Avoiding Intellectual Property Pitfalls When Hiring High-tech Employees

• Publication year: 1998
• Pages: 85
• Citation: Vol. 27 No. 2 Pg. 85

27 Colo.Law. 85 Colorado Lawyer 1998.

1998, February, Pg. 85. Avoiding Intellectual Property Pitfalls When Hiring High-Tech Employees

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85

Vol. 27, No. 2, Pg. 85

The Colorado Lawyer
February 1998
Vol. 27, No. 2 [Page 85]

Specialty Law Columns
Technology Law and Policy Review
Avoiding Intellectual Property Pitfalls When Hiring High-Tech Employees
by Mark D. Francis

"Intellectual property" presents unique conundrums to high-tech employers, many of whom find the world of patents, trademarks, copyrights, and trade secrets nebulous at best, and often an impenetrable labyrinth. This is due to the intangible and evanescent characteristics of intellectual property, where the outer parameters are often defined by the recesses of an individual's mind and the contours change daily with the flow of previously confidential information into the public domain. Nevertheless, an inadequate understanding of intellectual property's unique characteristics can be a mystifying trap for unwary employers, leading to liability for their own culpable actions and to the permanent loss of what is often a company's most valuable asset, its intellectual property

Because intellectual property law places its own gloss on employment law, clients hiring employees to fill highly technical or senior management positions with employees presently working for competitors must address certain issues if they are to limit their exposure to expensive, if not crippling, litigation. While luring a high profile senior manager away from a competitor may seem like a real coup, it can lead to debilitating consequences if undertaken without due consideration of intellectual property rights. Therefore clients should be counseled to hire employees for what they can do (their skills), rather than for what they may know about their former employers' businesses. Considering the following factors will help clients avoid intellectual property pitfalls when hiring high-tech employees

Obey General Rules Of Employee Hiring

First and foremost, clients must adhere to general hiring rules and avoid individuals who denigrate former employers or promise to bring to the new job valuable information, tangible property, or trade secrets belonging to former employers. Clients may speculate that using such seemingly untraceable information can save considerable research and development costs or greatly enhance their competitive position vis-à-vis competitors. However, use of such information is almost certain to cost dearly in litigation expenses and may impose personal liability on clients (even those acting in a representative capacity as a corporate officer) if former employers sue for patent, copyright or trademark infringement, misappropriation of trade secrets, unfair trade practices, trade libel, or outright defamation.1

Anticipate Noncompete Covenants

In addition to the general rules for hiring, clients should understand that many high-tech companies require employees to execute written covenants prohibiting them from competing with the employer after leaving its employ. Typically, these protect the former employer's trade secrets, among other things, and the value of the former employee's training by preventing employees from joining competitors, or entering into self-employment, and then soliciting the former employer's customers.2

In Colorado, covenants not to compete are, with notable exceptions, statutorily contrary to public policy and void ab initio.3 However, the exceptions for employees in high-tech fields swallow the rule, and, therefore, must be considered by employers. For example, written non-compete covenants are enforceable if they: (1) protect trade secrets from disclosure; (2) are given as consideration; or (3) apply to executives, management personnel, officers, or their staff.4

Former employers or business purchasers may enforce valid covenants, thereby thwarting a client's plans to acquire new employees for positions involving substantially similar job duties.5 Thus, clients must make early inquiries into this area to determine the limitations imposed on the potential employee by valid noncompete contracts. Moreover, clients should consider using employment contracts with their own covenants providing for, among other things, continued ownership of the intellectual property used by employees, and termination clauses permitting clients to terminate the agreement, without penalty, if an employee is precluded from working in the position for which he or she was hired due to enforcement of a valid, but undisclosed, covenant not to compete.

In addition, clients should be particularly careful when they plan to hire previously self-employed candidates, such as website developers or computer programmers who are now seeking employment in a related field and who recently sold stock, limited liability company interests, or partnership interests in a former business. Such voluntary sales, and even involuntary judicially ordered transfers of stock pursuant to divorce decrees, qualify as the sale of a business and may support existing written covenants not to compete.6

If it appears that hiring a candidate may violate an enforceable noncompete agreement, basic contract theories may come to the rescue. For example, written covenants not to compete that do not implicate similar job duties or are unreasonable in terms of duration and geographic limits may be avoided.7 In addition, if executed after the employee began work and if...