Primer on California Proprietary Information and Inventions Agreements

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Primer on California Proprietary Information and Inventions Agreements

For entrepreneurs operating in innovation-driven marketplaces, protection of intellectual property is of foremost concern.  Accordingly, startups should require each employee and independent contractor they engage to enter into a Proprietary Information and Inventions Agreement.  While agreements of this nature go by several different names (e.g., Confidential Information and Inventions Agreement, Confidentiality and Inventions Assignment Agreement, Proprietary Information and Intellectual Property Assignment Agreement), they typically require the contracting employee or contractor to do most, if not all, of the following:

  • Covenant to keep proprietary information confidential.  This provision, which typically includes a lengthy definition of the items constituting “proprietary information,” obligates the employee or contractor to agree—at all times during and following the term of his or her working relationship with the company—not to use or disclose any such proprietary information without the prior written authorization of the company.
  • Assign all inventions to the company.  Under this provision, the employee or contractor irrevocably assigns to the company all of his or her rights, title and interest in and to all “inventions”—a term that typically includes all inventions, improvements, designs, formulas, works of authorship, trade secrets, technology, computer programs, compositions, ideas, processes, techniques, data, and so forth that are made, conceived, reduced to practice or developed by that employee or contractor, alone or with others, during the term of his or her working relationship with the company.  As stressed in a previous Founder Tip,[1] the provision should be worded so as to assign all inventions presently (as opposed to merely agreeing to assign, which a court could interpret as meaning that the assignment has not yet actually occurred but was merely intended to happen at some point in the future).
  • Covenant to return all materials to the company.  This provision requires the employee or contractor to agree that upon leaving the service of the company, he or she will return all documents, media and tangible items that may contain or embody proprietary information or any other information concerning the business, operations or strategic plans of the company.
  • Disclose all inventions.  This provision mandates that the employee or contractor provide the company with a written disclosure of any inventions made prior to the term of service, during the term of service and within a set period following termination (usually six months).  The company agrees to keep the disclosures confidential, and the employee or contractor agrees not to disclose the inventions to anyone without the prior authorization of the company.  This is a very important element of the agreement because a new company’s personnel are often contractors rather than employees—meaning that, absent this provision, inventions they create while working for the company could become the intellectual property of the contractors rather than the intellectual property of the company (since the “work-for-hire” doctrine applies only to the inventions of employees).  The disclosure also requires employees to disclose any inventions they believe qualify for protection under California Labor Code Section 2870, which provides that inventions made on the employee’s own time, without the use of any of the company’s equipment, supplies, facilities or trade secrets, may be the property of the employee.
  • Carve out excepted and preexisting inventions.  Related to the disclosure of inventions, this provision requires the employee or contractor to expressly set forth inventions, improvements, designs, formulas, works of authorship, trade secrets, technology, computer programs, compositions, ideas, processes, techniques, know-how and data—regardless of whether they are patentable—in which the employee or contractor has an ownership interest.  This provision also establishes that if any intellectual property owned by the employee or contractor is used in any company product, then the employee or contractor grants the company a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such prior invention.
  • Covenant not to compete during term of relationship with the company.  This provision bars an employee or contractor from engaging in or assisting any activity that is competitive with the business of the company.  While such provisions are generally enforceable, noncompetition clauses that restrict an employee’s or contractor’s ability to compete post-termination are not enforceable in California.
  • Covenant not to solicit or interfere.  Under this provision and its subparts, the employee or contractor agrees not to solicit the employees or customers of the company or to otherwise interfere with the company’s operations (by raiding vendors, suppliers or business partners or persuading the same to alter their relationship with the company) for a fixed period of time; 12 months is a standard term.

[1] George Colindres, Never Do Tomorrow What You Can Do Today—Make Sure Your Agreements Assign Intellectual Property Presently!, startupPerColator (Nov. 27, 2012), https://www.startuppercolator.com/never-do-tomorrow-what-you-can-do-today-make-sure-your-agreements-assign-intellectual-property-presently/.

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