The clause is intended to protect a company's intellectual property rights in all works created or developed by an employee while employed by the company. The clause achieves that protection by employee's assignment of all its rights in such works. The assignment is perpetual.
2.1. Scope of Included Inventions
Included Inventions. The term "Inventions" means all original works of authorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, that Employee may individually or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice:
(i) during the period of employment with the Company,
(ii) or for a period of [NUMBER OF MONTHS] following the termination of employment for any reason,
(iii) developed using the equipment, supplies, facilities or Confidential Information of the Company,
(iv) result from or are suggested by work performed by me for the Company, or
(v) relate to the business, or to the actual or demonstrably anticipated research or development of the Company.
2.2. Excluded Inventions
Most clauses reference applicable state law; some capture the statutory language in the provision.
Example: I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention that I developed entirely on my own time without using the Company's equipment, supplies, facilities, or trade secret information, except for those inventions that either: (i) relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or (ii) result from any work performed by me for the Company.
See, Section 2870 of the California Labor Code.
2.3. Waiver of Rights
Example: Employee also hereby forever waives and agrees never to assert any rights Employee may have in or with respect to any Inventions even after termination of employment with the Company.
Example: Employee acknowledges and agrees that the decision whether or not to commercialize or market any invention developed by Employee solely or jointly with others is within the Company's sole discretion and for the Company's sole benefit and that no royalty will be due to Employee as a result of the Company's efforts to commercialize or market any such invention.
2.4 Acknowledgement of Rights in Future Inventions
As an alternative to requiring assignment of future inventions
Example: Acknowledgement. Employee recognizes that all inventions, improvements or discoveries relating to the subject matter of employment and made or conceived individually or jointly, within [TIME PERIOD] after termination of employment may have been conceived in significant part while employed by the Company.
2.1 Works for Hire
The standard language lists a number of "works" (Inventions) constituting intellectual property that belong to the company. The Inventions have been made (or made possible) by the employee's efforts, individually or jointly, while working at the company. The clause makes clear that any such Inventions belong solely to the company and not to the employee whose compensation is deemed to be appropriate consideration for his/her involvement in the Inventions. This concept of "works made for hire" is defined in the United States Copyright Act (the "Act") that confers copyright protection (on the company) for that type of work or invention.
The key element of the clause is employee's assignment to the company of all its rights in and to the Inventions made during employment. The clause also ensures that if the company is unaware of a specific item at the time of the assignment, it is nevertheless protected because the employee has agreed not only to fully and promptly disclose the existence of an Invention, but also to hold the its rights to that Invention in trust for the sole benefit of the Company.
Interestingly, or a note of caution, although the definition of Invention intends to be all-inclusive, it would appear that, in order for them to be considered "works made for hire" that the Act protects, two qualifiers have be satisfied. The work needs to be both within the scope, and during the period, of employment with the Company. Arguably, the phrase "within the scope of" could present some difficulties if the employee were to claim that the Invention did not satisfy this particular test.
The alternative language clarifies the company's protection in several ways and removes any doubt as to the beneficiary of the Inventions and commercial activities relating to them:
1. The addition of items in the definition is two-fold. It: (i) specifically takes into account employee's (intangible) knowledge which can be equally or more critical to a company's success as or than a tangible object, and (ii) it recognizes the ubiquitous nature of technology in the workplace.
2. Employee's specific waiver of its right to assert any right in the Inventions at any time (even after employee no longer works at the company) clarifies that the assignment is a perpetual grant to the company.
3. The decision to take any of the Inventions to market resides solely with the company; it is neither required to seek employee's consent nor pay employee any additional compensation or any portion of the revenues or royalties obtained from a commercial venture relating to the Invention.
2.2 Promise to Assign or Assignment by Operation of Law
Assignment clauses contain "a technical drafting trap for the unwary." Justice Breyer dissent in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. (Sup. Ct. June 6, 2011) (http://www.supremecourt.gov/opinions/10pdf/09-1159.pdf) drew a distinction between "agree to assign" and "do hereby assign". The phrase "agree to assign" is interpreted by the Federal Courts as a promise to assign right in the future which requires a subsequent assignment. By contrast, the phase "do hereby assign" is interpreted as a present assignment of future rights. FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1572-73 (Fed. Cir. 1991).
