When operating a company, it is important to consider the intellectual property that is created and used in the business. This is especially important for technology and manufacturing companies. Steps taken early on to establish intellectual property rights have long term effects on a company’s ability to capitalize on the intellectual property and avoid infringement claims. Below are 5 steps that all business owners should take to protect their intellectual property.
1. Review Nondisclosure Agreements, Noncompetition, Nonsolicitation and Assignment of Invention Agreements with Employers
When individuals leave their employer to start their own company (whether or not competing with the prior employer) it is imperative that an attorney review any nondisclosure, non-solicitation and noncompetition agreements signed during the course of employment to ensure that the individuals do not violate the terms of these agreements by starting their own company.
Assignment of Inventions
Founders of a company often create intellectual property that will be used by the newly formed company. If intellectual property was created during the course of an individual’s employment and the intellectual property will be used in the new business, it is imperative that the intellectual property does not fall under an invention assigned to the employer under an assignment of inventions agreement. If the intellectual property falls under an assignment, the use of the intellectual property in the business will subject the individual and the company to a claim by the prior employer.
Nonsolicitation and Nondisclosure Agreements
Individuals leaving an employer to form or join a newly formed company often assume that they can reach out to their prior employer’s business contacts and customers in growing their new business. Soliciting an employer’s business contacts after leaving employment is prohibited under standard non-solicitation agreements. Customer lists, business contacts and other contact information that has independent economic value from not being disclosed to the public and which the employer takes steps to protect can qualify as “trade secrets” under Washington Trade Secret Act and cannot be disclosed or used by former employees. Similar to nonsolicitation agreements, employees who sign nondisclosure agreements with their employer cannot disclose confidential information after leaving employment.
Noncompetition Agreements
Individuals who signed a noncompetition agreement with their employer should have an attorney review the agreement for enforceability under Washington’s new noncompetition law that went into effect January 1, 2020. Under the new law, an employer who attempts to enforce a noncompliant noncompetition agreement will incurr damages and be responsible for the former employee’s attorneys’ fees.
2. Register and Monitor Trademarks and Copyrights
Early trademark use and registration with the United States Patent and Trademark Office (USPTO) or state registrations establish a priority in the rights to use a trade name or trademark. US trademark law bases ownership rights on a “first to use” basis. A company with established priority in use can challenge companies using a similar trademark that is likely to cause confusion in customers as to the source of the trademark. Graphics, computer code and other copyrighted works should be protected by registration with the US Copyright Office.
3. Obtain Invention Assignments
Newly formed companies should obtain Assignment of invention Agreement from founders and its employees, especially from engineers, scientists and research and development personnel. Assignments mitigate the risk that founders and key employees take intellectual property with them when they leave to a competitor. Without assignment of invention agreements, a company has only an implied license to use the intellectual property and inventions created by its founder and employees.
4. Obtain Nondisclosure, Nonsolicitation and Noncompetition Agreements
Companies should take necessary steps in protecting their trade secrets and other confidential information. In addition to implementing security measures, companies should obtain nondisclosure, nonsolicitation and if applicable, noncompetition agreements compliant with state laws, from its employees. Standard confidentiality and nonsolicitation agreements prohibit former employees from disclosing information not generally known to the public and from soliciting an employer’s customers and employees. As with many states, Washington law requires that noncompetition agreements be reasonable in scope and duration. Employees and independent contractors also have to meet salary and payment thresholds in order for non-competes to be enforceable.
5. Obtain Agreements Regarding Rights to Use Third-Party Intellectual Property and Independent Contractor Agreements
US Copyright law provides that the author of any copyrightable works such as software code, is the owner of the work, regardless of who pays or hires the author. An exception, however, exists when there is an agreement that the work completed is “work made for hire”. For this reason, companies should obtain written independent contractor agreements from all contractors, with general assignment provisions as well as a provision that all work completed under the agreement is “work made for hire” and therefore ownership to all copyrightable works vests in the company. If a company is using names, trademarks, source code or software that belongs to a third party, an agreement should be in place for such use in order to prevent infringement claims.
