Inventions Assignment Agreements

So, the big day is here. You are sitting across the table from Google or Facebook or Microsoft or someone equally rich and fab.   They want to acquire your company and make all your dreams come true. (Well, at least those involving money. They probably cannot do much for Israel’s chances in the World Cup). And then their lawyer asks “so, you signed off all of your employees, contractors and other partners on Inventions Assignment Agreements, right?” And you say “whaaa…???”

What is assignment

To “assign” ownership of something is transfer the ownership of that thing to someone else.  For example, when you sell a car or a house, you generally have to submit official paperwork to transfer, or assign, the title or deed to the purchaser in order for the sale to be final and the property to officially belong to the purchaser. You can also assign certain rights or benefits in an asset to someone else.  When you take out a bank loan, your bank may require that you give, or assign, it rights in the item you are buying with the money you borrowed.  This is why the bank holds onto your car title, even though you have use of the car.

One can also assign ownership, rights or benefits in intellectual property.  If you have an employee or contractor sign off on an Inventions Assignment Agreement, this officially transfers to your company any rights they might have in any intellectual property which they develop in the course of their work with the company.  That is, assuming all of these agreements are drafted correctly! But more on that later.

Why this is necessary

On the face of things, this makes no sense. Why on earth do you need an employee or subcontractor to give you something that should be yours to begin with? You are paying them to do the work, right? If you owned a factory, and the employee worked on the assembly line producing hammers, you wouldn’t need them to sign off on some piece of paper that “I confirm that the hammers all belong to my employer”.  Of course the hammers would all belong to you!  If an employee walked off with one, you could charge him with stealing.

Exactly! So, again, why is this necessary?

The problem is that, when it comes to intellectual property, things are not as black and white.  The law is neither 100% clear nor 100% consistent as to who owns intellectual property developed as part of employment or an subcontractor engagement.  (And this is before we get to the fact that the rules vary from country to country and, in the US, from state to state). Furthermore, and as opposed to hammers, when it comes to intellectual property, the stakes can be incredibly high.  Everyone has a really strong incentive to push this particular envelope.

As a result, every so often, there will be a story in the news about lawsuits between Big Company and a former employee, subcontractor or partner in which one is suing the other for compensation for intellectual property, for the right to use intellectual property, to stop someone from using intellectual property and …you get the idea.  You can see some examples involving Amazon, Waze and Amazon (again).

Okay, but what does this have to do with me? 

What this all boils down to is, when that lawyer asked you about Inventions Assignment Agreements, they were really asking you: are you really and truly sure that the company owns all of this stuff—patents and processes and inventions and code and inventions—and can sell it to us? Or is former R&D employee Galit, who wrote most of your code, or your former co-founder, who was responsible for the first patent but then left the company to live in a yurt somewhere, going to come back with a lawsuit the moment this deal hits the press?

Got it. Okay, so what do I do? 

In order for the answer to be “yes, we own it” and “no, they aren’t going to sue”, you will want to make sure that EVERYBODY—company founders (that includes you), employees, service providers and partners— (1) has been signed off on Invention Assignment Agreements; (2) that this is done as part of the initial employment, subcontractor, partnership or founders agreement, that is, before they (or you) start to work for/with the company (so make sure the signatures are dated) and (3) the agreement is appropriate.  Appropriate means that the agreement is correctly drafted and takes into account the relevant local laws and court rulings regarding intellectual property, contracts and employment, as well as your company’s industry and what your company will be doing and has done in the past.

Yeah, I know this article is long, but please read this paragraph too!

I asked Sharon Herman Herzoni (who specializes in intellectual property law) to review this article. She sent me back two paragraphs of instructions of pointers you absolutely had to include in the agreement and /or absolutely had to keep in mind as, depending on the country/ industry/ person/ etc., it might be needed.  Honestly, it’s a lot, and a bit intimidating, so I’m just going to sum it up for you. As follows: for the love of all that is holy, please do not just find some free template online and then use it for all of your employees, all over the world. Go to your legal counsel, tell them what you are doing, where you are doing it and anything else they need to know (information helps here).  Have a conversation! They will draft a template and will give you instructions for filling it out.  Then, any time you sign someone off, hold onto the signed agreement and file it so you can find it when needed.