confidentiality and assignment of inventions agreement

Confidentiality and Invention Assignment Agreement

A confidentiality and invention assignment agreement is typically signed by all founders and employees of company. The agreement creates a confidential relationship between the parties to protect any type of confidential and proprietary information and assigns all relevant work product to the company during the signors employment with the company.

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Employee proprietary information and inventions assignment agreements: what they do, and what could happen without them

The typical onboarding process for a new employee at nearly all companies in most industries includes a requirement for the employee to sign an agreement regarding confidentiality and ownership of inventions, copyrights and other intellectual property.  This article explains the purpose of such an agreement and consequences that result from a failure to have such agreements signed by each employee.

What is a PIIA?

The agreement goes by many names, but tech-savvy companies often refer to them as PIIAs (or ''Pee-as'' for short). PIIA is the acronym for the most common name for these agreements, ''proprietary information and invention assignment'' agreements.  The typical form of agreement addresses two main areas: confidentiality and ownership of intellectual property. 

The agreement requires that an employee maintain the employer's non-public and proprietary information confidential and contains language similar to what you would see in a non-disclosure agreement ( see more about non-disclosure agreements ). 

The agreement also requires that the employee agree that whatever the employee creates, discovers, develops or invents while employed with the company is owned by the company. Companies that are in the business of developing products or technology that are protectable by copyright (as is the case with most software companies) can rely on the work for hire doctrine under US copyright law, which automatically gives the employer ownership of copyrights in works of authorship ( eg , software, manuals and documentations) written or prepared by an employee within the scope of his/her employment. The work for hire doctrine, however, does not apply and ownership is not automatically vested in the employer in the case of other intellectual property rights, most notably in the case of patents (see our article providing an overview of  intellectual property rights and a more detailed discussion about  copyrights and  patents ). 

Therefore, the PIIA is the employee's agreement that everything created by the employee for the employer is owned by the employer, and if the employer needs the employee to do anything or sign any document to confirm that the employer owns all the rights in the intellectual property developments, the employee agrees in the PIIA to do so.

PIIAs will also often include non-solicitation clauses and, for those employees working in states where non-competition clauses are enforced, the agreement may also include a non-compete clause (see our article discussing  non-solicitation and non-competition clauses ).

Does the company really own everything the employee creates?

If an employee can show that he or she created intellectual property on their own time and without the use of any of the employer's facilities, equipment, supplies or trade secret information and if the intellectual property did not relate at the time of development to the employer's business or actual or anticipated research or development, then the employee would continue to own such intellectual property. 

In some states, such as California, Washington, Texas and Illinois, this exception is expressed in a statute that requires that the PIIA include a notice of the exception.  Such statutes favor the employer in that the burden of showing the exception applies is typically on the employee.

What happens if I don't have my employees sign PIIAs or if the PIIAs don't include all the bells and whistles?

Whenever a company goes through a financing, whether it is a seed round or an institutional VC round, or if the company is going to be acquired, the investors or acquirer will conduct due diligence. One of the issues that they will review is whether or not all the employees have signed PIIAs and whether or not those PIIAs require employees to assign to the company ownership of all intellectual property rights to developments created by the employee. Investors and acquirers want to make sure that the company owns its intellectual property, products and technology. 

Depending on where the company is in its lifecycle, the due diligence may focus on all employees, former and current, or it may just focus on the former and current employees that have been involved in research and development or engineering activities. (The failure of the company to obtain a PIIA from an employee strictly in an administrative capacity will generally not create a material issue). If due diligence identifies a problem with the PIIAs, or reveals that PIIAs were not signed, investors and acquirers may require that the company obtain signed PIIAs (or the equivalent) after the fact, which may necessitate the company having to pay the employees something in exchange for signing the agreement so that it is binding or, worse yet, give a former employee leverage to ask for something more. Giving someone leverage on the cusp of a financing or an acquisition may not end well for the company.

While PIIAs may seem like a routine document that is available from numerous online sources, it is essential that an employer have a form of PIIA that includes provisions that is enforceable and current and will withstand scrutiny from investor and acquirer's counsel. If you have questions about your form of PIIA, or if you want to make sure that you have forms of PIIA that will be enforceable for your employees wherever they may be located, within or outside the United States, please contact a member of our Technology, Data and Commercial practice .

Invention Assignment Agreements – How to Avoid Pitfalls

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Navigating the CIIA Agreement: Essential Insights for Inventors and Employers

Short Answer:

A CIIA Agreement protects business innovation by having employees assign intellectual property to the employer, ensuring confidentiality. It’s vital for a secure, innovative environment, with its enforceability reliant on state laws, underscoring the need for legal counsel.

