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August 31, 2005
Your Employee IP Agreement May Become a Non-Compete
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.
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