The second milestone for a startup is the hiring of the first employee. At this stage, the startup should think strategically about the following issues: (1) protection of the current IP of the startup, and (2) IP considerations related to bringing on a new employee. As new employees join the company, more individuals are exposed to the startup’s IP. As a result, there is greater exposure for the startup with respect to public disclosure of IP and/or theft of IP. In addition, adding new employees from a competitor may bring unwanted attention from the competitor. Accordingly, steps should be taken to mitigate potential risks (typically legal risks) from such competitors.
The above issues are typically addressed in the form of an employment agreement. All new employees should execute an employment agreement before they start working for the startup and, preferably, before any confidential material is shared with the new employee.
To address the above issues, startups should endeavor to address/include the following in their employment agreements:
(1) Confidentiality clause – This clause obligates the employee to maintain the confidentiality of information that the startup discloses to the employee. The confidentiality clause may also obligate the employee to restrict access to the startup’s confidential information on a reasonable “need to know” basis.
(2) Ownership of IP created by employee during course of employment at startup – The employment agreement should clearly indicate that the IP generated by the employee is owned by the startup.
(3) Duties of employee with respect to IP – This clause obligates the employee to assign to the startup any new IP generated by the employee, and obligates the employee to assist (including executing of the necessary documents) the startup in obtaining IP.
(4) Actions taken if employee is terminated – This clause obligates the employee to return to the startup all employee-generated work product, confidential information, and equipment provided by the startup, upon the termination of employment.
(5) Non-compete clause – This clause includes appropriate non-compete provisions. Although the enforceability of these provisions may vary by state, such provisions may restrict the ability of the employee to compete with the startup at a future job and/or may address any non-compete issues with the employee’s previous employer.
(6) IP that employee generated prior to joining the startup – This section allows the employee to delineate any IP that the employee created before beginning employment at the startup that the employee is asserting he or she owns. This section is intended to give the startup and the employee a clear understanding of what IP the employee owns and what IP the startup owns in order to prevent future ownership disputes of such IP.
This blog entry was co-authored by Kelly McKinney, Patent Attorney, and Aly Z. Dossa, Partner at Osha Liang LLP. This blog entry does not constitute legal advice and only represents the views of the authors.