Guarding your valuables Featured

8:00pm EDT April 25, 2009

When you hire employees, you want to assume they are protecting your intellectual property and not sharing confidential information with competitors or creating items for other companies while employed by you. But that’s not always the case. Intellectual property is a significant asset, so it’s important to protect it from employees who might be looking to cash in on your trade secrets, patents or copyrights.

“Make sure to clarify in writing that anything your employees create while working for you is vested with your company,” says Clint Crosby, shareholder at Baker, Donelson, Bearman, Caldwell & Berkowitz PC. “Should there be a valuable invention, there might be battles with employees who contend that an idea or invention belongs to them. At the end of the day, you may be victorious, but litigation can last multiple years and costs hundreds of thousands of dollars.”

Smart Business spoke with Crosby about how written agreements can help in protecting your IP, what to do if an employee breaches that agreement and recent lawsuits that have involved IP issues.

How can businesses protect their IP?

The most important thing is to have written agreements with employees. You should have a clear, concise and easily understood written document that both sides can agree to at the inception of the relationship. This will allow both sides to know what the intellectual property is and also define that any invention or idea developed by the employee while working for the company will be company property.

Presuming that the employee will leave your company at some point, you want to have a document that they can refer back to, so that when they decide to go, they understand their obligations concerning IP.

What information should be included in an agreement?

? Define that the IP and confidential information provided to employees when they are hired belongs to the company. You expect them to keep that information in confidence and use it only for work

? Have employees disclose any IP they already own, including patents, copyrights and trademarks. You can better protect yourself and resolve later confusion if the employee defines any IP they own in advance.

? Prohibit employees from using any confidential information or IP they know about from a former employer at your company. This will prevent a later claim that any IP created at the company is derived from another company’s IP or confidential information.

? Employees need to agree to assist the company in registering and protecting any newly created IP.

? Have employees accurately track what they’re creating and what they’re using existing IP for and disclose that information to you.

What should you do if an employee breaches that agreement?

You may need to seek an injunction to get some relief from the court to prevent the employee from continuing to share that information. You also might want to pursue litigation if there are damages that could be awarded to compensate for that loss of information or secret.

You want to define in the employment agreement what the company can do if there is a breach. Both sides then know what can occur, and it will discourage employees from doing something that may violate the agreement.

How can you make sure your trade secrets are protected?

Trade secrets are generally defined as some type of information, product or process that’s not readily known or easily accessible to the public and brings value to the company. You need to demonstrate that it is indeed a secret and that you’re making some effort to keep it confidential — it’s kept under lock and key, there’s some password protection or encryption — in order for it to be protected as a trade secret. You also need to show that it’s not something commonly disclosed throughout the company, just to limited personnel as needed for their work.

Have there been any major cases involving IP issues?

There was a case in 2008 where inventor Carter Bryant came up with the Bratz doll concept while at Mattel Inc. and then moved to competitor MGA Entertainment Inc. MGA developed the product and made a significant amount of revenue from it. The question was: When was this concept invented, and did it fall under Mattel’s IP rights or MGA’s IP rights?

Ultimately, the court found in Mattel’s favor, that Bryant had created Bratz while at Mattel, and awarded Mattel $100 million for the copyright infringement and breach of contract. Mattel also filed a permanent injunction against MGA to stop them from making and selling Bratz and to dispose of all Bratz-related marketing material. The injunction was granted, but enforcement of it has been held until at least the end of 2009 while MGA appeals the decision.

The case highlights the importance of having an agreement in place and having employees clearly document their work. If they’re coming up with new concepts and ideas, you want them maintaining records that show the ideas and dates of creation. If a question comes up down the road, you can hopefully clearly define the date of creation and eliminate the long-term, expensive litigation.

Clint Crosby is a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach him at (678) 406-8702 or