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Hiring employees and contractors in the United States

Disclaimer: The information provided in this factsheet is meant as an educational resource only and should not be construed as legal advice.

  1. A common misassumption when it comes to Intellectual Property (IP) rights is that if you pay for the research and development, your company will own the IP, but it is not necessarily that straightforward. It is imperative to have IP assignment and ownership clauses within your employee contracts to ensure that there can be no doubts about ownership.
  2. When hiring students, graduate students, or university professors there may university specific IP ownership considerations. Each university will likely have different IP ownership rules (and it may also vary per position, i.e., student vs. professor); therefore, it is crucial to verify the specific university’s licensing rules and to negotiate an assignment prior to engaging.
  3. Contract considerations should extend beyond just employees and with similar care being taken with founders. This will help mitigate risk if one of the founders becomes disgruntled and leaves.
  4. Inventorship is a very important concept and inventorship rights are protected/enforced by most patent offices. A contributor’s name cannot be removed from a patent application because they are not cooperating (this can lead to the patent being invalidated), making obtaining a back-up plan imperative.
  5. Contractual clauses in agreements should be worded such that they can be used at the patent office in lieu of a signature to mitigate risk in cases where someone may refuse to sign future IP related documents. Examples of clauses that could be included are:
    • Assignment to the company of IP rights (including a comprehensive definition of what constitutes IP).
    • Obligations survive and remain in effect with role change or after leaving company for whatever reason.
    • The employee agreement can be used as a substitute power of attorney. 
  6. To ensure maximum value for the company’s assets, it is best practice to include clauses relating to the right to reassign the IP. This will protect/transfer appropriate ownership rights in the event of a spin-off company, merger, or acquisition, allowing the property chain of title to be maintained.

    Example 1: Company A included IP ownership clauses in their employee agreement. The IP ownership clauses were explicit in IP type definition and the ability to be used as a substitute. When an employee left and refused to cooperate in signing formal documents, the employee agreement could be used in a statement of lieu allowing Company A to maintain rights at the Patent and Trademark Office.

  7. As the modern work world is no longer 9-5 for knowledge workers, intellectual property may be developed at any time. Therefore, clarification on processes and ownership of IP created on company vs. own time, especially when it is the same technical area, are vital.

    Example 2: ABC Company has developed and launched an app with proprietary code and technology to track, monitor and report on users’ fitness progress. Employee A is the inventor/programmer of the app. After speaking with her manager, Employee A has created a virtual wine tasting business with no conflicting IP concerns. If she had been working on something in the same technical field, such as a heart monitoring app, ownership rules would have been less clear-cut.

  8. IP rights are not limited to just IP/patent ownership. There are many other important components relating to IP that need to be addressed in an employment agreement including strong Non-Disclosure Agreements which should cover trade secrets and other business sensitive information.
  9. Given what is at stake, employment agreements should be drafted and reviewed by an employment lawyer in the jurisdiction in which it applies. Ideally from a law firm that also has expertise in IP.

Key considerations for Canadian companies regarding employment contracts and IP ownership:

Additional information:

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