Author:James B. Wadley [FNa1]

Kansas Bar Journals

Volume 68.

68 J. Kan. Bar Assn. September, 28 (1999).


Journal of the Kansas Bar AssociationSeptember, 1999PROTECTING INTELLECTUAL PROPERTY RIGHTS IN THE WORKPLACEJames B. Wadley [FNa1]JoLynn M. Brown [FNaa1]

Copyright (c) 1999 Kansas Bar Association; James B. Wadley, JoLynn M. Brown

I. Introduction

As employers and employees work together to make their common venture a success, disputes may arise regarding the ownership of ideas, secrets or inventions that are generated by the employees. These things may be of considerable value to the immediate employment and thus claimed by the employer or they may have a bearing on the future career opportunities of the employee and thus be claimed by the employee.

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The law that is deemed most relevant to resolving these and similar disputes is an area of the law that is not particularly well known to most employers and employees. Indeed, it has been described as the "metaphysics of the law." This area, conventionally known as the law of intellectual property, may be an area laden with unanticipated consequences to those who are not grounded in a basic understanding of its principles.

II Basic intellectual property in the workplace

Intellectual property encompasses a broad range of topics that includes, at the state level, such matters as trade secrets, unfair competition, publicity and trademarks and at the federal level, patents, copyrights and trademarks. These disparate areas are commonly linked in that they relate to the protection of the products of individual creative endeavor. Our legal system is well committed to this protection and has been since the adoption of the Constitution, which includes an express provision authorizing Congress to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." [FN1] Courts have described the philosophy that underscores this area of the law as one of enhancing public access to information. The Supreme Court, in a case that originated in Kansas, opined that "[t]he primary objective of copyright is not to reward the labor of authors, but to 'promote the Progress of Science and useful Arts."' [FN2] To strike a balance between the public's need to know as a predicate for building on that information and any incentive the creator may have to expend time and energy to develop that information, the law rewards the creator with a limited monopoly over the appropriate subject matter. As a result, the law grants patents to inventors, allows authors to claim copyrights, permits merchants to protect trademarks and facilitates the guarding of trade secrets. These protected interests are commonly referred to as proprietary information because the law recognizes in the creator an interest that is given the attributes of, and is protected as, a species of property. [FN3]

Within an employment relationship, the proprietary information of the employment may have considerable value to the whole enterprise. Determining who owns or controls this "property" is sometimes a difficult task unless the parties have assisted in the matter by structuring their employment relationship with these interests in mind. This article is designed to briefly describe the rules that apply to the most troublesome of those interests in order to facilitate the creation of employer and employee relationships that are structured so as to best protect the respective interests of each. Specifically, this article will deal with the question of allocation of ownership rights in trade secrets that are created by employees and with the allocation of ownership rights between employers and employees in employee-generated patents and copyrightable works.

III. Unpatented inventions: Trade secrets

Unpatented inventions tend to be treated within business enterprises as trade secrets. These secrets, properly created and protected, are entitled to a fair amount of protection by the law. [FN4] Whether something qualifies as a trade secret turns largely on whether it satisfies the law's requirements. In Kansas, this matter is governed by state, rather than federal law. [FN5] According to the Kansas version of the Uniform Trade Secret Act, a "trade secret" can be any information that derives "independent economic value, actual or potential, from not being generally known" to those who might obtain economic value from its disclosure or use. [FN6] Since the actual information that comprises trade secrets will be unknown outside of the company, the law can, at best, only seek to vindicate the efforts of the secret holder to maintain that secrecy. As a result, the law requires that the secret holder take reasonable steps to ensure the secrecy of the information. [FN7] This often results in the creation of confidential relationships in which the trade secret can be transmitted within the business to those who need access to it but which ensure that the secret will not be disclosed to others. In addition, the law proscribes unlawful discovery of trade secrets through such improper means as "theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means." [FN8] Finally, the employer and employee may enter into agreements regarding the extent to which the employee may engage in any directly competitive enterprise upon the termination of the employment, thereby limiting the extent to which the employee can use the trade secrets of the employer in later employments of the employee. [FN9] These agreements are enforced to the extent they are considered reasonable and do not unreasonably interfere with the ability of the employee to practice his or her profession. [FN10] These background areas of the law are rather well developed and are much discussed in the cases [FN11] and legal literature in Kansas. [FN12]

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What is not as clear is the matter of who owns trade secrets that are developed by employees on company time or with company resources. The general common law rule regarding ownership has been laid down in cases elsewhere and Courts here will most likely need to look to those decisions for guidance. [FN13]

The common law rules will typically result in employer ownership of the developments of innovative employees where the employee has been charged with performing a specific task or has been given specific responsibility that results in the discovery of whatever is claimed to constitute a trade secret within the business. [FN14] In cases so holding, the rationale has generally been that the employees have made an implied assignment of their discoveries to the employer as part of the employment relationship itself. [FN15] Determining whether a task has been assigned with sufficient specificity to ensure that the ownership of the secrets will remain in the employer is somewhat uncertain, as the outcome in many cases has turned on specific facts. For example, in one case, the employee's obligation to assign the rights to the employer depended at least in part on a history of assigning those kinds of things to the employer. [FN16]

On the other hand, where the development is unrelated to the assigned tasks or purposes of the employment, or where the employee is unsupervised in carrying out tasks that depend primarily on prior skills the employee has brought to the employment, the employee will usually be entitled to claim ownership of the secret even though it may have been developed within the time and space of the employment. [FN17]

Where the employee is deemed to own the secret, courts have permitted the employee to use, manufacture and market the employee's development, including licensing it even to competitors. [FN18]

In most cases where the employee is deemed to own the secret, employers will generally not be left entirely unprotected. Courts have often held that the employer will be entitled to claim a "shop right" in the trade secrets developed by employees that relate to the employer's business, especially where the trade secret was developed using the employer's time, facilities, personnel, materials, money or other resources. [FN19] A "shop right" is typically described as a royalty-free, irrevocable, nonexclusive, non-assignable right to use the secret.

In addition, valid non-disclosure contracts may limit employees who own the secrets from disclosing those secrets to others. [FN20] This will enable the employer to make, use and sell devices that embody the employee's invention even after the end of the employment.

Employers may wish to anticipate these difficulties and address these concerns in the employment contract. An express agreement in advance by the employee to assign rights in secret discoveries has the advantage of avoiding the uncertainties of the common law. These agreements are to be enforced so long as they pertain to matter that has some reasonable relationship to the employer's business, do not extend protection beyond that which the employer reasonably requires, do not prevent the employee from seeking other employment and do not adversely impact on the public. [FN21] On the other hand, for the employee, such agreements may have the effect of granting to the employer more rights than the common law would grant and therefore might be wisely resisted by employees, if the agreement appears to be...

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