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The Employer’s Guide to IP Ownership: Understanding IP Rights

The only way to secure your company's intellectual property is to create a written agreement that states who owns what. We look at the different types of IP rights and what kinds of agreements can protect them.

Antique typewriter with a piece of paper in it that states, "COPYRIGHT CLAIM"

Pilot Team

Published on July 29, 2022

Ideas hold immense power and value. Every great invention and innovation started as someone’s idea. And it’s in pursuit of these groundbreaking ideas that a company hires creative, forward-thinking individuals to develop new products and innovate on their behalf. When it comes down to it, though, who actually owns these ideas – the employer or the worker? The answer is not as simple as you might think.It’s a common mistake to believe that an employer owns all intellectual property created by their employees and contractors. That’s not always the case. The only way to secure IP ownership is by creating a written agreement that explicitly states who owns what. This written agreement will help your company protect its intellectual property rights and prevent potential lawsuits or infringements in the future.

What is intellectual property?

Intellectual property (IP) refers to any intangible assets that are created and owned by a company or person.According to the World Intellectual Property Organization, intellectual property refers to all “creations of the mind,” including literary works, art, inventions, symbols, images, names, and logos. These creations are described as intellectual property specifically to protect them from unauthorized use by others.Your company invests a lot of time, effort, and brainpower into creating unique ideas that give you a competitive advantage. Nowadays, entire businesses can be built on these ideas alone, without physical assets. But ideas can be stolen, so it’s important to safeguard your intellectual property just as strongly as you would your physical assets, if not more strongly.

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What are intellectual property rights?

Intellectual property rights are rights that prove a holder owns certain intangible assets and can use them exclusively. IP rights prevent others from copying or claiming ownership of your work.There are four main types of IP rights: trademarks, patents, copyrights, and trade secrets. Each of these is used to grant exclusive rights and protect a specific type of intellectual property from being reproduced or used by others without permission.

Trademarks

A trademark protects IP used by a company for branding purposes to distinguish its product or service. This can include names, slogans, logos, fonts, words, sounds, and colors.Examples: McDonald’s catchphrase “I’m lovin’ it” or the Apple logoHow to register: Apply with the US Patent and Trademark Office.How long it lasts: 10 years. However, you must file a Declaration of Use between the fifth and sixth anniversary of your trademark registration date. You must also file an Application for Renewal by the tenth anniversary and every 10 years after that.

Patents

A patent grants exclusive ownership rights for an original invention, such as a process, design, or machine. The three types of patents are utility, design, and plant. However, US patent protection only extends throughout the United States. If you want patent protection in another country, you’ll have to apply for a patent with that country’s local government.Examples: The electric lightbulb, high-speed MAGLEV transportation, and Bluetooth pairing technologyHow to register: Apply with the US Patent and Trademark Office.How long it lasts: 15 to 20 years from the date granted, depending on the type of patent. You must pay fees periodically to maintain your patent.

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Copyrights

A copyright protects a creative work or form of expression, also known as an original work of authorship. This could include songs, choreography, poems, films, TV shows, visual art, books, and software.Examples: Photographs, song lyrics, and moviesHow to register: Apply with the US Copyright Office.How long it lasts: Generally, for the life of the author plus 70 years. For anonymous or pseudonymous works or works made for hire, 95 years from first publication or 120 years since creation – whichever expires first. Once its copyright expires, the creative work enters the public domain and is free to use and reproduce or repurpose.

Trade secrets

A trade secret is any kind of confidential, proprietary information or know-how that gives a business a competitive edge. This information must be unknown to others and have commercial value because of its secrecy. Think of trade secrets as your company’s “secret sauce,” something unknown to the public that makes your company better than the rest.Examples: Coca-Cola’s recipe, Google’s search engine algorithm, and WD-40’s formulaHow to register: Unlike trademarks, patents, and copyrights, you don’t register your trade secrets with the government. You have to protect your trade secrets on your own, usually through nondisclosure or confidentiality agreements.How long it lasts: Indefinitely, as long as you keep enforcing protection of your trade secrets.

Determining IP ownership in the workplace

Once you understand what types of IP rights are available to you, the next step is to determine who actually owns those rights. IP ownership is determined by written agreements that clearly state the terms and conditions of who actually owns the intellectual property created.