Introduction and Key Takeaways

As an attorney with over a decade of experience, including working with AM Law 200 firm Locke Lord LLP on Venture Capital, M & A, and private equity transactions, I understand the critical importance of protecting intellectual property in fostering innovation. A Confidential Information and Invention Assignment (CIIA) Agreement is crucial for businesses to secure their ideas and inventions. It ensures employees assign their intellectual creations to the employer, underpinning a culture of confidentiality and innovation. Compliance with state laws is key, highlighting the indispensable role of expert legal counsel in drafting enforceable agreements.

• A CIIA Agreement establishes a legal framework for determining the ownership of intellectual property created by employees, maintaining confidentiality, and assigning invention rights to the employer, all of which are essential for protecting a company’s ideas and sensitive information.
• The enforceability of a CIIA Agreement is subject to state law variations, highlighting the importance of compliance and the necessity for companies to seek legal counsel to ensure the agreement is robust and adheres to relevant regulations in different jurisdictions.
• Real-world case studies reveal the complexities and legal challenges related to CIIA Agreements and underscore the need for careful drafting, particularly of non-compete and non-solicitation clauses, to ensure their validity and enforceability.

Understanding the CIIA Agreement: Key Components and Objectives

A CIIA Agreement isn’t merely a standard contract, it acts as a crucial safeguard for businesses. Designed to delineate intellectual property rights, confidentiality obligations, and invention assignment terms between employers and employees, this agreement is an integral part of the employer-employee relationship. It provides a clear framework for intellectual property rights, ensuring that the creativity fostered within the company benefits the business itself.

Essentially, the CIIA Agreement forms the bedrock of a company’s protection strategy for its most valued asset – its ideas.

Intellectual Property Rights in CIIA Agreements

Intellectual property rights form the backbone of a CIIA Agreement. They vest the rights and ownership of inventions and confidential or proprietary information created by employees in the company. This underscores the importance for enterprises to have employees sign confidentiality and inventions assignment agreements, thereby securing these rights. Notably, these agreements also protect existing intellectual property and information, preventing unauthorized disclosure to third parties.

Resolving disputes over intellectual property can be a tricky business . Fortunately, a well-crafted CIIA Agreement includes measures to streamline this process. These include:

• Requiring employees to maintain the company’s confidential information in confidence
• Assigning ownership of any intellectual property created by the employee to the company
• Securing IP rights for the company to the employees’ inventions, including subject matter pertaining to the company’s objectives.

Confidentiality Requirements in CIIA Agreements

Confidentiality is a cornerstone of a successful business, and a CIIA Agreement provides a robust framework for the protection of sensitive information. Confidentiality requirements serve to safeguard the company’s trade secrets, proprietary information, and other sensitive data from unauthorized disclosure or misuse. Fundamentally, these requirements cultivate a culture of trust within the organization, ensuring confidence proprietary information acquired remains secure.

Defining what constitutes company’s confidential information is a critical aspect of a CIIA Agreement. Generally, confidential information includes all confidential knowledge, data, and information of the company, including inventions and confidential all trade secrets. Standard provisions regarding confidentiality mandate employees to maintain confidentiality, refrain from disclosing information to third parties without prior written consent, and specify procedures for the return or destruction of confidential information upon termination of the agreement. Violating confidentiality can lead to severe repercussions including financial damages, termination of employment, and potential legal action.

Invention Assignment Terms in CIIA Agreements

Invention assignment agreements form an integral part of a CIIA Agreement. They serve to grant the employer specific rights to inventions developed or conceived by the employee during their course of employment. The ‘integration’ clause, also known as the “entire agreement” clause, ensures that the invention assignment agreement is all-encompassing, preventing any informal supplementary oral or written agreement. It is crucial to have the invention assignment agreement signed by both parties to ensure its validity.

The transfer of rights from employees to employers is a pivotal aspect of the invention assignment terms. It specifies that any inventions developed during the employee’s tenure with the company are to be owned by the employer. Employees are obligated to reveal these inventions and transfer ownership rights to the employer, which may involve aiding the employer in securing patents.

However, enforcement of an invention assignment may not be possible in certain states if the invention was created during the employee’s working hours and without the use of employer resources. In such scenarios, it is the employee’s duty to demonstrate that the invention meets these criteria.

To avoid potential disputes regarding ownership of such inventions, employees are requested to list all prior invention owned they have created, including any such prior invention, before their employment.

Crafting an Effective CIIA Agreement: Best Practices

The creation of an effective CIIA Agreement demands meticulous planning and meticulous attention to detail. The agreement should:

• Clearly outline the types of intellectual property it covers
• Provide a comprehensive and balanced contract that accurately reflects the rights and responsibilities of both parties
• Manage potential exceptions effectively
• Incorporate non-compete clauses to safeguard the employer’s interests.

These best practices, coupled with legal guidance, can help to navigate the intricacies involved, ensuring a robust and enforceable CIIA Agreement.