1. Review Nondisclosure Agreements, Noncompetition, Nonsolicitation and Assignment of Invention Agreements with Employers
When individuals leave their employer to start their own company (whether or not competing with the prior employer) it is imperative that an attorney review any nondisclosure, non-solicitation and noncompetition agreements signed during the course of employment to ensure that the individuals do not violate the terms of these agreements by starting their own company.
Assignment of Inventions
Founders of a company often create intellectual property that will be used by the newly formed company. If intellectual property was created during the course of an individual’s employment and the intellectual property will be used in the new business, it is imperative that the intellectual property does not fall under an invention assigned to the employer under an assignment of inventions agreement. If the intellectual property falls under an assignment, the use of the intellectual property in the business will subject the individual and the company to a claim by the prior employer.
Nonsolicitation and Nondisclosure Agreements
Individuals leaving an employer to form or join a newly formed company often assume that they can reach out to their prior employer’s business contacts and customers in growing their new business. Soliciting an employer’s business contacts after leaving employment is prohibited under standard non-solicitation agreements. Customer lists, business contacts and other contact information that has independent economic value from not being disclosed to the public and which the employer takes steps to protect can qualify as “trade secrets” under Washington Trade Secret Act and cannot be disclosed or used by former employees. Similar to nonsolicitation agreements, employees who sign nondisclosure agreements with their employer cannot disclose confidential information after leaving employment.
Noncompetition Agreements
Individuals who signed a noncompetition agreement with their employer should have an attorney review the agreement for enforceability under Washington’s new noncompetition law that went into effect January 1, 2020. Under the new law, an employer who attempts to enforce a noncompliant noncompetition agreement will incurr damages and be responsible for the former employee’s attorneys’ fees.
2. Register and Monitor Trademarks and Copyrights
Early trademark use and registration with the United States Patent and Trademark Office (USPTO) or state registrations establish a priority in the rights to use a trade name or trademark. US trademark law bases ownership rights on a “first to use” basis. A company with established priority in use can challenge companies using a similar trademark that is likely to cause confusion in customers as to the source of the trademark. Graphics, computer code and other copyrighted works should be protected by registration with the US Copyright Office.
3. Obtain Invention Assignments
Newly formed companies should obtain Assignment of invention Agreement from founders and its employees, especially from engineers, scientists and research and development personnel. Assignments mitigate the risk that founders and key employees take intellectual property with them when they leave to a competitor. Without assignment of invention agreements, a company has only an implied license to use the intellectual property and inventions created by its founder and employees.
4. Obtain Nondisclosure, Nonsolicitation and Noncompetition Agreements
Companies should take necessary steps in protecting their trade secrets and other confidential information. In addition to implementing security measures, companies should obtain nondisclosure, nonsolicitation and if applicable, noncompetition agreements compliant with state laws, from its employees. Standard confidentiality and nonsolicitation agreements prohibit former employees from disclosing information not generally known to the public and from soliciting an employer’s customers and employees. As with many states, Washington law requires that noncompetition agreements be reasonable in scope and duration. Employees and independent contractors also have to meet salary and payment thresholds in order for non-competes to be enforceable.
5. Obtain Agreements Regarding Rights to Use Third-Party Intellectual Property and Independent Contractor Agreements
US Copyright law provides that the author of any copyrightable works such as software code, is the owner of the work, regardless of who pays or hires the author. An exception, however, exists when there is an agreement that the work completed is “work made for hire”. For this reason, companies should obtain written independent contractor agreements from all contractors, with general assignment provisions as well as a provision that all work completed under the agreement is “work made for hire” and therefore ownership to all copyrightable works vests in the company. If a company is using names, trademarks, source code or software that belongs to a third party, an agreement should be in place for such use in order to prevent infringement claims.