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Establish if work was created by an employee within the course of employment

Generally speaking, any work created by an employee within the course or scope of their employment belongs to their employer. However, it can be difficult to define this scope, especially with remote work blurring the lines of when and where work happens. Without a clearly defined agreement, an employee could walk away from your company with rights to the IP they created while working for you.As Thomson Reuters states, “If the employee was hired to create intellectual property as part of their job, the employer will be the owner of the intellectual property. Thus, examination of the written employment contract and the duties described therein can be determinative of the ownership inquiry.”Define exactly what counts as work created during the scope of employment and include these provisions in your employment contracts. For example, code written by one of your full-time developers specifically for your product should become the company’s exclusive property. This scope of employment should include any work created in fulfillment of an employee’s responsibilities or tasks related to their job. You may also state that your company owns any intellectual property created and stored on company assets, e.g., online storage drives, company-issued devices, and email accounts.

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The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

Clarify whether contractors retain their IP rights

Employees are bound by the terms of their employment agreements, but independent contractors often legally retain more freedom and ownership over their ideas. According to US copyright law, the employer is considered the author of a work made for hire unless a written agreement says otherwise. However, the law defines a “work made for hire” as either:
  • A work prepared by an employee within the scope of their employment, or
  • A commissioned work that falls into one of nine categories:
  • a contribution to a collective work
  • part of a motion picture or other audiovisual work
  • a translation
  • a supplementary work
  • a compilation
  • an instructional text
  • a test
  • answer material for a test
  • an atlas
Basically, if a contractor creates something for your company that falls outside of these nine types, they retain the copyright for that piece – unless they’ve signed a contract that states otherwise.When working with nonemployees, include clauses in your contracts that define your commissioned work specifically as work made for hire. This will grant you IP rights to work created by a contractor as if it were created by one of your employees. Additionally, consider requesting the contractor to assign or transfer IP rights to their work to your company through your employment agreement.

How to protect your IP rights

When working with contractors or employees, it’s important to determine IP ownership from the very beginning before any work is even done. Without having clearly defined agreements in place, you can very easily lose control of your company’s intellectual property.

Secure rights through IP ownership and IP transfer clauses

Make sure that your employment agreements clarify who owns IP rights at all stages. It’s commonplace for many employers to include an intellectual property ownership clause, invention assignment agreement, or an IP transfer clause in their employment agreements. These clauses help protect your company and minimize confusion around ownership.A basic IP ownership clause states that any intellectual property created by an employee or contractor in the scope of their employment will belong to the company. There are additional elements you can include in your contracts to secure your IP rights even further.An invention assignment agreement signs over the IP rights to any inventions created by an employee or contractor during their employment with the business. “Assign,” in this case, means to legally transfer ownership over intellectual property, including any trademarks, patents, and copyrights. Signing an invention assignment agreement ensures that a worker can’t leave your company and later claim ownership over something they created while employed there.Similarly, an IP transfer agreement simply transfers ownership of intellectual property from one party to another. For international contractors and employees, they often have to transfer ownership to a local subsidiary in their country that can then transfer those rights to your employment partners or to your company.

Protect trade secrets through NDAs

The more employees and contractors your business works with, the more likely it is that your trade secrets will be leaked. Nondisclosure agreements (or NDAs) help protect these trade secrets and prevent any leaks from ever happening.A nondisclosure agreement legally binds anyone to secrecy who’s privy to company trade secrets or confidential information, like customer data. NDAs ensure that contractors or workers who have access to this info can’t misuse it or share it with parties outside of the company. An NDA can bind parties indefinitely, even after they end their work relationship with your company.

Keep contracts compliant with local laws

Not all countries, or even all states, have the same legal protections regarding intellectual property rights. When drafting your contracts and agreements, make sure that any IP ownership and IP transfer clauses are compliant with local laws.In California, invention assignment agreements are governed slightly differently than under federal law. California law spells out several situations where an employee’s invention can’t be assigned to their employer, including:
  • Inventions “developed entirely on [the employee’s own time and]  without using the employer’s equipment, supplies, facilities, or trade secret information”
Additionally, if you require employees to sign an invention assignment agreement, you must also provide a written notification to them that explains this part of the California Labor Code.Intellectual property laws vary widely by country. For example, under Dutch law, an employee has the right to apply for patents for inventions they create while employed by a company. If their company claims the patent instead, the employee could be entitled to receive compensation for their invention. Because of these nuances, it’s best to seek legal advice on IP and employment law to avoid complications. Consult lawyers who are well versed in the local regulations of any states and countries where you hire workers.

Keep your company’s intellectual property secure with Pilot

The “intellectual” in intellectual property doesn’t mean it has to cause a headache. Pilot includes built-in intellectual property protection in every employment contract so that your company’s IP remains secure with every hire you make.We also simplify IP transfer across borders with our streamlined direct IP transfer feature, which offers two-step IP assignments for employees hired through Pilot. Consult our legal team to ensure that your employment contracts are 100% compliant with any local, federal, or international laws.Sign up for a free demo today to find out why Pilot is the easiest, most secure way to hire and pay workers in over 240 countries.

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