Clarity on Ownership

Ensuring clarity on ownership in a CIIA Agreement is pivotal to avoid disputes and facilitate a smooth employer-employee relationship. This can be accomplished by incorporating suitable non-disclosure agreements, employee confidential/proprietary information, and invention assignment agreements. It’s also imperative to specifically delineate the types of intellectual property covered by the agreement and include comprehensive terms pertaining to IP ownership.

Incorporating a proprietary information and inventions assignment agreement (PIIA) can further aid in clarifying ownership issues within a CIIA Agreement. This agreement should explicitly outline the ownership of intellectual property generated by advisors, consultants, contractors, and employees while working for the company and delineate the categories of intellectual property it encompasses. Clearly specifying ownership rights in a CIIA Agreement ensures that the company possesses indisputable right, title, and interest in all inventions created by the individual during their employment.

Handling Exceptions

Dealing with exceptions effectively in a CIIA Agreement is instrumental to its success. Exceptions provide clarity and address specific circumstances where confidentiality obligations may not apply, thereby reducing uncertainties and potential financial exposure. Typical exclusions encompass scenarios such as:

• The agreement being overly restrictive or unclear, leading to potential oversight of inventions
• Absence of specific provisions in the agreement
• Limitations on invention assignment agreements only during the employee’s tenure

Detailing exceptions in a standardized manner helps to maintain clarity and consistency. Additionally, these exceptions play a crucial role in ensuring compliance with state laws by offering the flexibility to make necessary adjustments in cases where the agreement may contradict specific legal requirements.

Incorporating Non-Compete Clauses

Non-compete clauses in CIIA Agreements serve to prevent employees from participating in activities that could potentially place the company at a competitive disadvantage, thereby safeguarding confidential information. Typically, these clauses entail limitations on employees from engaging in work for competitors or initiating a competing business for a defined duration subsequent to their departure from the company.

Enhancing the enforceability of non-compete clauses involves:

• Careful drafting to guarantee their enforceability and compliance with state laws
• Engaging legal counsel to navigate the intricacies involved
• Ensuring clarity and reasonableness in scope and duration
• Clearly delineating the protected interests
• Providing consideration to the employee in exchange for agreeing to the non-compete

These steps can aid in enhancing the same legal force and enforceability, especially when dealing with such third party agreements.

Enforceability and Compliance: Navigating State Laws and Regulations

State laws govern the enforceability of CIIA agreements, and the disparities in these laws can present challenges for organizations operating across multiple locations. It’s critical to understand these variations and comply with the regulations in each state to ensure the enforceability of the CIIA Agreement. Regulations regarding Confidential Information and Invention Assignment (CIIA) Agreements vary from state to state, and include state statutory limitations and notice requirements.

Non-compliance with state laws when drafting a CIIA Agreement may result in its invalidation in certain states, impacting its enforceability. Furthermore, there may be monetary penalties, known as Stipulated Penalties, for the non-compliance. Hence, it is crucial to have a clear understanding of the specific regulations, which necessitates seeking guidance from employment counsel for the most precise and up-to-date legal counsel.

The Role of Legal Counsel in CIIA Agreements

Legal counsel holds a significant position in the formulation and enforcement of a CIIA Agreement. They ensure adherence to relevant laws, safeguard the interests of all parties, scrutinize and negotiate terms, and guarantee enforceability. Moreover, the review process by legal counsel involves ensuring that confidentiality provisions are in place, and comprehensively assessing the language of the agreement to clarify rights and obligations.

Counsel ensures enforceability by meticulously drafting clear terms that mandate employees to maintain the company’s confidential information in strict confidence and to abstain from using or disclosing it without authorization. They also provide invaluable guidance on compliance with state laws, offering guidance on compliance and aiding in safeguarding the rights and interests of all parties involved. In case of disputes, legal counsel collaborates with specialist employment and intellectual property law counsels to provide guidance on the proper transfer of IP rights and formulate resolution strategies.

Implementing and Managing CIIA Agreements in the Workplace

The implementation of CIIA Agreements in the workplace necessitates clear communication, mutual agreement, and appropriate acknowledgments from employees. Training also plays a pivotal role in the effective management of CIIA agreements within the workplace. A comprehensive employee training program that aligns with the requirements of the agreement can safeguard the company’s investment in its personnel.

Monitoring adherence to CIIA Agreements is equally important. This can be achieved by conducting annual reviews, performing audits, creating related policies and procedures, and implementing training and contract approval and monitoring processes. Additionally, companies can ensure that all employees are informed about the CIIA Agreement by implementing a mandate that requires employees to maintain the company’s confidential information with the utmost confidentiality and to refrain from using or disclosing it inappropriately.

