Human Resources » Keeping Valuable IP When a Key Employee Jumps To a Competitor

Keeping Valuable IP When a Key Employee Jumps To a Competitor

By Jeffrey D. Morton, April M. Wurster, Brandon Buck and Kevin M. Brown

Keeping Valuable IP When a Key Employee Jumps To a Competitor

Jeffrey D. Morton, Ph.D. is a partner in the San Diego office of Snell & Wilmer. He is the chair of the firm’s Life Sciences and Medical Technology Industry Group and serves as co-chair of its Technology Industry Group.

April M. Wurster is counsel in the San Diego office of Snell & Wilmer. She focuses her practice in intellectual property and life science.

Kevin M. Brown is an associate in the San Diego office of Snell & Wilmer. He focuses primarily on employment law.

Brandon Buck is a law clerk in the San Diego office of Snell & Wilmer.

January 24, 2022

What steps can a general counsel take to ensure that valuable intellectual property stays with the company when a key employee departs for a competitor? This issue was recently dealt with in Bio-Rad Labs., Inc. v. ITC (Fed. Cir. 2021). The court ruled that the employee’s ideas did not turn into a patentable invention until after the employee left Bio-Rad. Since the Bio-Rad employment agreement had limited its assignment obligations to inventions conceived during the term of employment, the court ruled the inventions were not owned by Bio-Rad. 

The Bio-Rad decision suggests two steps that a general counsel can take to ensure valuable intellectual property isn’t transferred to an employee’s new employer: Convert the ideas into patentable inventions, and have a robust Confidential Information and Inventions Assignment Agreement (CIIAA).

In Bio-Rad, the court refused to compel assignment to the former employer, in part because the “ideas” developed did not raise to the level of a “patentable conception” and were insufficient to trigger assignment. In practical terms, the distinction between an idea and a patentable conception is not clear. But what is clear, based on Bio-Rad, is that employers can try to convert departing employees’ ideas into patentable conceptions based on at least the following: (1) Have departing employees complete an invention disclosure form; (2) have departing employees update a trade secret registry; and (3) file a provisional or non-provisional utility patent application. 

Each of these methods requires departing employees to disclose, in writing, the ideas they have been developing. This documentation itself may be enough to demonstrate the conception of a patentable invention, and the brainstorming forced by documenting the ideas may help develop the idea to the point that it satisfies the “conception” requirement of invention. Having others, besides the departing employee, participate in the documentation process can help flesh out the idea, document implementation of the idea and future development ideas, and further secure an employer’s rights in the invention by having other employees listed as inventors. 

Additionally, in another recent Federal Circuit case, Dana-Farber Cancer Institute v. Ono Pharm. Co. (Fed. Cir. 2020), the court ruled that partial contributions by a researcher that eventually led to a patentable invention was enough to support joint inventorship. Thus, the more a company can document partial contribution, the more likely it will be considered a joint owner of a patent filed by a departing employee’s new employer. 

Based on Bio-Rad, general counsel should consider modifying CIIAA language to:

  1. Capture “ideas.” It is generally a best practice that CIIAA language assign ideas, not just inventions. 
  2. Assign inventions that use the employer’s confidential/trade secret information. In many situations, it is a best practice that CIIAA language assigns innovations that are conceived with the use of the employer’s confidential/trade secret information post-employment. This is another good reason to create a trade secret registry. 
  3. Address post-employment inventions. The Bio-Rad employment agreement was explicitly limited to the term of employment. This suggests that the language of the CIIAA could be changed from “during the period of my employment” to “as a consequence of employment” or “as a consequence of my access to confidential and/or trade secret information” to limit the likelihood that an employee takes an invention to her or his new employer. Some courts are more likely to enforce an employment agreement that captures future inventions if the restrictive covenant is limited in duration and scope — and focused on protecting the company’s narrowly defined confidential and/or trade secret information — rather than limiting the former employee’s ability to work. To help deal with this, a company can limit the duration of post-employment assignment obligations and narrowly define (and take active steps to protect) confidential and/or trade secret information.

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