Employers often face challenges when employees depart, particularly if the employee was close to developing a new product or formula. In California, while employees are free to quit and work for competitors, the knowledge gained from research and development belongs to the former employer and is not meant to benefit competitors.
One way employers try to prevent former employees from sharing valuable insights with new employers is by requiring them to sign an invention assignment agreement. This agreement assigns any inventions created by the employee during their employment to the employer, covering the period “even after termination of employment.”
Balancing Employee Freedom and Employer Rights in California
Such agreements can, however, impact an employee’s future job prospects. California Business and Professions Code section 16600 expresses a strong public policy favoring competition and voids contracts that restrict a person from practicing their profession. Thus, an invention assignment agreement that effectively prevents an employee from seeking new employment could be deemed unenforceable under this code.
California also recognizes the importance of protecting trade secrets through the California Uniform Trade Secret Act. Therefore, invention assignment clauses can sometimes serve to protect an employer’s trade secrets, creating a tension between California’s public policy favoring competition and the need to safeguard employer trade secrets.
Case Study: Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment Co.
In Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment Co., 2007-5248 (N.D. Cal. May 20, 2009), Applied Materials required its employees to sign an invention assignment agreement that presumed an invention was conceived during employment if it was disclosed or filed in a patent application within one year of the employee’s termination. Based on this presumption, the invention would automatically be assigned to Applied.
The court found the agreement too broad, ruling it unenforceable because it attempted to claim inventions not based on Applied’s trade secrets, confidential information, or those conceived after the employee’s departure. Consequently, the court also held that the agreement was void under Business and Professions Code section 16600 and determined that Applied’s use of this agreement constituted unfair competition under section 17200, which prohibits any unlawful, unfair, or fraudulent business practice.
Key Takeaway
Employers should carefully draft invention assignment agreements to avoid potential conflicts with California’s public policy on employee mobility. Agreements that overreach may not only be unenforceable but could also expose the employer to liability for unfair competition.
For guidance on drafting enforceable invention assignment agreements or to better understand employee rights and trade secret protections, feel free to contact me at (949) 433-0900. As an experienced attorney serving Orange County, Irvine, Los Angeles, San Diego, and surrounding areas, I’m here to help you protect your business interests while staying compliant with California law.