Real-World Scenarios: Case Studies and Lessons Learned

Insights into the complexities of CIIA Agreements can be gleaned from real-world scenarios and case studies. Influential court rulings, such as Snepp v. United States, have set important precedents for government employment contracts. However, there have been cases where non-solicitation and non-compete clauses in CIIA Agreements were found to be unenforceable, often due to their excessive breadth or restrictiveness. Some key points to consider are:

• Real-world scenarios and case studies provide valuable insights into CIIA Agreements.
• Court rulings, like Snepp v. United States, have established important precedents.
• Non-solicitation and non-compete clauses can be unenforceable if they are too broad or restrictive.

Conflicts have arisen when companies seek to assert intellectual property rights over their employees’ inventions, leading to occasional employment disputes. Companies have effectively resolved these disputes by implementing clear terms in employment contracts and intellectual property assignment agreements, which diminish the probability of disputes and define the ownership of intellectual property rights.

Understanding, crafting, implementing, and managing CIIA Agreements is a complex task that requires careful consideration of various factors. From ensuring clarity on ownership and handling exceptions to incorporating non-compete clauses and navigating state laws and regulations, each step is crucial in safeguarding a company’s intellectual property and maintaining business confidentiality. However, with careful planning, legal guidance, and adherence to best practices, companies can create robust and enforceable CIIA Agreements that protect their interests and foster a secure environment for innovation.

Frequently Asked Questions

What is a ciiaa agreement.

A Ciiaa agreement is a legal document used to assign all intellectual property and proprietary rights created by an employee to the employer during the course of their employment.

What does executed a confidentiality and invention assignment agreement mean?

Executed a confidentiality and invention assignment agreement means that employees agree to assign intellectual property and proprietary rights created during their employment to the employer. This ensures protection of the employer’s interests in any inventions or confidential information.

What is an employee intellectual property assignment agreement?

An employee intellectual property assignment agreement is a contract that transfers ownership of intellectual property created by employees to the employer during their employment.

What is the purpose of a non-compete clause?

The purpose of a non-compete clause is to prevent employees from engaging in activities that could harm the company’s competitiveness. It aims to protect the company’s interests.

How does legal counsel contribute to a CIIA Agreement?

Legal counsel contributes to a CIIA Agreement by ensuring adherence to relevant laws, safeguarding the interests of all parties, scrutinizing and negotiating terms, and guaranteeing enforceability. This is crucial for a robust and legally sound agreement.

Legal Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. The content presented is not intended to be a substitute for professional legal, tax, or financial advice, nor should it be relied upon as such. Readers are encouraged to consult with their own attorney, CPA, and tax advisors to obtain specific guidance and advice tailored to their individual circumstances. No responsibility is assumed for any inaccuracies or errors in the information contained herein, and John Montague and Montague Law expressly disclaim any liability for any actions taken or not taken based on the information provided in this article.

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The ABCs of CIIAAs: Protecting Employee-Generated IP

Companies seeking to avoid employment disputes and to secure intellectual property rights to their employees’ inventions should make sure that all employees have signed confidentiality and inventions assignment agreements .  These agreements are often referred to as Confidential Information and Inventions Assignment Agreements , or “ CIIAAs ” (sometimes also known as Proprietary Information and Inventions Assignment Agreements, or “ PIIAAs ”). You can generate your own agreement via Cooley GO Docs:  Form of Employee Confidential Information and Inventions Assignment Agreement

Strong CIIAAs should include the following provisions:

Definitions of Confidential Information and IP Rights

CIIAAs should address fundamental questions such as:  (1) What type of confidential information, inventions and intellectual property does the agreement cover, and (2) What are the employee’s obligations and the employer’s rights with respect to such information and IP?  Ideally, you should tailor the definition of “confidential” or “proprietary” information to your particular industry—what is confidential information is likely to differ between, say, software companies and life sciences companies.  At a very general level, confidential information should include all confidential knowledge, data, and information of your company.  Inventions should include all ideas, concepts, materials, processes, data, programs, designs, and copyrightable works, including all intellectual property rights in such inventions, and intellectual property rights include the patents, copyrights, trademarks, trade secrets, mask works and other rights recognized by the laws of any state or country.

Nondisclosure

Confidentiality provisions serve as a cornerstone of a good CIIAA.  A CIIAA should require employees to hold the company’s confidential information in the strictest confidence and forbid them from using or disclosing that information.

