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August 31, 2005

Your Employee IP Agreement May Become a Non-Compete

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Posted by Alan Wexelblat

Most of us, particularly in the high tech biz, sign agreements regarding intellectual property with our employers. Simple versions of these agreements state that whatever the employee develops that is related to the company's business is assumed to be company IP. More restrictive agreements may lay claim to anything developed on company time or equipment. Since this includes email discussions, such a clause can be far-reaching.

Now, according to Ed Frauenheim on CNET, Microsoft is advancing a theory in its fight with Google over Kai-Fu Lee that could give these IP agreements - even lenient ones - the force of non-compete agreements. The argument, which MSFT didn't invent but is using, is called "inevitable disclosure." The basic idea is that you can't avoid spilling some of what you know in your job, and that's going to mean that IP you agreed was the property of a former employer gets illegally transferred to the new employer. If you accept the argument that this is inevitable then you may also find yourself accepting the argument that the employee should not be allowed to work for the competitor because doing so would always result in impermissable IP transfer. Thus, the IP agreement becomes a non-compete.

In the high-tech business - which is rife with job-hopping, IP agreements, and a rapidly changing competitive landscape - this doctrine could be dangerous if it became widely accepted. The CNET story reports that California courts have rejected the doctrine but that it has been "upheld" in Federal court.

CA's rejection came in Schlage Lock Company v. Whyte and according to that Findlaw article, the relevant Federal case is PepsiCo., Inc. v. Redmond (7th Cir. 1995). In the PepsicCo case, the allegation was upheld that Mr. Redmond had access to relevant competitive trade secrets; in the Google case, Mr. Lee is claiming that he didn't have access to MSFT's search secrets. He and Google may prevail on those grounds; however, prevailing at trial is a far cry from not getting sued in the first place, which is how things ought to be, absent specific evidence of wrongdoing.

Comments (5) + TrackBacks (0) | Category: Laws and Regulations


1. SFix on August 31, 2005 1:09 PM writes...

Using the theory of "inevitable disclosure" doesn't make worker's IP contracts into non-compete agreements, it makes their IP contracts into "never work again in your life for anyone" agreements.

Since IP contracts are not just about trades secrets and because IP is supposed to have value on its own and not just to competitors, "inevitable disclosure" is an extremely broad brush which can't distinguish between disclosure to a competitor and disclosure to a non-competitor.

We need a federal right to work law that prohibits non-compete agreements for employees who make less than $500,000 per year.

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2. KirbyMeister on September 2, 2005 1:03 PM writes...

Why TF do we have trade secrets in the first place? It's just an excuse to allow companies have all the rights of a patent without having to disclose or relinquish rights on whatever they are guarding.

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3. Brad Hutchings on September 3, 2005 4:13 PM writes...

I would anyone who is asked to sign a non-compete or an IP agreement as part of employment to consult with a lawyer before signing the agreement. In California, for example, for a non-compete to be binding, the employer has to offer something in exchange. ESOPs and health insurance don't count either ;-). On top of that, if you're fired or treated differently for asking that you have time to discuss these documents with an employment attorney, you have a slam-dunk claim. But these documents are mostly intimidation documents. Actually trying to enforce is quite costly for an employer, so they must really have something to protect or must really be pissed off. The lawyers and officers and relevant managers of a company know full well the limitations of scope of these agreements, have been on both sides of the argument, and use them simply to intimidate.

The advice I give my friends now who are faced with these documents but don't want to rock any boats or get off on the wrong foot (the key to this intimidation play, BTW) is simply to tell the HR person that the company has devoted legal resources to crafting these documents, and so s/he needs time to get legal advice to understand them. And to be careful about accepting signing bonuses as compensation for signing a non-compete. Also, careful about valuing the non-compete. If the term is 1 year post-employment, and your interest/skill set is very specialized, the value of that 1 year on the sidelines quickly approaches 1 years salary, which is 5x - 10x what anyone will offer as a signing bonus!! Employee beware!!

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4. Nate L on September 5, 2005 8:28 AM writes...

My thoughts: I have had in the past 8 years two job offers from a Big Washington State software company. (Guess who?) Part of my possible agreement was that I did not work in the job field (software/harware) for 10 years after I left the company. Both times I needed a job bad. They wanted to to fill a software analyst position. They would not change any part of the agreement. Both times I turned them down. They were very suprised both times. I will not sign my life away.

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5. John Annate on September 6, 2005 3:00 PM writes...

This is very dependent upon the country you are in - it's not just what's in the contract, but also the national laws which determine these rights. You can check this out further at for example on their online IP tutor, or in the IP Guide, E.g.



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