Departing employees pose a problem for former employers. These employees may have been on the verge of discovering a new patentable product, formula, etc. during employment with the former employer. When they depart, the information acquired during research and development by the employee belongs to the former employer and should not benefit competitors or others. However, in California, employees are free to quit and work for a competitor or even compete with the former employer.
Unfortunately, the benefit of the employee’s work during employment with the former employer may flow to the new employer. To prevent the new employer from benefiting from the employee’s work during employment with the former employer, employers require employees to sign an invention assignment agreement. The invention assignment agreement operates to assign over any inventions of employee to the former employer “even after termination of employment.”
This type of agreement may restrain an employee’s ability to find new work since future employers would be hesitant to hire the employee. California has a strong public policy favoring competition which is expressed in Business and Professions Code section 16600 voiding all contracts that restrains a person from practicing his or her profession or trade. The above agreement may be void under Business and Professions Code section 16600 since it may restrain the employee from seeking employment.
In contrast, California also recognizes the value of trade secret to an employer. Under California Uniform Trade Secret Act, California protects the trade secret information of employers. Accordingly, in certain instances the above invention assignment clause may be used to protect an employer’s trade secret information. As a result, the trade secret laws of California favoring the rights of employers may conflict with Business and Professions Code section 16600 favoring competition.
In Applied Materials, Inc. v Advanced Micro-Fabrication Equipment Co., 2007-5248 (N.D. Cal. May 20, 2009), Applied had employees sign an invention assignment clause. The invention assignment clause created a presumption that the invention was conceived of during employment if the ex-employee describes an invention in a patent application or discloses an invention to a third party within one year after termination of employment. The invention assignment clause then operated to assign the invention to Applied based on this presumption. The Court held that this invention assignment was too broad in that it assigned inventions to Applied even if the invention was not based on Applied’s trade secret or confidential information or even if it was conceived after termination of employment.
Moreover, the Court found that since the invention assignment clause is invalid under Business and Professions Code section 16600, Applied is also liable for unfair competition under Business and Professions Code section 17200 which includes any unlawful, unfair or fraudulent business act or practice.
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