Assigning IP:  The Magic Words

To properly protect yourself, your company must ensure that the CIIAA includes an assignment from the employee to the company of any right, title, or interest in the company’s inventions and IP.  The provision should cover inventions created by the employee during his or her employment with the company.  Note that in some states, such as California, an employer cannot require an employee to assign all inventions created during his or her employment.  As a result, in California, the CIIAA should require assignment of those inventions that the employee generates using any of the company’s time or resources, or that fall within the company’s business or research and development.  The key language—i.e., the “magic words”—that we want to see in every CIIAA is the actual assignment by the employee of his or her IP rights to the company, coupled with an agreement to assign in the future (when any such inventions are made, conceived or reduced to practice).  For example, “ I hereby assign, and agree to assign in the future (when any such inventions or intellectual property rights are first reduced to practice or fixed in a tangible medium, as applicable), to ABC Corp. all my right, title, and interest in any inventions made, conceived, reduced to practice, or learned by me, alone or with others. ”

Most CIIAAs contain a “carve-out” provision by which employees list all of their prior inventions (before starting work with your company) that they intend to specifically exclude from their assignment of IP to the company.  You should take a close look—and engage IP counsel as necessary—at what a prospective employee intends to carve out as prior inventions to make sure that there is no overlap between those prior inventions and the type of IP your company is aiming to produce.  You can be sure that prospective investors, acquirers, and the like will be doing the same.  In addition, your CIIAA should grant your company a broad license to any prior inventions that the employee uses in any company machine, process or other work.

Nonsolicitation

All employees should agree to refrain from certain activities that could put your company at a competitive disadvantage in the marketplace.  Specifically, they should agree, during the term of employment and for some reasonable period of time thereafter, not to solicit or encourage any of your employees to leave their employment with your company; hire or engage your employees; or solicit your customers or prospective customers.  You want to protect against former employees using contacts or confidential information they acquired while working for your company to steal your business or goodwill.  Note, an agreement to “not hire” an employee may not be enforceable in all states (as opposed to agreeing to “not solicit” an employee).

Noncompetition

CIIAAs should also prevent employees from engaging in business activities that compete with your company.  At a bare minimum, this prohibition should last through the entire term of the employee’s relationship with the company.  In some instances, you will want the non-compete to extend for a year or more past the employee’s time with the company (going far beyond a year may backfire, because unreasonable durations may be held unenforceable in court).  Beware that covenants not to compete are not enforceable everywhere—for example, they are not enforceable in California except in very narrowly defined circumstances.   State law governs these agreements, and states view non-competes in different ways.  Accordingly, you should consult with employment counsel to make sure you use the appropriate agreement for each of your employees.

Tailoring and Enforcing CIIAAs

Many emerging companies ask how much to vary their CIIAAs, depending on the incoming employee’s role.  For example, a non-compete is likely more important for a CTO than a new secretary.  One approach is to use two different forms—one for use with high level employees, engineers, software developers and other employees who are hired to design or create the company’s products and technologies and another form for use with lower level employees and employees who provide general administrative services.   Most companies, however, have all employees sign the same form.  Bear in mind that you should use different versions of your form agreements which have been vetted by local counsel for use with employees in different states and consult with counsel to determine the optimal approach for tailoring and enforcing CIIAAs to best suit your company’s needs.  Best practice, however, is that once you have developed your form CIIAA, you do not negotiate that form with each individual employee.

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Employee Invention Assignment Agreement

Jump to section, what is an employee invention assignment agreement.

An employee invention assignment agreement is a contract between an employer and employee that grants the employer certain rights to a worker's inventions. In other words, while an individual is employed with the company, they agree to relinquish their natural rights to their intellectual property and inventions to their employers. This type of agreement is only in effect while the individual is actively employed with the contracted company.

Employees need not worry about the safety of their previous inventions when signing this agreement. This is because there is typically a portion of the contract where prior inventions are listed, so they can be excluded from the contract terms.

Common Sections in Employee Invention Assignment Agreements

Below is a list of common sections included in Employee Invention Assignment Agreements. These sections are linked to the below sample agreement for you to explore.

Employee Invention Assignment Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.5 4 dex105.htm EMPLOYEE INVENTIONS ASSIGNMENT AGREEMENT AND RESTRICTIVE OBLIGATIONS AGREEMENT , Viewed September 15, 2022, View Source on SEC .

Who Helps With Employee Invention Assignment Agreements?

Lawyers with backgrounds working on employee invention assignment agreements work with clients to help. Do you need help with an employee invention assignment agreement?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate employee invention assignment agreements. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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After graduating law school in 2015, I practiced for a few years in LA, then becoming a contractor for large litigation projects. Now working from home in Kansas, I can offer LA service at Midwest prices.

