Start-up tips : Employment Agreements – Intellectual Property Clause Simplified

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I thoroughly enjoyed the work, the adrenaline and the energy and I do know that entrepreneurs (like most individuals) are a little hesitant to engage lawyers and entrust them with their ideas. So I’m writing this post and hopefully few more along these lines, which will deal with general intellectual property basics.

When I think back to the time I joined my part time job, the first thing that I was thrilled about was the fact that I landed the job. I got an email from the owner stating the details of when I was to start, my responsibilities and the amount I would be paid, on the basis of which I started on the appropriate day. Everything was on trust – no contracts, no long winding ‘wherefore’, ‘hitherto’ and ‘whereas’ phrased agreements.

While the trust was very important, there was very little that could have stopped me from leaving the company with all their trade secrets, the intellectual property that someone had spent time and effort creating. (I know he’s remedied that with a thorough employment agreement though)

This brings me to the point of this post – the IP clause in the employment agreement;

I’ve reviewed several employment agreements, including ones where clients have taken sample agreements off the good old Internet. I am surprised by the number of start-ups who do not include an intellectual property clause or worse still have one that is applicable in another country (as a result of downloading a sample drafted elsewhere).

The intellectual property clause is generally a clause in the agreement, that defines, the intellectual property that can be created during the course of the employment and who would have the rights to that property. They also tie in with a clause that explains what amounts to confidential information and the rights of using that information after termination of the employment.

In short the following aspects need to covered

  • Defining what the Intellectual Property is
  • Defining the ownership of the IP
  • Rights of employee and employer
  • Use of the IP by both parties after the termination of employment

The reasons for incorporating such clauses are straightforward – making sure both parties are aware of what rights to they have during and once the employment is terminated.

Having the appropriate clause in employment agreement also helps settle disputes should they arise. The Delhi High Court recently granted an injunction against a company’s former employees who left with confidential data and started a similar business. The former employees left with certain confidential information along with the client database and started contacting the company’s clients. Since they had an IP Clause in their employment agreements that clearly defined that the IP belonged to the company, they were able to get an injunction against the former employees from using the information and contacting their clients at-least until the dispute was settled.

The IP clause may seem short and may form a relatively small portion of the employment agreement, but is incredibly important, and needs to be drafted according the business model of each start-up.

While the scenario of employees leaving with confidential information and IP may or may not happen, just consider Oliver Cromwell’s advice – “Put your trust in God, my boys, and keep your powder dry.”

Keep the powder dry!

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