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For a corporation, few legal questions can be as important as “who owns the rights to intellectual property created on behalf of the corporation”? The laws that govern the ownership of intellectual property are often vague and unpredictable, and vary by state. Below is an overview of these laws in the patent context, and some recommendations in light of their contours.

Under the patent laws (Title 35 U.S. Code), an inventor may obtain a patent for any new and useful process, machine or composition of matter, or any new and useful improvement thereof. Patents provide the most predictable and dependable form of protection for such ideas.

Generally, absent an assignment agreement, courts presume that an individual owns the patent rights to his or her invention even though the invention was conceived or reduced to practice during the course of employment. For this reason, savvy companies typically require their employees or independent contractors to sign invention assignment agreements. Note, however, that some states, such as California, Minnesota, North Carolina and Washington, statutorily limit the assignee’s ability to dictate the terms of the assignment agreement. Other states, including Connecticut, limit invention assignment contracts for only certain state employees.

Even without an assignment agreement, however, an employer may be able to claim rights to the patentable idea, whether or not already patented, of an employee or contractor. First, under the so-called “hired to invent” doctrine, “employers may still claim an employee’s inventive work where the employer specifically hires or directs the employee to exercise inventive faculties.” Under state law principles of implied-in-fact contracts, courts reason that when employment focuses on invention, employees or contractors need not own the patent because they have already received full compensation for their work. Absent an express assignment agreement, courts will look to the scope and nature of the employment relationship and the conduct of the parties to determine whether an implied contract to assign an invention exists.

Second, courts may imply an assignment from an inventor-employee to his or her employer based on their fiduciary relationship. Essentially, this rule is based on the state law of fiduciary duty that certain employees, typically corporate officers and directors, owe to the corporation not to compete with, or usurp opportunities of, the corporation. Whether an inventor owes a fiduciary duty to the corporation to assign a patent generally turns on two key issues. First, the more authority and control an inventor has over the corporation, the more likely a court is to find a fiduciary duty. Second, courts require assignment of patents only for those inventions that somehow relate to the company’s interests. The state courts, however, use vastly different tests to determine whether a patent “relates” to a company’s interests.

Last, even when a company cannot obtain ownership rights through these legal doctrines, it may still have a non-transferable “shop right” in the patent. A shop right is “a right that is created at common law, when the circumstances demand it, under the principles of equity and fairness,” entitling an employer to non-exclusive use of the patented invention developed by its employee. McElmurry v. Arkansas Power & Light Co., 995 F2d 1576 (Fed. Cir. 1993). Generally, if an inventor either used his employer’s resources in creating the invention, or led his employer to expect a royalty-free use, then his employer may be entitled to “shop rights.”

As a matter of course, corporations should take extensive measures to protect their intellectual property. Employers should periodically review their assignment contracts to assure their assignment interests are consistent with their changing business needs and the ever-changing statutory and common law. Buyers of companies must, as a part of their due diligence, review the assignment and employment agreements of their targets.

Most importantly, however, to avoid subjecting valuable intellectual property rights to the vagaries of unpredictable common law and statutory principles, a company should require employees and contractors to assign all the ideas, inventions, copyrights and trademarks that relate to its business (or anticipated business) as a condition of employment or contracting. Such assignments can protect a company far beyond the default protections contemplated by statutory and common law. Depending on its particular corporate needs, a corporation may also find it desirable to: require immediate disclosure of inventions and discoveries conceived by employees or contractors; protect against post-employment competition with a non-competition clause; require assignment of some inventions created before employment; and provide for a post-employment “maturation” period during which time a former employee must continue to assign all his or her ideas and inventions, to include inventions conceived during employment but reduced to practice afterwards.

Invention and idea assignment contracts will not inoculate employers from intellectual property ownership disputes with former employees and independent contractors. The use of a contract, however, provides an employer with a degree of predictability, and can reduce disputes to relatively straightforward issues of contract interpretation.