Ms. Tanu Chaturvedi Esq. brings vast experience: experience as Corporate Counsel at a multi-million dollar international corporation, experience as a legal & business leader in the legal department at the world's leading mission capability integrator in the nation's capital that has been named a Top 100 Employer Forbes by state & Top 25 Defense Contractor in the world & named Top 7 in the Washington Technology Top 100 2022 & one of the largest defense contractors in the marketplace & has also been named as Top Managed Company by The Wallstreet Journal & included in the Inc. 500, experience as the sole Attorney at a national company that was recognized in 2017 as a top employer in the capital by "The Washington Post" & has also been listed on the Inc. 5000 more than once as one of the fastest growing companies in the nation, & in 2019, & named as a Finalist for the DC Moxie award: for businesses that demonstrate significant boldness & innovation in business strategy, experience working at one of the world's largest insurance brokerage firms, one of the largest law firms in the capital, a boutique start-up that specializes in investigations, security, & risk, the world’s largest professional service firm (largest of the “big 4” companies) in conjunction with the nation’s executive law enforcement agency, experience working at a corporation with global reach that was lead by a former cabinet member of the Clinton administration, experience working at a Fortune 500 in one of the world's largest insurance markets, at an internationally recognized boutique law firm, experience as the only female legal professional in the felony division of a criminal department in the nation's most dangerous jurisdiction as an undergrad, & experience working in the offices of public officials. She is also a graduate from two different internationally recognized institutions that have a record of turning out graduates with the skill to lead in their industries & distinguished law school graduate from an ABA accredited law school that received recognition for academic & leadership achievement. She is an invited contributor to legal blogs, and she enjoys advocating for increased literacy. Notably, she also supports advocacy for the performing arts as a former graduate of a magnet school for the performing arts. Please don’t hesitate to reach out to her with any questions, and she looks forward to hearing from your team.

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4695 MacArthur Court, Suite 1100, Newport Beach, CA 92660

Toll-Free: (800) 747-6081

• Patent Infringement

Copyrights & Trademarks

Trade secrets.

• Intellectual Property & Business Litigation
• Contract Preparation & Disputes
• Michael M. Ahmadshahi Ph.D., Esq.
• Los Angeles
• Palo Alto / San Jose

NONCOMPETE, NONSOLICITATION, CONFIDENTIALITY, AND INVENTION ASSIGNMENT AGREEMENTS IN CALIFORNIA

CAN I LEAVE MY PRESENT EMPLOYER TO START MY OWN COMPANY OR JOIN A COMPETITOR EVEN IF I HAVE SIGNED A NONCOMPETE, A NONSOLICITATION, A CONFIDENTIALITY, OR AN INVENTION ASSIGNMENT AGREEMENTS IN CALIFORNIA?

Consider the following scenario: You’re a California resident and offered employment by a California or a foreign employer. As a condition of your employment, you’re asked to sign one or more of a noncompete, a nonsolicitation, a confidentiality, and an invention assignment agreement. After a few months or years, you decide to quit and start your own business that competes directly with your employer. What, if anything, can your employer do to prevent you from leaving and competing with it? The short answer is: Not Much!

I. Noncompete, Nonsolicitation, and Confidentiality Clause

In general, any agreement that violates the Cal. Bus. Prof. Code § 16600 is illegal, therefore, invalid, unless one of the statutory exceptions (Cal. Bus. Prof. Code §§ 16601, 16602, and 16602.5) [1] or the trade secret common law exception apply. Section 16600 “invalidates provisions in employment contracts that prohibit ‘an employee from working for a competitor after completion of his employment or imposing a penalty if he does so unless they are necessary to protect the employer’s trade secrets .’”  Edwards v. Arthur Andersen LLP,  44 Cal.4th 937, 945-46 (2008) (quoting  Muggill v. Reuben H. Donnelley Corp.,  62 Cal.2d 239 (1965) (Emphasis added). This provision “evinces a settled legislative policy in favor of open competition and employee mobility.”  Id.  at 946. “In California, ‘every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.’ Cal. Bus. Prof. Code § 16600.”  Applied Materials v. Advanced Micro-Fabrication Equip , 630 F. Supp. 2d 1084, 1089 (N.D. Cal. 2009).

Even the so-called common law exception is on a shaky ground as the Court in Power Integrations, Inc. v. De Lara , No. 20-cv-410-MMA (MSB), at *25-27 (S.D. Cal. Mar. 26, 2020) analyzed the law as follows:

“On one hand, some decisions have found that to the extent that an exception applies, it applies in the context of a tortious wrong independent of any contractual relationship.  See Ret .  Grp ., 98 Cal. Rptr. 3d at 593. In  The Retirement Group v .  Galante , the California Court of Appeal determined the following distinction between contract and tort: We distill from the foregoing cases that section 16600 bars a court from specifically enforcing (by way of injunctive relief) a  contractual  clause purporting to ban a former employee from soliciting former customers to transfer their business away from the former employer to the employee’s new business, but a court may enjoin  tortious  conduct (as violative of either the Uniform Trade Secrets Act and/or the Unfair Competition Law) by banning the former employee from using trade secret information to identify existing customers, to facilitate the solicitation of such customers, or to otherwise unfairly compete with the former employer. Viewed in this light, therefore, the conduct is enjoinable not because it falls within a judicially-created “exception” to section 16600’s ban on contractual nonsolicitation clauses, but is instead enjoinable because it is wrongful independent of any contractual undertaking.

