jump drives and other portable devices, it has become more difficult to draw clear lines between when and where a particular item of Intellectual Property was actually reduced to practice (in the case of patents) or first fixed in tangible form (in the case of copyrights).

This is particularly true with digital content, which is no longer generated solely within the confines of a physical office setting, but can be captured and edited anywhere, at any time.

Consequently, employers may consider taking the broadest possible approach, and demand a universal acquisition of all employee-created Intellectual Property regardless of the employee’s location, time, manner, or purpose when creating it.

However, employees often fear that this arrangement makes it dangerously tempting for the company to claim rights in their employees’ personal creative projects without offering any additional compensation, other than the benefit of continued employment.

They may fear that employers may show up to assert these rights only after the personal project has demonstrated economic value, and effectively use the policy as a justification to legally acquire that for which they never actually bargained in the first place.

As a policy matter, some commentators have argued that permitting enforcement of such overbroad employer-employee Intellectual Property ownership policies will have deleterious effects on society, as employees’ incentives to create independent content, and to contribute to Open Source Code and Creative Commons will be stifled.

Recognizing these valid policy concerns, and the potential for employer abuse, in at least 8 states, demanding acquiescence from employees through an overbroad policy of claimed Intellectual Property ownership as a required condition of continued employment has been declared unconscionable, void as against public policy, and/or lacking adequate contractual consideration, absent additional compensation other than continued employment.

For example, California specifically exempts all inventions and Intellectual Property created outside of the workplace and without use of company facilities. In addition to the protections of the California Labor Code, California statutes provide other types of protections to creators of copyrightable works when they, as “independent contractors,” enter into work-for-hire agreements with those who commission their works.

This scenario is quite common in the entertainment field, where business entities often attempt to reduce overhead expenses by hiring writers as independent contractors rather than employees.

California provides strong disincentives for employers to implement such a policy. California law provides that one who commissions a “work made for hire,” as defined in Section 101 of the Copyright Act, is considered the employer of the creator of the work for purposes of workers’ compensation and unemployment insurance.

Consequently in California, whenever a creator works on a work made for hire basis as defined by federal copyright law, that creator automatically becomes an “employee,” obligating the employer to bear the cost of workers’ compensation and unemployment insurance.

Further, unless one obtains workers’ compensation insurance before entering into such a work made for hire agreement with the creator, before any work is performed, and before any payments are made, there is potential criminal as well as civil liability for failure to maintain such insurance. California issues penalties of up to $100,000 against uninsured employees. In addition, the creator may be entitled to make unemployment benefit claims despite the fact that both the hiring entity and the creator envisioned that the creator would be an independent contractor.

From the employer’s standpoint, acquisition of employees’ personal Intellectual Property could also open the proverbial can of worms. By having such a policy in place, employees’ participation on social networking sites, uploading of video clips, blog submissions and even family photographs could technically become the Intellectual Property of the employer. Even offensive materials could become part and parcel of the employers’ theoretical roster of corporate property.

Most employers would presumably want to distance themselves from this unsupervised private behavior by arguing that these are personal activities that constitute “frolics and detours,” and are not employer-authorized activities from an agency perspective. However, attempting to maintain such distance from employees’ personal activities is arguably at odds, at least in principle, with simultaneously claiming legal title and ownership over the same materials.

In conclusion, companies would do well to assert Intellectual Property ownership rights to copyrightable works, inventions, trade secrets and other materials created by employees within the scope of employment. However, a blanket policy which lays claim to any and all employee-created Intellectual Property-whether related to employment or not, is both unwise and potentially unenforceable.