"This language transfers title by operation of law, without the need for any subsequent assignment, at such time as the invention is made and the patent application is filed. Under the FilmTec rule, a subsequent assignment of the invention, as ordinarily occurs during patent prosecution, is invalid where a present assignment of future rights exists." Invention Assignment Following Stanford v. Roche: Implications for Technology Transfer and Government Contracts, Cain, Gervase, Johnson, Liberto, Tuchin, Mintz Levin, June 27‚ 2011.
3.1 Shop Rights
"Employment agreements and assignment provisions may transfer patent rights to the employer. Even in the absence of an express agreement to assign from the employment contract will not preclude the employer as a matter of law from asserting a claim to the employee's invention. See Agawam Co. v. Jordan, 74 U.S. (7 Wall.) 583, 19 L.Ed. 177 (1868). Even in situations where the employee owns the invention, and a resulting patent, the employer may have a "shop right" to the invention, where the employer will have a license to use the invention without paying the employee any additional compensation as royalties. See, Aetna-Standard Engineering Co. v. Rowland, 343 Pa. Super. 64, 71, 493 A.2d 1375 (1985). As an implied license, shop rights allow the employer, and its employees, to use the patented invention. This is a limited right, restricted to a proximate use of the patented invention." Do You Own "Shop Right" to Your Employee's Invention? Pennsylvania Litigation Blog, Posted on October 12, 2009 by Joseph Falcon.
"Employee invention assignment agreements are among the most common agreements that companies have. In spite of their pervasiveness, there are a remarkable number of pitfalls that can be encountered in the agreements when a company needs to rely on them. As just a few examples, does a critically needed assignment agreement actually exist; does it contain potentially critical language that has been blessed by the courts; does it continue to protect a company's current needs after a sale of the company or a change in its operational structure; and does it address choice-of-law uncertainties in connection with the assignment of unpatented trade secrets? These examples of potential pitfalls will be highlighted in this article. They underscore the need to review personnel files periodically to ensure that executed invention assignment agreements actually exist and can be readily located, and to ensure that the agreements continue to create rights and obligations that are necessary to protect the company's current situation and needs." Employee Invention Assignment Agreements: Issues in Getting Them Right, by: David J. Brody, Hamilton, Brook, Smith & Reynolds, PC, Concord, MA, June 2011.
"The Court's holding that the assignment provision was invalid was tied to the specific language used in the agreement. Employers should review existing employment agreements to ensure that any invention assignment provision is crafted to avoid the deficiencies identified in this case. An assignment clause should expressly state that the presumption created by the agreement is rebuttable, establish a procedure by which the employee could rebut the presumption, and clearly state that assignments are limited to the employer's confidential information. While the Court did not state that inclusion of these provisions would render either the assignment requirement or the contractual allocation of the burden of proof enforceable, it is clear that assignment clauses without such limitations will not be enforceable and are probably invalid on their face." Enforceability of Assignment Provisions Against Former Employees: The Impact of Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment, Inc. George C. Best, Foley & Lardner, LLP, 26 May 2009.
See: Determining the Ownerhsip of Employee Inventions in the U.S., by Kenneth J. Rose, The Rose Group, San Diego, California, November 2002.
3.4. Judicial Interpretation of Holdover Clauses
"[M]any pre-invention assignment agreements require employees to assign ownership of their inventions for some time after their employment ends. Of all the provisions in pre-invention assignments, "holdover clauses" are the most legally suspect. The reason employers use such clauses is obvious: They're afraid you'll walk out the door without telling them about an invention you created while employed and later develop and patent it yourself. However, courts don't like such post-employment assignment provisions (also called "holdover clauses") because they can make it impossible for an employee to get a new job. After all, a prospective new employer doesn't want to be subject to lawsuits by a former employer claiming that it owns an invention developed by its ex-employee. To protect employees, courts will enforce holdover clauses only if they are reasonable. To be reasonable, a holdover clause must: (1) be for a limited time—probably no more than six months to one year after employment ends; and (2) apply only to inventions conceived as a result of work done for the former employer. Some courts are even more restrictive and will enforce such clauses only for inventions made using the ex-employer's trade secrets." Pre-Invention Assignment Agreements, www.intellectualpropertylawfirms.com, part of Nolo Press.