On the other hand, the court has also held that “under  Edwards , Business and Professions Code section 16600 generally prohibits the enforcement of a nonsolicitation agreement in all cases in which the trade secret exception does not apply.”  Wanke ,  Indus .,  Commercial ,  Residential ,  Inc .  v .  Keck , 147 Cal. Rptr. 3d 651, 670 (Ct. App. 2012) (referring to  Edwards , 189 P.3d 285, which “[did not] address the applicability of the so-called trade secret exception to section 16600 . . . .”). However, because  Edwards ‘ did not involve the “so called trade secret exception,”  Edwards , 189 P.3d at 291 n.4, its statements regarding the existence or the applicability of a trade secret exception is dicta. Additionally,  Edwards  noted that “[w]e conclude that section 16600 prohibits employee noncompetition agreements unless the agreement falls within a  statutory exception .”  Edwards , 189 P.3d at 291 (emphasis added) (citing Cal. Bus. & Prof. Code § 16600);  see also Dowell v .  Biosense Webster ,  Inc ., 102 Cal. Rptr. 3d 1, 9 (2009) (same). In detailing how California Courts have not embraced the “Ninth Circuit’s narrow-restraint exception,” the  Edwards  court stated that “[we] leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.”  Id . at 293. This language, the explicit statutory language of “[e]xcept as provided in this chapter,” and the California Legislature’s intent plainly exclude judicially-created exceptions to § 16600. Cal. Bus. & Prof. Code § 16600. Therefore, this Court declines to find that a trade secret exception to § 16600 exists to the extent that Plaintiff alleges a breach of contract cause of action.

II. Invention Assignment Clause

In general, invention assignment agreements that are limited to the duration of the employee’s work with the employer are enforceable regardless if the invention is based on the employer’s confidential information. Mattel ,  Inc .  v .  MGA Entm’t ,  Inc ., 782 F. Supp. 2d 911, 946 (C.D. Cal. 2011) (“As long [as] the assignment [of ideas and inventions] does not extend to post-employment work, it is generally enforceable.”) However, if the invention assignment agreement extends beyond the length of the employment, they must be limited to those based on the employer’s confidential information. Conversion Logic, Inc. v. Measured, Inc. , Case No: 2:19-cv-05546-ODW (FFMx), at *12 (C.D. Cal. Dec. 13, 2019) (citing, Winston Research Corp .  v .  Minnesota Mining & Mfg .  Co ., 350 F.2d 134 (9th Cir. 1965). (“Intellectual property assignment provisions in employment contracts have been upheld when limited to inventions that are based on the employer’s confidential information.”)

Any provision which obligates the employee/shareholder to assign all his/her inventions even after he/she is no longer an employee of the Company is invalid. Furthermore, if it obligates the employee/shareholder to assign all his/her inventions related to the business of the company without limiting them to those “that are based on confidential employer information” Conversion is invalid. See, Conversion Logic, Inc. v. Measured, Inc. , Case No: 2:19-cv-05546-ODW (FFMx), at *12 (C.D. Cal. Dec. 13, 2019) (citing, Winston Research Corp .  v .  Minnesota Mining & Mfg .  Co ., 350 F.2d 134 (9th Cir. 1965). (“Intellectual property assignment provisions in employment contracts have been upheld when limited to inventions that are based on the employer’s confidential information.”)

If you need help regarding leaving your present employer to start your own business or joining a competitor, or other related intellectual property matters, contact Ahmadshahi Law Offices today and get an initial consultation.

Michael M. Ahmadshahi concentrates its practice on patents, trademarks copyrights, trade secrets and other intellectual property and business law. Call us toll free at (800) 747-6081 or direct at (949) 556-8800 or email [email protected] and let us help you with your IP and business matters.

[1] Although, the applicability of the statutory exceptions has not been analyzed, it is unlikely they would apply as they pertain to the sale of a business entity or the sale of a shareholder, partner, or a member selling all of his/her shares/interest that would include the goodwill of the entity.

Mr. Ahmadshahi’s area of practice is Intellectual Property Laws including Patent Prosecution and Litigation, Trademarks, Copyrights, Unfair Business Practices, and Business Litigation. He is also an entrepreneur and an inventor.

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Free Invention Assignment Agreement Template for Microsoft Word

Download this free Invention Assignment Agreement template as a Word document to help you in providing confidentiality, privacy, and licensing clauses

Invention Assignment Agreement

As a condition of my becoming employed (or my employment being continued) by or retained as a consultant (or my consulting relationship being continued) by [Insert Company Name] of [Insert Company Address] or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the “Company”), and in consideration of my employment or consulting relationship with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following:

1. EMPLOYMENT OR CONSULTING RELATIONSHIP.

I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or in a consulting relationship with, or the duration of my employment or consulting relationship with, the Company under any existing agreements between the Company and me or under applicable law. Any employment or consulting relationship between the Company and me, whether commenced prior to or upon the date of this Agreement, shall be referred to herein as the “Relationship.”

