Securing IP Requires More than an NDA

When it comes to protecting intellectual property (IP), non-disclosure agreements (NDAs) are ubiquitous. What many entrepreneurs fail to realize, however, is that securing IP requires more than an NDA. For an NDA to do its job, the company must actually own the IP in the first place!

The most serious ownership problems arise when there is no written agreement between the company and the individual developing the IP. Depending on the nature of the IP (for example, whether copyright or patent protection applies) and whether the developer is an employee of the company or an independent contractor, the developer may own the IP.  If this is the case, the company has, at most, a non-exclusive license.

More than an NDA for Employees

The company should make sure that every at-will employee – one whose employment can be terminated at any time – has entered into a Proprietary Rights Agreement. (This might be called,alternatively, an Invention Assignment Agreement, Patents and Invention Agreement, or something similar.) Senior executives, in contrast, typically have employment agreements that address IP ownership, among other issues.

Proprietary Rights Agreements usually include the following operative provisions:

• Acknowledgment of at-will employment.
• The employee’s obligation to maintain company information in confidence.
• Assignment of employee-developed inventions and associated IP rights to the company.
• An obligation to help the company perfect those rights.
• In California, notice that inventions covered by Section 2870(a) of the Labor Code (inventions developed entirely on the employee’s own time without using the company’s equipment, supplies, facilities or trade secrets, subject to certain exceptions) will not be assigned to the company.

More than an NDA for Independent Contractors

The company should make sure that every independent contractor has entered into an agreement that includes, among other provisions:

• Acknowledgment of the independent contractor relationship.
• The contractor’s obligation to maintain company information in confidence.
• Acknowledgment that deliverables are works made for hire under U.S. copyright law.
• To the extent that deliverables are not works made for hire, assignment of the deliverables and associated IP rights to the company.
• An obligation to help the company perfect those rights.
• The contractor’s obligation to indemnify the company against third-party claims of IP rights infringement.

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Update: I recently answered a Quora question that suggests additional ways that a company may need more than an NDA to protect IP. (See Can I have an employee sign an NDA and non-compete if I don’t compensate them?) Additional issues discussed in my answer include:

• Paying employees at least minimum wage.
• Work visas for employees who are not US citizens.
• Enforceability of non-compete provisions.

Dana H. Shultz, Attorney at Law  +1 510-547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.