How to Protect Your Invention - Dealing With Employees and Independent Contractors

By: Elias Borges, patent & trademark lawyer.
Your new product idea has potential. You have a preliminary design which solves a problem and has real market potential. However, before you can engage a manufacturer, launch your website and fire up the marketing department, you need to hire engineers and/or software developers, get drawings done, get code written, get artwork done, conduct tests and otherwise bring the project from idea to finished product. If you can't do all this yourself, you will either have to pass off parts of the project to one or more employees (if you have them) or hire independent consultants and contractors to get the job done. Unbeknownst to a lot of people, getting employees, consultants and contractors to do the job has its risks, some of which can be fatal to the success of a product.

Turning a product from initial concept to finished product often involves a lot of engineering, redesign and creativity. These efforts often result in additional inventive improvements to the original concept. The initial concept may be sufficiently novel and inventive to warrant patent protection, but it is also possible that the improvements in design made along the way to a finished product are also sufficiently inventive to warrant patent protection. In some cases the initial concept itself is not inventive enough to secure patent protection, and it is the creative solutions found during the perfection of the idea which are patentable. So when any design is improved and perfected, the inventive contribution of those people who helped perfect the design must be considered. In many cases, it is the engineers, employees, designers and consultants who worked on the invention after it's initial conception who are the actual inventors, not the person(s) who had the original idea. So, if the original creator of the idea is not the inventor, who owns the intellectual property in the finished product? Who owns the patents? The answer might surprise you.

A single invention may have more than one inventor. Anyone who contributed to the creation of that invention is an inventor, and in most legal jurisdictions, each inventor must be listed in the patent application. Under basic patent law, the inventor owns the invention and if there are several inventors, then the invention (and resulting patents) are owned jointly by all of the inventors. Hence, an engineer who made one slight, but patentable, improvement to the design is a joint inventor and not only must he/she be listed as an inventor, he/she is also a joint owner of the invention/patent. However, the law as it relates to employees generally gives the employer ownership of any intellectual property created by the employee in the course of his/her employment. So if the engineer is an employee of company X, and it was part of the engineer's job to perfect the design of a new product, then any intellectual property created by that engineer will, with few exceptions, belong to Company X. However, there is a significant difference between and employee and an independent contractor. If that same engineer was an independent contractor and not an employee, then any intellectual property created belongs to the engineer and not the company. In this scenario, the patents might actually be owned by the engineer, not company X, even if company X paid the engineer handsomely for his/her efforts. In cases where an independent contractor or freelancer is retained to work on the design of a product, it is possible to include a term in the contract which specifically states that any intellectual property created by the contractor/freelancer while working on the project shall be owned by the party who contracted for the work to be done. If company X hires the freelancer under an agreement containing this type of clause, then company X will own the invention/patent and not the freelancer. There should also be a term included in the contract which compels the freelancer to cooperate with the company in securing patent protection for the company by signing assignments and other documents as may be needed. In the event the contract retaining the freelancer does not have these types of terms, it may still be possible to have the freelancer assign his/her interest in the patentable invention to the company.

There are situations when an employee does not automatically transfer his/her intellectual property rights to the employer. If the invention was created by the employee on the employee's own time, using the employee's own resources, and if the invention was not really related to the employee's job duties, then the invention would belong to the employee and not the employer. The more overlap there is between the employee's job and the efforts taken to create the invention, the greater the probability that the invention does belong to the employer.

Notwithstanding the law relating to employee created intellectual property, it's probably a good idea to have every employee sign an agreement wherein the employee specifically agrees that any intellectual property created pursuant to their employment shall be the property of the employer and, furthermore, that the employee shall sign what ever documents may be required to record the company's ownership of that intellectual property. Ideally, this agreement should form a clause or two in an employment agreement; however, in the event that these clauses are not, it is possible to prepare a separate agreement each employee is to sign. Of course, to be enforceable, these separate agreements must have proper consideration. Promising not to fire/lay off the employee for 12 months probably constitutes sufficient consideration.

What happens if the inventor is not an independent contractor or employee but rather another investor or even a customer? Again, if the company is to have ownership of the invention, the inventor must execute a written assignment from the inventor to the company. To be valid, there must be consideration for that assignment, such as payment of a small amount of money.

Owning the fruits of your (or your company's) R&D efforts is a critical part of any intellectual property strategy. The moment third parties get involved in the creative/design process, there is always the possibility that the ownership of those all too important intellectual property assets may be diluted. Strategic use of intellectual property terms in retainer agreements, employment contracts and other agreements can help prevent the dilution of those rights.