2. AT-WILL RELATIONSHIP.

I understand and acknowledge that my Relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability.

3. CONFIDENTIAL INFORMATION.

(a) Company Information. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without the written authorization of the Board of Directors of the Company, any Confidential Information of the Company which I obtain or create. I further agree not to make copies of such Confidential Information except as authorized by the Company. I understand that “Confidential Information” means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, business plans and strategies, Internet addresses and web pages, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of interfaces, parts or equipment or created by me during the period of the Relationship on behalf of or within the course and scope of my performance of services to the Company, whether or not during working hours. I understand that “Confidential Information” includes, but is not limited to, information pertaining to any aspects of the Company’s business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Confidential Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved.

This Agreement is in compliance with the Defend Trade Secrets Act and provides civil or criminal immunity to any individual for the disclosure of trade secrets: (i) made in confidence to a federal, state, or local government official, or to an attorney when the disclosure is to report suspected violations of the law; or (ii) in a complaint or other document filed in a lawsuit if made under seal.

(b) Former Employer Information. I represent that my performance of all terms of this Agreement as an employee or consultant of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge, or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company or induce the Company to use, any inventions, the confidential or proprietary information or material belonging to any previous employer or any other party.

(c) Third Party Information. I recognize that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm, or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company’s agreement with such third party.

4. INVENTIONS.

(a) Inventions Retained and Licensed. I have attached hereto, as Exhibit A, a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as “Prior Inventions”), which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company’s proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or the machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or the machine.

(b) Assignment of Inventions. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under the copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by or a consultant of the Company (collectively referred to as “Inventions”). I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are “works made for hire” (to the greatest extent permitted by applicable law) and are compensated by my salary (if I am an employee) or by such amounts paid to me under any applicable consulting agreement or consulting arrangements (if I am a consultant), unless regulated otherwise by the mandatory law of the state of [Insert State].

(c) Maintenance of Records. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company’s place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company’s business.

(d) Patent and Copyright Rights. I agree to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordation’s, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney, in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company.

5. RETURNING COMPANY DOCUMENTS.

I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets, or other work areas, is subject to inspection by Company personnel at any time with or without notice. In the event of the termination of the Relationship, I agree to sign and deliver the “Termination Certification” attached hereto as Exhibit B.

6. NOTIFICATION TO OTHER PARTIES.

(a) Employees. In the event that I leave the employ of the Company, I hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement.

(b) Consultants. I hereby grant consent to notification by the Company to any other parties besides the Company with whom I maintain a consulting relationship, including parties with whom such relationship commences after the effective date of this Agreement, about my rights and obligations under this Agreement.

7. SOLICITATION OF EMPLOYEES, CONSULTANTS AND OTHER PARTIES.

I agree that during the term of my Relationship with the Company, and for a period of twelve (12) months immediately following the termination of my Relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Nothing in the previous sentence shall apply to hiring any employee or consultant through general, non-specific solicitations. Further, for a period of twenty-four (24) months following termination of my Relationship with the Company for any reason, with or without cause, I shall not solicit any licensor to or customer of the Company or licensee of the Company’s products, in each case, that is known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company.

8. REPRESENTATIONS AND COVENANTS.

(a) Facilitation of Agreement. I agree to execute promptly any proper oath or verify any proper document required to carry out the terms of this Agreement upon the Company’s written request to do so.

(b) Conflicts. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement.

(c) Voluntary Execution. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and willfully and faithfully comply with such provisions.

9. GENERAL PROVISIONS.

(a) Governing Laws. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of [Insert Relevant State], without giving effect to the principles of conflict of laws.

(b) Entire Agreement. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights, or compensation will not affect the validity or scope of this Agreement.

(c) Severability. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

(d) Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators, and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

(e) Survival. The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignees.

(f) Signatories. This Agreement shall be signed on behalf of the Company by [Insert Name of Company Represetative] and by me. This Agreement shall take effect immediately after being signed by both parties.

(g) Advice of Counsel. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

_____________________________________________________________

By: ___________________________________ Date: __________________

EMPLOYEE/CONSULTANT:

TO CONFIDENTIAL INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT

LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4

Description:

□ No inventions or improvements □ Additional Sheets Attached

TERMINATION CERTIFICATE

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to _________________, its subsidiaries, affiliates, successors or assigns (together with the “Company”).

I further certify that I have complied with all the terms of the Company’s Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement.

I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data, or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, databases, other original works of authorship, customer lists, business plans, financial information or other subject-matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.

I further agree that for twelve (12) months from the date of this Certificate, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Nothing in the previous sentence shall apply to non-specific solicitations. Further, for a period of twenty-four (24) months from the date of this Certificate, I shall not solicit any licensor to or customer of the Company or licensee of the Company’s products, in each case, that is known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company.

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