January 8, 2019

Businesses often develop valuable inventions and other trade secrets. Steps should be taken to protect these assets.

What is a trade secret?
A trade secret is any information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

  1. Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
  2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
[Civ. Code § 3426.1(d).]

Who owns the invention – the employer or the employee?
The general rule is that a trade secret created by an employee will be the property of the employer if the employee was hired especially to do research of the type that lead to the creation of the trade secret.  Further, all the creations and designs of such an employee that relate to the employer’s current or anticipated business – even if done by the employee at home on the employee’s own time – belong to the employer.  [Daniel Orifice Fitting Co. v. Whalen (1962) 198 Cal.App.2d 791, 797 – 798; Chin, et al., Cal. Prac. Guide Employment Litigation (The Rutter Group 2018) ¶ 14:151.]

However, persons employed to render services of a noninventive nature (i.e., their primary job function is not to create or design new products) do not lose the rights to inventions they make during employment, even if the employment furnished them with the opportunity for conception of the idea and the invention is an improvement upon a device or process used by the employer.  [Rigging Int’l Maint. Co. v. Gwin (1982) 128 Cal.App.3d 594, 614; Chin, et al., Cal. Prac. Guide Employment Litigation (The Rutter Group 2018) ¶ 14:152.]

What should employers do to make absolutely sure they have ownership of their inventions and other trade secrets?
Employers should address trade secret ownership and confidentiality issues at all stages of the employment relationship.  This includes during the interview process, during employment, and at time of termination.  Trade secret issues should certainly be covered in the company’s employee handbook.  Additionally, employers should require employees to sign agreements in advance, assigning to the employer all rights to any inventions or other trade secrets which may be created during the employment relationship.  The agreement should also provide that the employee has a duty not to use or disclose the invention or other trade secret to any third party without prior written permission of the employer.

Employers should note, however, that know-how or general knowledge, skill, or experience acquired or developed by an employee (rather than supplied by the employer) is generally not owned by or assignable to the employer.  Drawing the line between an employee’s general knowledge and skill and the employer’s trade secrets can be difficult, however.

Employers must also be cognizant of California Labor Code section 2870. Under this section, an assignment of rights provision in an employment agreement shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information, except for inventions that either 1) relate at the time of conception to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or 2) result from any work performed by the employee for the employer.  Further, when requesting an employee to sign such an agreement for assignment of inventions, the employer must notify the employee in writing that the agreement does not apply to the inventions listed in Labor Code section 2870.  [Lab. Code § 2872.]

Get help from an experienced attorney!  Because trade secrets laws and employment laws are both very complex, it is crucial that an employer consult a knowledgeable attorney to protect the ownership of its inventions and other trade secrets.

Need more information?
ESKRIDGE LAW may be contacted by phone (310/303-3951), by fax (310/303-3952) or by email (geskridge@eskridgelaw.net).  Please visit our website at eskridge.hv-dev.com.

This article is based on the law as of the date posted at the top of the article.  This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.